Scottish Borders Council's disastrous involvement with the insolvent Icelandic banking sector in the lead up to the world financial crash is under scrutiny once more, ten years after the event.
A total of £10 million was "trapped" in the collapsed Landsbanki and Heritable banks in October 2008 at the end of an investment spree in which SBC made 94 short term deposits totalling £172 million of taxpayers' money in four separate Icelandic financial institutions between January 2006 and August 2008. The average deposited each time worked out at £1.829 million.
The Borders local authority was just one of dozens of UK councils and other public bodies who had their fingers burned in Iceland in 2008. It took two court actions and six years to conclude a fiasco which resulted in SBC auctioning off the £2.4 million debt which could not be recovered as a result of its recklessness for a reported £2.08 million - a net loss of £320,000.
SBC also found it necessary to borrow £1.021 million over five years from the Public Works Loans Board (PWLB) to cover its Icelandic deficits. It is unclear what other costs were incurred, including any contribution made towards the fees of lawyers who acted jointly for the UK councils in the Icelandic courts, and staff time and effort in a bid to recover the lost millions.
Now an investigative journalist has lodged a series of searching questions with SBC in a Freedom of Information request seeking detailed facts and figures about the catastrophic Icelandic misadventure.
Joel Benjamin's request reads as follows:
Please provide the
following information in relation to Icelandic bank investments. Provide an MS
Excel spreadsheet with the following information in separate columns: (1)
Icelandic Bank deposits 2004 - 2008 broken down by a) date of investment, b)
amount of investment, c) term of investment, d) rate of interest/ or total interest
received, e) institution.
(2) The institution(s) that advised the council on its
Icelandic investment strategy; (3) The ledger/ payment codes which detail the
transfer of the funds from council's various account(s), to the Icelandic banks,
(often via a money broker such as ICAP).
(4) Confirm/ deny whether any of the
money invested in Iceland was obtained via LOBO loan borrowing: (5) Confirm/ deny
whether any of the money invested in Iceland was obtained via PWLB borrowing.
Not Just Sheep & Rugby can tell Mr Benjamin how FOI responses in 2011 revealed that the sums involved in SBC's Icelandic deposits ranged from £1 million to £4 million. In addition to Landsbanki and Heritable the council also did business with Singer and Glitnir banks.
All went well until October 2008 when the entire Icelandic banking system went into meltdown. Ultimately a number of top bank officials went to jail for their part in the scandal. But not a single UK councillor or local authority official has been held to account for losses estimated at £1 billion pounds.
Senior finance officers at SBC lodged £3 million with Landsbanki in May 2008 and a further £2 million in July of that year even though credit agency Moody's had downgraded Landsbanki's credit worthiness in the previous February. The £5 million in SBC's Landsbanki account was due to be withdrawn with interest in November 2008 and January 2009.
The other £5 million marooned after the banks imploded was made up of separate deposits of £1 million and £4 million with Heritable in July and August 2008 respectively. These sums were due to be redeemed in January 2009 and December 2008.
Treasury Management documents obtained via a different FOI request contained names of financial institutions where money could be "suitably deposited". There was no mention of the four Icelandic banks which meant that elected Borders councillors were unaware of the whereabouts of £172 million of SBC's assets over a two year period. Huge sums of money could be gambled with under delegated powers given to officials.
Yet another FOI was lodged asking for information about other bank deposits [non-Icelandic] made by the council at that time. The response can only be described as 'staggering'.
The council produced details of 807 separate “deals” – some involving millions of pounds being deposited and
withdrawn in the space of 24 hours – with a total monetary value of
£1,880,280,000 (one billion, eight hundred and eighty million, two hundred and
eighty thousand pounds).
Despite the magnitude of the monetary wheeling and dealing Audit Scotland, the country's spending watchdog, refused to intervene and rejected repeated calls for an investigation.
They responded to one request for an inquiry by stating: "We have decided that the additional information does not
suggest any scope for further investigation of the investment in Icelandic
banks. We do not consider that the
scale of investment is unusual. All
councils have large cash balances from time to time because of the timing of
cash flows and from borrowings for capital programmes,
"In these circumstances councils routinely
invest any surplus cash to gain additional revenue by way of interest rather
than leave the money in current accounts for no benefit. The amount of money placed on deposit is a
matter for the council officers to decide in terms of each council’s treasury
management policy. Thus the amount of
money invested and the length of the investment will vary between councils and
between years.
"Although councils are not
required to publish details of all the investments they make, the balance of
funds held on short term deposit at 31st March each year is disclosed in the
annual accounts. There is no
evidence to suggest that any of the investments made by Scottish Borders
Council were not properly approved. The
council has clear treasury management policies which are reviewed annually and
approved by council members. External
audit work includes regular consideration of council investments. Where and
when councils choose to invest funds are decisions for them to make.
"The
auditor’s role is to check whether councils follow the appropriate professional
guidance and procedures. We also flag up any problems we identify in their
systems for financial management. The
external auditor made enquiries about the investment in Icelandic banks and was
satisfied that the investments had been made in accordance with the treasury
management policies operating at the time and were approved in line with the
council’s scheme of delegated authority."
Under FOI regulations the council has 20 working days to respond to Mr Benjamin's request which was submitted on September 27th.
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