The word is spreading

The much respected blogger Richard Murphy of the influencial campaigning organisation Tax Research UK has published my letter to the Manx Herald: read here This will be seen by many people & the message will be passed on to many more.

Wealth warning - don't deposit in the Isle of Man

The Isle of Man is living in a little world of its own. Its government & Treasury behave as though there were no global financial crisis and that the conclusions & recommendations of the g20 do not apply to them. When it comes to knowing whether your money is safe, the best it can do if your bank can't pay you is offer compensation up to £50,000. Even then it is conditional and does not pay out on demand because it is not funded.

In doing so the IoM is totally out of step with other governments who if necessary have been prepared to nationalise a bank in order to protect savers if it is unable to meet its liabilities to depositors. But in the Isle of Man the chief of the FSC has said that a bank should be allowed to fail, & that savers should understand that there are 'risks' to depositing as there are with investing.

Though the IoM does not have a bank of last resort it does have over 30 banks with something in the order of £60billion in deposits between them. What is it that stops the Treasury negotiating a loan from the banks to repay KSFIOM depositors the money they have lost because of the serious regulatory failure of the Island's FSC? The figures show that the loan could be repaid in 6 years from the recovered assets of the bank.

Instead of being imaginative the Treasury choses to stick to the easy way out, namely allowing the DCS to take care of the first £50,000, leaving depositors who have lost more than this having to take pot luck in what is left in liquidation of the bank.

Does the IoM government believe that ignoring the special & specific circumstances that led to the crash of a solvent bank will not have an impact on the future of deposit taking? Does it seriously think the Depositors' Action Group will give up & go away? Does it believe that by its banks offering higher rates of interest than elsewhere people will feel secure in trusting the Isle of Man with their hard earned savings when they find out the great risk they are taking in doing so?

A worthless Parental Guarantee

The IoM Financial Supervision Commission called upon the Kaupthing hf bank (the parent bank in Iceland) to give a Parental Guarantee to support its IOM subsidiary.
This Guarantee was given so that when looking at 'risk' a prospective depositor in KSFIOM was assured that savings put into the bank were backed by it.

Depositors had every right to believe that the Guarantee was copper-bottomed, it having been endorsed by the FSC.

Kaupthing hf was nationalised by the Icelandic government, & guess what happened to the Parntal Guarantee? Yes, it went into the bin!

Nevertheless it was right to look at whether binning it was the end of the matter. A parental guarantee must have had some force in law & could not simply be set aside unless there was built into the guarantee that under certain circumstances it could be declared nul & void.

So the depositors' legal beagles asked the FSC for copy of the Kaupthing parental Guarantee. What was the response of the FSC? A letter stating that this document was confidential. Could there be anything more absurd than telling depositors that they could not see the actual guarantee which had been a factor in them depositing in KSFIOM?

After pressure was brought to bear it was released. To the shock & horror of depositors it transpired that it is essentially a letter, comprising only one paragraph, without seals or witnesses, whereby Kaupthing Hf undertakes to pay any liabilities that KSFIOM is unable to meet – i.e. it is a shortfall guarantee, not what most people understand as a “guarantee”, which would mean that Kaupthing Hf fully stood over KSFIOM. The guarantee is said to be unsecured.

The acceptance of such a worthless guarantee is another instance of serious regulatory failure on the part of the FSC.

What happened to the £550million of KSFIOM assets?

There is still confusion in some circles about what exactly happened to the £550million (approx) of KSFIOM assets that were transferred from Kaupthing hf (the Icelandic parent Company) to KSFUK.

These assets were transferred by the KSFIOM directors after consultation between the IoM Financial Supervision Commission and the UK Financial Services Authority. The depositors believe that the directors failed to exercise due diligence because they they sanctioned such a large sum to be transferred totally unsecured to a bank within the Kaupthing group, knowing that if the parent bank in Iceland were to collapse then the sister banks were at serious risk of doing the same.

The FSA & FSC both knew way back in March 2008 that there was a deteriorating financial situation in Iceland. Kaupthing hf was the largest bank in Iceland and it was 'at risk' in the whole Icelandic financial scenario.

