Expert report on some legal questions concerning the ... · 7/18/2014 · Professor, dr. jur. ERIK...

Professor, dr. jur. ERIK WERLAUFF

Expert report

on some legal questions

concerning the judgment of

Reykjavik District Court, 12 December 2013,

case no. S-127/2012

Professor, dr. jur. Erik Werlauff

Aalborg University, Denmark

18 July 2014


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CONTENT

MANDATE, METHOD, LANGUAGE, AND RELEVANCE OF EU LAW, ECHR LAW AND DANISH LAW ............................................................................... 3

Mandate and method .......................................................................................................... 3

Relevance of EU law, ECHR law, and Danish law ..................................................... 4

BREACH OF FIDUCIARY DUTY (indictment sec. 1 + 2) ............................. 7

The Danish concept of ‘mandatsvig’ (fraud of agent, umboðssvik) .................. 7

Question – indictment sec. 1+2 – fraud of agent (umboðssvik) ................... 7

Answer – indictment sec. 1+2 – fraud of agent (umboðssvik) ...................... 7

The Danish concept of ‘forsæt’ (intent) ..................................................................... 15

Question – the concept of intent (forsæt) ............................................................ 15

Answer – the concept of intent (forsæt) ............................................................... 15

Question – indictment sec. 1 – ‘for the purpose of enrichment’ .................. 19

Answer – indictment sec. 1 – ‘for the purpose of enrichment’ ..................... 20

Question – indictment sec. 1 - subsequent approval of the credit committee ......................................................................................................................... 21

Answer – indictment sec. 1 - subsequent approval of the credit committee ......................................................................................................................... 21

Question – indictment sec. 2 – subordinated employees’ mistakes ........... 21

Answer – indictment sec. 2 – subordinated employees’ mistakes .............. 22

Question – indictment sec. 2 – proof concerning Ólafur’s knowledge ....... 24

Answer – indictment sec. 2 – proof concerning Ólafur’s knowledge .......... 25

Question – indictment sec. 2 – question regarding intent (forsæt) ........... 26

Answer – indictment sec. 2 – question regarding intent (forsæt)............... 26









Question – indictment sec. 2 – value of the Kaupþing shares ...................... 30

Answer – indictment sec. 2 – value of the Kaupþing shares ......................... 30

MARKET ABUSE (indictment sec. 3 + 4) ........................................................ 32

The EU concept of ‘market abuse’ ............................................................................... 32

Question – sec. 3 + 4 – disclosure of the financing of the investment ..... 32

Answer – sec. 3 + 4 – disclosure of the financing of the investment ........ 32

Question – sec. 3 + 4 – disclosure of Ólafur’s involvement .......................... 39

Answer – sec. 3 + 4 – disclosure of Ólafur’s involvement ............................. 39

SOME PROCEDURAL QUESTIONS – fair trial according to the ECHR 45

Question – ECHR observations on sec. 1 + 2 ...................................................... 46

Answer - ECHR observations on sec. 1 + 2 ......................................................... 47

Question – privilege between defense counsel and accused ......................... 51

Answer – privilege between defense counsel and accused ............................ 51


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Question - access to the case documents ............................................................. 55

Answer - access to the case documents ................................................................ 56

Question - complicity – how accurately must it be described in the indictment? ....................................................................................................................... 58

Answer - complicity – how accurately must it be described in the indictment? ....................................................................................................................... 58

Question – arrest warrant – what impact for ECHR purposes? .................... 62

Answer – arrest warrant – what impact for ECHR purposes? ....................... 63

CONCLUSIONS ............................................................................................................ 65

EXHIBIT A – curriculum vitae - professor, dr. jur. Erik Werlauff ...... 72

________________________

MANDATE, METHOD, LANGUAGE, AND RELEVANCE OF EU

LAW, ECHR LAW AND DANISH LAW

Mandate and method

The Icelandic defense advocates Hórður Felix Harðarson, Jonsson & Hall Law Firm,

Reykjavik, and Þórólfur Jónsson, LOGOS legal services, Reykjavik, have

commissioned me to write an expert report on some questions under Danish

criminal law, ECHR law and EU law concerning the judgment of Reykjavik District

Court 12 December 2013 in case no. S-127/2012.

I understand that my expert report is intended for submission during an appeal to

Iceland’s Supreme Court.

Expert’s background. I am a Danish expert on company law, capital market

law, procedural law, and law of finance, with solid knowledge of ECHR law and

parts of EU law, holding a chair of business law at the University of Aalborg,

Denmark, and being a member of the Danish standing committee on civil

procedure Retsplejerådet (Civil Justice Council) which offers continuous advice to

the Danish Ministery of justice on reforms of Danish procedural rules.

My curriculum vitae is attached to this expert report as Exhibit A.


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I have no present connection to the persons who are accused in the case, apart

from having been chairman in a Danish bank in which Kaupþing Bank was a

passive investor without controlling influence. In this capacity I have met Sigurður

Einarsson on 2 or 3 different occasions, one of them in Iceland. We have no

personal acquaintance.

Research and language. I have been commissioned to write this expert report

in English. The final draft for the report has been edited by my colleague, ph.d.-

fellow at Aalborg University, Alex Fomcenco, whose English is far better than mine.

Any remaining linguistic slips remain solely my responsibility. Alex Fomcenco has

also contributed with valuable findings on questions concerning Danish criminal

law. Furtermore, when preparing this expert report, I have been assisted by a

trusted student of economics, Thomas Langvad, Aalborg University, who often

assists me in finding important background material for my legal opinions.

When quoting from Danish case law and jurisprudence, I am confident to leave the

quotations in Danish, without translation into English, as the expert report is

intended for the eyes of Icelandic jurists.

Abbreviations to be applied in this expert report are:

Kaupþing = Kaupþing Bank hf. UfR = “Ugeskrift for retsvæsen” (= Danish weekly law

gazette). H = “Højesteret” (= Danish Supreme Court). JUR = “Juristen” (= The Lawyer).

ECHR = European Convention on Human Rights. TfK = “Tidsskrift for kriminalret”.

Relevance of EU law, ECHR law, and Danish law

I have been requested to pronounce my expert opinion on three different legal

levels:

• EU law is relevant for the indictment sec. 3+4, because of the various EU

directives, including the directive on market abuse. The directives are binding

on Iceland as a member of the EEA. I am not hereby interpreting Icelandic

law, which would be totally outside my competence; I am merely interpreting

the set of rules that, through the EEA treaty, binds Iceland.

• ECHR law is relevant for various procedural questions concerning all the four

sections of the indictment. The ECHR is binding on Iceland as a party to this


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treaty. Again, I am not hereby interpreting Icelandic law, but merely

interpreting the set of rules that, through the ECHR treaty, binds Iceland.

• Danish law is relevant for the indictment sec. 1+2, as I understand that

extensive similarities exist between, on the one hand, umboðssvik as

described in art. 249 in the General Penal Code of Iceland and on the other

hand the description of mandatsvig in § 280 in the Danish Penal Code

(straffeloven). Again, I make no effort of interpreting the Icelandic art. 249,

but merely interprets the Danish § 280, in connection with the Danish concept

of intent (forsæt).

Concerning umboðssvik and mandatsvig I would like to recall the following facts:

The Icelandic art. 243, which is common for the crimes in sec. 1+2 of the

indictment, reads as follows in Icelandic and English:

243. gr. / Article 243

Icelandic:

„Fyrir brot þau, er í þessum kafla getur, skal því aðeins refsa, að þau hafi verið

framin í auðgunarskyni.“

English:

“Offences mentioned in this Chapter shall be subject to penalty only provided

these have been committed for the purpose of enrichment.”

The Icelandic art. 249, which defines umboðssvik, reads as follows in Icelandic and

English:

249. gr. („umboðssvik“) / Article 249 („breach of trust“)

Icelandic:

„Ef maður, sem fengið hefur aðstöðu til þess að gera eitthvað, sem annar

maður verður bundinn við, eða hefur fjárreiður fyrir aðra á hendi, misnotar

þessa aðstöðu sína, þá varðar það fangelsi allt að 2 árum, og má þyngja

refsinguna, ef mjög miklar sakir eru, allt að 6 ára fangelsi.“

English:

“A person, who is in a position to oblige another person or handles financial

affairs for others, found to have abused this position shall be subject to


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imprisonment for up to 2 years, and in cases of a major offence the penalty

may be more severe, up to 6 years of imprisonment.”

As described below, the Danish § 280, nr. 2, which is relevant in the Kaupþing

case, also demands that the offender has an intent (forsæt) to act against the

interest of his principal.

This is not necessarily exactly the same as the demand in the Icelandic art. 249

that the offender has “abused this position” (misnotar þessa aðstöðu sína). One

could say that the Icelandic use of the word “abuse” is less precise than the Danish

demand for having acted against the principal’s interest.

It lies outside my competence to pronounce anything about the Icelandic definition

of umboðssvik, but I assume that since counsel for the defense in the Kaupþing

case have requested my expert opinion on the Danish concept of mandatsvig, they

must be of the opinion that the Danish definition can be of some guidance when

understanding the Icelandic rules in depth.

_______________________________


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BREACH OF FIDUCIARY DUTY (indictment sec. 1 + 2)

The Danish concept of ‘mandatsvig’ (fraud of agent,

umboðssvik)

Question – indictment sec. 1+2 – fraud of agent (umboðssvik)

As you will observe from the judgment of Reykjavik District Court from 12

December 2013 in case no. S-127/2012 (hereafter: the Judgment), cf. the

Judgment in English translation p. 65-70, all the accused – Hreiðar Már Sigurðsson

(Hreiðar), Magnús Guðmundsson (Magnús), Sigurður Einarsson (Sigurður) and

Ólafur Ólafsson (Ólafur) - were found guilty according to Article 249 of the

Icelandic General Penal Code (Almenn hegningarlög) in ‘breach of trust’

(umboðssvik) against Kaupþing. – In your expert opinion, would a corresponding

situation be assessed as ‘mandatsvig’ (fraud of agent) according to § 280 of the

Danish Penal Code (straffeloven)?

Answer – indictment sec. 1+2 – fraud of agent (umboðssvik)

The answer is to the best of my knowledge: No. In my opinion two essential

elements of ‘mandatsvig’ are missing in the indictment and in the Judgment, i.e.

(1) that the accused must, in order for their transaction to be criminally regarded

as ‘mandatsvig’,1 have acted with the intent (forsæt) of obtaining an enrichment

for themselves or for others, and (2) they must also have acted with the intent

(forsæt) of acting against Kaupþing Bank’s interests.

It seems that the central elements of the indictment and of the Judgment are

whether the accused “abused their positions”, and whether they “exceeded their

authorisations”. However, such elements, even if they can be demonstrated to

have been present, are not nearly enough to constitute ‘mandatsvig’. You may

have “abused” your position, and you may have exceeded your authorization,

without thereby having committed ‘mandatsvig’, if it cannot be demonstrated (a)

that you were acting with the intent (forsæt) of obtaining an enrichment for

yourself or for others, and (2) that you have also acted with the intent (forsæt) of

acting against your employer’s interests. - In the present case it would seem that

1 Iceland: umboðssvik. Denmark: mandatsvig. Norway: utroskab. Sweden: trolöshet mot

huvudman.


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the accused acted with the quite opposite purpose of obtaining “enrichment” for

their bank, and acting in the bank’s interest.

Please let me quote § 280 of the Danish Penal Code (straffeloven) which defines

‘mandatsvig’:

“§ 280. For mandatsvig straffes, for så vidt forholdet ikke falder ind under §§

76-279 a, den, som for derigennem at skaffe sig eller andre uberettiget

vinding påfører en anden formuetab

1) ved misbrug af en for ham skabt adgang til at handle med retsvirkning for

denne eller

2) ved i et formueanliggende, som det påhviler ham at varetage for den

anden, at handle mod dennes tarv.”

First, it is important to choose whether to refer a specific case to no. 1 or to no. 2

of § 280. The distinction is made as follows:2

• No. 1 is implied where the offender is not obliged to take care of the other

party’s interests. This part of § 280 is called ‘abuse of authority’ (Danish:

legitimationsmisbrug).

• No. 2 is implied where the offender has, for legal purposes, a duty to take

care of the other party’s financial circumstances. This part of § 280 has no

specific ‘name’.

Clearly, where a bank employee, manager or director, like in the Kaupþing case, is

accused of ‘mandatsvig’, it will be no. 2 of § 280 that is relevant. The authorisation

is not, as it is the case in no. 1, created by mistake or by coincidence; on the

contrary, in no. 2 there is a legal duty for the offender to take care of the other

party’s financial circumstances. - It is directly expressed in Danish literature that

no. 1 should not be implied on an employee who exceeds his proxy as employee.3

Consequently, there is no question of ‘abuse’ of authority, and no question of

exceediung authority etc. Instead, it must be demonstrated that the offender had

2 Cf. Vagn Greve, Poul Dahl Jensen & Gorm Toftegaard Nielsen: Kommenteret straffelov

– speciel del (10. udgave. 2012) p. 547.

3 Cf. Lars Bo Langsted in ”Festskrift til Vagn Greve”, p. 325, fn. 13, and Vagn Greve, Poul

Dahl Jensen & Gorm Toftegaard Nielsen: Kommenteret straffelov – speciel del (10.

udgave. 2012) p. 549.


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the intent (forsæt) to act against the interest of the party whose financial affairs

the offender was to take care of. He must not just by coincidence, or by mistake,

do so; he must have the intent (forsæt) of doing so.

The old Danish word ‘tarv’ means the same as the modern Danish word ‘interesse’,

i.e. interest.

As an example of no. 2, Danish literature mentions, inspired by the motives to the

Danish Penal Code (straffeloven), that a bank manager grants an exceedingly

large loan to a friend of his (“en bankdirektørs overvættes lån til en ven”), thereby

applying the old Danish word ‘overvættes’ which means ‘overmåde’, which again in

English means exceedingly large.4

It must thus be demonstrated that the intent (forsæt) of the offender covers each

of the following three elements:

1. Intent (forsæt) to obtain an enrichment for himself or for a third party (”… for

derigennem at skaffe sig eller andre uberettiget vinding…”). This intent

(fortsæt) requires an intent to enrich another person/entity than the one which

is to suffer the loss, i.e. the enriched party cannot be identical to the offended

party.5

2. Intent (forsæt) to cause the other party an economic loss (“…påfører en anden

formuetab …), whereby case law and theory agree that a substantial risk of

loss (“væsentlig risiko for formuetab”) is sufficient here.6

3. Intent (forsæt) to act against the interest of the other party (”…handle mod

dennes tarv …”).


– speciel del (10. udgave. 2012) p. 550. - The word ’overvættes’ has the Primitive Norse

word ’ubitiwehtis’ as its origin, meaning: ’in overweight, or: something that weighs over’,

cf. Politikens Nudansk Ordbog med etymologi.

5 Cf. UfR 1994.923/2 V (the bookkeeper’s foreign-exchange speculation, see below), John

Larsen in UfR 1996 B p. 180 et subs., and Vagn Greve, Poul Dahl Jensen & Gorm

Toftegaard Nielsen: Kommenteret straffelov – speciel del (10. udgave. 2012) p. 552.


– speciel del (10. udgave. 2012) p. 552.


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All elements in these requirements for intent (forsæt), including the intent to

enrich the offender himself or to enrich a third party, must be present at the time

where the act is committed,7 i.e. knowledge obtained at a later stage is not

relevant here.

Some representative extracts from case law through the decades will show the

mechanism of § 280:

• UfR 1937.459 H, case of Vendsyssel Bank: Two liquidators in Vendsyssel

Bank A/S had, when some instruments of debt in Russian roubles

belonging to the bank were sold at an auction, given bids and bought the

instruments at the auction for a very low amount, DKK 10. They knew that

the instruments in roubles would probably within a short time bring

considerable profits, and this was actually the case. However, this was not

enough to create intent (forsæt), as the accused knew that the

instruments had been written off in the bank’s books. When the

instruments later became of considerable value, the accused paid this

amount to the bank’s estate. They were both acquitted by the Danish

Supreme Court.

They were also accused of ‘mandatsvig’ by having a mortgage bond that

belonged to the bank (in exchange for a loan granted by the bank) issue to

themselves as creditors. However, they were not regarded as having the

necessary intent (forsæt) to cause an economic loss to the bank, because

the real estate in which the bonds gave mortgage was regarded as

worthless by the bank. Consequently, they were both acquitted by the

Supreme Court also in this section of the indictment.

• UfR 1957.778 H, case of Sjøvinnubanken, Thorshavn: The former CEO of

Sjøvinnubanken was accused of ‘mandatsvig’ by having granted a loan

from the bank to the company Uvak, in the name of another company,

Signabøur, without obtaining any mortgage, guarantee or other kind of

security for the bank. The bank suffered a loss of DKK 280,000 kr., and

Uvak obtained a corresponding enrichment. However, the accused CEO

was acquitted by all three instances (The Court of the Faroe Islands, the

Danish Eastern Appeal Court, and the Danish Supreme Court). The CEO

7 Cf. UfR 1957.778 H and Vagn Greve, Poul Dahl Jensen & Gorm Toftegaard Nielsen:

Kommenteret straffelov – speciel del (10. udgave. 2012) p. 552.


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was not found to have the necessary intent (forsæt) for ‘mandatsvig’, as

the financial position of the debtor, Uvak, did not, at the time where the

loan was granted, cause an obvious fear for Uvak’s ability to pay back the

loan. – In three other cases, the CEO was also accused of ‘mandatsvig’ by

having transferred sums from Uvak, and from the bank, to a third

company, Sperm’s, account, whereby Uvak as well as the bank suffered

loss. The CEO was acquitted also from this part of the indictment, with the

votes from 4 out of 7 judges in the Supreme Court. The majority found

that the CEO had reasons to assume that the Sperm company would be

capable of paying back the loans, because Uvak owned a considerable

proportion of the shares in Sperm, and would thus be interested in keeping

Sperm going. Consequently, the CEO had reasons to believe that the

money transfers were not contrary to Uvak’s interest (“… haft grund til at

antage, at overførslerne ikke var i strid med Uvaks tarv”).8

• UfR 1970.838 V, the exceeding loan to the plumber: The CEO of a savings

bank was accused of having allowed one of the bank’s customers, a

plummer, to exceed the limit of his cash credit facility (kassekredit) with

DKK 146,000. The supervisory committee (tilsynsråd) had impressed on

the CEO that the plumber’s cash credit facility should be gradually

reduced, but instead it was increased by the CEO as mentioned. The

internal provisions stated that all loan facilities over DKK 10,000 could only

be granted by the CEO in common with the supervisory committee.

