Icelandic Bankers Convicted in Vafningur Case

News

Icelandic Bankers Convicted in Vafningur Case

Reykjavík District Court sentenced former CEO of Glitnir Lárus Welding and the bank’s former company division manager Guðmundur Hjaltason to nine months in prison on Friday for breach of trust in the Vafningur case. Six months thereof are suspended.

glitnir-headq_ipa
Glitnir's (now Íslandsbanki's) headquarters. Photo copyright Icelandic Photo Agency.

Prosecutor Hólmsteinn Gauti Sigurðsson had requested a much longer sentence: five and a half years for Lárus and five years for Guðmundur, Fréttablaðið reports.

The pair were charged for having given Milestone an illegal ISK 10 billion (USD 79 million, EUR 59 million at today’s exchange rate) loan in February 2008, thereby jeopardizing Glitnir’s finances.

They argued that they had never agreed to granting the loan to Milestone—it was supposed to go to Vafningur but someone within the bank decided at the last minute to switch recipients.

The jury concluded that Lárus and Guðmundur were not able to credibly explain why their signatures could be found on an informal request for a loan, which usually does not have to be signed by the bank’s chief executives and that it is “absurd” that their subordinates would decide on their own to grant the loan to Milestone instead of Vafningur.

The defendants were therefore found to have acted outside their scope of authority and abused their position in agreeing to the illegal loan, exceeding the bank’s maximum risk exposure towards Milestone by ISK 4 billion.

However, the jury reasoned that the damage caused by the loan is overestimated in the charge and confuses the loan to Milestone with an equally high loan to Vafningur granted three days later, used to repay the original loan.

It was not satisfactory explained that the defendants caused financial damage to the bank with the illegal ISK 10 billion loan to Milestone even though the loan to Vafningur—for which they were not charged—remains unpaid, the verdict stated.

The length of the sentence was among other factors determined by the defendants’ intent not to achieve personal gain with their actions but rather to serve the financial interests of Glitnir and the Icelandic financial system.

Both the prosecutor and Lárus’s and Guðmundur’s attorneys asked for an extension to decide whether to appeal the verdict.

Click here to read more about the Vafningur case.

ESA