11
Media meddling
For a foreign-born Icelander like me, the fact that each neighborhood in this vast and beautiful land—whether in a hamlet or the one city—comes with its own public pool doesn’t stop feeling miraculous. Today I decide to go to Laugardalslaug, the big daddy of Reykjavík pools. This is just a few minutes’ drive from FME, and features not one but two Olympic-size lap pools, five hot tubs covering a range of temperatures, a giant water slide, and a steam room.
Mercifully, the 50-meter outdoor pool is low on British tourists today, and thus offers smooth right-hand traffic flow in the lap lanes. I swim for a kilometer. Then I hit the 36-degree hot tub, followed by the 38-degree massaging hot tub, then the steam room, a shower and a cooling dip back in the pool, then back to the hot massaging jets at 38 degrees. It’s a bit of a circuit I’ve developed over the years. I try to gather my thoughts on the investigation but find myself half in daydreams as I watch the thermal columns of steam rise into the evening air above.
I am also listening in on the political discussion in hot tub number two. That’s something to rejoice about, five years on. My command of the Icelandic language has improved enough to be able to understand what people are saying without having to concentrate. Here in this very same hot water I had some of my early conversations, after those first few months of intensive study.
The hour soaking in geothermal waters does its job and I drive home with a clear head. I know that the master list of transactions can wait: the most pressing thing for me now is to compile all the supporting evidence and write a full formal criminal referral describing the years-long buying and hiding of shares by Kaupþing management. A lot of work awaits before that document is drafted, reviewed and cleared by our lawyers, and greenlit by my boss. And then on to the members of the board of the regulator, who will hopefully rubber-stamp it.
The next morning, back at my desk, I put together the pieces of this referral for the prosecutor. A flow diagram showing the one-way trip that Kaupþing shares took from Nasdaq OMX, the Icelandic stock exchange, through the prop desk, the brokers, and out the back door to the British Virgin Islands. The beating heart of the case. On each time period, over many years, the numbers added up: whatever the prop desk had purchased on the open market to keep the price up, it sold over the fence to the brokers, and they sold the same number out to their increasingly exotic Caribbean client base. In addition to the flow of shares through the bank, we have to compile the org charts, the emails exchanged among the participants, and the daily reports of the buying prepared by the prop desk traders for the top two men in the bank, the Executive Chairman and CEO.33 Everything needs to be organized, described, and catalogued. I am learning from the inside why investigations like this one take so much time.
And I need help. My Icelandic may be good enough to throw politics around with the old dudes at the swimming pool, but still falls short of what’s needed for a 100-page formal criminal referral. Much to his chagrin, Binni gets pulled off his cases to help me draft the document. We spend the next weeks in countless hours of conference room discussions: formatting words, sentences, and paragraphs in the old Viking tongue. This report needs to be crystal clear for a successful prosecution, and I also don’t want the next set of investigators to waste time recreating discoveries we’ve already made. I accumulate all the data, charts, and facts, and write down bullet points in either English or Icelandic. I sit down at the end of each day with Binni and a young, driven lawyer, and together we re-draft everything formally. We go back and forth debating each section of the report: does it need to be here, can we say this? I want to make bold claims and use active voice. They push back on me, dialling every sentence back, using all the tools of Old Norse grammar and word choice to soften up responsibilities, to blur the line between cause and effect.
Around this time I come to realize something that really helps me understand Icelanders’ relationship to money: even the concept of money, as in cash money, is only about a generation old here. On a tour of the family farm where Hulda’s dad spent the summers of his youth, he proudly points out the dairy barn. He says that when he was working here in the 1960s, a milk truck would come from Húsavík, about 60 kilometers away over uneven gravel roads, every three days. The truck would pick up all the milk that had been collected from the cows on that period. But that lone milk truck also served as the principal link between this farm and the entirety of the great world beyond: if the family needed something for the farm, say a strap of leather, they would affix a paper note to the milk tankard stating their request. On its next milk run three days later, the truck would return with any goods they had ordered. And the account of the farm at the dairy would ostensibly be debited by the cost of the strap.
