A Letter from the Board of Samherji to The Supervisory Board of the Central Bank

With this letter, the Board of Directors of Samherji hf.,  on behalf of the company and associated parties (jointly referred to as Samherji), requests that the Supervisory Board of the Central Bank of Iceland launch an inquiry into the administrative practices of the bank, its Board of Directors and other members of staff, with regard to currency controls, with particular reference to search of premises, investigation, communication, charges and media coverage, as handled by the Central Bank (referred to as the Central Bank or the bank) with regard to matters relating to Samherji.

This request is submitted with reference to the provisions of Act No. 36/2001 on the Central Bank of Iceland,  Article 28 of which stipulates that the bank’s Supervisory Board shall ensure that the bank operates in accordance with the laws governing its activities.

It must be regarded as beyond all doubt that this stipulation comprises a wide-ranging obligation to ensure that the administration of the Central Bank complies with the law of the land in the execution of its duties and adheres to the provisions embodied in the Administrative Procedures Act as well as in other aspects of the law.

The circumstances of the case are well known and have been described in detail in the accompanying claim, presented to the courts last year, cf. Appendix 1. In this claim the legal aspects, as they appear to Samherji and associates, are also outlined. It should be mentioned that the case in question was directed towards the Office of Special Prosecutor, requesting that documents be released. As for the aspects of the case relating to the bank’s Supervisory Board, it is stated in the premises on which the district court based its conclusion, upheld by the Supreme Court, that the police can make use of documents in their possession "even though these may have been procured without adhering to the provisions of law regarding the acquisition of evidence in public court cases." Despite the courts’ refusal to release the documentation at the time in question, this part of the courts’ legal argument suggests that the investigation of the case may have been flawed from the beginning.

In addition to the items described in Appendix 1 we feel the attention of the Supervisory Board should be drawn to the following points, some of which have only recently been revealed. 

• On several occasions, when Samherji and other associated parties have sought redress before the courts, or requested further information, it has been found that the Central Bank has "omitted handing over" certain documentation, cf. Appendices 2 and 3. 
• In 2012 Samherji referred to the Right to Information Committee the Central Bank’s refusal of access to information regarding the recipients of news bulletins on the search of premises, distributed by the bank. During the proceedings of this case, the bank provided data on the number of recipients and the ratio of Icelandic email addresses. Recently Samherji requested additional particulars relating to recipients abroad. As a result of this request, it was discovered that the details the bank had supplied to Samherji and the Right to Information Committee were wrong in every respect, cf. Appendix 4.
• On 10 April 2013 the Central Bank submitted a complaint to the Office of Special Prosecutor against the company Ice Fresh Seafood ehf., regarding an infringement of surrender requirement. The bank’s special report on the alleged infringement stated that the total surrender requirement during the period under investigation amounted to ISK 74,030,562,990. The concluding chapter of the report, cf. Appendix 5, indicates that the bank considers Ice Fresh Seafood ehf. to have surrendered to Iceland 100.49% of the foreign currency due to be handed over, or ISK 365,660,109 in excess of the surrender requirement.  Nevertheless, the bank initiated legal proceedings against the company for having neglected to surrender to Iceland a total of ISK 70,195,824.
• On 9 September 2013, the day when news reports stated that the Office of Special Prosecutor had, on 28 August 2013, returned to the bank a case against Samherji and other legal entities, the bank issued a renewed complaint regarding the same alleged infringements; this time, however, the charge was directed against specified individuals. The preparation for this charge and its formulation was conducted without the bank being in possession of any evidence, since all relevant documentation was still held by the Office of Special prosecutor.  This was confirmed by the Office of Special Prosecutor in a statement to the district court in Case No. 469/2014. It would appear, therefore, that the Central Bank’s investigation and transfer of the charge to specific individuals took place over a short time and without the bank having access to relevant documentation.
• Appearing on the Eyjan television programme 13 September 2015, the Governor of the Central Bank argued that this "made a significant difference since many of those infringements are of such a nature that they cannot be assigned to individuals. It is the companies that are in breach of the law." The Governor reiterated this point of view in an interview with the newspaper Morgunblaðið on 14 September 2015.
• In light of this it is a matter of particular interest that the Governor of the Central Bank, despite this knowledge and after the Office of Special Prosecutor rejected the charge against Samherji and associated companies, has decided to assign the allegations to specific individuals within Samherji and file charges against them before the Office of Special Prosecutor.
• The Central Bank and its Governor have reiterated in the media that "a legal blunder" is to blame for the fact that the Office of Special Prosecutor has dismissed several currency related cases initiated by the Central Bank, including those against the Samherji management. In this context, it should be pointed out that during the period leading up to provisions of Central Bank regulations being incorporated in foreign currency legislation in 2011, the bank twice submitted formal reports to the Icelandic Parliament. The bank’s report dated 24 May 2011, cf. Appendix 6 states, among other things: "This parliamentary bill was composed in consultation with the Central Bank, since the bank has, up to this time, formulated regulations on foreign currency exchange and published them with the endorsement of the minister for economy and commerce". In the bank’s report dated 7 September 2011, cf. Appendix 7, it was reiterated that the bank’s earlier statement had indicated the bank’s involvement in finalising the parliamentary bill. In its report, the bank emphasised, furthermore, the need for a sufficiently solid legal background in support of the capital controls and relevant penal mandate. The report states, verbatim: "It is conceivable that pedantic aspects of the legalisation of current currency regulations can be reduced without detracting from legal validity and penal mandate which may require a more solid foundation with a view to the fact that the legal authority is of significantly longer duration than previously". The latter report is endorsed by the bank’s Governor himself. The Central Bank was involved in amendments to foreign currency legislation and issued relevant regulations before the bank decided to launch a search of premises and subsequently submit a charge to the police against Samherji and associates. At that time, the bank was specifically concerned with the legal validity and punitive scope of the legislation. In light of this, the bank’s aim in making its current statements is incomprehensible.
• It is worth pointing out, furthermore, that the Governor of the Central Bank has made inconsistent declarations as to who was responsible for the search of premises belonging to Samherji and associates. On the television programme Eyjan, 13 September the Governor attempted to wash his hands of the house search, stating: "It was, however, the Special Prosecutor who conducted the search of premises and summoned the police and other authorities to the scene". The bank’s Supervisory Board may be familiar with the news bulletin published on the bank’s website on the day the search was conducted, cf. Appendix 8 where it is specifically stated that the search of premises is carried out by the Capital Controls Division of the Central Bank. The news bulletin states, verbatim: "The Capital Controls Division of the Central Bank of Iceland, assisted by the Office of Special Prosecutor, this morning conducted a search of premises at the work stations of Samherji hf. In Reykjavík and in Akureyri. The operation is carried out with reference to the statutory investigative role of the Central Bank of Iceland on the basis of the Foreign Exchange Act No. 87/1992, due to a suspected infringement of the provisions of this Act."  Furthermore, the bank’s requests to other authorities indicate that they were seen by the bank as merely acting in a supportive capacity, cf. Appendices 9-10. Thus, from the beginning, the Central Bank appears to have been prepared to accept the honour of assuming a leading role in the search of premises. Today, however, when the case has been dismissed by the Office of Special Prosecutor, the bank shies away from responsibility.

