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Iceland: Former PM Pleads Not Guilty to Gross Negligence Charges in Banking Crisis

(June 13, 2011) Geir Haarde, the former Prime Minister of Iceland, pleaded not guilty on June 7, 2011, to charges of gross negligence in connection with the collapse of the country's banking system in 2008. More specifically, Haarde is accused of “intentionally or grossly negligently failing to prevent the 2008 Icelandic financial crisis.” (Zach Zagger, Iceland Ex-PM Pleads Not Guilty to Charges over Role in Banking Collapse, PAPER CHASE NEWSBURST (June 7, 2011); Þingsályktun um málshöfðun gegn ráðherra [Resolution: The Legal Action Against the Minister] [in Icelandic], Althingi [Iceland's Parliament] website (Sept. 28, 2010).)

The trial proceedings are taking place in the Landsdomur, a special, 15-member court for criminal cases involving Cabinet ministers. The Althingi referred the case to the court in September 2010, after the release of a report by Special Investigation Commission (SIC). (Zagger, supra; Rupert Neate, Iceland's Former Premier Denies Criminal Negligence over Banking Crisis, GUARDIAN (June 7, 2011).)

The SIC, which was established by the Althingi in December 2008 to investigate the processes leading to the collapse of Iceland's three major banks, posited, among other findings in its report delivered to the Althingi on April 12, 2010, that:

On the basis of events and viewpoints that are described in more detail in individual chapters of this report, the SIC is of the opinion that Mr. Geir H. Haarde, then Prime Minister, Mr. Árni M. Mathiesen, then Minister of Finance, and Mr. Björgvin G. Sigurðsson, then Minister of Business Affairs, showed negligence, within the meaning of Article 1(1) of Act No 142/2008, during the time leading up to the collapse of the Icelandic banks, by omitting to respond in an appropriate fashion to the impending danger for the Icelandic economy that was caused by the deteriorating situation of the banks. (Chapter 2: Summary of the Report's Main Conclusions, SIC website (last visited June 9, 2011).)

The SIC found, more specifically, that Haarde and David Oddsson, former head of the Central Bank of Iceland (Seðlabanki Íslands), “knew that banks were assuming overseas debt but took no action to prevent or mitigate the effects of the accumulation.” In all, seven officials are charged with gross negligence; the other three include Financial Services Authority Director Jonas Jonsson and Central Bank officials Eirikur Gundason and Ingimundur Fridriksson. (Zagger, supra.)

The formation of the SIC was based on Act No.142/2008. The body included Supreme Court Judge Páll Hreinsson; Parliamentary Ombudsman of Iceland, Tryggvi Gunnarsson; and Sigríður Benediktsdóttir, of Yale University. (Report of the Special Investigation Commission (SIC), SIC website (last visited June 9, 2011); see also Constance Johnson, Iceland: Parliamentary Panel Blames Officials for Role in Financial Collapse, GLOBAL LEGAL MONITOR (Apr. 13, 2010).) Act No. 142/2008 is on the investigation of the causes of the crisis and the failures of Icelandic banks in 2008 and related events. (Lög um rannsókn á aðdraganda og orsökum falls íslensku bankanna 2008 og tengdraatburða (Dec. 18, 2008), Althingi website.)

Haarde is reportedly “the first world leader to face charges in relation to the global financial crisis.” He declared himself “innocent of all charges,” however, and stated “[t]his whole affair is a farce … instigated by three members of the current parliament who have now succeeded in holding the first political trial in the country's history.” (Rupert Neate, supra.) If convicted of the charges of failure to prevent the banking crisis and failure of carrying out his duty as Prime Minister to manage the fallout, he could be subject to two years of imprisonment. (Id.)