Just like Iceland, its jail too is in a pretty picturesque place.
Kviabryggja Prison in western Iceland doesn’t need walls, razor wire, or guard towers to keep the convicts inside. Alone on a wind-swept cape, the old farmhouse is bound by the frigid North Atlantic on one side and fields of snow-covered lava rock on another. To the east looms Snaefellsjokull, a dormant volcano blanketed by a glacier. There’s only one road back to civilization.
This is where the world’s only bank chiefs imprisoned in connection with the 2008 financial crisis are serving their sentences, Bloomberg Markets magazine reports in its forthcoming issue. Kviabryggja is home to Sigurdur Einarsson, Kaupthing Bank’s onetime chairman, and Hreidar Mar Sigurdsson, the bank’s former chief executive officer, who were convicted of market manipulation and fraud shortly before the collapse of what was then Iceland’s No. 1 lender. They spend their days doing laundry, working out in the jailhouse gym, and browsing the Internet. They and two associates incarcerated here—Magnus Gudmundsson, the ex-CEO of Kaupthing’s Luxembourg unit, and Olafur Olafsson, the No. 2 stockholder in the bank at the time of its demise—can even take walks outside, like Kviabryggja’s 19 other inmates, all of whom were convicted of nonviolent crimes.
It may not be hard time, but it’s a far cry from the giddy days when the Kaupthing bankers hosted parties for clients aboard yachts in Monte Carlo and hired the likes of pop legend Tom Jones to serenade guests at London galas. In sentencing these financiers to serve terms of up to 5½ years, the Icelandic courts have done something authorities in the world’s two great banking capitals, New York and London, haven’t: They’ve made bankers answer for the crimes of the crash. “The Icelandic banks went overboard,” says Olafur Hauksson, the onetime small-town police chief who in January 2009 was appointed special prosecutor to investigate the banking cases. “They were basically bankrupt.”
Hauksson is still at it. In March his office indicted five others for market manipulation and fraud, including Larus Welding, former CEO of Glitnir Bank. In all, there have been 26 convictions of bankers and financiers since 2010. Welding declined to comment.
NO other country has sent banksters to jail:
In contrast to the Icelandic saga, no bank CEOs in the U.S. or the U.K. have been convicted for their roles in the subprime mortgage crackup and related disasters. Bringing white-collar criminal cases may be easier in Iceland because courts don’t use juries. Rather, they employ neutral experts to help judges understand the intricacies of finance. In Britain’s highest-profile case stemming from the crash, the country’s Serious Fraud Office investigated London-based real estate magnates Vincent and Robert Tchenguiz in connection with their business dealings with Kaupthing. The brothers were never charged, and in 2014 the SFO even had to pay them £4.5 million ($6.4 million) in damages to settle their claims of malicious prosecution.
For its part, the U.S. Department of Justice has refrained from prosecuting individual bankers after a Brooklyn, N.Y., jury in 2009 acquitted two former hedge fund managers at Bear Stearns accused of securities fraud. “Washington wasn’t willing to take the risk of another stinging defeat, so they slowed down a host of other prosecutions,” says John Coffee, a professor of securities law at Columbia in New York.
In 2013 then-U.S. Attorney General Eric Holder told Congress that Wall Street banks are so big that prosecuting them might harm the economy. He later stressed no institution is above the law. Some watch-dogs are appalled the feds chose only to extract big civil fines from institutions. “There’s no justification over what appears to be a lack of effort to identify individuals engaged in misconduct and to bring charges,” says Phil Angelides, chairman of the Financial Crisis Inquiry Commission, a bipartisan panel established by Congress. “It sends a signal that if you do wrong on Wall Street, there’s really no consequences. That’s bred cynicism about the justice system, and it’s bred anger.”
While Iceland’s leaders have meted out justice by jailing financiers, they still have work to do to repair the damage wrought by the crash. “The politicians did fail,” says sociology professor Olafsson. “They allowed this thing to happen, all the excesses and the greed and the debt accumulation. Something broke in terms of trust.”
Back at Kviabryggja Prison, the tumult in the capital seems worlds away. It’s dead quiet around the single-story barracks, and in the distance rise massifs that form Iceland’s western fjords. The Kaupthing convicts are marking time in different ways. A couple of them are tutoring fellow inmates. The subjects: math and economics.