In October 2008 there was a run on KSFUK but Kaupthing hf was unable to keep its subsiduary from facing insolvency & it went into administration. Subseqently Kaupthing hf was judged to be insolvent and it was nationalised. This meant that the KSFIOM assets were in the KaupthingUK 'pot' leaving KSFIOM as an unsecured creditor. The secured creditors had first claim on the assets of KSFUK. This has resulted in approximately 50% of the KSFIOM money being lost in the administration of KSFUK.

Who is to blame for this disaster? Iceland? Alistair Darling? the FSA? the FSC?
In the final analysis the responsibility for the loss of KSFIOM assets rests with the IoM FSC & the bank's directors. It was they who did the unforgivable by putting over 50% of the bank's assets totally unsecured into a sister bank that they knew could fail if the parent bank in Iceland were to fail.

The FSC has sought to blame the FSA for not following the Memorandum of Understanding between them by advising it of the deteriorating situation & hence the need to move the assets before the plug was pulled on KSF UK. Whatever the reason for the FSA failing to do this the fact remains that the FSA was only ever in an advisory role, so the ultimate responsibility for safeguarding the KSFIOM assets rested with the bank & the FSC.

The directors put all the £550million into one basket. Why did they not do the logical thing and spread the risk by putting the money into a number of other banks?

Cock-up is the order of the day in the IoM

Today I can do no better than quote from the Manx Herald lead article of 18 June:

Once again Members (of the Tynwald )used the opportunity to demonstrate (with the odd exception) their aptitude to dodge the issue whenever the whiff of corruption and maladministration wafts their way.

Tuesday afternoon’s sitting of Tynwald (16th June) produced further evidence that, although the Isle of Man may have the longest running parliament in the world, there is still a colossal way to go before the IOM can consider its parliament has the integrity to match its longevity.

The IOM might not quite match Jersey for some of its out dated feudal practices, or North Korea’s penchant for detonating nuclear bombs and imprisoning journalists, but it does exhibit other traits characteristic of a ‘Rogue State’.

Namely, when the authorities are called upon to scrutinize certain failed administrative procedures, account for any deficiencies within them, and name the parties responsible for the failure - it almost always manages to demonstrate a world-leading expertise in finding nothing much wrong; and that no one is required to be held accountable. Even Zimbabwe would be proud of the record the IOM has for such travesties.

With a few exceptions the 'parish council' politicians of the IoM can not deal with the really big issues that face the IoM. Regrettably the army of civil servants it employs in the FSC & Treasury can't do much better either. Cock-up seems to be the order of the day and they have the audacity to expect depositors to pay for it.

The depositors' 'Memorial' website

There are two sides to every coin. One side of the Kaupthing IoM coin puts the ultimate blame for the Kaupthing bank debacle four square on the shoulders of the IoM Financial Supervision Commission and the bank's directors. The other side of the coin shows up the involvement of the UK government & the Financial Services Authority in the whole disaster. See the depositors' 'memorial' site here

There is now international acceptance (eg: by the g20) that whilst there were many weak links in the chain, regulatory failure was one of them. But why should depositors - who put their trust in what they were told was high quality bank regulation in the IoM - lose out? Why does the IoM government not accept that its FSC was one amongst many that failed depositors across the globe? Other governments have undertaken to vouchsafe savings deposited in banks under their jurisdiction so why doesn't the Isle of Man government do the same?

The IoM is a major player in the off-shore financial services market. If its government choses to ignore the facts, accept responsibility & seek to put things right by the depositors then it will invite other prospective depositors to look elswhere to put their money..

In defence of Mr. David Cannan MHK

In the Tynwald on 16 June Mr. Allen Bell (Treasury Minister) set out to put down the courageous Mr.David Cannan.

Mr. Cannan should not be made some sort of scapegoat & discredited in this matter. At the outset he & fellow MHK's were given 'best advice' from professionals and that advice favoured the proposed SoA. At that point it was understandable that he should support the SoA in the light of the way it was sold to the Tynwald.

If Mr. Cannan had known at the time what the outcome was to be, and had he known the enormous cost of engineering the SoA, I am sure he would not have supported what the professionals were so strongly advocating as being in the depositors' best interests and those of the IoM.