It’s a neat system, one that requires no paper scrip at all in order to function. When my father-in-law tells the story, he is clearly proud and a bit nostalgic for those times. But it also strikes me that this arrangement has a key disadvantage in that the farmers are ever at the mercy of the dairy as to the cost of the leather strap and everything else their farm requires. The good people at the dairy have no special expertise in procuring items such as these, and no incentive to look for the best price or quality. The remote farmers of Iceland—that is, the entire population of the Land for most of its existence—were for centuries at the losing end of a monopoly, first under the Danish king and later under merchants such as these. Is this why even today in Reykjavík comparison shopping for price is still so rare? Can it help to explain why Icelandic financiers made leveraged buyouts so fast they never seemed to haggle over the terms? And could the lack of cash in the historical economy of the Land explain why Icelanders during the boom seemed to go especially nuts about money?
One Thursday morning, Hulda and I are up earlier than usual to get out to the airport for a long weekend away. We feel very lucky that we get to take a break during this time; most of our friends with kids can’t afford these luxuries. Iceland has two tiny travel companies that compete to offer charter trips in the off-season to cities and winter ski destinations all over Europe. We picked the capital of Bohemia this time.
On our little brick stoop sits the morning paper, wrapped in plastic. I stuff it in my shoulder bag on the way out to the car. It will take about an hour to traverse the windswept lava plain between here and Keflavík International and we don’t want to be late.
Once we’ve reached the gate I remember about the newspaper. The whole top half of the front page is filled with the umpteenth photo of Iceland’s latest boondoggle, a poorly built artificial harbor in the south called Landeyjarhöfn. We receive a free subscription to this newspaper, Morgunblaðið—literally, ‘the morning paper’. The folksy name is deceptive, because it is also the mouthpiece of the most powerful political party, Sjálfstæðisflokkurinn. The current editor is none other than Davíð Oddsson, Godfather of this Independence Party. He was head of the central bank of Iceland during the crisis, and before that the same prime minister who oversaw the failed privatization of the state-owned banks. Now losing revenue to its competitors, Morgunblaðið has given us a free subscription in the hopes we will get hooked.
When I at last take the paper out of its bag and unfold it, my stomach lurches. The main headline reads: “FME Investigates Overarching Market Abuse by Banks”.34 The very short article summarizes the highly secretive work we’ve been conducting at the regulator, and doesn’t do a bad job of it. It states that Kaupþing and the other banks were systematically trying to influence the price of their own shares, and suspected of creating false demand for them on the market. It also mentions the shell companies used to hide the shares and the loans made only against the value of the shares themselves. All of this is pretty weird for me because within the regulator we work on these cases in deep secrecy. Very few FME employees know what we are looking at, apart from us investigators and the members of the board. The journalist must have been fed by someone on the inside. But who, knowing that it would be a violation of Icelandic law punishable by prison time? The article only mentions “sources of the newspaper”.
Knowing the how and the why of the leak does not really matter to me in the moment. Sitting in the waiting area, I see a way to finally share a bit of my work with Hulda. For her and for Icelanders in general, it is good to see that something is actually happening almost a year after the country came apart. For some of those within the banks, a lot of this is maybe old news. Certainly the ones who faced the regulator, the compliance and internal audit people, could guess what we were looking at from our requests. And the senior executives who carried out these schemes over many years had to understand them very well. But some of the activity was so compartmentalized few line employees at the banks had the chance to realize how big the fraud was, and perhaps we at the FME were the first ones to have a God’s-eye view and put the comprehensive story together. But now this journalist also has his teeth into it. And the rest of the country can for the first time get a taste of the extent to which the banks had duped them all.
“Here’s something you might want to read carefully,” I tell Hulda with a wink. She takes the newspaper from me, silently. She starts reading, making the face she makes when she studies something intently.
“Stop staring at me,” she says.
“Okay, babe.” I turn to the window to look at a plane pushing back from the gate and give her some space. The airport is not particularly busy at this time of morning—all the regular Europe flights have left—but there’s enough ramp action for me to keep my focus away from Hulda. The pale bright endless sky of Icelandic autumn fills the floor-to-ceiling windows of the terminal. Hopefully, we’ll get some warmer weather in Prague.