The Appeal Court in its grounds went through all the three above

mentioned conditions that have to be fulfilled in order for convicting of

‘mandatsvig’ according to § 280: 1) The supervisory committee had only

accepted a certain limit for the loan, and by exceeding this limit the CEO

8 Since a change in the Danish Administration of Justice Act (retsplejeloven) in the

thirties (cf. RT 1930-31, amendment A, column 5068, and RT 1932-33, amendment A,

colum 3041), the Danish Supreme Court is not competent to assess the state of the

evidence in criminal cases, cf. § 933, para 2, e contrario, so a foreign reader may wonder

how the Supreme Court can assess the questions quoted above in the Sjøvinnu case (and

even assessed them in a different way as did the Appeal Court which would have convicted

the accused CEO). The reason is that the Supreme Court can assess whether the Appeal

Court has applied the concept of intent (forsætsbegrebet) in a correct manner, cf. UfR

2012.1101 H, UfR 2012.2361 H, and UfR 2014.948 H. The reason again for this

competence is that the Supreme Court can always assess whether the Appeal Court has

applied the law in a correct manner, and a part of ‘the law’ is whether the concept of

intent (forsætsbegrebet) is applied correctly.


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caused a corresponding enrichment for the plumber. 2) With his knowledge

of the plumber’s economy, the CEO must have known that the credit he

granted implied a considerable risk of causing losses to the bank. 3) Thus,

by increasing the plumber’s cash credit facility the CEO acted against the

bank’s interest (“handlede mod bankens tarv”). The CEO was therefore

convicted of ‘mandatsvig’. – This is indeed the correct and classic way of

handling the conditions in § 280.

• UfR 1994.923/2 V, the bookkeeper’s foreign-exchange speculation: The

bookkeeper of a company speculated in foreign currency by transferring

DKK 1,300,000 from his company’s bank account to a German company

where he purchased foreign-currency contracts for his company. All of the

amount ended up to be lost. He was accused of ‘mandatsvig’ according to

§ 280, no. 1, because he was not hired to take care of his company’s

economic affairs, but just had the opportunity to act with binding effect for

his company. Both the city court and the Appeal Court held that the

bookkeeper must have been aware that he caused his company a

considerable risk of loss. The city court found him guilty, but the Appeal

Court acquitted him. The Appeal Court found that the bookkeeper intended

a possible profit on his speculations to go to his company, not to himself.9

Thus, he did not have the necessary intent (forsæt) to enrich himself.10

9 The Appeal Court reached this conclusion through the following reasoning: In its

grounds the city court had held as follows: ”Efter bevisførelsen henstår det som uklart, om

tiltalte spekulerede privat for selskabets midler, eller om det var tanken, at en eventuel

fortjeneste skulle tilfalde selskabet”. Because this remained to be unclear, the Appeal

Court assumed the result that was most favorable for the accused (cf. the principle of in

dubio pro reo), and thus assumed that he had the purpose of letting a possible profit on

his speculation go to his company. Consequently, he did not have the necessary intent

(forsæt) to enrich himself, and he was thus acquitted.

10 Cf. John Larsen in UfR 1996 B p. 180 et subs. This author points to the fact that many

indictments are – wrongly – focusing on the loss (or considerable risk of loss) caused to

the offended party, but that they forget to focus also on the intent (forsæt) to enrich

yourself (or to enrich a third party different from the offended party). The case of the

speculating bookkeeper demonstrates this fault in many indictments. The author recalls

that if the offender commits his act – however loss-risky it may be – for the benefit of his

employer, he has not committed ‘mandatsvig’.


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• TfK 2005.388 Ø, the CEO that drew DKK 5.3 mill. for himself: A classic

judgment on ‘mandatsvig’. The CEO drew, without the consent from the

board, an amount of DKK 5,300,000 out of the company over a period of 3

years. The Appeal Court emphasizes that he spent the money for himself,

and for purposes that had no connection with the company, and that he

must have been aware that he caused a considerable risk for the company

that it would lose all of the amount, which also happened. He was of

course convicted for ‘mandatsvig’; however, please observe how

thoroughly the Appeal Court enumerates the factors mentioned, which

must all be present in order for the court to convict him of ‘mandatsvig’.

• TfK 2010.43 V, the banker and the missing escrow account: In this case a

banker in Danske Bank was convicted for ‘mandatsvig’ according to § 280,

nr. 2. He was to take care that amounts of DKK 5,300,000 paid by 4

purchasers of real estate that was sold by the bank’s customer, a holding

company, were deposited on an escrow account in the bank. Instead, he

transferred the money to an open account held by the holding company,

which used the money for its building activities, and thus became unable

to fulfil the sales. The Appeal Court goes through every element in

‘mandatsvig’, thereby establishing the presence of the required intent

(forsæt):

1) The banker explained that he did not know that the amounts should be

held in escrow, but from the mail correspondence it was clear that he knew

it (“ought to know” would not be sufficient to establish ‘mandatsvig’). 2)

He explained that the purchasers accepted to let the money finance the

holding company’s building activities, but again, from the correspondence

it was clear that he had no such conviction. 3) He was aware (not only

“ought to be aware”) that he acted against the bank’s interest (“handlede

mod bankens tarv”), because he must have known that the bank would be

obliged to cover the customers’ losses. 4) He must thus have been aware

that the bank was in risk of suffering a considerable loss, which also

actually happened. – Each of the legal elements of the offence

‘mandatsvig’ is hereby thoroughly tried by the court, and the court does

not convict the accused of ‘mandatsvig’ before all elements are seen to be

present.

• TfK 2011.396 Ø, the municipal employee and the kitchen machine: A

municipal employee bought a kitchen machine for his employer, the


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municipality, and the purchase sum of DKK 21,250 was paid to the seller.

Afterwards, and on behalf of the municipality, the employee annulled the

purchase, and he gave the number of his own bank account to the seller,

and got the refund paid to this bank account. He spent the money on his

passion, gambling mania. He explained that he made a mistake when

indicating the account number to the seller; he thought that he was

indicating the account number of the municipality. Had this been the

outcome of the fact-finding of the court, he could not have been convicted

of ‘mandatsvig’ – again, because ‘mandatsvig’ requires intent (forsæt) in

all its elements. The Appeal Court rejected his explanation as unreliable,

and thus found that he had the required intent (forsæt) to enrich himself,

and to act against the interest of the municipality. He was thus convicted

of ‘mandatsvig’.

_________________________


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The Danish concept of ‘forsæt’ (intent)

Question – the concept of intent (forsæt)

If your answer to the foregoing question is negative, please continue by

elaborating which importance the concept of ‘intent’ (forsæt) implies in this

connection.

Answer – the concept of intent (forsæt)

As it is observed above, my answer to the foregoing question is negative. In my

opinion, as already mentioned, two essential elements of ‘mandatsvig’ are missing

in the Kaupþing indictment and in the Judgment, i.e. (1) that the accused must, in

order for their transaction to be criminally regarded as ‘mandatsvig’, have acted

with the intent (forsæt) of obtaining an enrichment for themselves or for others,

and (2) they must also have had intent (forsæt) of acting against Kaupþing Bank’s

interests.

It also observed from the case law quoted above that the requirement for intent

(forsæt) plays the decisive role in all the elements of ‘mandatsvig’. The intent

(forsæt) of obtaining an enrichment and of acting against Kaupþing Bank’s

interests are absolutely crucial.

The word ‘forsæt’ does not appear in § 280, nor does it appear in the other types

of violations in the chapter concerning enrichment crimes. The reason for this is

that § 19, 1st sentence, of the Danish Penal Code (straffeloven) once and for all

settles this question. § 19, 1st sentence, states as follows:

“Uagtsomhed straffes ved de i denne lov omhandlede lovovertrædelser kun, når

det er særligt hjemlet”.

This short – and for Danish criminal law classic – sentence implies that the crimes

defined in the Penal Code demand intent (forsæt), unless the specific text of a

certain crime pronounces otherwise. Consequently, when § 280 on ‘mandatsvig’

applies the words “påfører en anden formuetab” and “ved … at handle mod dennes

tarv”, it is understood (because of § 19, 1st sentence) that the demand for intent

(forsæt) must always be included in such verbs: “påfører”, “handler”, etc.


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The Danish Penal Code (straffeloven) contains no general definition of intent

(forsæt). In one of the leading scholarly books it is simply pronounced that the

decisive factor is what the offender actually thought (“Det afgørende for alle

former for forsæt er, hvad gerningsmanden faktisk har tænkt”).11

Intent (forsæt) must be demonstrated in relation to all the objective elements that

constitute the crime.12 If only negligence (uagtsomhed) can be demonstrated in

connection with one of the objective elements, the accused cannot be punished for

a crime that requires intent (forsæt).13 If the accused’s thoughts were factually

incorrect, the accused thus being in a delution concerning relevant factual

elements of the crime, such delution will exclude intent (forsæt), and therefore

lead to acquittance.14

Under Danish criminal law, intent (forsæt) is found in three variations:

1. Direct intent (direkte forsæt): In accordance with violations where the criminal

element is a certain outcome (the victim dies; an enrichment occurs, etc.), the

direct intent (direkte forsæt) means to act in order to make that consequence

occur, i.e. aim at the outcome.15


– almindelig del (10. udgave. 2013) p. 245.

12 ”Om forsættets omfang bemærkes, at der skal foreligge forsæt i relation til samtlige de

objektive momenter, der konstituerer forbrydelsen”, cf. Vagn Greve, Poul Dahl Jensen &

Gorm Toftegaard Nielsen: Kommenteret straffelov – almindelig del (10. udgave. 2013) p.

252.

13 ”Foreligger der vedrørende det ene af flere elementer alene uagtsomhed, kan der ikke

straffes for forsætlig overtrædelse”, cf. Vagn Greve, Poul Dahl Jensen & Gorm Toftegaard

Nielsen: Kommenteret straffelov – almindelig del (10. udgave. 2013) p. 252.

14 ”De faktiske vildfarelser giver ikke anledning til særlig behandling. Er de relevante, er

de forsætsudelukkende og vil således bevirke frifindelse”, cf. Vagn Greve, Poul Dahl

Jensen & Gorm Toftegaard Nielsen: Kommenteret straffelov – almindelig del (10. udgave.

2013) p. 253.

15 ”Direkte forsæt er ved de delikter, hvor det kriminaliserede er at forårsage en bestemt

følge, f.eks. døden i § 237 [manddrab], at handle, for at denne følge skal indtræde; altså

at tilstræbe følgen, at have til hensigt at dræbe”, cf. Vagn Greve, Poul Dahl Jensen & Gorm

Toftegaard Nielsen: Kommenteret straffelov – almindelig del (10. udgave. 2013) p. 246.


17

2. Probability-related intent (sandsynlighedsforsæt): Without aiming at the

consequence, the offender regards the consequence as most likely to occur.

When stabbing with a knife, e.g., the offender holds it most likely that the

victim will die.16

3. Dolus eventualis (eventuality intent): Occurs in two forms, both of which must

be considered to be part of present Danish criminal law: (A) Hypothetical

eventuality intent (hypotetisk eventualitetsforsæt): The offender would have

acted in the same way, if he had known that the consequence would occur.17

(B) Positive acceptance intent (positivt indvilligelsesforsæt, or just:

acceptforsæt): The offender has realized the possibility that a certain

consequence may occur, and he has accepted this possibility.18

Danish courts do apply the third of these variations, including dolus eventualis, but

the Danish Supreme Court has called for careful handling with the third of the

three forms, dolus eventualis, cf. UfR 1992.455 H,19 where the Supreme Court

pronounces: “Der bør generelt udvises varsomhed med hensyn til anvendelse af

forsætsformen dolus eventualis …”. - Indeed, none of the case law referred above

concerning ‘mandatsvig’ would seem to have applied dolus eventualis.

On the other hand, intent (forsæt) in the first form, i.e. in form of direct intent

(direkte forsæt) is not required; it is sufficient to demonstrate the second form of

forsæt, i.e. probability-related intent (sandsynlighedsforsæt): Without directly

aiming at the outcome, the offender regards it as most likely to occur. In this

16 ”Sandsynlighedsforsæt foreligger, hvis gerningsmanden uden at tilstræbe følgen indser

dens indtræden som overvejende sandsynlig, f.eks. ved et knivstik anser det som

overvejende sandsynligt, at den ramte vil blive dræbt”, cf. Vagn Greve, Poul Dahl Jensen &

Gorm Toftegaard Nielsen: Kommenteret straffelov – almindelig del (10. udgave. 2013) p.

247.

17 ”… gerningsmanden må antages at ville have handlet på samme måde, hvis han havde

vidst, at følgen ville indtræde”, cf. Vagn Greve, Poul Dahl Jensen & Gorm Toftegaard

Nielsen: Kommenteret straffelov – almindelig del (10. udgave. 2013) p. 247.

18 ”Det afgørende er herefter, om gerningsmanden, der har indset muligheden af, at en

vis følge vil indtræde, har accepteret muligheden for, at følgen vil indtræde”, cf. Vagn

Greve, Poul Dahl Jensen & Gorm Toftegaard Nielsen: Kommenteret straffelov – almindelig

del (10. udgave. 2013) p. 248.

19 Quoted by cf. Vagn Greve, Poul Dahl Jensen & Gorm Toftegaard Nielsen: Kommenteret

straffelov – almindelig del (10. udgave. 2013) p. 248.


18

connection the requirement for intent (forsæt) is therefore fulfilled if it can be

demonstrated that enrichment and loss were most probable to occur.

The question of intent (forsæt) inevitably leads to the question of loss, respectively

a considerable risk of loss. For all the enrichment crimes (berigelsesforbrydelser) it

is a common feature that the intent (forsæt) also includes cases where the

offender regards a considerable risk of loss as most likely to occur, i.e. not

necessarily a loss that actually occurs. This is expressed in the following way by

Waaben/Langsted [my underlining]:20

“Der er næppe tvivl om, at langt de fleste berigelsesforbrydelser begås med

egentlig berigelseshensigt. Men et generelt krav herom fastholdes ikke i

domstolenes praksis. Det er i hvert fald tilstrækkeligt, at gerningsmanden har

anset vinding og tab som den overvejende sandsynlige følge af handlingen. Og

forsætsområdet strækkes endnu videre. Som det allerede er nævnt,

forekommer der tilfælde, hvor en person straffes for at skabe en væsentlig risiko

for formuetab og har handlet med forståelse af denne risiko. …

Det er nærliggende at antage, at dette risikoforsæt efter domstolenes

opfattelse træder i stedet for sandsynlighedsforsæt og dolus eventualis, når det

gælder vinding og tab. …”

These observations are extremely important to note in connection with the

Kaupþing case. The observations are that the three kinds of intent (forsæt) may

be simplified and reduced to two kinds of intent when regarding an enrichment

crime like, e.g., ‘mandatsvig’: 1) the direct intent (direkte forsæt = hensigt =

purpose) of course still exists here as the highest form of intent (forsæt). 2) The

two other kinds of intent (forsæt), i.e. probability-related intent

(sandsynlighedsforsæt) and dolus eventualis (eventuality intent) melt together

into one single kind of forsæt: risk intent (risikoforsæt), where the offender is

punished for creating a considerable risk of economic loss, and has acted with

understanding of this risk (“… en person straffes for at skabe en væsentlig risiko

for formuetab og har handlet med forståelse af denne risiko”, cf. Waaben/Langsted

as quoted above).

Waaben/Langsted have the following concluding remarks on the question of intent

(forsæt) in connection with ‘mandatsvig’:21

20 Knud Waaben: Strafferettens specielle del (6. reviderede udgave ved Lars Bo

Langsted,2014) p. 113 et subs.

21 Cf. Knud Waaben: Strafferettens specielle del (6. reviderede udgave ved Lars Bo

Langsted,2014) p. 173 et subs.


19

“Om formuetab og berigelsesforsæt gælder de samme almindelige synspunkter

som ved andre berigelsesforbrydelser, navnlig underslæb og bedrageri. I

forretningsforhold vil mange aftaler være forbundet med en risiko for den

repræsenterede, uden at de af den grund bliver uforsvarlige. Strafbare kan

sådanne aftaler blive, når de indebærer en væsentlig forøget risiko og ligger

klart uden for det, der har støtte i almindelige principper for bank- eller

forretningsmæssig vurdering”.

It will be seen from jurisprudence that the recognition of probability-related intent

(sandsynlighedsforsæt) separates Danish and Norwegian criminal law from

Swedish and German criminal law.22

Question – indictment sec. 1 – ‘for the purpose of enrichment’

In your expert opinion, would it appear to be sufficiently established that Hreiðar

had the intent of enriching Brooks Trading Ltd. (Brooks)?

When answering this question, please take the following items into consideration:

“The purpose of the loan was to invest in so-called credit-linked notes or make

other investments to be jointly decided by Kaupþing and the borrower. The money

was placed in Brooks’ account in Luxembourg but could not be disposed of by the

beneficial owner without Kaupþing´s assistance.

The original loan was – as mentioned in the indictment - to be repaid on 30

September 2008. On that day the 50 m USD were available in Brook’s account in

Luxembourg, and the loan could have been repaid - had it not been for the fact

that a new decision was made by Halldór Bjarkar to extend the loan (effectively a

new loan, with a new loan number) to a later date in October.

Hreiðar did not have anything to do with that decision.

22 Cf. Knud Waaben: Strafferettens almindelige del I – ansvarslæren (5. reviderede

udgave ved Lars Bo Langsted, 2012) p. 168. The authors add that Swedish theory defines

intent (uppsåt) in such a way that there is practically no room for any kind of intent

between the direct intent (direkte forsæt ) and dolus eventualis (eventuality intent). This

again leads to a greater importance of dolus eventuialis in Sweden than in Denmark and

Norway.


