Icesave Dispute - Freezing of Assets in The UK

Freezing of Assets in The UK

Once the Icesave dispute had got under way, it became clear that there had been several high-level contacts between the British and Icelandic governments in the weeks (and even months) before Landsbanki's collapse. British Prime Minister Gordon Brown met with his Icelandic counterpart Geir Haarde in London on 24 April 2008, where Iceland's economic problems were supposedly discussed. The British Chancellor of the Exchequer Alistair Darling had met with Icelandic Minister of Trade Björgvin G. Sigurðsson in September to discuss the problems of Icelandic-owned banks operating in the UK. It has been suggested that the UK Financial Services Authority (FSA) had agreed to take Icesave deposits under the UK Financial Services Compensation Scheme (FSCS) in return for a liquidity deposit of £200 million (€240 million): British newspaper The Independent reported that the requested liquidity deposit might have been as high as 50 percent of retail deposits (some ten-times higher), a figure which would have paralysed Landsbanki's retail operations in London. The UK FSA and Treasury have denied that there was such an agreement

Officials from the UK Treasury were in Reykjavík over the weekend of 4–5 October discussing the position of the Icelandic-owned banks operating in the UK, after Glitnir had failed to repay British wholesale depositors on Friday 3 October. The result of the meeting was a letter on behalf of the Icelandic Minister for Business Affairs stating that "f needed the Icelandic Government will support the Depositors' and Investors' Guarantee Fund in raising the necessary funds, so that the Fund would be able to meet the minimum compensation limits in the event of a failure of Landsbanki and its UK branch."

On the afternoon of 7 October, after Landsbanki had been placed into receivership but before Davíð Oddsson's television appearance, the UK Chancellor had a telephone conversation with his Icelandic counterpart Finance Minister Árni Mathiesen in which the question of deposit insurance was raised:

On 8 October, Alistair Darling announced that he was taking steps to freeze the assets of Landsbanki in the UK. Under the Landsbanki Freezing Order 2008, passed at 10 a.m. on 8 October 2008 to come into force ten minutes later, the Treasury went on to freeze the assets of Landsbanki and assets belonging to the Central Bank of Iceland, and the Government of Iceland relating to Landsbanki. The freezing order took advantage of provisions in Part 2 of the Anti-terrorism, Crime and Security Act 2001, and was made "because the Treasury believed that action to the detriment of the UK's economy (or part of it) had been or was likely to be taken by certain persons who are the government of or resident of a country or territory outside the UK." UK Prime Minister Gordon Brown announced that the UK government would launch legal action against Iceland. It was too late, however, as much of the assets had been transferred to Iceland or to off-shore accounts.

The Landsbanki Freezing Order was the first time that the UK government had used its powers to impose unilateral financial sanctions since those powers were revised in 2001. Such unilateral sanctions have never been common, but the previous version of these powers (section 2, Emergency Laws (Re-enactments and Repeals) Act 1964) had been used against Rhodesia after its Unilateral Declaration of Independence in 1965, and against Argentina during the Falklands war in 1982. The powers themselves date from the Defence (General) Regulations 1939.