Britain to sue Iceland over frozen funds

By Christopher Hope, James Kirkup, and Jon Swaine
The Telegraph, London
Thursday, October 9, 2008

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3167190...

Gordon Brown has described the behaviour of the Icelandic government following the bank collapses as "totally unacceptable," adding that the Government was considering legal action.

The Prime Minister is furious that 300,000 bank customers are blocked from accessing deposits in online bank Icesave.

There are also concerns that councils and police authorities might not be able to retrieve nearly £900m of taxpayers' money which is stranded in Icelandic bank accounts.

Mr Brown told a press conference: "We are taking legal action against the Icelandic authorities. We are showing by our action that we stand by people who save."

Alistair Darling, Chancellor of the Exchequer, added: "The Icelandic government, believe it or not, have told me yesterday they have no intention of honouring their obligations here."

The Treasury said in a statement that it had frozen the assets of Landsbanki, Iceland's second-largest bank, until the future of the business and UK creditors "becomes clearer."

However, the Treasury confirmed that "all retail depositors in the Icelandic banks of Landsbanki (including their "Icesave" products), Heritable, and Kaupthing Singer and Friedlander will receive their money in full".

Crucially this guarantee does not extend to wholesale deposits made by local authorities.

Local authorities across the country are massively exposed to the country's biggest three banks -- Glitnir, Landsbanki and Kaupthing -- which have all collapsed as independent businesses in recent days.

In a joint statement from the Government and the Local Government Association said councils facing "severe" difficulties after investing in collapsed Icelandic banks will receive "appropriate" assistance.

The Local Government Association said 108 councils had deposited L798.95 million in Icelandic banks. The umbrella organisation London Councils said it believes public authorities in the capital alone stand to lose about L200 million.

In addition the Association of Police Authorities said 15 of its members were exposed had L95.72 million at risk.

The LGA's chairman Margaret Eaton called on Mr Darling to extend the individual depositor savings guarantee to councils.

"The LGA calls on the government to extend to local authorities, who have prudently managed council tax payers' money, the same assurances that money ... will be fully protected," she said.

Boris Johnson, the mayor of London, said he was in contact with the Treasury over the situation and that he was determined to recover the money.

"That is a question for us and, together with the rest of London's authorities, we are looking to see what redress we can find," Mr Johnson said.

Eric Pickles, the Tory local government spokesman, said that the Government should act to preserve public authority investments as well.

"Local government finances are now at risk," he said. "The Government needs to stop dithering and clear up this uncertainty," Mr Pickles said.

He warned that if the investments could not be recovered, residents could face council tax increases or cuts in local services.

* * *

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at http://www.gata.org/.