20

Halldór Bjarkar confirmed in his witness statement that this was his decision. This

fact is also documented. This is the loan that was unpaid when Kaupþing

collapsed.

Concerning the illegal transfer of the 50 m USD on October 8 2008, again, Hreiðar

had no knowledge of this transaction. Due to this transaction, the 50 m USD were

not available for repayment of the Brooks loan.

It has been clearly established through the testimony of witnesses and through

case documents that Hreiðar was not involved, and also that the transaction was

illegal. This could not have happened without the joint effort of a few employees of

Kaupþing, acting in the interest of the beneficial owner of Brooks, but not in

Kaupþings interest.

Halldór Bjarkar was one of these employees.”

Answer – indictment sec. 1 – ‘for the purpose of enrichment’

The answer is no. There is no proof that Hreiðar acted with an intent (forsæt) to

enrich Brooks. He appears to have acted (or to believe that he was acting) in the

interest of his employer, Kaupþing, and although there was no formal pledge on

the Luxembourg bank account, it could only be disposed of through joint decision

taken by Kaupþing and Brooks.

That Hreiðar did not have intent (forsæt) to cause any loss or any considerable

risk of loss to Kaupþing, nor to enrich Brooks, is supported by the fact that the

money for the punctual repayment of the loan was present, had it not been for

Halldór Bjarkar’s unauthorized decision to prolong the loan (or rather to grant a

new loan).

This is a strong indication that the loan did not (to quote Waaben/Langsted above)

carry a considerably increased risk, and that it did not clearly lie outside what is

supported by ordinary principles of bank or business judgment (“… indebærer en

væsentlig forøget risiko og ligger klart uden for det, der har støtte i almindelige

principper for bank- eller forretningsmæssig vurdering”).23

23 Cf. Knud Waaben: Strafferettens specielle del (6. reviderede udgave ved Lars Bo

Langsted, 2014) p. 173 et subs.


21

In short, Hreiðar did not have the intent (forsæt) required by § 280 on

‘mandatsvig’ to act against the interest of his employer, Kaupþing.

Question – indictment sec. 1 - subsequent approval of the credit

committee

In the matter described in sec. 1 of the indictment, the credit committee approved

the loan at the committee’s next meeting. Does this fact have any significance as

to the question of ‘mandatsvig’?

Counsels for the defense have argued that the approval of the credit committee is

essential as Hreiðar cannot be deemed to have acted against Kaupþing´s interest

if the entity that was authorised to approve the action did in fact approve it.

Answer – indictment sec. 1 - subsequent approval of the credit committee

Technically, the situation could have been that Hreiðar did have the intent (forsæt)

to act against the interest of Kaupþing, and that the subsequent approval of the

credit committee took him totally by (positive) surprise.

In real life, however, there is no evidence at all that this was the situation. Rather

was the situation that Hreiðar had no intent (forsæt) of acting against Kaupþing’s

interest, and that this is strongly supported by the fact that also the members of

the credit committee must necessarily have assessed the loan as being favorable

for Kaupþing.

It will be remembered that one of the crucial elements of § 280 is the offender’s

intent (forsæt) to act against the interest of his principal; such element can hardly

be said to be present when the bank’s own credit committee assesses the loan as

favorable for the bank.

Question – indictment sec. 2 – subordinated employees’ mistakes

Please give your expert opinion as to which extent a board member, CEO etc. can,

for the purpose of ‘mandatsvig’, be held responsible for the omissions, or other

kinds of mistakes, committed by subordinates.


22

This question is relevant to indictment sec. 2, cf. the Judgment in English

translation p. 70-75.

In your answer, please also address the Court’s reference to art. 68 of the Act on

Public Limited Companies (Judgment p. 72-73).

Answer – indictment sec. 2 – subordinated employees’ mistakes

When speaking of ‘mandatsvig’, he cannot be held responbsible for such

omissions, mistakes etc. committed by subordinates, if he does not positively

know them.

If he knows that a subordinate has forgotten or misunderstood an instruction, e.g.

an instruction to submit a loan case to a credit committee, and he takes advantage

of this omission to grant the loan without being stopped by the credit committee,

this may be ‘mandatsvig’, provided that he has the intent (forsæt) to act against

the interest of the bank, and to cause an enrichment to himself or others.

But if he does not know about the mistake, he cannot – for ‘mandatsvig’ purposes

– be held responsible for the omission, mistake, etc. He simply lacks the required

intent (forsæt).

It may very well be that, for company law purposes and/or for tort law purposes,

he may be held (wholly or partly) responsible for the omissions and mistakes

committed by subordinates, especially if he has neglected to organize the company

properly in accordance with art. 68 of the Act on Public Limited Companies. But in

connection with the definition of ‘mandatsvig’ such omissions and mistakes cannot

lead to his conviction, unless he knew about them. It is not enough that he ought

to have known about them; he must positively have known them, and also known

their impact for the specific loan.

I believe that art. 68 of the Icelandic company act has strong similarities with §

115 and § 117 of the Danish company act, dealing with various questions

concerning the proper organization and surveillance of the company (before 1

March 2010 it was regulated in § 54 in the Danish act on public limited

companies).


23

In Denmark, a breach of this article is independently criminalised in the company

act, and here not only intent (forsæt), but also negligence (simple or gross) is

punishable.24

However, Danish courts have been reluctant in punishing according to so broad

provisions as the former § 54, respectively the present §§ 115 and 117. This was

clearly seen in the criminal case after the collapse of the C&G-Banken, where the

CEO and the board members were accused of, i.a., breach of § 54 by having failed

in their organization and supervision of the bank’s foreign division, which caused

the bank considerable losses.25 The relevant part of the judgment can be

summarized as follows:26

”Mest bemærkelsesværdig er en række forhold, der førte til frifindelse, idet

kravene til domfældelse med hensyn til bestyrelsens tilsynspligter samt dens

pligter ved børsemission sættes bemærkelsesværdigt højt ved dommen. Således

var bestyrelsen tiltalt for forsømmelse af sine tilsynspligter efter AL § 54 ved

ikke at have foretaget sig noget aktivt for at standse eller begrænse

tabsrisiciene vedrørende bankens udlandsafdeling, skønt bestyrelsen gentagne

gange var advaret af Finanstilsynet og den eksterne revision om, at denne

afdeling var ude af kontrol.

Byretten lægger herved på den ene side til grund, at bestyrelsen

allerede tidligt i forløbet havde anledning og pligt til at genoverveje behovet og

mulighederne for at styrke kontrollen i udlandsafdelingen, men på den anden

side lægger retten afgørende vægt på, at de stedfundne fiktive posteringer i

udlandsafdelingen på ethvert tidspunkt kunne have været afsløret ved en

24 This is a consequence of the 2nd part of § 19 in the Danish Criminal Code, stating that

in other acts than those described in the Criminal Code, offences are punishable also in

case of negligence. - The whole of § 19, with its two parts, of which the first part has

already been quoted earlier in this expert report, reads as follows: ”Uagtsomhed straffes

ved de i denne lov omhandlede lovovertrædelser kun, når det er særskilt hjemlet. På

andre lovovertrædelser er de pågældende straffebud anvendelige, også når

lovovertrædelsen er begået af uagtsomhed, medmindre det modsatte har særlig

hjemmel”.

25 Judgment of 9 March 1994 from Copenhagen City Court (Københavns Byret), 17. Afd.,

case 73359/90.

26 The judgment was not published in the UfR, but reported by Martin Poulsen & Erik

Werlauff: Selskabsretlige domme og kendelser 1950-2000 (3rd revised edition, 2011), p.

341 et subs., and shortly after the judgment analysed by Erik Werlauff in R&R 1994 no. 6

p. 9 et subs.


24

afstemning med de eksterne kontoudtog. Bestyrelsen havde derfor haft føje til

at påregne,27 at den interne revision i banken kontrollerede

afstemningsskemaerne for udlandsafdelingens egen afstemning, og ligeledes

føje til at påregne, at de eksterne revisorer ved beholdningseftersyn og ved

årsafslutningen gennem afstemning ville sikre sig, at den bogførte

valutabeholdning var til stede på bankens konti i den udenlandske

korrespondentbank.

På den anførte baggrund fandt byretten "ikke at kunne fastslå, at

bestyrelsen har overskredet rammerne for det skøn, som bestyrelsen i mangel

af offentlige forskrifter eller sikre normer må indrømmes, før strafansvar

pådrages", og samtlige bestyrelsesmedlemmer frifandtes derfor for disse

tilsynssvigt.”

I have referred to this case in order to demonstrate the reduced importance, for

criminal law purposes, of such broadly formulated company law provisions on

organization, surveillance etc. In the Kaupþing case, the question was simply

whether a CEO etc. can be held responsible, according to § 280 on ‘mandatsvig’,

for omissions and mistakes by subordinates, and whether art. 68 in the Icelandic

company law has any significance here, and the answer to both these questions is

negative, because of the lack of intent (forsæt).

Question – indictment sec. 2 – proof concerning Ólafur’s knowledge

As to Ólafur’s alleged complicity, please give your expert opinion as to whether he

can be held responsible as an accomplice if it can be proved, or just made

probable, that he had no knowledge of Kaupþing’s internal process for granting

loans, i.e. neither of the content of the internal procedures nor to which extent

they had been adhered to in the case at hand, and to which extent Hreiðar Már

Sigurðsson and Sigurður Einarsson were authorized to grant loans.

Please also elaborate on to which extent Ólafur‘s education and experience is

relevant in this context.

27 haft føje til at påregne = haft grund til at gå ud fra = had good reason to assume


25

Answer – indictment sec. 2 – proof concerning Ólafur’s knowledge

The fact that Ólafur had no knowledge of Kaupþing’s internal loan process, does

not eo ipso free him from being regarded as an accomplice (however, as will

appear from my answers above, in my opinion there is no ‘mandatsvig’ to be

accomplice to).

The decisive factor is whether Ólafur was aware that by granting the loan Hreiðar

and Sigurdur acted against the interest of Kaupþing in order to enrich themselves

or a third party, thereby causing loss or considerable risk of loss for Kaupþing, cf.

the elements of § 280 on ‘mandatsvig’, which I have dealt witrh in depth above.

According to Danish criminal law on complicity (medvirken) the relevant provision

in the penal code includes anyone, who through “suggestion, advice or act”

(“tilskyndelse, råd eller dåd”), assists in the criminal act, cf. § 23, para 1, of the

Danish Criminal Code.28

This also includes situations where the accomplice assists an offender in breaching

the offender’s special duties, like e.g. the situation described in § 280 on

‘mandatsvig’.29

The accomplice must independently fulfil the requirements of having acted with

intent (forsæt), cf. the remarks on intent above. It is often described as follows: A

person having intent (forsæt) to complicity can be punished for the primary

offender’s acts so far as these are anticipated (påregnelige).30 However, the word

“påregnelig”, which has often been applied by the courts, has – rightfully so –

been critisized by jurisprudence for leading the mind to negligence. The wording

should thus be chosen carefully, in order to indicate that intent (forsæt) is also

28 § 23, para 1, 1st part, reads as follows: ”Den for en lovovertrædelse givne

straffebestemmelse omfatter alle, der ved tilskyndelse, råd eller dåd har medvirket til

gerningen”.

29 This can be deducted from § 23, para 2, which allows the court to reduce the

punishment for such situations: ”Straffen kan ligeledes nedsættes for den, der medvirker

til krænkelse af et særligt pligtforhold, men selv står uden for dette”. Quoted by cf. Vagn

Greve, Poul Dahl Jensen & Gorm Toftegaard Nielsen: Kommenteret straffelov – almindelig

del (10. udgave. 2013) p. 300.




26

required on the part of the accomplice. This is expressed in the following way in

jurisprudence:31

“Der kan kun straffes for medvirken, når den anden persons handling ligger

inden for det aftalte eller ventelige område. Hvis der skal straffes for forsætligt

forhold, skal den pågældende konkret have taget stilling til muligheden for den

andens senere handling; det er ikke tilstrækkeligt, at han/hun burde have indset

muligheden. Det er derfor en uheldig sprogbrug, når domstolene taler om

’påregnelighed’.”

In Ólafur’s case, this means that he must have positively known and understood

that the CEO and chairman of Kaupþing acted against Kaupþing’s interests in the

way described in § 280, no. 2, on ‘mandatsvig’. The crucial point is therefore not

the (formal) question of Ólafur’s knowledge of the internal process in Kaupþing,

but rather the (material) question of whether or not he understood that the CEO

and chairman were (if this were the case) acting against Kaupþing’s interests.

When assessing this understanding, Ólafur’s experience with business matters is of

course of some relevance. However, no matter how experienced he might be, or

might not be, it is still not decisive what he ought to have known and understood,

but what he actually knew and understood.

To the extent that it is, under Icelandic law, a prerequisite for sentencing Hreiðar

Már Sigurðsson and Sigurður Einarsson that they knowingly granted the loan

without credit committee approval, the documents I have been provided with do

not indicate that Olafur had such knowledge.

Question – indictment sec. 2 – question regarding intent (forsæt)

In your expert opinion, when assessing the accused persons’ intent (forsæt),

should the loan transaction, and Kaupþing’s selling of a portion of its own shares to

the borrower, for the purpose of the question of intent (forsæt), be regarded as

two separate transactions, or as one single transaction?

Answer – indictment sec. 2 – question regarding intent (forsæt)




27

Definitely as one single transaction. The loan is earmarked, and it is only granted

for the special purpose of the bank selling a portion of its own shares, thus

bringing the shares into circulation, instead of possessing them as part of the

bank’s own shares.


In your expert opinion, when assessing the accused persons’ intent (forsæt), did

the accused persons have an intent (forsæt) to increase Kaupþing’s risk, when

they caused Kaupþing to deliver a portion of its own shares, instead of cash, when

granting a loan to the borrower?


The answer is no. The bank will always be in a better financial position when

someone agrees to purchase shares which were until then owned by the bank

itself, i.e. owned by the issuing company.

It must be remembered that a company’s acquisition of its own shares

corresponds to distributing dividend to the selling shareholder(s), and this has the

effect of a capital decrease; contrary to this, when own shares are sold by the

company in the market, this has the effect of a capital increase in the company.

Thus, a company’s financial position is – mutatis mutandis - weakened when the

company acquires own shares, and strengthened when the company sells out of its

stock of own shares.


In your expert opinion, when assessing the accused persons’ intent (forsæt), does

it make a difference in assessing the intent (forsæt) that the shares were not

pledged but instead tied up in a special purpose vehicle, an SPV, instead of being

formally pledged?


The answer is no.


28

A pledge has two purposes: 1) to protect against the debtor’s subsequent selling

or mortgaging of the pledged object, and 2) to protect the pledged object from the

debtor’s creditors, whether they are individually seeking fulfilment through seizure

(udlæg), or collectively seeking fulfilment through bankruptcy. In Danish language

for credit law purposes we have the concept of “tinglig beskyttelse”, which can be

devided into two parts: 1) omsætningsbeskyttelse and 2) kreditorbeskyttelse.

In some cases the lender may be content with just one of these two aspects of

protection. The reasons for this may vary, but one of the main reasons is that just

one aspect of protection can often be obtained in a more flexible way than a

formal pledge; it is often cheaper; it is often more convenient to present to the

public, etc.

Everyday examples from business life are:32

• A negative pledge, whether it exists only by contract, or it is registered on

certain assets belonging to the borrower, gives protection in the first aspect,

but not in the second.33

• Consignment sale (konsignationssalg) gives the seller/lender protection in the

second aspect, but not in the first.34

• Various kinds of contractual covenants give the lender protection in the first

aspect, but not in the second.35

• Special purpose vehicles (SPV’s) give the lender protection in the first aspect,

but not in the second.36

32 Cf. Lennart Lynge Andersen & Erik Werlauff: Kreditretten (5. udgave, 2010), p. 119 et

subs., and p. 133 et subs.


subs.


subs.

35 Cf. Andreas Tamasauskas: Erhvervslivets lånoptagelse (2006), Erik Werlauff in ET

2006 p. 179 et subs., and Lennart Lynge Andersen & Erik Werlauff: Kreditretten (5.

udgave, 2010), p. 119 et subs.


subs.


29

The examples where protection in the first aspect is obtained, but not in the

second aspect, contain a lock-up of the assets in question, so that the borrower

cannot freely dispose of the assets, but these are not protected from the

borrowers creditors. The SPVs are, as mentioned, an instrument for such lock-up,

and this was exactly what was chosen in the case of Kaupþings Gerland loan, and

also for the Serval loan.

The CEO and the chairman of Kaupþing must inevitably have felt that this was a

common and safe way of locking-up the shares sold from the bank to Q Iceland

Finance under sec. 2+3+4 of the indictment. It is highly improbable that managers

and directors acting in this way have had an intent (forsæt) of acting against the

bank’s interest in the sense of § 280 on ‘mandatsvig’.


In your expert opinion, when assessing the accused persons’ intent (forsæt), does

it make a difference in assessing the intent (forsæt) that the loans were granted

through two offshore companies, one owned by Ólafur?


The answer is no. For the question of the duty of flagging, cf. below, it may make

a difference, but as to the question of intent (forsæt) to act against the bank’s

interest in the sense of § 280 on ‘mandatsvig’ it makes no difference.


All in all, in your expert opinion, when assessing the accused persons’ intent

(forsæt), does there seem to be a sufficient intent to enrich the purchaser of the

shares (i.e. the borrower)?


The answer is no. I refer to my remarks above, and repeat that there would seem

to be no intent (forsæt) of acting against the banks interests in the sense of § 280

on ‘mandatsvig’, and no intent (forsæt) of enriching themselves or a third party.


30

Question – indictment sec. 2 – value of the Kaupþing shares

In your expert opinion, what was the value of Kaupþing's own shares that were

transferred in the transaction, when they were owned by Kaupþing?

Answer – indictment sec. 2 – value of the Kaupþing shares

The answer is ‘zero’. Shares acquired by the issuing company have no value for

this company, as long as they are not actually resold again from the company.

