In this three-part series, Hannes Gissurarson argues that the impeachment of Geir H. Haarde, Iceland’s prime minister (2006-2009) and leader of the centre-right Independence Party, for negligence in the period leading up to the 2008 bank collapse was a scandalous travesty of justice. Read Part I: Political Machinations and Legal Manoeuvres here and Part II: A Flawed and Biased Process here.
Three Judges With a Financial Interest
In late 2011, the law on the Supreme Court was, at its own initiative, changed in such a way that its president was to be chosen for five years. Previously the presidency had rotated between the judges on the basis of seniority on the Court, each president serving two years. The most influential judge, Markus Sigurbjornsson, was subsequently chosen president for the next five years, 2012–2017. Thus, he automatically became president of the Impeachment Court. But more than four years after the trial, in December 2016, a leak to the media revealed that Sigurbjornsson and two other judges on the Impeachment Court, the aforementioned Eirikur Tomasson and Vidar M. Matthiasson, had suffered significant losses as a result of their ownership of shares in the fallen banks and of investments in the banks’ money market funds (in total more than €500,000 at 2022 prices). Thereupon, some bankers who had been convicted by tribunals in which these three judges sat, applied to the ECHR, European Court of Human Rights, arguing that their right to be fairly heard by an independent and impartial tribunal, under the European Convention for the Protection of Human Rights, had been violated. The ECHR ruled in their favour. It found that if a judge had held a substantial amount of shares in a bank he should have disqualified himself or herself from hearing a case where that bank was involved. Accordingly, several cases were settled with the Icelandic state paying non-pecuniary damages to the applicants as well as legal costs.
In the case against Haarde there were more reasons to doubt the impartiality of the judges than in the cases against those bankers: 1) The three judges who had been bank shareholders or money market investors had incurred greater losses than the average Icelandic citizen, and therefore their anger at the collapse could be expected to be more specific and stronger than that of the Icelandic public. 2) Haarde had chosen not to attempt a bail out of the banks, for example by the Treasury getting a large loan abroad, as some advised, putting them instead into resolution which meant that shareholders lost all the money they had invested in the banks. By giving depositors priority claims to the banks’ assets, investors in money market funds lost some money as well. Both Markus Sigurbjornsson and Eirikur Tomasson (on behalf of the Society which he managed) had invested in money market funds. And 3) The three judges had mainly invested in Landsbanki and Glitnir, whereas in the initial stages of the bank collapse the CBI had, advised by Haarde, tried to save Kaupthing alone by giving it a large emergency loan. Although ultimately this rescue attempt failed, shareholders in Landsbanki and Glitnir may have held a grudge against Haarde because of this. But even in the unlikely event that Sigurbjornsson and Matthiasson could be regarded as competent to hear Haarde’s case despite their financial entanglements, Tomasson was beyond doubt not competent as a judge in the case, which means that the whole process should have been invalidated, although this was not known at the time and therefore not done.
Legal manoeuvres
The Impeachment Court held hearings in the case against Geir H. Haarde in March 2012. One witness after another testified that the specific charges against Haarde in the prosecutor’s indictment could not be substantiated. They stated that the operations of a working group on financial stability had been as effective as could have been reasonably expected; that in 2008 it was impractical and well-nigh impossible to reduce the banking sector by selling assets or by moving one of the major banks to another country; and that Haarde as Prime Minister had had no authority to transfer Landsbanki’s Icesave accounts in Great Britain from a branch to a subsidiary, as it was an issue between Landsbanki and the British FSA. Furthermore, six government ministers as well as the cabinet secretary testified that it was a long-standing and uncontested practice that some important government matters were resolved outside formal cabinet meetings, and that some sensitive issues, while discussed at formal cabinet meetings, were not mentioned in minutes. Again, those ministers who had served in Haarde’s government all testified that the problems of the banks had often been discussed at cabinet meetings. The only witness to testify against Haarde was the leader of the Left Greens, Steingrimur J. Sigfusson, now a government minister. He asserted that the conditions of an agreement which Iceland had in May 2008 made with the three Scandinavian countries had not been fulfilled, whereupon Haarde’s counsel stood up, walked to him where he sat in the witness box and showed him what was not an agreement, but a declaration signed by three Icelandic government ministers, made in order to facilitate a currency swap deal between the CBI and the three Scandinavian central banks. Sigfusson had to admit that this was a declaration, not an agreement. Then the counsel showed him two CBI reports sent to the Scandinavian central banks about steps to fulfil the conditions listed in the declaration. Apparently, Sigfusson had been unaware of those reports.
