Statement from Jared Bibler regarding Kjarninn article of 8 November 2021
On Monday 8 November 2021, Kjarninn printed an article headlined “Commercial banks misused, not the central bank” (my translation).
The response of Seðlabanki Íslands (SÍ) — the central bank of Iceland — to the questions of a journalist evinces either willing obfuscation or a troubling lack of understanding of international payments.
Any fraudulent transaction to wire e.g. EUR or GBP out of Iceland by one of the commercial banks during the period of capital controls would ultimately affect the foreign exchange balance of the central bank.
For example, take the actions of a hypothetical Icelandic fraudster who used a dummied invoice to send 50,000 GBP to a bogus consulting firm in the UK.
His transaction put downward pressure on the ISK exchange rate. The central bank responded to that downward pressure by intervening in the foreign exchange market and sold its foreign reserves to buy back ISK. As a result of the transaction the foreign reserves of Iceland declined and the invoice scammer who sold ISK to buy GBP achieved a much higher exchange rate than he could have dreamed of achieving in the unofficial ISK market that had developed in Europe.
My assertion is that invoice fraud in 2008-2010 led to a reduction in the FX reserves of the central bank, and thus the amount of hard currency available for use by all Icelanders. I stand by my statement to Kjarninn and my assertions in Iceland’s Secret that the central bank’s foreign currency was ultimately looted to effect these scams — with the people of Iceland the victims.
These monies flowed out of Iceland regardless of which commercial bank effected the transactions. Seðlabanki can point fingers today at the same commercial banks that it nominally oversees but it bears the final responsibility.
Icelandic law in effect at the time would also seem to indicate that the central bank has primacy in foreign exchange transactions.
Lög nr. 87 17. nóvember 1992.
8. gr.
Seðlabankinn hefur heimild til að hafa milligöngu um gjaldeyrisviðskipti og versla með erlendan gjaldeyri. Öðrum aðilum er óheimilt að hafa milligöngu um gjaldeyrisviðskipti hér á landi nema hafa til þess heimild í lögum eða samkvæmt ákvæðum í alþjóðlegum samningum sem Ísland er aðili að eða fengið til þess leyfi frá Seðlabankanum.
The fact that Seðlabanki Íslands outsourced fraud detection to the commercial banks and did not maintain adequate protections over its own foreign currency reserves while capital controls were in effect is cause for serious concern.
What concrete steps has the central bank taken to ensure that frauds like this one — and the many financial crimes of the period 1998-2008 — will not happen again?
Zürich, 10 November 2021