As long as a company possesses its own shares, their voting rights are suspended,

and for accounting purposes their net value is, and must be, zero.

Both these observations follow from art. 22(1) of the 2nd company law directive,

the capital directive:

“Article 22

1. Where the laws of a Member State permit a company to acquire its own

shares, either itself or through a person acting in his own name but on the

company's behalf, they shall make the holding of these shares at all times

subject to at least the following conditions:

(a) among the rights attaching to the shares, the right to vote attaching to the

company's own shares shall in any event be suspended;

(b) if the shares are included among the assets shown in the balance sheet, a

reserve of the same amount, unavailable for distribution, shall be included

among the liabilities.”

Directive 77/91/EEC was amended through directive 2006/68/EC, but art. 22 was

left unchanged.

The directive has since then been replaced by directive 2012/30/EU, which

contains correspondeing provisions in art. 24(1):

“Article 24

1. Where the laws of a Member State permit a company to acquire its own

shares, either itself or through a person acting in his own name but on the


31

company's behalf, they shall make the holding of those shares at all times

subject to at least the following conditions:

(a) among the rights attaching to the shares, the right to vote attaching to the

company's own shares shall in any event be suspended;

(b) if the shares are included among the assets shown in the balance sheet, a

reserve of the same amount, unavailable for distribution, shall be included

among the liabilities.”

As it will be seen, these restrictions have constantly been maintained by EU

legislation throughout the years. The reason for this is simple: In order to acquire

such shares the company must pay a purchase price to the shareholder owning

them, and this payment has the same effect as a dividend leaving the company’s

reserve funds. A company’s acquisition of its own shares is an alternative or

supplementary way of distributing dividends, however not equally to all its

shareholders, but to such shareholders that actually want a ‘dividend’. This is why

share-buy-back is an alternative, or sometimes a supplement, to traditional pay-

out of dividends.

It should be added that some of the restrictions imposed on a company that

acquires its own shares are lifted when the company is a bank or other credit

institution. However, the restrictions mentioned here are also mandatory for

banks.

__________________________


32

MARKET ABUSE (indictment sec. 3 + 4)

The EU concept of ‘market abuse’

Question – sec. 3 + 4 – disclosure of the financing of the investment

In your expert opinion, did it constitute market manipulation that Kaupþing, when

announcing that companies controlled by Sheikh Al-Thani had purchased 5.01

percent of Kaupþing’s share capital, did not disclose information on the way the

purchase was financed?

This question is relevant to the Judgment in English translation p. 75-79 (sec. 3)

and p. 79-83 (sec. 4).

Answer – sec. 3 + 4 – disclosure of the financing of the investment

The answer is no. It is sufficiently demonstrated that Al-Thani’s company Q Iceland

Finance’s purchase of the Kaupþing shares represented a true sale of the shares,

and that Q Iceland Finance through this purchase became the beneficial owner of

the shares. Under such circumstances, Kaupþing did neither have a duty nor a

right to publish the way Q Iceland Finance financed its purchase. Under such

circumstances, it cannot constitute a market manipulation under art. 1(2) of the

market abuse directive, 2003/6/EU,37 that the way the purchase was financed was

not published by Kaupþing.

37 The EU market abuse regime consists of three levels: (1) Level 1 which is the structure

consisting of EU-legislation and CESR guidance. By far most important on level 1 is the

market abuse directive (“MAD”), directive 2003/6/EC. (2) Level 2 consists of implementing

directives and a regulation, i.e. directive 2003/124/EC on definition and public disclosure

of inside information and the definition of market manipulation; directive 2003/125/EC on

fair presentation of investment recommendations and the disclosure of conflicts of

interest; directive 2004/72/EC on, i.a., accepted market practices; and regulation (EC) no.

2273/2003 on safe harbor (exemptions) for share-buy-back programs and programs on

stabilization of financial instruments. (3) Level 3 consists of CESR guidance (CESR being

the successor of ESMA, the European Securities and Markets Authority). - The MAD

directive (and it is allowed to joke about its name) is the consolidated version of four

earlier directives: 79/279, 80/390, 82/121 and 88/627. Cf. on these matters Peer

Schaumburg-Müller & Erik Werlauff: EU’s selskabs-, børs- og kapitalmarkedsregler (2nd

edition, 2003) p. 464 et subs. See same authors: Børs- og kapitalmarkedsret (5th edition,

2012).


33

The facts are not as complicated as it might seem at first glance. Kaupþing was

the lender. The company Gerland, owned and controlled by Ólafur, borrowed half

of the amount. The company Serval, owned and controlled by Al-Thani, borrowed

the other half. The two loan amounts melted together as they were lent to the

company Choice, owned and controlled by Ólafur, Al-Thani and one of Al-Thanis

relatives, Bin Jassim Al-Thani. Choice lent the amount to Q Iceland Finance, which

was 100 percent owned and controlled by Al-Thani. It was Q Iceland Finance that

bought the shares representing 5.1 percent of Kaupþings share capital.

Those three parties – Ólafur, Al-Thani and Bin Jassim – were planning for a

financial cooperation, where they, with their own and also with borrowed funds,

intended to invest in various projects. Because their individual investments would

not be exactly equal in each of the projects, they each established a separate

company (a special purpose vehicle, an SPV) for each of their investments. This

would allow them not always to invest in the same projects, and if they invested in

the same projects, it would allow them to invest with various percentages for each

of them.

They applied Choice as a common financial entity for these purposes, and that

would not be unsual at all. It is often seen that a group of companies, or a number

of partners, apply an entity which they own in common as a financing vehicle,

through which the required funding can be obtained for their various projects.

Such a financially specialised entity often simply has the role of borrowing and re-

lending the funds, without itself taking part in the ownership to the various

projects.38

In the Kaupþing case, the necessary funding came from Kaupþing via Ólafur

(Gerland) and al-Thani (Serval) through all the three investors’ common company,

Choice, to Al-Thani’s company, Q Iceland Finance. There had been negotiations

between Kaupþing and Al-Thani about his company’s purchase of the Kaupþing

shares, and Kaupþing’s sale of shares to his company was without any doubt a

true sale, making Al-Thani’s company Q Iceland Finance the beneficial owner of

the Kaupþing shares.

38 In a famous EU judgment, Cadbury Schweppes, C-196/04, judgment of 12 September

2006, such a (group-internal) financial entity was assessed for tax purposes. Cadbury

Schweppes is analysed by Nikolaj Vinther & Erik Werlauff in European Taxation 2006 p.

383 et subs. and by Thomas Rønfeldt, Nikolaj Vinther & Erik Werlauff in International Tax

Review 2007 (vol. 35) p. 45 et subs.


34

It seems to me that there has been some confusion, in the indictment and in the

Judgment, concerning the standards by which it must be decided whether such

purchase of shares are genuine, or whether there is a pro forma sale. However,

those standards can be deduced already from the EU directive that allows EU and

EEA member states to make it possible for companies to purchase their own

shares. The relevant directive is the 2nd company law directive, i.e. the capital

directive, directive 77/91/EEC, as amended through directive 2006/68/EC (now

directive 2012/30/EU).

In defining when a company has acquired and thus is the owner of some of its own

shares, the directive in art. 22(1) and 22(2) applies the following wording [my

underlining]: “… to acquire its own shares, either itself or thorugh a person acting

in his own name but on the company’s behalf …”.39 The same definition – “on the

company’s behalf” – is applied by the directive when it prohibits any company to

subscribe to new shares issued by the company, cf. art. 18(2) of the same

directive.

There is no sign that Al-Thani’s company Q Iceland Finance held the Kaupþing

shares on behalf of Kaupþing. On the contrary, there was a true sale of the shares

to Al-Thani’s company, and Al-Thani stood as personal surety for the part of the

loan that came from his company Serval, through the three investors’ common

financial entity, Choice, as a loan from Choice to Q Iceland Finance. The profit, in

case the shares increased in value, belonged to Al-Thani’s company Q Iceland

Finance, and in case the shares decreased in value, that same company would

carry the loss.

Thus, to publish that Al-Thani’s company Q Iceland Finance has purchased the

Kaupþing shares, was not only formally correct, but also substantially correct.

There is no requirement, neither in the market abuse directive (MAD), 2003/6/EC,

nor in the admission and information directive mentioned above, 2001/34/EC, that

the company that has issued the shares, nor the purchaser of the shares, be

obliged to publish how the purchaser financed the purchase. Such a requirement is

39 Some other linguistic versions of the directive [my italics]: ”… d'acquérir ses propres

actions soit par elle-même, soit par une personne agissant en son propre nom mais pour

le compte de cette société ... ”; ”… den Erwerb eigener Aktien, sei es selbst, sei es durch

eine im eigenen Namen, aber für Rechnung der Gesellschaft handelnde Person … ”; ”…

…”; ”… erhverve egne aktier enten selv eller gennem en person, der handler i eget navn,

men for selskabets regning …”.


35

made if a person or an entity intends to give a public bid for the majority of a

quoted company, cf. 13th company law directive on takeover bids, 2004/25/EC;

according to article 6(3) point l, the offer document must contain “information

concerning the financing for the bid”.40 Even in that case, i.e. a public bid for a

whole company, I doubt very much that the duty to give “information concerning

the financing for the bid” implies a duty to inform on the name(s) of the bank(s)

that have provided loan facilities for the bid. In Kaupþing’s case, it is e contrario a

fact that neither of the two relevant directives contain such requirement.41

Kaupþing combined not less than three capacities, which is not at all forbidden: 1)

It had issued the shares in question. 2) It was the seller of the shares, selling

them from Kaupþing’s stock of own shares. 3) It was the lending bank. The third

capacity is, for matters of publication, a restricted matter in all countries, including

Iceland of course, where a bank is absolutely not free to publish information on the

identity, amount, purpose etc. of its borrowers. It would have been a gross

violation of financial laws (in Denmark: § 117 in lov om finansiel virksomhed = the

act on financial activity) if the bank, without being obliged to do so by some other

law, published information on the fact that Al-Thani’s company Q Iceland Finance

had borrowed the money for its purchase of Kaupþing shares from the 3 investors’

common company Choice, that again had borrowed the money from Al-Thani’s

company Serval and from Ólafur’s company Gerland.

It is not allowed for a bank, by way of its own arbitrary decision, to publish such

information if the bank is not obliged to do so through legislation, and I see no

such lex specialis legislation obliging Kaupþing to do so.

These established circumstances now have to be held up against the definitions in

the MAD directive, 2003/6/EC, of the concept of market manipulation, i.e. art. 1(2)

of the directive, which is so important in this connection that it is relevant to quote

it in its entirety [my underlining]:

“2. ‘Market manipulation’ shall mean:

40 As I understand it, this requirement in the directive on takeover bids is reflected in

provision 2.18 of the Reykjavik Stock Exchange Rules for issuers as from 1st July 2008.

41 Both directives, the market abuse directive (MAD), 2003/6/EC, and the admission and

information directive mentioned above, 2001/34/EC, are minimum directives, which

(contrary to directives demanding total harmonization) allow stricter national provisions

than laid down in the directives. However, as it appears from the Kaupþing case, no

stricter provisions on this point would seem to exist under Icelandic law.


36

(a) transactions or orders to trade: - which give, or are likely to give, false or misleading signals as to

the supply of, demand for or price of financial instruments, or

- which secure, by a person, or persons acting in collaboration, the price of one or several financial instruments at an abnormal or artificial level,

unless the person who entered into the transactions or issued the orders to trade establishes that his reasons for so doing are legitimate and that these transactions or orders to trade conform to accepted market practices on the regulated market concerned;

(b) transactions or orders to trade which employ fictitious devices or any

other form of deception or contrivance;42 (c) dissemination of information through the media, including the

Internet, or by any other means, which gives, or is likely to give, false or misleading signals as to financial instruments, including the dissemination of rumours and false or misleading news, where the person who made the dissemination knew, or ought to have known, that the information was false or misleading. In respect of journalists when they act in their professional capacity such dissemination of information is to be assessed, without prejudice to Article 11, taking into account the rules governing their profession, unless those persons derive, directly or indirectly, an advantage or profits from the dissemination of the information in question.

In particular, the following instances43 are derived from the core definition given in points (a), (b) and (c) above: - conduct by a person, or persons acting in collaboration, to secure

a dominant position over the supply of or demand for a financial instrument which has the effect of fixing, directly or indirectly, purchase or sale prices or creating other unfair trading conditions,

- the buying or selling of financial instruments at the close of the

market with the effect of misleading investors acting on the basis of closing prices,

- taking advantage of occasional or regular access to the traditional

or electronic media by voicing an opinion about a financial instrument (or indirectly about its issuer) while having previously taken positions on that financial instrument and profiting subsequently from the impact of the opinions voiced on the price

42 Please see footnote below for a deeper explanation and linguistic comparison of these

expressions.

43 instances = examples


37

of that instrument, without having simultaneously disclosed that conflict of interest to the public in a proper and effective way.

The definitions of market manipulation shall be adapted so as to ensure that new patterns of activity that in practice constitute market manipulation can be included.”

It would seem necessary to hold the facts of the Kaupþing case up against these

definitions one by one, in order to see whether the persons acting in the Kaupþing

case fulfil one or more of the elements, hereby keeping in mind that the MAD

directive is also binding on the EEA countries, including Iceland,44 that the directive

is a minimum directive, allowing each country to maintain stricter rules, but that it

must of course be seen from a contry’s legislation if this country chooses to

maintain stricter rules than required by the directive:

1. Did the Kaupþing people - and/or the Kaupþing people and Al-Thani acting in

collaboration - give false or misleading signals as to the supply of, demand for

or price of Kaupþing shares?45 The answer is no. When it is established that

there was a true sale from Kaupþing to Al-Thani’s company, Q Iceland Finance,

whereby his company became the beneficial owner of the Kaupþing shares, no

false or misleading signals have been given, and as established above there is

no requirement (and even no right) for Kaupþing to give public information on

the financing. Also, the purchase was negotiated between Kaupþing and Al-

Thani, who are not connected or related in any way, so that their agreement

on the price must be accepted as a fair market price.

44 It is an option, but not mandatory, for Icelandic courts (as well as for courts in other

EFTA States) to require an advisory opinion from the EFTA Court in Luxembourg on the

interpretation of EEA rules. It would not seem to have been discussed in the Kaupþing

case whether this could be of relevance or not. Considering that no case has been decided

by the EU Court nor by the EFTA Court on the question whether public announcements like

those in the Kaupþing case ought or ought not to mention the way the share purchaser

finances the purchase, such submission to the EFTA Court could be of some interest.

However, it must be kept in mind that such submission is only an option for a court in an

EFTA State, and that the EFTA Court can of course only give its advisory opinion on the

interpretation of EU/EEA rules, not on the application of the rules on the facts in a specific

case. In case the Supreme Court of Iceland chooses not to submit the case to the EFTA

Court, I have endeavoured to deliver the answers which I would expect the EFTA Court to

deliver on the interpretation of the MAD directive.

45 Cf. MAD directive art. 1(2) litra (a), 1st dash.


38


collaboration - secure that the price of Kaupþing shares were at an abnormal

or artificial level?46 The answer is no, for the reasons given under no. 1 above.

3. When – as it is concluded here – the answers to no. 1 and 2 are negative, it is

not relevant to examine the rest of this para of art. 1(2), starting with the

words “…unless the person who entered into the transactions or issued the

orders to trade establishes that his reasons for so doing are legitimate …”.47

This addition is only relevant to examine in case where one or both the

foregoing questions were answered affirmatively.


collaboration - employ fictitious devices or any other form of deception or

contrivance?48 No, cf. again the facts described above.


collaboration – give false or misleading signals through the media?49 The

answer is no, cf. no. 1 above.

The examples given in the 2nd-last paragraph of art. 1(2) (starting with the words:

“In particular …”) are non-exhaustive examples on litra (a), (b) and (c). These

examples would not seem to be relevant here; nevertheless, I shall mention them

in short:

- fixing, directly or indirectly, purchase or sale prices;

- buying or selling of financial instruments at the close of the market with

the effect of misleading investors;

- profiting subsequently from the impact of the opinions voiced on the

price.

46 Cf. MAD directive art. 1(2) litra (a), 2nd dash.

47 Cf. MAD directive art. 1(2) litra (a), addition concerning both 1st and 2nd dash.

48 Cf. MAD directive art. 1(2) litra (b). - Some other linguistic versions of the MAD

directive have: Fictitious devices = procédés fictifs; falsche Tatsachen; fingerede planer.

Deception = tromperie; Täuschung; bedrag. Contrivance = artifice; Kunstgriffe; påfund.

49 Cf. MAD directive art. 1(2) litra (c).


39

None of these three examples would seem to be relevant, considering that there

was a true sale from Kaupþing to Al-Thani’s company, Q Iceland Finance, whereby

his company became the beneficial owner of the Kaupþing shares, and that the

purchase was negotiated between Kaupþing and Al-Thani, who are not connected

or related in any way, so that their agreement on the price must be accepted as a

fair market price. As I understand it from the case, Al-Thani has also confirmed

that he and he alone, through his company Q Iceland Finance, made the 5.01

percent investment.

In conclusion, it did not constitute market manipulation that Kaupþing, when

announcing that companies controlled by Sheikh Al-Thani had purchased 5.01

percent of Kaupþing’s share capital, did not disclose information on the way the

purchase was financed.

Question – sec. 3 + 4 – disclosure of Ólafur’s involvement

In your expert opinion, (a) did it constitute market manipulation that Kaupþing,

when announcing the purchase as mentioned, did not disclose the fact that Ólafur

Olafsson had been involved?

(b) Do you consider it proved that he was actually involved to such an extent that

a disclosure was mandatory?

(c) Would the testimony of Eggert J. Hilmarsson, which you have reviewed in the

English translation, be conclusive evidence under Danish law that Ólafur Olafsson

was to profit from the transaction?

Answer – sec. 3 + 4 – disclosure of Ólafur’s involvement

(a). The answer is no.

(b). The answer is no.

(c). The answer is no. Please observe that this answer is given to question c) in

the way this question is rephrased below.