The Impeachment Court delivered its verdict in April 2012. It unanimously acquitted Haarde of the first three charges, as it concluded that the evidence presented had made clear that Haarde could not have prevented the bank collapse. Nevertheless, ten of the fifteen judges criticised Haarde in their opinion for not having responded adequately to all the warnings he had received about the impending danger. The minority, five judges (including Supreme Court judges Gardar Gislason and Benedikt Bogason), argued that the prosecutor had simply not proven her case about the working group on financial stability, or about the reduction of the banking sector, or about the transfer of Landsbanki’s Icesave accounts to a subsidiary. There had been different opinions and conflicting signals on the danger to the banks, until late in September 2008. Moreover, the government had neither had the power nor the means to prevent the bank collapse. Therefore, Prime Minister Haarde was not guilty of any criminal negligence and should be acquitted without the criticisms expressed in the majority opinion. The dissenting opinion of the minority was based strictly on the law, leaving out the political considerations found in the majority opinion. Perhaps the main flaw in the majority opinion was its failure to distinguish between two kinds of danger. One kind of danger is that of earthquakes, volcanic eruptions, epidemics, severe storms, floods, and traffic accidents. It can certainly be useful to discuss such dangers because it encourages people to prepare for them, in order to reduce their impact. Another kind of danger is that of bank runs in a fractional reserve banking system. This is a system based on trust, and if for some reason that trust is eroded, banks become vulnerable. Therefore, central banks have the task of providing immediate liquidity to commercial banks when necessary. It is certainly less than useful to discuss such a danger: in fact, it increases it. Bank failure may become a self-fulfilling prophecy. Thus, it was prudent of Haarde to try not to send any signals to the international financial markets that the Icelandic banks were in serious trouble.
Convicted on a Trivial Issue
In the Impeachment Court, Haarde was only convicted by a majority of nine judges on a trivial issue, for not having formally put the problems of the banks on the agenda of cabinet meetings, whereas the minority of six judges wanted to acquit him on that count. Although one of the lay judges had concurred with the majority in acquitting Haarde of the first three charges while criticising him for his alleged lack of action, she concurred with the minority that Haarde should be acquitted of the fourth charge, on the cabinet meetings. The constitutional stipulation on these meetings was, as the minority of six judges emphasised, introduced in 1920. It had its origin in the peculiar situation between 1918 and 1944 when Iceland was a kingdom in a personal union with the Danish king who resided in Copenhagen. Once or twice a year, the Icelandic prime minister went to Copenhagen to hold a Council of State with the King, presenting the documents which needed formal royal approval. As he was not only presenting cases belonging to his own ministry, but also those of his colleagues, their agreement had to be formally established. Therefore, it was stipulated that important government matters had to be discussed at cabinet meetings, by which was meant, as was expressly recognised at the time, matters which the minister attending the Council of State would be presenting to the King. Otherwise the stipulation would hardly have made sense: it should normally not be necessary to put in writing a requirement for the discussion of important matters at cabinet meetings. Significantly, while the Icelandic Constitution was more or less an adaptation of the Danish Constitution, there was no corresponding stipulation in the latter one. When Iceland became a republic in 1944, this constitutional stipulation was retained which meant, the minority argued, that important government matters now referred to matters which needed the approval of Iceland’s President in the Council of State. The majority maintained, however, that this had somehow turned into a general and unambiguous requirement which Haarde had not fulfilled. It was nonetheless admitted by the majority that if Haarde had just put the problems of the banks on the agenda of cabinet meetings or had had them mentioned in the minutes, the Court would have had to acquit him of this charge. Haarde was not given any punishment, and the state was ordered to bear all legal costs.
