Ian Fraser is the author of Shredded: Inside the Royal Bank of Scotland: Disrupting Britain’s Banks

After the global financial crisis, Iceland cracked down on its bankers. As of 2018, 25 of them – including the chief executives of major banks – have been jailed. The approach has won plaudits from some as it is seen as a way to enable the country to reform its financial sector and rebuild its economy.

But this conventional wisdom is wrong, and Jared Bibler, chief investigator of Iceland’s regulator, the Financial Supervisory Authority (FME), believes that his own investigation ended up sending some of these convicted bankers to prison. Now, in his most recent book, Iceland’s Secrets: The untold story of the world’s biggest scam, he said the country’s approach had neither eliminated the Ogion stables of Icelandic finance nor eliminated the “dragon of a deeply corrupt financial market”.

The Icelandic banking crisis, which occurred just weeks after Lehman Brothers filed for bankruptcy on September 15, 2008, was more extreme and protracted than almost any other crisis. That’s partly because the country’s three biggest banks – Kaupthing, Landsbanki and Glitnir – have been allowed to expand their balance sheets to huge proportions. They went bankrupt with assets 11 times the country’s gross domestic product, making a bailout almost impossible.

Few have documented this remarkable saga better than Bibler. An MIT graduate, he moved to Reykjavik in the summer of 2004. He took his place as the Nordic country’s banking sector overextended and imploded, first as an asset manager and then as a regulator for the country’s second-largest bank, Landsbanki. His book, a blend of candid personal memoirs and Nordic noir novels, reveals made his jaw-dropping discovery as a regulator.

Three days after he started working as an investigator at FME in April 2009 (once he hired a team, he became the lead investigator), Bibler received a dossier showing evidence of Kaupthing’s market abuse. After poring over extensive transaction data and five years of emails and top-secret documents on major loans leaked by WikiLeaks, he established the “Big Kapsin Market Manipulation Case,” which was couriered to Iceland’s notoriety within six months Prominent prosecutor Olafur Hauksson.

Digging deeper, Bibler and his team found that Glitnir, Landsbanki, and Kaupthing have been engaged in illicit equity-backed businesses on a massive scale every year since 2004. These securities frauds involved banks making huge loans to shell companies in the British Virgin Islands that were set up for the sole purpose of secretly buying the bank’s stock and inflating its share price, using only the stock itself as collateral — or this Changes in theme.

Bibler said the crimes normalized corruption in the functioning of the three institutions — and indeed the entire Icelandic society. He also made it clear that they were far from harmless. When the bank’s share price fell to zero in October 2008, shareholders lost everything in the belief that these three “crown jewels” of Icelandic finance were safe. These failures, combined with the UK government’s decision to use anti-terror legislation, meant that Landsbanki’s assets in the UK were frozen in order to protect the bank’s UK depositors. With the krona halved in value, Bibler and his Icelandic fiancée lost their house and 90% of their savings and were left on bjugur (horse meat sausage).

Despite his success, Bibler believes he has only managed to scratch the surface of Iceland’s financial corruption. He resigned from FME in November 2011 after his team was disbanded as regulators’ interest in going after criminal bankers began to wane. He argues that the ancillary activities surrounding the illegal share-backed scheme have been covered up, with some of the most serious crimes — including the alleged use of false invoices to defraud Iceland’s central bank of foreign currency reserves — in the industry for at least six years after the banking crisis. He also argues that with the early release of many convicted bankers, their wealth and status largely intact, the deterrent effect of their hard-earned sentences is reduced.

Although I can do it with some photos and indexes, Iceland’s Secret is a great book. It’s an eye-opening and cautionary tale of how brazen and protracted fraud can occur if bankers get a free pass from a country’s journalists, regulators, politicians and governments. The problem, according to Bibler, is that unless regulators around the world wake up and find some backbone, similar shenanigans could happen anywhere in the financial markets, not just in Iceland, with potentially devastating consequences.

Iceland’s Secret: The Untold Story of the World’s Biggest Scam Jared Beeble, Harriman House, £22.99, 272 pages.