The following remarks are common for alle three questions:


40

Through his companies, Ólafur already held a 9.88 percent stake of the total

amount of voting rights in Kaupþing. Ólafur was thus a major shareholder of

Kaupþing, both for practical reasons and also in the sense defined in art. 9 an 10

of directive 2004/109/EC. Ólafur was not member of Kaupþing’s board or

management.

Directive 2001/34/EC was amended through directive 2004/109/EC on

transparency of major shareholdings. The preamble for directive 2004/109/EC

states in observation no. 38:

“This Directive aims to upgrade the current transparency requirements for

security issuers and investors acquiring or disposing of major holdings in issuers

whose shares are admitted to trading on a regulated market. This Directive

replaces some of the requirements set out in Directive 2001/34/EC … In order to

gather transparency requirements in a single act it is necessary to amend it

accordingly. …“.

Directive 2004/109/EC cuts some articles out of directive 2001/34/EC and replaces

them by art. 90 and 10 of directive 2004/109/EC. This directive becomes of

importance in three ways when answering the present question in the Kaupþing

case [my underlining]:

• Art 9(1): The home Member State shall ensure that, where a shareholder

acquires or disposes of shares of an issuer whose shares are admitted to

trading on a regulated market and to which voting rights are attached,

such shareholder notifies the issuer of the proportion of voting rights of the

issuer held by the shareholder as a result of the acquisition or disposal

where that proportion reaches, exceeds or falls below the thresholds of 5

%, 10 %, 15 %, 20 %, 25 %, 30 %, 50 % and 75 %. The voting rights

shall be calculated on the basis of all the shares to which voting rights are

attached even if the exercise thereof is suspended.

• Art. 9(2): The home Member States shall ensure that the shareholders

notify the issuer of the proportion of voting rights, where that proportion

reaches, exceeds or falls below the thresholds provided for in art. 9(1).

• Art. 10: The notification requirements defined in art. 9(1) and 9(2) shall

also apply to a natural person or legal entity to the extent it is entitled to

acquire, to dispose of, or to exercise voting rights in any of the following

cases or a combination of them [again with my underlining, and with my

comments added after an *]:


41

a. Voting rights held by a third party with whom that person or entity has

concluded an agreement, which obliges them to adopt, by concerted

exercise of the voting rights they hold, a lasting common policy

towards the management of the issuer in question: * This is clearly not

the case here.

b. Voting rights held by a third party under an agreement concluded with

that person or entity providing for the temporary transfer for

consideration of the voting rights in question: * This is clearly not the

case here.

c. Voting rights attaching to shares which are lodged as collateral with

that person or entity, provided the person or entity controls the voting

rights and declares its intention of exercising them: * This is clearly

not the case here.

d. Voting rights attaching to shares in which that person or entity has the

life interest: * See below; this expression needs clarification, before

conclusions can be drawn.

e. Voting rights which are held, or may be exercised within the meaning

of points (a) to (d), by an undertaking controlled by that person or

entity: * This is clearly not the case here.

f. Voting rights attaching to shares deposited with that person or entity

which the person or entity can exercise at its discretion in the absence

of specific instructions from the shareholders: * This is clearly not the

case here.

g. Voting rights held by a third party in its own name on behalf of that

person or entity: * This is clearly not the case here.

h. Voting rights which that person or entity may exercise as a proxy

where the person or entity can exercise the voting rights at its

discretion in the absence of specific instructions from the shareholders:

* This is clearly not the case here.

All the situations in litra a) – h) quoted above can immediately be excluded in the

Kaupþing case, except for litra d) – “life interest” - which needs a closer


42

examination.50 Life interest or ususfructus must be understood as a continuous

right, normally for the beneficiary’s life time (hence the expression in the English

version), to enjoy the dividends from the shares (Danish: udbytteret).51 A parallel

to this is a beneficial interest (Danish: rentenydelsesret) from bonds or other

instruments carrying interest.52 Ususfructus to shares is known in various

situations, e.g. where shares are donated as a gift, whereas the donator has

reserved himself the ususfructus in the form of a right (for life) to collect and enjoy

the dividends from the shares. Or a testator or testatrix wills his or her shares to

person A, but allots the ususfructus of the shares to person B for life.53

Should one simply find a suitable common expression for the words of the various

linguistic versions of the directive – life interest, Nieβbrauch, usufruit, or

ususfructus - it would be: interest for life (Danish: livsvarig interesse).54

50 The expression ”life interest” in directive 2004/109/EC art. 10 litra d) has succeeded

from art. 92, litra h), in directive 2001/34/EC, which again has succeeded from art. 8 in

the original directive on major shareholdings, directive 88/627/EC. Some other linguistic

versions have: (Fr.) usufruit; (Germ.) Nieβbrauch; (Da.) usus fructus (in the Danish

version of the original directive 88/627 spelled in one word: ususfructus, which must be

considered to be the correct form).

51 See for this definition Erik Werlauff: EU-selskabsret (2. udg., 2002) p. 409:

“…stemmer, der er knyttet til aktier, hvorfra aktionæren har en udbytteret, såkaldt

ususfructus (sådanne aktiers stemmerettigheder skal altså medtælles hos den

udbytteberettigede, selv om denne ikke tillige har fået overført stemmeretten til sig)”.

52 Yet another parallel is leaseholding (Danish: forpagtning) of land. - The expression

ususfructus originates from Roman law, where ususfructus was the right for a person (=

fructuarius) to enjoy the fruits of a thing, while the ownership belonged to another person.

The ultimate limit of ususfructus was the life of the person who had the right, hence the

expression in the English version of the directive: life interest. All the fructus (= fruits) of

the thing belonged to the fructuarius during the time of his enjoyment. If the ususfructus

of, e.g., a piece of land was given to him, he was intitled to collect all the fructus that was

already on the land, and all that was produced on it during the time of his ususfructus.

53 These situations all have one conditio sine qua non in common, and that is that a

share is divisible, i.e. that different rights of a share can be allotted (temporarily) to

different persons: the economic right is separated from the economic right. Older German

corporate law adhered to a doctrine of the share’s indivisibility (Unteilbarkeit der Aktie),

but contemporary corporate law sees no fundamental problem in a division of rights, and

the directive is of course based on the contemporary approach.

54 Dansk-engelsk fagordbog, IFF Ordbøger, p. 353.


43

Neither Ólafur nor his company Gerland nor the three investors’ common company

Choice had an interest in the shares belonging to Al-Thani’s company Q Iceland

Finance that corresponds to a life interest, Nieβbrauch, usufruit, or ususfructus.

Consequently, neither litra d) nor any other of the definitions in art. 10 litra a) – h)

of directive 2004/109/EC on transparency of major shareholdings obliged Ólafur or

his companies to flag any part of the shares that were sold from Kaupþing to Al-

Thani’s company Q Iceland Finance in a true sale that made Al-Thani’s company

the beneficial owner of the shares.

In conclusion (question a) and b)), Ólafur has acted correctly according to directive

2004/109/EC on transparency of major shareholdings, and accordingly his action –

or rather: his public silence on this matter – cannot constitute a market

manipulation in the sense of the MAD directive 2003/6/EC art. 1(2).

Finally, I am asked under question c) whether the testimony of Eggert J.

Hilmarsson would be conclusive evidence under Danish law that Ólafur was to

profit from the transaction. As I indicated in the first part of my answer, the

answer to this question is negative; however, please observe that this answer in

respect to question c) is given to a rephrased version of the question.

With due respect, the proper question should not be whether Ólafur “was to profit

from the transaction”. The proper and relevant question, however, is whether

Ólafur enjoyed such profit from the transaction that it triggered a duty for him to

publicly flag his part of the transaction according to directive 2004/109/EC on the

transparency of major shareholdings, and the answer to this question is negative.

I have read Eggert J. Hilmarsson‘s testimony (in English translation) with great

interest, but no part of it can be taken as evidence that Ólafur was to obtain parts

of the possible future profit that Al-Thani‘s company Q Iceland Finance would enjoy

from the shares bought from Kaupþing.

Even if Ólafur was allotted a part of such future profit – which is indeed not proved

through Eggert J. Hilmarsson‘s testimony – this would still be far from allotting

Ólafur a life interest or ususfructus in the sense of art. 10 litra h) in directive

2004/109/EC.55

55 Consequently, it is incomprehensible to me how the Judgment (p. 78 in the English

translation) can conclude that “Ólafur was to enjoy profits from the development of the

bank’s share price”. This is not in any way demonstrated through the evidence of the case.


44

In their questions to me the counselors for the defence have explained that Eggert

J. Hilmarsson was, to the best of their knowledge, questioned for about eight

hours by the prosecution on the day before the trial. This would seem to me to be

a very unusual procedure in relation to a witness, and this would even more

question the validity of Eggert J. Hilmarsson’s explanation in court. But again,

when rephrasing question c) as mentioned above, it really does not make any

difference – because the proper question c) is not whether Olafur was “to profit”

from the transaction, but whether he was allotted a life interest or ususfructus in

the sense of art. 10 litra h) in directive 2004/109/EC - and this must inevitable be

answered negatively.

In conclusion (question c)), Ólafur was not allotted such profit, life interest or

ususfructus from the transaction that he was obliged to flag it under directive

2004/109/EC on the transparency of major shareholdings.

_____________________________


45

SOME PROCEDURAL QUESTIONS – fair trial according to the

ECHR

In the following I am being requested to render my assessment concerning four

specific questions of a procedural kind, all involving to some extent the application

of the European Convention on Human Rights, ECHR.

It is important for me to emphasize that I hold the greatest respect for this

convention and its impact, almost as a common European “constitution”, and I

have written a modest book56 and numerous scholarly articles on questions that

involve the national application of the ECHR. However, it is also important to

emphasize that the approach to an assessment of specific matters should always

be accompanied by a considerable degree of humility.

Each case often calls for numerous considerations and counter-considerations.

Assessment undertaken by the European Court of Human Rights (the Court) is

always very concrete, characterized by an estimate of the total impact of all the

factors of the case. This will inevitably give you a double problem: first, you must

try to destill an abstract result from case law with numerous concrete factors;

second, you must try to apply such abstract results on your “own” case, which may

contain just as many concrete factors.

All the provisions of the ECHR and its protocols, except art. 6 on fair trial, contain a

“paragraph 2” with exceptions and counter-considerations. The difficult part is

therefore to strike a fair balance between opposing considerations.57 While it is

true that art. 6 on fair trial does not contain a “paragraph 2” (because, apparently

you cannot have degrees of “fairness”), it in return calls for something perhaps

even more difficult: an overall assessment of whether the applicant received, all

matters taken into consideration, a fair trial.58

56 Erik Werlauff: Europæiske menneskerettigheder – en praktisk indføring (2nd edition,

2010).

57 E.g. see Erik Werlauff: ”Ejendomsrettens EMRK-beskyttelse - balancen mellem

kollektive og individuelle hensyn”, i "Fast ejendomsret - festskrift til professor, dr. jur. Orla

Friis Jensen" (2007) p. 23 et subs.

58 E.g. see Erik Werlauff in "Festskrift til Per Henrik Lindblom" (2004) p. 697 et subs.

("Fælleseuropæiske krav til en retfærdig rettergang").


46

Finally, it should also be remembered that a court trial is a work of man. Mistakes

happen, and such mistakes may be more or less important for the total outcome of

the trial. Also, a mistake can often be corrected if it is detected in due time by the

court. A classic example is a jury in an English court where one of the jurors sent

the chairman of the court a note stating: "Jury showing racial overtones. One

member to be excused."59 The chairman reacted immediately, called the jury back

into the court room and gave them what was probably the greatest reprimand of

all their lives. The Court in Strassbourg found, thanks to the chairman of the british

court, that the accused had received a fair trial because the blackboard had been

wiped clean with the reprimand and lecture of the chairman.

With these reservations in mind, I shall, to the best of my ability, answer the

questions below.

Question – ECHR observations on sec. 1 + 2

(a) If it can be proved, or just made probable, that Halldór Bjarkar made a deal

with the prosecution, liberating him from being indicted, presuming that he would

testify against the accused in sec. 1 of the indictment, can a conviction be based

on Halldór Bjarkar’s testimony?

(b) Can a conviction be based on a testimony of a witness excusing himself from

guilt, and which also goes against the testimony of the accused and another

witness?

When answering this question, please take the following items into consideration:

“In the judgment (p. 67) it is considered improbable that an account manager had

made a decision to grant a loan to Brooks without clear instructions from

superiors.

Halldór Bjarkar’s testimony is considered credible, and it is therefore presumed

that Hreiðar instructed Halldór to grant the loan, and that it should be disbursed

immediately, even though authorisation from the credit committee had not been

procured.

59 Gregory v. UK, judgment of 25 February 1998.


47

This, the court maintains, Hreiðar had instructed at the meeting on 18 September

or in relation to that meeting.

Neither Halldór Bjarkar, nor anyone else who participated in the meeting on 18

September, maintained that Hreiðar gave instructions at that meeting to disburse

the loan without a formal authorisation from the credit committee.

In his testimony, Halldór Bjarkar argued that this happened later. He also argued

that he ran this by his next superior, Bjarki Diego, who also approved.

Both Bjarki Diego and Hreiðar firmly denied these allegations.

Still the court finds this credible.”

Please pronounce your opinion on this assumption of the court, whether this is, in

your opinion, sufficient proof, and whether it conforms with the ECHR to base this

decision on a testimony from a person who, by giving his testimony, is apparently

excusing himself from guilt.

This is based on his testimony alone, which goes against those of Hreiðar and

Bjarki.

Answer - ECHR observations on sec. 1 + 2

We live in times where whistleblowing is encouraged by legislators, also by the EU.

Many countries, including Denmark, have formalized rules on the treatment of

whistleblowing.

In Denmark, quoted companies and other large companies can turn to the Data

Inspection (Datatilsynet) and have an individual whistleblowing arrangement

recognized.

As a response to the Enron scandal, the Congress of the United States adopted the

Sarbanes and Oxley Act of 2002, because the scandal shook public confidence in

the nation’s securities markets. The Act encourages and protects whistleblowers by

providing channels for anonymous whistleblowing, establishing criminal penalties

for retaliation against whistleblowers, and protection for whistleblowers in order to

preserve their work status.


48

In the EU, directive 2013/36/EU from 26 June 2013 demands from banks and

other financial institutions that they protect whistleblowing and whistleblowers

through internal rules in each bank.

Also, in cases of antitrust law, the EU Commission encourages companies that

have participated in a cartel to regret this, and to report the cartel to the

Commission. The reward for such whistleblowing will often be a remission or

reduction of the whistleblowing company’s own punishment.

However, these wishes to encourage whistleblowing, and to protect whistleblowers

in a number of ways, say nothing about the use of whistleblowing in a court room,

i.e. the use of material, obtained through whistleblowing, as a proof in criminal

cases.

They explain even less about such situations where there is not actually a

“whistleblowing”, but where a person who perhaps could be indicted, enters into

an agreement with the prosecution whereby the indictment against him is

relinquished, in return for his testimony against those who are accused.

Although it is understood in such agreements that the “whistleblower” obliges

himself to speak the truth in court, instead of an accused person’s option to

remain silent, such agreements raise fundamental questions concerning the

assessment of evidence under ECHR art. 6 on fair trial.

This is expressed very precisely by Danish ECHR jurisprudence in the following

way:60

“Anvendelse af vidneforklaringer fra medsigtede, der har indgået en aftale med

anklagemyndigheden om strafnedsættelse, kan rejse spørgsmål om, hvorvidt

procesforløbet har været fair”.

In the Kaupþing case, I understand that the counsel for the defense suspect that

there was an explicit agreement, or just a mutual understanding, between the

witness and the prosecution that the witness would not only obtain a reduction of a

punishment, but would receive a total relinquishment of any indictment against

him.

60 Cf. Peer Lorenzen, Jonas Christoffersen, Nina Holst-Christensen, Peter Vedel Kessing,

Sten Shaumburg-Müller & Jens Vedsted-Hansen: Den Europæiske

Menneskerettighedskonvention artikel 1-9 (3rd edition, 2011), p. 435.


49

However, I also understand that such an agreement or mutual understanding has

not yet been proved to exist, and that the prosecution is denying that such

agreement or understanding existed.

It would, however, seem to be a fact that the witness was, already at an early

stage of the case, distinguished from from the number of suspects, although it

would seem that there are no objective grounds for such a different treatment.

This different treatment would make it even moere relevant for the prosecution to

provide a detailed explanation to the court in conformity with the demands under

ECHR law which I refer to immediately below.

The European Court of Human Rights gave the answer to this question in its

judgment of 25 May 2004 in Cornelis v. the Netherlands, and the answer was as

follows: The Court admitted that such testimonies may raise questions about the

fairness of the trial, but in the actual case ECHR art. 6 was not violated. The

reasons were that (a) the national courts had in depth dealt with the objections

which the accused raised against the hearing of the witness, as well as against the

reasonableness of the agreement between the prosecution and the witness, and

that (b) the conviction of the accused was not solely based on the testimony of

this witness.

The relevant parts of the judgment in Cornelis read as follows [my underlining]:

“The Court appreciates that the use of statements made by witnesses in

exchange for immunity or other advantages forms an important tool in the

domestic authorities' fight against serious crime. However, the use of such

statements may put in question the fairness of the proceedings against the

accused and is capable of raising delicate issues as, by their very nature, such

statements are open to manipulation and may be made purely in order to obtain

the advantages offered in exchange, or for personal revenge. The sometimes

ambiguous nature of such statements and the risk that a person might be

accused and tried on the basis of unverified allegations that are not necessarily

disinterested must not, therefore, be underestimated (see, mutatis mutandis,

Labita v. Italy [GC], no. 26772/95, § 157, ECHR 2000-IV). However, the use of

these kinds of statements does not in itself suffice to render the proceedings

unfair (see Lorsé v. the Netherlands (dec.), no. 44484/98, 27 January 2004;

and Verhoek v. the Netherlands (dec.), no. 54445/00, 27 January 2004). This

depends on the particular circumstances in each case.

In the instant case the public prosecution service concluded an

arrangement with Mr Z. and statements obtained from him were used in

evidence against the applicant. The Court observes that, from the outset, the


50

applicant and the domestic courts were aware of this arrangement and

extensively questioned Mr Z. in order to test his reliability and credibility.