I’m both excited to share this article with Hulda and frustrated: it doesn’t name any of the people involved at the banks, some of them household names in the Land. I know that my fiancée will never ask me for more detail. Ever careful not to put me in the position of disclosing anything at all about my work, Hulda’s resolve amazes me. My lips burn with the secrets. It might be useful for Icelanders to know who put them in this quagmire.
“Okay, that seems like it might be pretty big,” she says when she’s done reading. “Don’t tell me more,” she adds before I can even open my mouth.
It takes a bit of time to get aboard the plane. Departure is noticeably late but nobody says anything. As we finally take our seats, Hulda opens her book to make sure I don’t bring up the topic again. Until it finds its way back to us by itself in a new surprising way at the other end of the flight.
While we’re waiting for our luggage in the shiny new Prague airport terminal, I spot Sigurjón, the former CEO of Landsbanki, standing across the luggage belt from us. I barely recognize him. Unshaven and wearing a white T-shirt that doesn’t cover all of his midriff, he looks heavier than before and, frankly, terrible. I’ve never seen him not wearing an expensive suit. I do what Icelanders do when they see someone they haven’t seen in a while: I avert my eyes. I grab our bags as they come around, and we wheel out of there.
Hulda and I last saw Sigurjón and his wife two years before, at the Landsbanki Investment Conference in Madrid. How much has changed since then!
“Did you see who that was?” I say under my breath.
“Yes, he was trying to catch your eye, he remembered you!” Hulda says.
“Hulda, we’re gonna put that guy in the slammer,” I blurt out before I can stop myself.
“I don’t want to know about it,” she says. We look for our hotel shuttle.
Thankfully Prague keeps us busy enough to let me forget about criminal manipulation of share prices for a few days, a break I really need. Exploring it is like walking around a living medieval castle the size of a whole city. I lived here briefly but it’s the first time for Hulda, and I am really happy to show her around town. We eschew the Icelandic-speaking guide and I take her on my own tour. Some of my favorite spots are still here, nearly 15 years after my first visit. It is with a big smile that I watch my love taste her first sweet, dark Czech beer and later say, “Let’s just have one last beer in this little place.” A weekend of color isn’t nearly long enough away from the black and white of Iceland, but we are very grateful to be out and about at all.
On Sunday night I find a link with a translation of the article into English. I send it to my parents in Boston. It feels good to share it with them too. “When are the convictions coming?” asks my dad.
Notes
33 There is at least one cultural consideration that might have played into the ease with which the top management of Kaupthing was able to carry off this scheme for so long.
Icelanders can have a very reverent attitude toward management, and perhaps this comes from centuries of domination by the Danes. The Danish ruled Iceland with an iron fist, allowing only products of inferior quality to be traded in exchange for the best fish and wool the Icelanders could produce. Icelanders resent the Danes for this brutal history, but today also exhibit a kind of Stockholm syndrome, as Denmark is often the first choice for educational opportunities, summer holidays, and living. And Danish tourists still come to Iceland and bark at others on the street in Danish, expecting to be understood and obeyed.
Inside organisations, some Icelanders view management as all-powerful. They tend to view the management hierarchy as a command structure: ‘If my boss tells me to do something, I have to do it.’ This attitude surprised me when I moved to Iceland, after the more collaborative environments I was used to in the United States. But another strange feature of this attitude is that in general Icelanders do not view responsibility as accruing to the management, as I learned in my lunchtime conversation with the FME lawyers.
In Icelandic work culture, the fact of a manager asking a direct report to do something is often taken as enough. The more senior the manager, the more imperative it is to follow his exact instructions, even if those instructions go against the best interests of the organization.
Contrast this with Wall Street culture, which (say what you will about its overall ethics) at least is not anymore a place where senior management can command junior personnel to send cash offshore, no questions asked. I ran this scenario past a former colleague at a major Wall Street firm, when I first saw evidence of bank employees entering naked money wires in Iceland, and he confirmed for me that in his bank, the more senior the request, the more it would be considered odd and flagged for review. Legitimate money wires arise automatically out of normal daily business overseen by line employees; someone senior commanding a junior employee to move cash does not arise in the normal course of business.