With hindsight Mr.Cannan can see that the SoA was in fact a scheme that put depositors' interests second to those of the IoM, & he has the guts to stand up for what he feels is an injustice being done to depositors.

The IoM needs more politicians like him -- politicians who have integrity & recognise injustice when they see it. I believe that he knows the FSC & directors failed in their duty to protect the trust depositors put in them, and I admire his willingness to speak up to see that a terrible wrong is put right.

A credible solution would be for the Treasury to borrow the money 'in house' from the banks and pay it back as the assets of KSFIOM are recovered. If the Tynwald had the moral courage & integrity to sort the Kaupthing debacle by restoring all deposits 100% through such an arrangement,then it would be giving a clear signal to the world that the IoM is assuredly the safest & securest place to deposit one's life savings.

The UK Ministry of Justice sits on the fence over the Kaupthing debacle

In constitutional terms as a Crown Dependency the IoM comes under the umbrella of the Ministry of Justice. You would think that its political chiefs Lord Bach & Jack Straw would have some concern that the IoM choses to ignore what Gordon Brown has to say about governments protecting savings in the banks in their jusisdiction. Not at all. Gordon Brown's latest pronouncement: "where there is unfairness & irresponsibility we have got to act" runs like water off a duck's back to the IoM government.

The MoJ does not think the Kaupthing debacle is of such a serious order as to require Her Majesty's Government to call upon the IoM government to come into line with UK & g20 policy, or for HMG to consider legislating to enforce compliance with international policy objectives to deal with the banking crisis. Instead it simply supports the IoM government in it resorting to its Depositors' Compensation Scheme to settle the matter.

The MoJ will not come off the fence & change its attitude in respect of the Kaupthing affair unless the economic independence of the IoM is threatened in such a way that the island might become a liability on the UK taxpayer.

Compensation versus Restoration 100%

The Depositors' Compensation Scheme [DCS] is a stautory provision made by the IoM government to provide a means of compensating depositors up to £50,000 in the (at the time) unlikely event of a bank going bust. In effect it means that anything over £50,000 deposited is 'at risk' of being lost in the event of there being no recoverable assets in liquidation.

In the face of the global financial crisis & the collapse of KSFIOM the Financial Supervision Commission [FSC] is now at pains to emphasise this point. Banks must not only do the same but explain the timeframe that depositors might expect to have their money restored to them in the event of a claim having to be made.

The IoM FSC is implementing the DCS as though it had no responsibility for the reason why it is having to do so, namely its own regulatory failure to protect depositors' money in the first place.

To implement the DCS the government is having to borrow the money to meet its statutory obligations. However, in respect of the Kaupthing bank the government will recover what it borrowed from the liquidator as the assets are realised. No doubt in addition it will seek to recover the costs of the whole process, so that those depositors with over £50,000 at stake will lose out a percentage of the bank's recovered assets.

Now the big question is why the government doesn't have any regard to the special circumstances in which KSFIOM lost its licence, and make special provision for all depositors to have their money returned 100%. The DAG asserts firmly & rightly that it should. But the IoM government choses to behave as though it has no moral obligation to make provision for this to happen.

Quite simply, as the government doesn't have a bank of last resort (it should), it could elect to borrow the money from the 20 banks on the island & repay the loan from the recovered assets of the bank. It is borrowing money from the banks anyway to implement the DCS, so why doesn't it borrow the extra to repay depositors 100%?

It choses not to because resolving the KSFIOM debacle only requires it to fall back on the bottom line provision of its statutory DCS. That is what Tony Brown, Chief Minister, told the Treasury Select Committee on 3 February 2009.

Don't even think about it being 'fair', 'right' or 'just'. Those words are not in the vocabulary of governments. It's what the law says that counts.

100% return is now only possible if the government finds itself under enormous pressure to change its stance and order the Treasury to come up with a plan that meets the demands of the DAG. That pressure will not come about from any sudden sense of 'fair play' or the need for 'justice' to be done, but from a serious threat to - or decline in - the Manx economy with resultant pressure being brought to bear by the banks.