Moreover, the domestic courts showed that they were well aware of the

dangers, difficulties and pitfalls surrounding arrangements with criminal

witnesses. In the judgments handed down in the applicant's case, all aspects of

the agreements were extensively and carefully scrutinised, with due attention

being paid to the numerous objections raised by the defense.

The Court concludes therefore that it cannot be said that the

applicant's conviction was based on evidence in respect of which he was not, or

not sufficiently, able to exercise his defense rights under Article 6 § 1 of the

Convention. Moreover, the applicant's conviction was not only based on the

statements given by Mr Z., but also on statements given by co-suspects and

other witnesses, on several official (foreign and domestic) police reports, on

findings of the Forensic Laboratory, and on statements given by the applicant.

Consequently, this part of the application must also be rejected under Article 35

§§ 3 and 4 of the Convention as being manifestly ill-founded.

The judgment in the Kaupþing case does not live up to these demands set out in

the Cornelis judgment from Strasbourg. Some of the demands – that “all aspects

of the agreements [were] extensively and carefully scrutinized, with due attention

being paid to the numerous objections raised by the defense” – are a conditio sine

qua non, whereas others – that the “conviction was not only based on the

statements given by [the person with the agreement with the prosecution]“ would

rather seem to be a supplementary test. However, non of these demands were

fulfilled in the Kaupþing case:

• Were “all aspects of the agreements extensively and carefully scrutinized, with

due attention being paid to the numerous objections raised by the defense”?

Apparently not, cf. question (a) to me.

• Was the conviction of the CEO and the chairman based on other statements

and proofs? Apparently not; on the contrary: the other statements pointed in

the opposite direction of what the witness that had an agreement with the

prosecution explained, cf. question (b) to me.

To summarize, the conviction in the Kaupþing case does not live up to the

demands that were formulated in Cornelis.


51

Question – privilege between defense counsel and accused

If the following course of events can be proved, or just made probable, does the

following events, in your expert opinion, constitute a breach of the ECHR?

“Phone calls between Hreiðar Már and his defense counsel were tapped. As were

phone calls between Magnús Guðmundsson and his defense counsel. This came to

our knowledge during a random search of files containing phone conversations the

police had kept on file. The police had no choice but to confirm in writing that this

was the case, but the police claim this was done by some kind of mistake.

Apparently there are no rules or safeguards when it comes to lawyer/client

privilege, and there is consequently no reason to believe that phonecalls between

defense counsel and their clients have not been used during the police

investigation.”

Answer – privilege between defense counsel and accused

The answer is yes; it constitutes a violation of ECHR art. 6 on fair trial and art. 8

on privacy if it can be demonstrated that privileged phone conversations between

some of the accused persons and their defense counsel were tapped by the police,

not only as one single event that happened by accident. The breach is intensified

by the facts that the police did not afterwards report openly to the accused and

their defense counsel on the tapping, that there would seem to exist no rules in

Iceland about such situations, thereby emphasizing the lack of legal certainty, and

that – as it would seem – the prosecution applied the tapped phone conversations

to adapt its strategy in the case.

In Acatrinei v. Romania, judgement of 25 June 2013, the applicant was accused of

crimes against national security, and for a period of 7 days his private

conversations with his defense counsel were recorded by the police. The Court

found that the legal system lacked proper safeguards, and thus breached the

requirements of art. 8, in so far as the prosecutor authorizing the surveillance was

not independent from the executive. A prosecutor’s decision to intercept

communications was not subject to judicial review before being carried out. A

person affected by the surveillance could not challenge before a court the merits of

the interception. There was no mention in the law of the circumstances in which

the transcripts could be destroyed.


52

The Court therefore unanimously found a violation of art. 8 on account of a lack of

safeguards in the procedure for telephone interceptions.61

The demand for legal certainty is emphasized again and again by the Court and in

scholarly books on the ECHR. Peer Lorenzen et alt.62 state as follows:

“Et af de fundamentale elementer i grundsætningen ‘rule of law’ er begrebet

‘retssikkerhed’ (‘legal certainty’), der i stigende grad anvendes af

[Menneskerettighedsdomstolen] som begrundelse for at finde krænkelse af

retten til ’fair trial’.”

These authors indicate (same page), as one of the examples of breach of art. 6

because of disrespect of the demand for ‘legal certainty’, the application of legal

provisions in an arbitrary way (“… anvendelse af retsregler på en arbitrær måde”).

In Kinský v. Czech Republic, judgment of 9 February 2012, criminal investigations

against the applicant followed a lengthy and still ongoing civil proceeding between

the state and the applicant, all about property that had been confiscated in 1945

by the state, but which the applicant claimed rightfully belonged to him. The

criminal charges concerned “unlawful surrender of public property to private legal

persons”. Ordered by a district court, there were made records of name, time,

number etc. of the applicant’s counsels phone calls, and also recording of phone

calls which the counsel made to a number of archives and institutions in order to

investigate the case for his client, the applicant.

It is highly relevant for the Kaupþing case that the tapping of the counsels’ phone

conversations with their clients enabled the police to make a qualified assessment

of the evidence which the applicant might apply in his capacity of party to his civil

proceedings against the state. The Chech government argued that no casual link

could be demonstrated between the tapping and the fairness of the proceedings,

but the Court turned this question around (ground 105) and held that the Court

was “unable to conclude that the fairness of the proceedings could not have been

compromised” [my underlining].

The Court noted (ground 108) [my underlining]:

61 Grounds 57-58 of the judgment.

62 Cf. Peer Lorenzen, Jonas Christoffersen, Nina Holst-Christensen, Peter Vedel Kessing,

Sten Shaumburg-Müller & Jens Vedsted-Hansen: Den Europæiske

Menneskerettighedskonvention artikel 1-9 (3rd edition, 2011), p. 414.


53

“Consequently, even though from the documents in its possession the Court

cannot conclude that the police investigation had any effect on the current

proceedings, it cannot lose sight of the fact that importance in this case is

attached to appearances as well as to the increased sensitivity to the fair

administration of justice. …”

The Court unanimously concluded that there had been a breach of ECHR art. 6 on

fair trial.

In Sorvisto v. Finland, judgment of 13 January 2009, a former board member of a

company now in liquidation was charged of economic crimes. On a storage facility

the police found a number of documents, including correspondence between the

applicant and his Spanish lawyer. The applicant demanded that the courts annul

the seizure of the documents containing privileged information between him and

his lawyer; the first instance upheld the seizure, the second instance quashed it,

whereas the Supreme Court again upheld the seizure (and this decision was since

then referred to as a leading case, a precedent, cf. KKO 2003:119).

The application to the Court in Strasbourg concerned ECHR art. 8 on the right of

privacy. The Court held (grounds 113, 114, 118 and 120) [my underlining]:

“(113). The Court must examine the “quality” of the legal rules applicable to the

applicant in the instant case. It notes in the first place that under the Coercive

Measures Act, Chapter 4, section 2, subsection 2, a document shall not be

seized for evidential purposes if it may be presumed to contain information in

regard to which a person is not allowed to give evidence. Under the Code of

Judicial Procedure, Chapter 17, Article 23, counsel may not testify in respect of

what a client has told him or her for the purpose of pleading a case.

(114). On the face of the above-mentioned provision of the Code of Judicial

Procedure, the Court finds the text unclear as far as it concerns confidentiality.

(118). The Court would emphasise in this connection that search and seizure

represent a serious interference with Article 8 rights, in the instant case

correspondence, and must accordingly be based on a law that is particularly

precise.

(120). The Court concludes that, even if there could be said to be a general legal

basis for the measures provided for in Finnish law, that law does not indicate


54

with sufficient clarity the circumstances in which privileged material could be

subject to search and seizure.”

As I understand the Icelandic rules – or rather: the lack of rules – in this

connection, what was said by the Court in Strasbourg about the Finnish rules in

Sorvisto, could just as well be said about the Icelandic rules.

The counsel for the defense in the Kaupthing case have brought to my attention

that Iceland’s minister of the interior has, in a report to Iceland’s parliament,

stated that Icelandic courts were, in the period 2008-2012, requested to authorise

phone tapping in 877 cases. Out of these requests, 6 were declined, and 2 were

partially declined. All the others were authorised, thus amounting to a percentage

of authorisations of no less 99.1 percent, or 99.3 percent, depending on whether

or not you include the two petitions that were partially declined.

In Iordachi et alt. v. Moldova, judgment of 10 February 2009, the Court in

Strasbourg assessed the legal system of the republic of Moldova, where phone

calls made by human right advocates had been tapped in a number of cases.

Before 2003 there was no judicial control in Moldova with phone tapping, and thus

the “success rate” was per definition 100 percent in cases where prosecution

wished to tap phones. However, after having introduced a legal basis for phone

tapping as from 2003, the figures did not turn out to be much better than before:

In the years of 2005, 2006 and 2007, the successful applications were respectively

98.81 percent, 97.93 percent, and 99.24 percent (grounds 12-13). The Court in

Strasbourg described this as “an uncommonly high number of authoristions”, and

as a “very high percentage of authorisations” (ground 51).

The Court went as far as to hold that “this could reasonably be taken to indicate

that the investigating judges do not address themselves to the existence of

compelling justification for authorizing measures of secret surveillance” (ground

51).

The Court at the same time reminded that “telephone tapping is a very serious

interference with a person’s rights” and that “only very serious reasons based on a

reasonable suspicion that the person is involved in serious criminal activity should

be taken as a basis for authorising it” (ground 51).

It needs no further elaboration that the Court’s conclusion was that a breach of

article 8 (private life) of the ECHR had taken place (and still took place).


55

When taking Iordachi into consideration, it should be remembered that the

statistics for Moldova - as well as the above mentioned statistics for Iceland which

are even higer than those of Moldova that were severely criticized by the Court –

are the general figures for all kinds of phone tapping. In the Kaupthing case the

phone tapping included privileged communication between accused persons and

their defense counsel, one of the most “sacred” kinds of communication that

exists. The tapping of such communication is of course an even more “serious

interference with a person’s rights” than a more general kind of phone tapping,

because regarding the tapping of a priviledged phone communication, not only

article 8 on the right private life but also article 6 on the right to a fair trial

including equality of arms, are at stake.

In conclusion, the way the privileged phone conversations between two of the

accused in the Kaupþing case and their defense lawyers were tapped, constitutes a

breach of both art. 6 on fair trial, and art. 8 on the right of privacy.

Question - access to the case documents



“The special prosecutor confiscated documents in numerous houseraids and copied

servers at Kaupþing. The special prosecutor uses an advanced software (Clearwell)

which enables it to conduct searches in these documents, e.g. by using references

to „Al-Thani“ or our clients´ names. The search results were given certain file

names and the documents in each file „marked“ as possibly relevant to the case.

Our clients have, however, not been given access to these files. They have only

been given access to such documents which the special prosecutor decided to use

in the trial, i.e. basically handpicked.

We have asked for access to the rest of the documents which were marked as a

consequence of the search in Clearwell in order to make sure that there is nothing

there that could be for the benefit of the accused. However, we have been denied

such access both by the special prosecutor and by the court. We have furthermore

tried to get access to a list of these documents, and indeed such a list can be

produced in Clearwell, but that request was also denied by the special prosecutor

and by the courts.


56

Consequently we have no way of knowing if the special prosecutor is in possession

of information that may be relevant to the case. Actually, through our own

research and through the knowledge of our clients, we discovered that this was the

case, and we were able to produce important documents during the trial.

It should be kept in mind that our clients have no access to Kaupþing´s files.”

Answer - access to the case documents

The answer is yes; it constitutes a breach of ECHR art. 6 on fair trial that the

fundamental principle of equality of arms was violated in the way the prosecution

denied the defense counsel the same facility to search for documents as the

prosecution itself had. The prosecution may very well be in possession of

documents which the defense counsels have no acces to. This is just as much a

matter of “appearance” as it is a matter of the access to documents itself.

The principle of equality of arms makes it paramount that the parties have the

same access to the documents of the case, and there is an extensive case law

about this from the Court in Strasbourg.

First, I would like to address present days’ technical possibilities of access to large

quantities of documents through digital means. One could say that when a party

applies digital means to record and search in large quantities of documents, there

is no way back for that party (or in Danish: bordet fanger) – that party has to act

in a loyal way to make the principle of equality function in the interest of the other

party.

This was demonstrated in Lawyer Partners A.S. v. Slovakia, judgment of 16 June

2009, where the applicants wished to file electronic law suits in the form of a

number of DVDs in civil litigations comprising more than 70,000 defendants (the

applicant had purchased a large number of due amounts from the Slovak Radio,

owed for license payments). Had the law suits been filed in the usual paper way,

they would have included more than 40,000,000 pages of documents. The national

courts dismissed the law suits, hereby referring to a lack of technical possibilities

of receiving and treating them. It must be noted that electronic filing of law suits

was already mentioned as an option under Slovak procedural law, and the Court in

Strasbourg found a violation of art. 6 on fair trial.

The Court remarked (ground 51) [my underlining]:


57

“The Court reiterates that the Convention is intended to guarantee rights that

are not theoretical or illusory, but practical and effective. This is particularly

relevant with regard to Article 6 § 1 of the Convention, in view of the prominent

place held in a democratic society by the right to a fair trial. It must also be

borne in mind that hindrance can contravene the Convention just like a legal

impediment.”

With this in mind, and also emphasizing that the Slovak procedural law already

allowed electronic law suits as one of more options, the Court held that there was

a breach of ECHR art. 6 on fair trial (in this case: the right of access to court,

access to justice).

This case law should be kept in mind when reading the more “traditional” case law,

quoted below, on access to traditional paper files. One could claim that we are now

in the third “generation” of the ways an access to files can be obtained: 1) first,

there was the simple access to read existing paper documents, and to write your

own copies from them; 2) second, there was the right to access to documents, and

to take photocopies from them;63 3) third, there is an access to digitally stored

documents, which will normally only give sensible meaning if the software allowing

you to dive into those documents is also included in the access. Esspecially when it

comes to equality of arms between prosecution and defense in a criminal case, this

equal access to all files, also by digital means, is of great importance.

In Beraru v. Romania, judgment of 18 March 2014, there was a national criminal

case of alleged economic crimes. The defense counsel were denied access to

documents which were in the prosecution’s possession; they wished to take

photocopies of the documents that they did not already know. First, there were

given no reasons for the denial; later, the reasons stated that the prosecution

lacked the necessary equipment. The defense was also denied access to tapped

phone calls; they were given neither a transcript of the conversations nor a taped

copy of the tapped phone calls. The Court unanimously held that there had been a

breach of art. 6.

In Nideröst-Huber v. Switzerland, judgment of 18 February 1997, the Court again

stressed the importance of equality of arms, and “the right for the parties to at

trial to have knowledge of and comment on all evidence adduced or observations

filed” (ground 24).

63 The right to access and to take photocopies was confirmed in Beraru v. Romania,

judgment of 18 March 2014, which is included in the case law mentioned below.


58

In conclusion, I find it obvious that it constitutes a violation of ECHR art. 6 on fair

trial that the fundamental principle of equality of arms was violated in the way the

prosecution in the Kaupþing case denied the defense counsel the same facility to

search for documents as the prosecution itself had.

Question - complicity – how accurately must it be described in the

indictment?



“In a Supreme Court ruling that was issued in 2012 during the procedural part of

the case leading up to the trial, two defendants had alleged that the indictment did

not fulfil Icelandic law and ECHR art. 6, in the sense that with respect to them, as

alleged accomplices, their behavior was not sufficiently described, which made it

impossible for them to defend themselves.

The Icelandic Supreme Court, however, found that if the actions of the main

offender were sufficiently described, it could be sufficient to describe the actions of

the accomplices in a more general fashion.”

a) Does this comply with the provisions of the ECHR, having regard to the wording

of the indictment?

b) Under Danish law, would it suffice to simply state that an indicted person “took

part” in certain business transaction without elaborating further on what in his

partaking constituted a punishable offence?

c) If no, what would the consequences be of such ambiguity in the indictment?

Answer - complicity – how accurately must it be described in the

indictment?

a) The answer is: probably not.

b) The answer is: No.

c) First, it would have to be assessed whether the person accused of complicity

could under the circumstances nevertheless prepare his defense properly. If this is


59

answered affirmatively, the defect attached to the indictment loses, for all practical

purposes, its importance. If it is answered negatively, the consequence would not

be an automatic acquittal, but “only” that the judgment of the first instance be

quashed and that the case be returned to the court of first instance for a new

hearing (Danish: ophæve og hjemvise) with – if possible – an indictment which

has been repaired and specified. If this is not done, the case will have to be

dismissed.

The Court in Strasbourg is rather severe in its demands for the indictment, but

there would not seem to be an extensive case law to refer to.

In Taxquet v. Belgium, judgment of 16 November 2010, one defendant and 7 co-

defendants were accused of murder and attempt of murder. Neither the indictment

nor the questions to the jury contained sufficient information as to the applicant’s

(one of the co-assused’s) involvement in the commission of the offences of which

he was accused (ground 94).

The Court in Strasbourg held [my underlining]:

“(96.) … The applicant, who was appearing in court with seven co-defendants,

was concerned by only four of the questions, each of which was answered by the

jury in the affirmative (see paragraph 15 above). The questions, which were

succinctly worded and were identical for all the defendants, did not refer to any

precise and specific circumstances that could have enabled the applicant to

understand why he was found guilty.

(97.) It follows that, even in conjunction with the indictment, the questions put

in the present case did not enable the applicant to ascertain which of the items

of evidence and factual circumstances discussed at the trial had ultimately

caused the jury to answer the four questions concerning him in the affirmative.

Thus, the applicant was unable, for example, to make a clear distinction

between the co-defendants as to their involvement in the commission of the

offence; to ascertain the jury’s perception of his precise role in relation to the

other defendants; to understand why the offence had been classified as

premeditated murder (assassinat) rather than murder (meurtre); to determine

what factors had prompted the jury to conclude that the involvement of two of

the co-defendants in the alleged acts had been limited, carrying a lesser

sentence; or to discern why the aggravating factor of premeditation had been

taken into account in his case as regards the attempted murder of A.C.’s

partner.