There were serious flaws in the legal arguments of the majority. It did not provide any answer to the question when and how the constitutional stipulation to discuss important government matters at cabinet meetings should have changed its meaning: in 1920 it had been an unambiguous obligation to put on the agenda of those meetings matters subsequently to be presented in the Council of State, whereas in 2012 it had somehow become a wide-ranging obligation of the prime minister (and apparently the prime minister alone) to put all important government matters on the agenda of those meetings. When did matters become government matters and when did they become so important that they had to be brought up at cabinet meetings? For example, when Haarde received warnings in February 2008 that in the ongoing international credit crunch the banks would have problems financing themselves, it was by no means certain that they would fail. Arguably the bank collapse only became almost inevitable after the US Fed refused on 24 September 2008 to provide the same liquidity assistance (through dollar swap deals) to the CBI as it was providing to the three Scandinavian central banks. And even then, it was not certain that all three major banks would fall. Kaupthing, having received an emergency loan from the CBI, was the last bank to fall, and it fell because the British government closed down its subsidiary in London (as recognised in the SIC report), leading to the cancellation of most of the Icelandic parent company’s loan agreements. The majority blithely ignored the testimony of six government ministers who all described the long-standing practice of resolving important matters outside formal cabinet meetings or of discussing such matters at the meetings without putting it into in the minutes. The majority also rejected the argument that some matters were too sensitive to be put on the agenda of cabinet meetings, ignoring previous indications of leaks from such meetings.
Again, the majority ignored the fact that the SIC had already considered this charge about cabinet meetings and decided not to present it in its report as a case of negligence. The majority also ignored precedents where important but sensitive government matters were intentionally not discussed at cabinet meetings. One example was in the period of 1956–1958 when a socialist with close ties to Moscow was a government minister. He was not trusted by his colleagues, so that negotiations with the United States—which had a military base in Iceland—were not discussed at cabinet meetings. Another example was the joint decision by the then prime minister and foreign minister in March 2003 publicly to support the impending military action by the United States, the United Kingdom, and other countries in Iraq, without consulting other government ministers or the Foreign Affairs Committee of the Parliament. Indeed, one of the judges on the Impeachment Court, Eirikur Tomasson, had as professor of law argued in a specially commissioned report that the two ministers had acted within the law. Anyway, Haarde had not enjoyed the benefit of doubt before the Impeachment Court. The minority had stuck to the old legal maxim: In dubio, pars mitior est sequenda; “In doubt, the gentler course is to be followed.”
An Implausible ECHR Majority Opinion
The choices Iceland made in the 2008 financial crisis under the leadership of Prime Minister Haarde and CBI Governor David Oddsson, to fence off Iceland and to keep the financial obligations of the Treasury to a minimum, while depositors were given priority claims to the estates of the fallen banks, turned out to be more prudent and effective than government bailouts in other countries. Since the assets of the banks were more valuable than estimated at first, the IMF in 2016 concluded that the Treasury actually had made a net gain from the bank collapse of 9% of GDP. In a 2013 report for the Parliamentary Assembly of the Council of Europe, Dutch Member of Parliament Pieter Omtzigt criticised the process against Haarde, stressing that political and criminal responsibility should be kept separate. However, against the advice of many of his friends who told Haarde that he should regard his acquittal of all substantial charges in the impeachment case as a victory, he referred his case to the ECHR in Strasbourg. He argued that in the process against him two legal principles had been violated: the right to a fair trial and no conviction without law.
Shortly after the ECHR had decided to hear the case, a new Icelandic judge was appointed at the Court, Robert Spano. He recused himself because of his earlier involvement in the case, being replaced by another Icelandic judge, Hjordis Hakonardottir, who was even more of a committed leftist. The final majority opinion of the ECHR, delivered in late 2017, echoed arguments presented by Spano in previous discussions in Iceland about Haarde’s conviction. In the opinion it said that Haarde’s right to a fair trial had not been violated, since the charge against him had been sufficiently clear and since the offence for which he had been convicted had been adequately defined in law. The Court rejected Haarde’s complaint that the process had been political. This caused former Justice Minister Ogmundur Jonasson who had voted for Haarde’s impeachment, to exclaim that of course it had been political, as he could confirm from his own participation in it. Jonasson, from the Left Greens, added that in hindsight he thought that he and the other members of parliament who had voted for impeachment had made the wrong decision. A minority of one on the ECHR, Judge Krzysztof Wojtyczek, agreed with the ECHR majority that there had been no violation of the right to a fair trial, but found that the majority of the Impeachment Court had read more into the constitutional stipulation on cabinet meetings than was proper. He could nowhere discern a constitutional obligation of the Prime Minister to hold cabinet meetings on all important government matters. Therefore, the principle of no conviction without law had been violated.
