For years before its 2008 collapse, Kaupthing and the country’s other major banks had frequently pursued expansion plans abroad, yet by the time they went into administration, they had crippled the country’s economy.
In the weeks prior to Iceland’s three largest banks collapsing under massive debt in late 2008, Kaupthing proclaimed that Sheikh Mohammed Bin Khalifa Bin Hamad al Thani of Qatar had purchased a 5% stake in the bank in a move of confidence.
Yet a parliamentary commission issued later claimed these shares had been purchased using a Kaupthing loan, in order to deceive the market.
According to media in Iceland, the deal was completed as follows:
- First, a loan was deposited from Kaupthing bank into British Virgin Islands shell companies.
- From there, the money was transferred to Choice, based in Cyprus, which was owned by Olafur Olafsson, Sheikh al Thani and the latter’s adviser.
- The money was then relocated to the al Thani-owned Q Iceland Finance.
- Finally, the cash was then used to pay for the Kaupthing shares.
Olafur Thor Hauksson, the case’s Special Prosecutor, said these loans were purely intended to boost Kaupthing’s shares.
He argued during the trail that those accused has deceived the market by indicating al Thani’s own funds had financed the deal.
Sheikh al Thani was not present in court and did not testify, but a statement he gave to the prosecutors outlined his ignorance of any direct link between Olafsson and the deal.
Al Thani’s lawyers said al Thani saw himself as a deceived party.
On Thursday, Kaupthing’s former CEO Hreidar Mar Sigurdsson was sentenced to five and a half years in prison by a Reykjavik district court.
Former chairman Sigurdur Einarsson was given five years, former Kaupthing Luxembourg CEO Magnus Gudmundsson three years, and Olafur Olafsson – at the time, the bank’s second biggest shareholder – received a three and a half year sentence.
These are by far the heaviest such sentences for financial fraud in the country’s history.
Whilst none of the concerned parties were present on Thursday, it is predicted that they will appeal the ruling.
Hauksson, the prosecutor, has stated the deal had greatly swayed Kaupthing’s share price and that the loans were illegal.
He also told the BBC there was yet another, even larger case against the bank, in which it will stand accused of manipulating the market.
This trail is due to begin in January 2014.