On 8 October 2008, powers available to the Treasury under the Anti-terrorism, Crime and Security Act 2001 were used to enact the Landsbanki Freezing Order 2008. This effected a freeze on funds in relation to the Icelandic bank Landsbanki, including those owned, held or controlled in relation to that bank by the relevant Icelandic authorities or the Government of Iceland (each a specified person).
The Landsbanki Freezing (Amendment) Order 2008 was made on 20 October 2008 and came into force on 21 October 2008 (the Amendment Order). The Amendment Order made clarificatory changes to the original Order, but did not change its effect. A notice issued by the Treasury on 29 October 2008 also made it clear the Amendment Order does not change the effect of licences already issued and that previous guidance issued by HM Treasury remains valid (the 29 October Notice).
Subsequent references to the Order in this Article shall be to the original Order, as amended by the Amendment Order.
The Order makes it an offence for any person in the United Kingdom (including English companies and British citizens, British subjects and British protected persons outside the United Kingdom) to take certain actions in relation to such frozen funds. On 17 October 2008 HM Treasury issued a notice (the 17 October Notice) which makes it clear that British citizens who are working overseas in banks or companies dealing with Landsbanki will not be bound to the extent that the "person" performing the activity in question is a non-UK company abroad.
The 17 October Notice also provided detailed guidance on the impact and effect of the Order.
"Funds" is given a very wide definition in the Order and means financial assets and economic benefits of any kind. A non-exhaustive list of what could constitute funds is set out in the definition and includes categories you would expect, such as gold, cash, cheques, payment instruments, deposits, balances on accounts, debts and debt obligations, securities and debt instruments, interest, dividends and other value accruing from or generated by assets. However, the list also includes other less immediately obvious categories of funds such as credit, rights of set-off, guarantees, performance bonds, letters of credit, bills of lading, bills of sale and documents providing evidence of an interest in funds or financial resources.
The freezing prohibitions are wide in scope:
- making frozen funds available to or for the benefit of a specified person (which includes allowing it to withdraw from an account, honouring a cheque payable to it, crediting its account with interest, releasing documents of title (such as share certificates) held on its behalf, making available the proceeds of realisation of its property and making a payment to it or for its benefit);
- making frozen funds available at the direction or instruction of a specified person; and
- dealing with frozen funds. "Deal with" is itself very widely defined in the Order.
A breach of a prohibition will constitute a criminal offence, as will engaging in an activity knowing or intending that it will enable or facilitate the commission by another person of one of the prohibited activities. There is a defence available if the person can prove that he or she had no knowledge or reasonable suspicion of the relevant circumstances.
If a body corporate has committed the offence and the offence is proved to have been committed with the consent or connivance of an officer (or to be attributable to any neglect on his or her part) he or she (as well as the body corporate) will also be guilty of the offence and liable to be proceeded against and punished accordingly.
The Order also provides for the Treasury to grant licences disapplying the prohibitions and sets out a procedure for licensing.
On 9 October 2008 HM Treasury issued a notice to clarify the treatment of subsidiaries of Landsbanki (the 9 October Notice). This notice makes it clear that the Order applies to any shares owned by Landsbanki in a subsidiary. It also states that a subsidiary is required to comply with the Order by not making funds available to or for the benefit of Landsbanki or dealing with funds owned, held or controlled by Landsbanki. However, it also makes it clear that the Order does not apply to funds owned, held or controlled by subsidiaries of Landsbanki.
Initially the Order caused significant concern among market participants in relation to derivatives, repos and stock lending agreements. However, on 9 October 2008 HM Treasury issued a general licence, paragraph 11 of which enabled any person to exercise rights of set-off, termination, closing out, netting, reimbursement or indemnity.
On 13 October 2008 HM Treasury issued a further licence under the Landsbanki Freezing Order 2008 exempting certain activities from the prohibitions set out in the Order so as to avoid detriment to third parties (the 13 October Licence).