Judge Wojtyczek was certainly right that Haarde could not have known that he was violating the Icelandic Constitution by not formally putting the problems of the banks on the agenda of cabinet meetings. Of course, he would have done so, had he known this. Haarde’s conviction was based on reading into the Constitution more extensive obligations than were to be found there. The majority of the Impeachment Court not only interpreted the stipulation about cabinet meetings differently from what was its original intent: It also speculated that if Haarde had indeed put the problems of the banks on the agenda, then things might have turned out for the better. Haarde was never given the opportunity to defend himself against this additional charge. He did no more know about it than Joseph K. in Kafka’s Trial about the charges against him. If Haarde had known about this charge, in his defence he could for example have called all his government colleagues as witnesses where they would have described the measures which they presumably had up their sleeve and which would have been revealed in discussions at cabinet meetings about the problems of the banks. He could also have called experts to testify on the likelihood of leaks if he had formally put the problems of the banks on the agenda of cabinet meetings and on the possible repercussions of such leaks. But there was an obvious reason why the majority introduced in its decision some speculations that things might have turned out for the better if Haarde had held cabinet meetings about the crisis. If he was only guilty of a formal lapse, a procedural error, then he should never have been brought before the Impeachment Court. It was only meant to deal with serious offences such as treason, gross negligence with grave consequences for the nation or a major infringement of individual rights.
The opinion of the ECHR majority was also based on a false analogy with the impeachment of Danish government minister Erik Ninn-Hansen on which the ECHR had earlier issued an opinion: 1) An important difference between the two impeachment courts was that non-professional (i.e. politically elected) judges formed a majority in the Icelandic court but only one half of the Danish court; the Icelandic one was thus more political in nature. 2) In Iceland, the prosecuting authority, the Parliament, had made several decisions during the process which affected the composition of the Impeachment Court, whereas in Denmark the composition of the Impeachment Court had remained the same from the beginning to the end of the case. 3) Unlike Haarde, Ninn-Hansen had ignored warnings from his officials that he was violating the law. It was also clear what Ninn-Hansen should have done if he had taken notice of their warnings. 4) Unlike Haarde, Ninn-Hansen’s case has been thoroughly investigated as a criminal case, with the charges clearly stated and with him having the opportunity to defend himself against them. And 5) In Denmark, the proposal before the parliament was about charging one person, on the basis of a criminal investigation, and that proposal was approved, whereas in Iceland the proposal before the parliament was about charging four persons, on the basis of a non-criminal investigation, and after some political machinations it was decided to charge Haarde alone. The impeachment case itself cost 1.9 million euros, in addition to the 4.9 million euros the SIC cost. Even if Haarde was awarded all legal costs by the Impeachment Court, he, and his supporters, had to contribute 200,000 euros in addition (all numbers at 2022 prices).
Some Conclusions
In one of Icelandic Nobel Laureate Halldor Laxness’ novels, Iceland’s Bell, taking place at the close of the 17th century, a distinguished Icelandic scholar meets a poor convict who has escaped from prison. The scholar is familiar with the convict’s case and tells him that he cannot see any reasonable connection between the evidence presented and the conviction, but that the case is not about the guilt or innocence of the accused. It is about who should exert authority in Iceland. Likewise, Geir H. Haarde’s impeachment was not really about whether he was guilty or innocent according to the law. Everybody knew that he was not a reckless adventurer or a corrupt politician: he was known for his mild manners, honesty, courtesy, and caution. Two powerful groups united against him. Left-wing politicians such as Steingrimur J. Sigfusson, Johanna Sigurdardottir and their followers saw an opportunity, in the aftermath of the bank collapse, to try and criminalise the major centre-right political force, Haarde’s Independence Party. Some legal experts and judges, still resentful that they had not been able to control all appointments to the bench, played along, seeing an opportunity to teach unruly politicians a lesson or two. They probably also read the popular mood as requiring that somebody from the political leadership before the bank collapse should be convicted of something, however trivial and far-fetched. Few, however, took Haarde’s conviction seriously, and indeed some of those members of parliament who voted for his impeachment have later recanted publicly. In 2015, a new centre-right government appointed Haarde as Iceland’s Ambassador to the United States, and in 2019 he was chosen, without any objections, as the representative of the Nordic and Baltic countries on the Board of Directors at the World Bank, serving for two years. The rapid recovery of the Icelandic economy after the bank collapse amply demonstrated both how successful the comprehensive reforms implemented in 1991-2007 had been and how prudent the government’s reaction in 2008 to the crisis had been. In 2022, a decade after Haarde’s impeachment trial, Iceland is again amongst the most prosperous and peaceful countries in the world.