Plain English is not understood in the IoM

The blurb being issued by the IoM's Depositors' Compensation Scheme is a classic example of gobbledegook in communicating to depositors the mechanisms of claiming compensation.

The 'Plain English Campaign' website here   has been active since 1979 helping government & local authority agencies to get rid of gobbledegook in their official statements & leaflets. The IoM government needs urgently to look at the excellent courses offered to train agency staff how to communicate in language that is simple to understand.

In response to a depositor's concern about the security of an on-line claim, the IoM DCS Agency wrote::

"With regard to the security aspect I would make the following comments. We assessed two key risks - the access risk (ie at the database level) and the transmission risk. The basic infrastructure of the database contains levels of control at the access point (ie login/password credentials) and data level security (based on credential and roles). The transmission risk was more problematical in that with a start date of 27 May, but against a backdrop of great pressure to act (the bank having been closed since 8 October 2008) the decision had to be made whether to secure the transport layer for sessions with the consequential impact on the development time.

The conclusion reached was that the risk of exposing the data traffic itself was slight in that several separate data sets would need to be captured to obtain meaningful information. Thereafter, compensation payments themselves will be dependent upon a number of other checks both data validation and physical checks, before payments are released to a location known to be that of the claimant/depositor.

I am not entirely sure if this answers your point, but I would be happy to consider any points you might wish to make.

Regards
Mike Fayle
Scheme Agent"

The 'Plain English Campaign' have asked for examples of government agency gobbledegook. I will be sending Mr. Fayle's letter to the Campaign as an entry for the Campaign's Golden Bull Award for the worst gobbledegook 2009.

The IoM - scheming, deceitful, contemptuous & hypocritical

The more we learn about about the Isle of Man the more we come to discover that it has a financial services industry that is built of smoke & mirrors on quicksand foundations. The banks & other fiancial institutions are off-shore for no other reason than to operate with lower costs in order to make higher profits.

The way the Manx banks & finance houses advertise themselves is all smoke & mirrors designed to give the appearance of offering low risk security coupled with high returns on money placed there. The minute the benefits outweigh the cost these banks leave the island not on the next ferry (that's too slow) but on the next plane.

The simple fact is that once you deposit money in the Isle of Man it ceases to be yours; it becomes the property of the bank. You are nothing more than an unsecured creditor, a liability to the bank because it owes you money. The question of trust does not come into it, so if the bank goes bust you can only fall back on a discredited depositors compensation scheme that can not pay out 'on demand' as it is not funded.

Having lost your life savings you discover that there are secured creditors in front of you in the queue who will take what was once your money before you see a penny of it. Then you also discover that there's also those guys in wigs in front of you, & the government itself takes all it can from recovered assets what it has paid you in so-called 'compensation' By the time you get to the cashier there's a huge chunk of your money gone!

The banks' information to potential clients is composed of 'smoke & mirror' advertising. The blurb is written to entice you to part with your money in their favour. You are a 'somebody' until you have parted with your money, then you become a 'nobody'. Unless you live on the IoM you are faceless - just a bank account number, a potential source of more money for them to make big money before you get your bit of interest. Then if it all goes wrong - tough! The bank's interest in you vapourises instantly.

When KSFIOM shut its doors denying depositors their savings, did they get a letter of profuse apology from the bank directors explaining what had happened and assuring them that they would be living on bread & water until they had done everything in their power to see that you got your money back? No! Did they take a salary cut? No! Did they claim a bonus? YES!

So now depositors have learnt at great personal cost, deprivation & suffering that the IoM - its finance houses, its government & its failed Finanial Supervision Commission,& its compensation scheme - is scheming, deceitful, contemptuous & hypocritical.

Dispossessed depositors are saying loud & clear on Youtube.com: DON'T BANK ON THE ISLE OF MAN - it could seriously ruin your wealth:
view HERE

Is it now 'MISSION IMPOSSIBLE' for the DAG?

