Iceland's Kaupthing Bank to sue UK government

07 January 2009

Iceland has decided to sue the British government in the European Court of Human Rights for using anti-terror laws to freeze billions of Kaupthing Bank's UK subsidiary, Kaupthing Singer & Friedlander assets and forcing it into administration, kicking up another round of diplomatic row with the UK.

During the height of the banking crisis in October last year, the Reykjavik-based bank was nationalised by the Icelandic government in order to save it from collapse, but the UK financial authorities stepped in to protect British depositors in the bank's subsidiary in the UK, by using the anti-terror law in freezing its assets and forcing it into bankruptcy.

A few days earlier, another Icelandic bank, Landsbanki, had collapsed and its UK subsidiary, IceSave's customers were left in the lurch when they could not withdraw any money from their accounts.

The British Financial Services Authority thus froze Kaupthing Singer & Friedlander assets to prevent a situation like IceSave after Iceland refused to guarantee British savings in Icelandic banks.

But the British government's use of anti-terror laws to seize the Icelandic bank funds angered the Icelandic government and public as Iceland was placed along with other terror groups like the Al-Qaeda in the UK government website.

Iceland's prime minister Geir Haarde said on Monday that his government fully endorses the legal action being taken by Kaupthing Bank and will also help by funding the legal case.