60

(98). In this connection, it should be emphasised that precise questions to the

jury were an indispensable requirement in order for the applicant to understand

any guilty verdict reached against him. Furthermore, since the case involved

more than one defendant, the questions should have been geared to each

individual as far as possible.”

The Court unanimously held that there had been a violation of ECHR art. 6 on fair

trial.

A Danish ph.d.-thesis, published by Camilla Hammerum: Tiltalen (= the

indictment) (2014), has analysed in depth the requirements from Danish courts

concerning the indictment for accomplices.

Hammerum reminds her reader (p. 65) that § 23 of the Danish penal code

(straffeloven) extends the criminal area so that not only the offender himself, but

also accomplices are included. She then goes on to mention that this extension of

the criminal area makes it especially important that the indictment describes which

actions are alleged to be criminal [my underlining]:

“Netop fordi § 23 udvider det objektive gerningsindhold i den konkrete

straffebestemmelse til også at omfatte en lang og ubestemmelig række af

medvirkenshandlinger, er det af særlig betydning, at anklageskriftet beskriver,

hvilke handlinger der påstås at være strafbare. Det må beskrives, hvori selve

medvirkenshandlingerne består, og det er således ikke tilstrækkeligt at anføre,

hvad medgerningsmændene har gjort. I UfR 2010.48 Ø havde tiltalte blandt

andet opbevaret skrueblade64 og hjulpet med videresalg – handlinger, der

snarere leder tankerne hen på hæleri.65 En mere præcis beskrivelse af de

strafbare handlinger var i sammenhængen nødvendig for, at tiltalte kunne

tilrettelægge sit forsvar”.

The very word: complicity (Danish: medvirken) needs, however, not to be

mentioned, cf. UfR 2007.1340 H (and Hammerum p. 65).

There must be a specific, concrete description of the actions that constitute

complicity, cf. Hammerum p. 84:

64 skrueblade = blades for ship propellers.

65 hæleri = handling stolen goods (= fencing).


61

“Som det fremgår i det følgende, stilles der i praksis krav om en konkret

beskrivelse af medvirkenshandlingerne.”

Not only the objective actions, but also the subjective aspect, in form of the

necessary intent (forsæt), must be specified in a concrete manner, cf. Vagn Greve

et. alt.66 who emphasize that “forsættet må være konkretiseret”.

Danish case law consequently describes the requirement as follows: The person

accused of complicity must be able to read in the indictment a description of the

way he has been an accomplice, cf. UfR 2004.2418 H: “… beskrivelse af, på

hvilken made [tiltalte]havde medvirket, and UfR 2010.48 Ø: “… beskrivelse af, på

hvilken måde [tiltalte] skulle have medvirket til tyveri”.

Hammerum (p. 89-91) makes two observations concerning UfR 2004.2418 H,

which must today be regarded as the leading case. First, that the decision was a

tightening of the more relaxed requirements that were accepted two years earlier

in UfR 2002.774 H. Second, that UfR 2004.2418 H was not unanimous; two

dissenting judges were content with the more relaxed indications in the

indictment.67

Nevertheless, the judgment in UfR 2004.2418 H represents the actual state of

Danish procedural law at this point, and considering Taxquet v. Belgium from

November 2010, it would also seem to be in concordance with ECHR law.

The bottom limit is probably correctly defined by Hammerum (p. 91) when she

claims:

“I medvirkenstilfælde er det ikke tilæstrækkeligt at tiltale for medvirken til en

andens indsmugling uden yderligere oplysninger. Det forekommer dog

sandsynligt, at der ikke kræves mange oplysninger vedrørende formen af den

ydede medvirken. …”



67 The two dissenting judges held: ”Ved lovovertrædelser, der begås af flere i forening,

stiller [retsplejelovens] § 831 [now § 834] efter vores opfattelse hverken ifølge

forarbejderne eller efter retspraksis et ubetinget krav om, at den enkeltes andel i

lovovertrædelsen er nærmere specificeret, hvis der ikke under efterforskningen er

tilvejebragt det fornødne grundlag herfor”. – These dissenting judges would thus seem to

focus on the fact that it will sometimes be necessary for the prosecution to write an

indictment without actually knowing what role each of the accomplices played in the crime.


62

It is probably also correct when Vestre Landsret (Western Appeal Court) as the

decisive criteria noted as follows in TfK 2011.370 V, where the city court would

have dismissed the case, but the appeal court admitted it [my underlining]:

“De nærmere omstændigheder ved overdragelserne er ikke beskrevet, hvilket

må antages at skyldes, at der er tale om en betydelig mængde narkotika, som

kan være overdraget ad flere gange til en større personkreds. Dette må tillige

antages at være baggrunden for, at tidspunkterne for de enkelte overdragelser

ikke er angivet. Der er ikke anført omstændigheder, der på den anførte

baggrund giver grundlag for at antage, at de tiltalte som følge af den manglende

nærmere beskrivelse af udførelsesmåden ikke kan tilrettelægge deres forsvar.

Efter en samlet vurdering finder landsretten derfor ikke, at der er grundlag for at

fastslå, at kravene i retsplejelovens § 834 ikke er opfyldt.”

It will be seen that the courts have a rather pragmatic approach to the demands

for the level of detail in the indictment: Did the persons accused of complicity have

the necessary opportunity to arrange their defense? This is basically also what is

examined by the Court in Strasbourg in Taxquet v. Belgium.

If this is not found to have been the case, the reaction will not be for the appeal

court to immediately dismiss the whole case, but for the appeal court to quash the

sentence of the first instance, and to send the case back to the first instance, cf.

UfR 2010.48 Ø and UfR 2004.2418 H. It will in such a case be up to the first

instance to decide whether the indicment can be repaired and specified. If this is

the case, and the reparation is done by the prosecution, the proceedings can

continue on that clarified basis. If this is not done by the prosecution, the whole

case will have to be dismissed.

Question – arrest warrant – what impact for ECHR purposes?



“The Special Prosecutor requested from the District Court of Reykjavík that it

issued an arrest warrant for Sigurður Einarsson. The application itself was

reasoned with information on another former employee of Kaupþing, but not

Sigurður, i.e. when the warrant was issued it was issued on grounds of false

information.


63

With that warrant, the Special Prosecutor requested Interpol to issue a “Red

Notice” for Sigurður, due to him being a “Fugitive Wanted for Prosecution”.

That statement was obviously wrong as, first, he was not a fugitive but at his

home in London, which the Special Prosecutor was fully aware of, and second, they

only wanted him arrested for questioning (no indictment had been issued and

therefore no prosecution to be wanted for existed).

It was, however, needed to state that he was a “Fugitive Wanted for Prosecution”

to get the notice issued(!).

It is clear from this, and from written correspondence between the Special

Prosecutor and Interpol, that the Prosecutor decided to send false information to

Interpol.

When Interpol noticed, a day or two after the issue, that Sigurður was not wanted

for prosecution, they informed the police authorities in Iceland. Even though that

was done, Icelandic police authorities did not ask for the Red Notice to be

withdrawn until three months later.”

Answer – arrest warrant – what impact for ECHR purposes?

The answer is yes. If the description of the events is correcvt, the conduct of the

prosecution is outrageous, and it constitutes a violation of ECHR art. 6 on fair trial,

cf. art. 6(2) on the presumption of innocence, as well as art. 8 on the right to

privacy.

In E.M.B. v. Romania, judgment of 13 November 2012, an application to the Court

was declared inadmissible in accordance with art. 6(2) (on this point), but mainly

because the international arrest warrant was quashed by the national courts

themselves (although the arrest warrant was upheld for almost three years).

It is obvious that Sigurður Einarsson’s case is different from this, because 1) it was

indicated as grounds for the arrest warrant that he was a fugitive wanted for

prosecution, whereas in reality he was just wanted for questioning, 2) the arrest

warrant was applied for without thoroughly examining whether he was actually

residing at his – known – domicile in London, and 3) the international arrest

warrant was upheld by Icelandic authorities for a period of three months after the

police had been made aware by Interpol that there were no grounds for the

warrant.


64

It would, as the conduct is described to me, strongly seem that the Icelandic police

and prosecution authorities acted mala fide, thereby violating both his right to

privacy, cf. ECHR art. 8, and his right to a fair trial also complying a presumption

of innocence, cf. ECHR art. 6(2).

The Court in Strasbourg has held in a number of cases that public statements

made by the police must be balanced, in order for them not to violate the principle

of presumption of innocence, cf. art. 6(2). One can mention Allenet de Ribemont v.

France, judgment of 10 February 1995, where art. 6(2) was violated through

public statements made by the police and the minister of interior. In Konstas v.

Greece, judgment of 24 May 2011, some Greek ministers made public statements

while an appeal in a criminal case was pending, and this also constituted a breach

of art. 6(2). In a renowned Danish case of an assistant from a nursing home, a

newspaper quoted: “Police: She killed 12”; the Danish Supreme Court held this to

be contrary to art. 6(2), cf. UfR 2003.624 H (“the Plejebo case”).


65

CONCLUSIONS

I. Would a corresponding situation like sec. 1+2 of the indictment be assessed as

‘mandatsvig’ (fraud of agent) according to § 280 of the Danish Penal Code

(straffeloven)?

Answer: No. Two essential elements of ‘mandatsvig’ are missing in the

indictment and in the Judgment, i.e. (1) that the accused must, in order for

their transaction to be criminally regarded as ‘mandatsvig’, have acted with

the intent (forsæt) of obtaining an enrichment for themselves or for others,

and (2) they must also have acted with the intent (forsæt) of acting against

Kaupþing Bank’s interests.

II. Would it appear to be sufficiently established that Hreiðar had the intent of

enriching Brooks Trading Ltd. (Brooks)?

Answer: No. There is no proof that Hreiðar acted with an intent (forsæt) to

enrich Brooks. He appears to have acted in the interest of his employer,

Kaupþing, and although there was no formal pledge on the Luxembourg bank

account, it could only be disposed of through joint decision taken by Kaupþing

and Brooks.

III. In the matter described in sec. 1 of the indictment, the credit committee

approved the loan at the committee’s next meeting. Does this fact have any

significance as to the question of ‘mandatsvig’?

Answer: Technically, the situation could have been that Hreiðar did have the

intent (forsæt) to act against the interest of Kaupþing, and that the

subsequent approval of the credit committee took him totally by (positive)

surprise. - In real life, however, there is no evidence at all that this was the

situation. Rather was the situation that Hreiðar had no intent (forsæt) of acting

against Kaupþing’s interest, and that this is strongly supported by the fact that

also the members of the credit committee must necessarily have assessed the

loan as being favorable for Kaupþing. It will be remembered that one of the

crucial elements of § 280 is the offender’s intent (forsæt) to act against the

interest of his principal; such element can hardly be said to be present when

the bank’s own credit committee assesses the loan as favorable for the bank.


66

IV. To which extent can a board member, CEO etc., for the purpose of

‘mandatsvig’, be held responsible for the omissions, or other kinds of mistakes,

committed by subordinates. This question is relevant to indictment sec. 2, cf.

the Judgment in English translation p. 70-75. In your answer, please also

address the Court’s reference to art. 68 of the Act on Public Limited Companies

(Judgment p. 72-73).

Answer: When speaking of ‘mandatsvig’, he cannot be held responbsible for

such omissions, mistakes etc. committed by subordinates, if he does not

positively know them. If he knows that a subordinate has forgotten or

misunderstood an instruction, e.g. an instruction to present a loan case to a

credit committee, and he takes advantage of this omission to grant the loan

without being stopped by the credit committee, this may be ‘mandatsvig’, if he

has the intent (forsæt) to act against the interest of the bank, and to cause an

enrichment to himself or others. But if he does not know about the mistake, he

cannot – for ‘mandatsvig’ purposes – be held responsible for the omission,

mistake, etc. He simply lacks the required intent (forsæt).

It may very well be that, for company law purposes and/or for tort law

purposes, he may be held (wholly or partly) responsible for the omissions and

mistakes committed by subordinates, especially if he has neglected to organize

the company properly in accordance with art. 68 of the Act on Public Limited

Companies. But in connection with the definition of ‘mandatsvig’ such

omissions and mistakes cannot lead to his conviction, unless he knew about

them. It is not enough that he ought to have known about them; he must

positively have known them, and also known their impact for the specific loan.

V. As to Ólafur’s alleged complicity, please give your expert opinion as to whether

he can be held responsible as an accomplice if it can be proved, or just made

probable, that he had no knowledge of Kaupþing’s internal process for granting

loans, i.e. neither of the content of the internal procedures nor to which extent

they had been adhered to in the case at hand, and to which extent Hreiðar Már

Sigurðsson and Sigurður Einarsson were authorized to grant loans.

Answer: The fact that Ólafur had no knowledge of Kaupþing’s internal loan

process, does not eo ipso free him from being regarded as an accomplice

(however, as will appear from my answers above, in my opinion there is no

‘mandatsvig’ to be accomplice to). The decisive factor is whether Ólafur was

aware that by granting the loan Hreiðar and Sigurdur acted against the

interest of Kaupþing in order to enrich themselves or a third party, thereby

causing loss or considerable risk of loss for Kaupþing, cf. the elements of § 280


67

on ‘mandatsvig’. The crucial point is therefore not the (formal) question of

Ólafur’s knowledge of the internal process in Kaupþing, but rather the

(material) question of whether or not he understood that the CEO and

chairman were (if this were the case) acting against Kaupþing’s interests.

When assessing this understanding, Ólafur’s experience with business matters

is of course of some relevance. However, no matter how experienced he might

be, or might not be, it is still not decisive what he ought to have known and

understood, but what he actually knew and understood.

VI. When assessing the accused persons’ intent (forsæt), should the loan

transaction, and Kaupþing’s selling of a portion of its own shares to the

borrower, for the purpose of the question of intent (forsæt), be regarded as

two separate transactions, or as one single transaction?

Answer: Definitely as one single transaction. The loan is earmarked, and it is

only granted for the special purpose of the bank selling a portion of its own

shares, thus bringing the shares into circulation, instead of possessing them as

the bank’s own shares.

VII. When assessing the accused persons’ intent (forsæt), did the accused persons

have an intent (forsæt) to increase Kaupþing’s risk, when they caused

Kaupþing to deliver a portion of its own shares, instead of cash, when granting

a loan to the borrower?

Answer: No. The bank will always be in a better financial position when

someone agrees to purchase shares that were till then owned by the bank

itself, i.e. owned by the issuing company. It must be remembered that a

company’s buy-back of its own shares corresponds to distributing dividend to

the selling shareholder(s), and this has the effect of a capital decrease;

contrary to this, when shares are sold by the company in the market, this has

the effect of a capital increase in the company. Thus, a company’s financial

position is – mutatis mutandis - weakened when the company buys back

shares, and strengthened when the company sells out of its stock of own

shares.

VIII. When assessing the accused persons’ intent (forsæt), does it make a

difference that the shares were not formally pledged but instead tied up in a

special purpose vehicle, an SPV?

Answer: No. A pledge has two purposes: 1) to protect against the debtor’s

subsequent selling or mortgaging of the pledged object, and 2) to protect the


68

pledged object from the debtor’s creditors, whether they are individually

seeking fulfilment through seizure (udlæg), or collectively seeking fulfilment

through bankruptcy. In Danish language for credit law purposes we have the

concept of tinglig beskyttelse, which can be devided into two parts: 1)

omsætningsbeskyttelse and 2) kreditorbeskyttelse. In some cases the lender

may be content with just one of these two aspects of protection.

The reasons for this may vary, but one of the main reasons is that only one

aspect of protection can often be obtained in a more flexible way than a formal

pledge; it is often cheaper; it is often more convenient to present to the public,

etc. The CEO and the chairman of Kaupþing must inevitably have felt that this

was a common and safe way of locking-up the shares sold from the bank to Q

Iceland Finance under sec. 2+3+4 of the indictment. It is highly improbable

that managers and directors acting in this way have had an intent (forsæt) of

acting against the bank’s interest in the sense of § 280 on ‘mandatsvig’.

IX. When assessing the accused persons’ intent (forsæt), does it make a

difference that the loans were granted through two offshore companies, one

owned by Ólafur?

Answer: No. For the question of the duty of flagging, cf. below, it may make a

difference, but as to the question of intent (forsæt) to act against the bank’s

interest in the sense of § 280 on ‘mandatsvig’ it makes no difference.

X. All in all, when assessing the accused persons’ intent (forsæt), does there

seem to be a sufficient intent to enrich the purchaser of the shares (i.e. the

borrower)?

Answer: No. I refer to my remarks above, and repeat that there would seem to

be no intent (forsæt) of acting against the banks interests in the sense of §

280 on ‘mandatsvig’, and no intent (forsæt) of enriching themselves or a third

party.

XI. What was the value of Kaupþing's own shares that were transferred in the

transaction, when they were owned by Kaupþing?

Answer: ‘Zero’. Shares belonging to the issuing company have no value for

this company, as long as they are not actually resold again from the company.

As long as a company possesses its own shares, their voting rights are

suspended, and for accountung purposes their net value is, and must be, zero.


69

Both these observations follow from art. 22(1) of the 2nd company law

directive, the capital directive.

XII. Did it constitute market manipulation that Kaupþing, when announcing that

companies controlled by Sheikh Al-Thani had purchased 5.01 percent of

Kaupþing’s share capital, did not disclose information on the way the purchase

was financed?

Answer: No. It is sufficiently demonstrated that Al-Thani’s company Q Iceland

Finance’s purchase of the Kaupþing shares represented a true sale of the

shares, and that Q Iceland Finance through this purchase became the

beneficial owner of the shares. Under such circumstances, Kaupþing did

neither have a duty nor a right to publish the way Q Iceland Finance financed

its purchase. Under such circumstances, it cannot constitute a market

manipulation under art. 1(2) of the market abuse directive, 2003/6/EU, that

the way the purchase was financed was not published by Kaupþing.