The IoM government has taken up a bottom line position of doing the least that it is obliged to do under its statutory obligations, namely implement the Depositors' Compensation Scheme. Quite simply it doesn’t have to do anything else because:

1. it refuses to accept that the collapse of the Kaupthing bank was ultimately due to the regulatory failure of the FSC and the bank’s directors;

2. it does not feel under any moral obligation to accept that the global financial crisis means that it should treat the collapse of KSFIOM any differently than if the bank had failed in 'normal' conditions;

3. it will not concur with the UK Prime Minister’s words of 7 June: "where there is unfairness & irresponsibility we have got to act"

Thus the IoM government will not review its position unless there were a significant development that either seriously threatened its constitutional independence from the UK or compromised its economic stability.

What could happen to force the IoM government to review its position?

1. if the UK government exercised its constitutional prerogative by calling on the IoM government to come into line with the international policy objectives of the g20, and underwrite 100% all deposits in KSFIOM;

2. if there were a crisis of confidence in the IoM banking system resulting in an exodus of funds from the IoM.

In respect of (1) the UK Ministry of Justice to date has sat on the fence as though the issues in the document 'The Road to Recovery' were irrelevant to the IoM. Furthermore, it has not considered the KSFIOM debacle to be of such a serious nature as to require HMG to intervene under its constitutional powers.

In respect of (2) the failure of KSFIOM ought to have been enough to cause many to remove their deposits & investments in the IoM, but this bankrupcy has hardly caused a ripple in the media due to a large extent to the other issues that have taken precedence in the news headlines. Likewise the DAG press releases have not made the desired impact in the face of the many other competing issues confronting people (eg: unemployment, bankruptcies, inability to pay mortgages, the Westminster allowances scandal,etc.)

What then could bring about a change in position on the part of the IoM government?

There are many who believe that only the following will now bring about a change in the position:

1. legal action against the FSC & Directors of the bank
2. a high profile campaign to discredit the IoM in the eyes of the world.

Watch this space for further developments

"Where there is unfairness & irresponsibility we have got to act" - Prime Minister

These were Gordon Brown's own words today. The DAG will be jumping on his tail afresh, because the Kaupthing depositors have been treated unfairly compared to depositors in other Kaupthing banks in Europe. Furthermore, there has been gross irresponsibility on the part of the IoM Financial Supervision Commission.

The IoM is a British Crown Dependency, its citizens are British Subjects and thousands of British people have deposited their life savings in the Island. The Ministry of Justice has a responsibility to ensure that the IoM government comes into line with UK & pan-European policy to safeguard deposits in its banks.

The Prime Minister has said: "the global financial crisis needs a global solution", & he has made it clear that part of that solution is to ensure that people's savings are truly safe in the banks where they have been placed. That must include the Crown Dependency of the Isle of Man.

Dirty tricks being tried by the Isle of Man government

Tony Brown, Chief Minister of the IoM, told the UK Treasury Select Committee on 3 February that his government would be resolving the Kaupthing bank issue by implementing its well-proven DCS. Then why didn't he do just that ? Why all the hugely expensive SoA hanky-panky?

The simple answer is that the IoM government is on record of having considered that a SoA over the DCS was first & foremost in the best interests of the IoM. Any so-called benefit to depositors was an entirely secondary consideration.

The FSC & bank Directors made a serious error of judgement which they know fully well, but the incestuous system has been busy throwing money at a scheme of obfuscation to cover up for the gross regulatory failure that took place prior to 8 October 2008. Now the government want the depositors to pay for their costs in respect of the failed Scheme of Arrangement! No doubt the people of the IoM will be pleased to sacrifice any moral notion for justice to be done in favour of an unjust resolution that makes the depositors pay for yet another failure of their rotten government.

The need for a clean up in politics is not confined to Westminster; it reaches into the black heart of this rotten Crown Dependency.

The purpose of the website 'DON'T BANK ON THE ISLE OF MAN'

This website www.kaupthingiom-dag.co.uk is on the internet because dispossessed depositors do not want expats & others throughout the world to be victims of the collapse of another bank in the Isle of Man. To this end they feel that they are duty bound to make other potential depositors aware of the risks involved in putting their trust in this offshore financial centre that now has a record of 3 bank failures in which thousands have lost huge sums of hard earned money.