Finally it seems right and proper to point out the Governor´s inappropriate reaction and comments in the wake of the dismissal of the case by the Special Prosecutor.  The Prosecutor’s office based its conclusion on the fact that an investigation lasting two years had failed to reveal evidence of a punishable offence, and consequently launching any form of criminal proceedings was out of the question. Despite the unambiguous conclusion by the Office of Special Prosecutor that evidence and circumstances relating to the case showed no signs of penal responsibility, the Governor of the Central Bank appears to be making a public declaration of the guilt of parties to the Samherji case, for example in the newspaper Morgunblaðið 14 September 2015 by stating that they "escape because of a legal blunder".

It is the assessment of the Samherji Board of Directors that this case has revealed serious flaws in the administration and operation of the Central Bank, as well as in the position of the bank’s Governor himself, in matters relating to foreign currency.

It cannot be determined here, however, whether the failure lies in the bank’s violations of the laws and regulations that apply to its operation or in the legal framework which is supposed to regulate the bank and guide it towards good administrative practices

Nevertheless this matter elucidates the urgent need for a detailed examination of the administrative practices of the bank and its Governor in matters relating to foreign currency, as well as the supervision of those practices. It is our request, as has already been made clear, that the Supervisory Board of the Central Bank take charge of this matter.

Samherji’s staff have at all times been prepared to provide explanations to the Central Bank with regard to controversial issues which have arisen. This has worked out well and those problems have been solved. In the event that the Central Bank still feels that some matters relating to Samherji remain unsolved, it would be highly preferable that the bank disclose which those outstanding issues may be, in its estimation. Thus, outstanding problems could be clarified and potential conflicts resolved, after discussion between the parties concerned. Samherji is prepared to attend any meetings that may be required to deal with such issues. 

Respectfully,

The Board of Directors of Samherji hf.

Eiríkur S. Jóhannsson, Chairman

Helga Steinunn Guðmundsdóttir                                                         Kristján Vilhelmsson

Óskar Magnússon                                                                               Sigrún Björk Jakobsdóttir

 Appendices:

1. Claim by Samherji hf. and others submitted to the Reykjavík District Court, dated 12 March 2014.
2. Letter from the Central Bank to Garðar G. Gíslason, district court attorney, dated 24 January 2014.
3. Email from Rannveig Júníusdóttir to Garðar G. Gíslason, district court attorney, dated 18 June 2014.
4. Letter from the Central Bank to Garðar G. Gíslason, district court attorney, dated 10 September 2015.
5. Part of report by the Central Bank regarding surrender requirement of Ice Fresh Seafood ehf., dated 10 April 2013.
6. Report by the Central Bank of Iceland on parliamentary bill regarding foreign currency and customs duty legislation, dated 24 May 2011.
7. Report by the Central Bank of Iceland on parliamentary bill regarding foreign currency and customs duty legislation, dated 7 September 2011.
8. Screenshot of a news bulletin on the website of the Central Bank No. 13/2012, dated 27 March 2012.
9. Letter from the Central Bank of Iceland to the Office of Special Prosecutor requesting assistance in search of premises, dated 21 March 2012.
10. Letter from the Central Bank of Iceland to the Directorate of Customs requesting assistance in search of premises, dated 23 March 2012.

A PDF copy of the orginal letter here