XIII. (a) Did it constitute market manipulation that Kaupþing, when announcing the

purchase as mentioned, did not disclose the fact that Ólafur Olafsson had been

involved? (b) Do you consider it proved that he was actually involved to such

extent that a disclosure was mandatory? (c) Would the testimony of Eggert J.

Hilmarsson, which you have reviewed, be conclusive evidence under Danish

law that Ólafur Olafsson was to profit from the transaction?

Answer: (a) and (b) Ólafur acted correctly according to directive 2004/109/EC

on transparency of major shareholdings, and accordingly his action – or

rather: his public silence on this matter – cannot constitute a market

manipulation in the sense of the MAD directive 2003/6/EC art. 1(2). (c) Ólafur

was not allotted such profit, life interest or ususfructus from the transaction

that he was obliged to flag it under directive 2004/109/EC on the transparency

of major shareholdings.

XIV. If it can be proved, or just made probable, that Halldór Bjarkar made a deal

with the prosecution, liberating him from being indicted, presuming that he

would testify against the accused in sec. 1 of the indictment, can a conviction

be based on Halldór Bjarkar’s testimony? (b) Can a conviction be based on a

testimony of a witness excusing himself from guilt, and which also goes

against the testimony of the accused and another witness?

Answer: The judgment in the Kaupþing case does not live up to the demands

set out in the Cornelis judgment from Strasbourg. Some of the demands – that


70

“all aspects of the agreements [were] extensively and carefully scrutinized,

with due attention being paid to the numerous objections raised by the

defense” – are a conditio sine qua non, whereas others – that the “conviction

was not only based on the statements given by [the person with the

agreement with the prosecution]“ would rather seem to be a supplementary

test.

However, none of these demands were fulfilled in the Kaupþing case: Were “all

aspects of the agreements extensively and carefully scrutinized, with due

attention being paid to the numerous objections raised by the defense”?

Apparently not, cf. question (a) to me. Was the conviction of the CEO and the

chairman based on other statements and proofs? Apparently not; on the

contrary: the other statements pointed in the opposite direction of what the

witness that had an agreement with the prosecution explained, cf. question (b)

to me.

XV. Did it constitute a breach of ECHR art. 6 on fair trial and art. 8 on privacy if it

can be demonstrated that privileged phone conversations between some of the

accused persons and their defense counsel were tapped by the police, not only

as one single event that happened by accident?

Answer: It constitutes a breach of ECHR art. 6 on fair trial and art. 8 on

privacy if it can be demonstrated that privileged phone conversations between

some of the accused persons and their defense counsel were tapped by the

police, not only as one single event that happened by accident. The breach is

intensified by the facts that the police did not afterwards report openly to the

accused and their defense counsel on the tapping, that there would seem to

exist no certain rules in Iceland about such situations, thereby emphasizing

the lack of legal certainty, and that – as it would seem – the prosecution

applied the tapped phone conversations to adapt its strategy in the case. The

very high Icelandic figures on the courts’ authorisation of phone tapping would

suggest that the legal control possibly does not function in a satisfactory way,

cf. ECHR judgment in Iordachi et alt. v. Moldova.

XVI. Does it constitute a breach of ECHR art. 6 on fair trial that the prosecution

denied the defense counsel the same facility to search for documents as the

prosecution itself had.

Answer: It constitutes a breach of ECHR art. 6 on fair trial that the

fundamental principle of equality of arms was violated by the way the

prosecution denied the defense counsel the same facility to search for


71

documents as the prosecution itself had. This is just as much a matter of

“appearance” as it is a matter of access to documents. The principle of equality

of arms makes it paramount that the parties have the same access to the

documents of the case, and there is an extensive case law about this from the

Court in Strasbourg.

XVII. a) Does it comply with the provisions of the ECHR to just describe the actions

of the accomplices in a more general fashion? b) Under Danish law, would it

suffice to simply state that an indicted person “took part” in certain business

transaction without elaborating further on what in his partaking constituted a

punishable offence? c) If no, what would the consequences be of such

ambiguity in the indictment?”

Answer: a) Probably not. b) No. c) First, it would have to be assessed whether

the person accused of complicity could under the circumstances prepare his

defense properly. If this is answered affirmatively, the defect attached to the

indictment loses, for all practical purposes, its importance. If it is answered

negatively, the consequence would not be an automatic acquittal, but “only”

that the judgment of the first instance be quashed and that the case be

returned to the court of first instance for a new hearing (Danish: ophæve og

hjemvise) with – if possible – an indictment which has been repaired and

specified. If this is not done, the case will have to be dismissed.

Aalborg University, 18 July 2014

Erik Werlauff

professor, dr. jur.


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EXHIBIT A – curriculum vitae - professor, dr. jur. Erik Werlauff

Curriculum vitae -

Professor, dr. jur. Erik Werlauff

Personal

• Family name: Werlauff.

• First name: Erik.

• Date of birth: 8 November 1952.

• Nationality: Danish.

• Civil status: Married to Asfrid Werlauff, born Skjøt.

• Address: Ingridsvej 80, DK-7400 Herning, Denmark.

• Phone: +45 2879 6622.

• E-mail: [email protected].

• Website: www.werlauff.com.

Education

• Master of law 1976 (Aarhus University, Denmark).

• Ph.D. 1983 (Aarhus University, Denmark).

• Doctor of law 1991 (Aarhus University, Denmark).

• Professor of law 1989 (Aalborg University, Denmark).

Positions

• Professor of business and company law, Aalborg University, Denmark,

1989-.

• Practising lawyer in Herning 1983-1989.

• Assisting advocate, Supreme Court advocate Niels Alkil, Copenhagen, 1978-

1983.

• Ministry of Justice, Copenhagen, 1976-1978.

Other professional activities

• Member of the Danish Civil Justice Council (Retsplejerådet), 1995-.

• Member of the Scientific Editorial Board of "European Company Law" (ECL),

Kluwer International Law, 2004-.


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• Member of the Editorial Advisory Board for "European Business Law Review"

(EBLR), Kluwer Law International, 2007-.

• Member of the Danish Appeal Board (Procesbevillingsnævnet), 2000-2003.

• Arbitrator in a number of Danish and international arbitral proceedings.

• Author of numerous legal opinions for companies and lawyers, analyzing

specific cases concerning their legal consequences.

Awards

• Knight of the Order of Dannebrog (Kingdom of Denmark)

• Awarded the ‘Margot & Thorvald Dreyer’s Foundation’ Price (under the

Danish Advocates' Association, Advokatrådet) for theoretical and practical

legal achievements, 2001.

Legal specialties

• Company law.

• Corporate tax law.

• Law of finance.

• Civil procedure, including arbitration and EU matters.

• Stock exchange and capital markets law.

• Contract law.

• European human rights law of relevance for business law.

Guest lecturer at foreign universities

• Bonn (Germany): "Company Law and EU freedoms", 1995.

• Lund (Sweden): "EU company Law", 1995.

• Oslo (Norway): "The ultra vires doctrine and its implications for company

law", 1996.

• Bergen (Norway): "EU Company Law", and "Liability of advisors under a

torts and a contracts law perspective" and "Legal research and science",

1999.

• Leiden (Netherlands): "The use of the SE company as legal form for

businesses in the financial sector in the Nordic countries, 2005.

Scholarly books in English (or with detailed English or German summary)

• Civil Procedure in Denmark (3rd edition, 2010, Kluwer).

• European Corporate Law, 2nd edition, Wolters Kluwers (2009) (co-authors:

Adriaan Dorresteijn, Tiago Monteiro and Christoph Teichmann).


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• SE - the law of the European Company (2003).

• EU Company Law - business law of 28 states (2nd ed. 2002).

• Common European Procedural Law (2000).

• Doctoral thesis 1991: The company mask; the duty of loyalty towards the

legal entity (with a detailed English summary).

• PhD-thesis 1983: General assemblies and their decisions (with a detailed

German and a French summary).

• Under preparation (to appear in the autumn of 2014): Business law,

Europe.

Scholarly articles in English or German

1994

• A misinterpreted directive text (on the Danish implementation of the Merger

Taxation directive, 90/434), in European Taxation (ET), Vol. 34, 1994, issue1.

1995

• From a national company law towards a ‘federal' enterprise law; University of

Bonn and Volkswagen Stiftung, 1995.

1997

• Taxation of foundations, in European Taxation (ET), 1997 p. 159 et subs.

1998

• Submissions to the European Court on parallel national (tax) law, in EC Tax

Review 1998 p. 44 et subs.

• Trust, Anstalt and foundation - a comparison, in European Taxation (ET), 1998

p. 143 et subs.

• Common European Company Law: Status 1998 (1): Equal treatment of

companies, domicile under company law and related concepts, in European

Business Law Review (EBLR), 1998 p. 169 et subs.

• Common European Company Law: Status 1998 (2): The background to

harmonisation, disclosure, capital etc.", in European Business Law Review

(EBLR), 1998 p. 210 et subs.

• Common European Company Law: Status 1998 (3): group, company structure,

new company forms, in European Business Law Review (EBLR), 1998 p. 274 et

subs.

• Towards a common 'European procedural law', Part 1, in European Business

Law Review (EBLR), 1998 p. 338 et subs.


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1999

• Towards a common ‘European procedural law’ Part 2, in European Business

Law Review (EBLR) 1999, vol. 10, p. 8 et subs.

• Ausländische Gesellschaft für inländische Aktivität, in Zeitschrift für

Wirtschaftsrecht (ZIP) 1999 p. 867 et subs.

• Remedies available to individuals under EC law against discriminatory national

laws, in European Taxation (ET) 1999 p. 475 et subs.

• Procedural equality in the EU and EEA, in European Business Law Review

(EBLR) 1999 p. 338 et subs.

2000

• Best company practice: A duty of loyalty for the purpose of preventing abuse

of powers under company law, in Scandinavian Studies in Law (SSL) vol. 38

(2000), legal Issues of the 1990s.

• The consequences of the Centros decision: Ends and means in the protection

of public interests, in European Taxation (ET) 2000 p. 542 et subs.

• Steen Treumers scholarly book: "Ligebehandlingsprincippet i EU's

udbudsregler" (2000) (Equal treatment in procurement law), reviewed in

Public procurement Law Review 2001 p. 59 et subs.

2001

• The main seat criterion in a new disguise - an acceptable version of the classic

main seat criterion?, in European Business Law Review (EBLR) 2001 p. 2 et

subs.

2002

• Community Law and the Independent Business as Interpreted by the ECJ in

Andersen & Jensen ApS, in European Taxation (ET) 2002 p. 441 et subs. (co-

author: Nikolaj Vinther, Aalborg University).

• Freedom of expression, and interference with the freedom - conflicting

interests and proportionality under the ECHR, in Europarättslig Tidsskrift (ERT)

2002 p. 683 et subs.

2003

• The leverage principle: secondary Community law as a lever for the

development of primary Community law, in European Law Review (ELR) 2003

p. 124 et subs. (co-author: Steen Treumer, Copenhagen Business School).

• The SE Company - a new common European company from 8. October 2004,

in European Business Law Review (EBLR) 2003 Vol. 14 Number 1 p. 85 et


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subs.

• The need for fresh thinking about tax rules on thin capitalization, in EC Tax

Review 2003 vol. 12 issue 2 p. 97 et subs. (co-author: Nikolaj Vinther, Aalborg

University).

2004

• Defensive measures against hostile takeovers and the impact of the 13th EC

directive - Denmark, in European Company Law (ECL) 2004 vol. 1 p. 11 et

subs.

• Cross-Border transfers of SE companies, in European Company Law (ECL)

2004 vol. 3, p. 121 et subs.

• Societas europaea sum, editorial in European Company Law (ECL), 2004 vol.

3, p. 110.

2005

• The Impact of the Takeover Directive on minority shareholders in companies

listed in Denmark", in European Company Law (ECL), 2005 p. 100 et subs.

2006

• Merger as a method of establishment: on cross-border mergers, transfer of

domicile and divisions, directly applicable under the EC Treaty's freedom of

establishment, in European Company Law (ECL), 2006, volume 3, issue 3, p.

125 et subs. (co-author: Thomas Rønfeldt, Aalborg University).

• Tax motives are legal motives - the borderline between the use and abuse of

the freedom of establishment with reference to the Cadbury Schweppes case,

in European Taxation (ET), 2006 p. 383 et subs.(co-author: Nikolaj Vinther,

Aalborg University).

• When the wrongdoer profits from its wrongdoing - on some limitations to the

right of restitution for taxes etc. levied contrary to Community law, in

European Business Law Review (EBLR) 2006 issue 4 p. 981 et subs.

2007

• CFC rules go up in smoke - with retroactive effect, in International Tax Review

2007 (vol. 35) p. 45 et subs. (co-authors: Thomas Rønfeldt, Aalborg

University, and Nikolaj Vinther, Deloitte).

• Compensation for adverse possession - from acquisition of title by extinction of

the title of another to transfer of property against reasonable compensation,

in European Business Law Review (EBLR) 2007 p. 335 et subs.

• Group and Community - the European Court's development of an independent

Community law concept of the group and its significance for national company


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law, in European Company Law (ECL) October 2007, volume 4, issue 5, p.

201-206.

2008

• Arbitration in Denmark: The parties' influence on a Danish arbitration case, in

European Business Law Review (EBLR), 2008, vol. 19, p. 267-278.

• Danish taxation of pensions in the perspective of EU law: a legal assessment of

Denmark's reaction to the judgment against Denmark in case C-150/04,

Commission v. Denmark, in Intertax, volume 36, issue 7-8, 2008, p. 302-311

(co-author: Thomas Rønfeldt, Aalborg University).

• Report from Denmark : Legal requirements governing proxy voting in Denmark

- free choice of proxy holder, formal requirements, time limit and offer by the

company of written or electronic proxy form, in European Company Law

2008 vol. 5 issue 2 p. 79 ff.

• A stricter duty to disclose information to the market in Denmark? - the

dilemma faced by Danish companies, and their options under the decision by

the Danish Securities Council in the TDC case, in European Company Law

(ECL), 2008 vol. 5 issue 2 p. 47 ff (co-author: Jesper Lau Hansen,

Copenhagen University).

• Relocating a company within the EU, in European Company Law, vol. 5 (2008),

issue 3, p. 136-139.

• Tax-free transfer of assets in Denmark to foreign companies, in Intertax 2008

p. 211-220 (co-author: Thomas Rønfeldt, Aalborg University).

2009

• Safeguards against Takeover after Volkswagen - On the lawfulness of such

safeguards under company law after the European Court's decision in

‘Volkswagen’, in European Business Law Review (EBLR) vol. 20, issue 1, 2009,

p. 101 ff.

• Class Actions in Denmark, in "The Globalization of Class Actions", published by

"The Annals of the American Academy of Political and Social Science", Volume

622, March 2009, p. 202-208 (editors: Deborah R. Hensler, Christopher

Hodges & Magdalena Tulibacka.

• Employee representation on the board of directors of a company with its

registered office in a Nordic country, in European Company Law (ECL), vol.

2009, issue 2, p. 68-81 (co-author: Lone L. Hansen, Aalborg University).

• Private arbitration of incidental public law issues, in European Business Law

Review (EBLR) 2009, vol. 20, issue 4, pp. 565-577.

• Restrictions and proportionality - on recognizing (exit) restrictions and testing

proportionality, in European Business Law Review (EBLR) 2009, vol. 20, issue


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5, pp. 689-702.

• A ‘Copenhagen effect?’ – Denmark’s answer to Centros – a far-reaching

company law reform aimed at strengthening the ‘free movement of

companies’, in European Company Law (ECL), Vol. 6, issue 4, 2009, p. 160 et

subs.

• Board of directors or supervisory board – legal aspects of the choice between

one- and two-tier management in Danish public limited companies after the

2009/10 company law reform, in European Company Law (ECL), Vol. 6, issue

6, 2009, p. 257 et subs.

2010

• Principles of European Company Law, in European Company Law (ECL), Vol.

7, issue 5, 2010, p. 183 et subs.

• Shareholders’ agreements in Denmark – must be accorded legal safeguards

from 1 March 2010, but how? in International and Comparative Corporate Law

Journal (ICCL), 2010, p. 1 et subs.

• Pro forma registration of companies – why a brass plate in the host country is

enough in some respects, but not in others, in European Company Law (ECL),

Vol. 7, issue 1, 2010, p. 25 et subs.

2011

• Does a loan to a bank qualify as a ‘deposit’? – on the definition of ‘deposit’ in

Directive 94/19/EC, as amended by Directive 2009/14/EC, in European

Business Law Review (EBLR), Vol. 22, issue 6, 2011, 709 et subs.

• Boards of directors’ and management’s liability in law in Denmark – the written

standards’ gradual superseding of the unwritten, in European Company Law,

Vol. 8, issue 6, 2011, p. 240 et subs.

• New Danish Company Act on shareholders’ agreements – a critical evaluation,

in European Company Law, Vol. 8, issue 4, 2011, p. 161 et subs.

2012

• One stop, group law shop, editorial in European Company Law (ECL), issue 6,

2012, p. 257.

• To appear in European Business Law Review (EBLR) 2012: Class action and

class settlement in a European perspective (peer reviewed and accepted for

publication).

• To appear in Europarättslig Tidsskrift (ERT) 2012: When can or should a

regulation be implemented? (peer reviewed and accepted for publication).


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2013

• A settlement forum for stock quoted Companies and shareholders claiming

damage: to which extent does it create res judicata?, in European Company

Law (ECL), december 2013, volume 10, isssue 6, s. 179 ff.

• Class action and class settlement in a European perspective, i European

Business Law Review 2013 (EBLR) p. 173 ff.

• Disclosure of price-sensitive information: What effect do 'intermediate steps'

have on the statury disclosure date?, in European Company Law 10 (ECL), no.

1 (2013) s. 7 ff. (co-author: Peer Schaumburg-Müller, TDC and CBS)

2014

• Important lessons to be learnt from ‘Daimler’, in European Company Law (ECL)

11, no. 1 (2014): 5-5.

• Can national company law require a branch of a foreign company to have an

independent name?, In European Company Law (ECL) 11, no. 3 (2014): 165-

171.

Expert report on some legal questions concerning the ... · 7/18/2014 · Professor, dr. jur. ERIK...

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