The 13 October Licence came into effect at 12.40 pm on 13 October 2008 and supersedes the licence granted on 9 October 2008. The 13 October Licence allows:
- any person (including Landsbanki) to pay funds to accounts at Landsbanki's London Branch or accounts in the name of Landsbanki held in the UK;
- any person (including Landsbanki) to exercise rights of set-off, termination, closing out, netting, reimbursement and indemnity;
- the London Branch of Landsbanki to carry out various activities (and also provides that the prohibitions do not apply in respect of third parties dealing with the London Branch in relation to these activities):
- commercial finance;
- asset-based lending;
- capital markets & fixed income banking activities;
- receiving payments into and making payments from customers' business accounts held at the London Branch or (in relation to business customers) accounts held at other financial institutions;
- dealing with and making available to any third party funds held by the London Branch which are beneficially owned by a third party;
- on behalf of its customers, transferring currency and carrying out foreign exchange transactions;
- dealing with and making available funds to meet operating expenses (including, for example, salaries, expenses relating to suppliers, taxes, legal and professional costs); and
- giving instructions to clearing, payment and settlement systems and carrying out transactions through such systems;
- financial institutions (which is defined as including banks, investment firms, operators of payment and settlement systems, clearing houses, investment exchanges, market makers and custodians of securities) to:
- operate accounts in the name of Landsbanki in accordance with instructions given by the London Branch;
- receive funds into accounts in the UK and transfer funds between accounts within the UK (whether or not those accounts are in the name of Landsbanki);
- deal with frozen funds (and otherwise carry out instructions) at the direction or instruction of the London Branch or third parties (subject to the overriding condition of the 13 October Licence set out below); and
- make and receive payments relating to direct debit guarantees.
It is an express condition of the 13 October Licence that the London Branch must not, without express authorisation from HM Treasury, give instructions which would result in funds being transferred to any other part of Landsbanki's group.
Landsbanki's group includes Landsbanki, any successor entity to Landsbanki and the Authorities and Government of Iceland in their capacity as owner or controller of the activities of Landsbanki or any successor entity to Landsbanki.
Relevant to determining any successor entity to Landsbanki on 9 October 2008 the Financial Supervisory Authority of Iceland issued a decision relating to the disposal of certain assets and liabilities of Landsbanki to New Landsbanki Islands hf.
The 13 October Licence provides that, other than as provided in the 13 October Licence, frozen funds are not to be made available to, for the benefit of or at the direction or instruction of any part of Landsbanki's group.
On 29 October 2008 HM Treasury issued a Credit Agreements Licence (the Credit Agreements Licence).
The 13 October Licence granted permission to the London Branch of Landsbanki to continue commercial finance, asset based lending and capital markets and fixed income activities. Among other things the 29 October Notice makes it clear that this permission is not intended to be restricted to the activities of units with those names within the London Branch. The Treasury confirmed that it understood these activities to include activities such as:
- commercial finance (asset-based lending);
- capital markets and fixed income activities (including derivatives);
- leveraged finance (including structured finance);
- trade finance;
- collateralised loan obligations.
The Credit Agreements Licence relates to correspondent banking relationships and credit agreements. In relation to correspondent accounts, the Credit Agreements Licence allows payments into and out of a correspondent account at Landsbanki. It also allows financial institutions to credit and receive payments from correspondent accounts in the name of Landsbanki. The Credit Agreements Licence makes clear that in both cases these permissions apply whether the account is in credit or debit, whether it is in the UK or abroad and whether the payment is made directly or indirectly.
The Credit Agreements Licence also clarifies the treatment of credit agreements (and in particular syndicated credit agreements). It makes clear that parties to a credit agreement can make payments due under that agreement direct to the London Branch of Landsbanki or, where the agreement provides, via a facility agent as agent for Landsbanki, to the London Branch. A facility agent under a credit agreement is also permitted to receive and make payments due under the agreement (and carry out related transactions, such as foreign exchange transactions). However, payments to Landsbanki may only be made to accounts at the London Branch or accounts in the name of Landsbanki held in the UK. The Credit Agreements Licence also confirms that credit agreements can be rolled-over (regardless of whether the roll-over is at a different rate of interest and with different maturity dates or periods). The provisions of the 13 October Licence and the Credit Agreements Licence will also apply to the rolled-over credit agreement.
The Credit Agreements Licence makes it clear that nothing in the Credit Agreements Licence or the 13 October Licence allows the transfer of funds from Landsbanki or from accounts in the name of Landsbanki to accounts in the name of any part of the Landsbanki Group.