Lunch with the FT: Olafur Hauksson, the man who jailed Iceland's bankers

Visiting Iceland today, it's hard to imagine how a tiny fishing nation without a tradition of big banking became synonymous with the idea of "Viking capitalism". About a decade ago corporate raiders embarked on a high street spending spree funded by the country's largest banks, which built up assets 10 times the size of the country's economy. Among the trophy assets they acquired were the famous toy shop Hamleys and the Premier League football club West Ham United.

The frenzy didn't end there. Across the nation's population of 330,000, even fishermen became full-time traders, while the consumption of luxury goods soared. In his book Frozen Assets Armann Thorvaldsson claims that, in 2006, Bang and Olufsen sold more televisions and sound systems in Reykjavik than in any other store outside of Moscow.

Then, in the autumn of 2008, as the world dealt with its biggest financial crisis in 80 years, Iceland went pop more spectacularly than anywhere else, staving off bankruptcy only by letting its big three banks - Glitnir, Kaupthing and Landsbanki - fail.

As protesters streamed on to the streets in their thousands - on one occasion throwing snowballs, eggs and yoghurt at the parliament - the role of special prosecutor was created to look into rumours of epic financial wrongdoing. Nobody applied. When, the following year, a small-town policeman more used to handing out parking fines took the job, conspiracy theorists smelled a rat: clearly, they thought, the problem was being buried.

They were wrong. Olafur Hauksson may not draw recognition from other diners as he strolls into the Hilton hotel just outside the centre of Reykjavik at noon, but he is responsible for one of the most impressive feats accomplished in the post-crisis world. For Hauksson, 52, now Iceland's district prosecutor in charge of investigating all major crimes on the island, is the only person in the west to have jailed a big bank's chief executive.

And not just one. His first big conviction came just after Christmas in 2012 when Larus Welding, former chief executive of Glitnir, was found guilty of fraud. The verdict was later overturned but soon the floodgates opened. Welding was sentenced to five years in jail for breach of trust in December 2015, and in a separate case last month to one year in jail. Both convictions are likely to be appealed to the supreme court. This was followed by two more chief executives Hreidar Mar Sigurdsson of Kaupthing and Sigurjon Arnason of Landsbanki, who were each handed two separate convictions and jail terms.

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Hauksson has chosen the Hilton's buffet over the trendy city-centre eateries nearer his office because, he says, "it has a little of everything, so it suits everyone". A big man - today dressed in a brown suit, white shirt and black-and-brown striped tie - he looks like he is not entirely a stranger to all-you-can-eat lunches.

We get stuck in straight away. The buffet is indeed an impressive spread and good value compared with the prices elsewhere in Iceland, inflated by an extraordinary boom in tourism since the crisis due to a weaker currency and cheap flights. We stock up on sushi, salad and a Chinese takeaway-style box filled with chicken noodles.

At our table, which looks out on a car park and busy main road, Hauksson quickly brings me up to date on his record so far. Of his financial cases, 14 have reached the supreme court for judgment, bringing 11 convictions, two acquittals and a retrial.

I ask how it was to start with what was essentially a blank sheet of paper and no roadmap from elsewhere on how to proceed. Picking up a piece of sushi, Hauksson answers: "That's the question that is a bit compelling today. It's why others didn't do the same when there was the same situation there as there was in Iceland."

He pauses to dip his sushi in soy sauce. "The worst thing is that these questions will not be answered ever. You will always have this obstacle in gaining trust in the financial sector again," he adds.

In other countries, there have been convictions for financial crisis misdemeanours. Tom Hayes, a former UBS banker, was jailed for 11 years in 2015 for manipulating Libor, the benchmark interest rate, despite arguing that his bosses knew what he was doing. Jérôme Kerviel was sentenced to three years in prison in France in 2010 after amassing €50bn in hidden trades at Société Générale.

But such cases targeted, in Hauksson's words, "the keyboard person" - the underling who performed the trade, rather than someone up the food chain.

Hauksson, by contrast, has concentrated on the big fish. Many of the cases have been highly complex, alleging market manipulation or breach of fiduciary duty through the use of shell companies to prop up the banks' share prices or loans where the lenders bore all the risk.

So how did he go about pursuing the people at the very top? He says it was mostly about following the document trail very carefully - particularly in times of stress and crisis, emails can be especially revealing.

It was also, he tells me, about keeping going to the logical conclusion rather than stopping. "It's finding out who is responsible. That's a totally different thing. In some ways, it was clear where this all came from. It was important to make the employees aware that if they cannot point to someone else, they will be the one to blame," he says.

It is a simple point but it makes me stop. I spent several months at the end of 2015 reporting on Volkswagen's emissions scandal. So far at the German carmaker - just like at the big US and European banks - there has been plenty of talk of big fines but only relatively junior employees have been fingered for potential criminal responsibility.

Getting people at the top is essential to restoring trust in the system, I suggest. "Yes, it is. And it has maybe come out on other countries too that this was a mistake not to try."

I mention some of the cases from other countries, such as VW and Wells Fargo, where bank employees opened accounts without customers' authorisation. Hauksson pushes aside his plate. "This is one of the problems," he starts, "you have some kind of culture, everything has been done this way for long periods of time. And that's why it's a bit difficult sometimes to point at some specific order from the top."

Returning to his Icelandic cases, which have, for instance, shown that the banks themselves accounted for up to 80 per cent of the trade in their own shares on some days, he says: "The executives, they have some tools to control things. They have reports: for example, how much the bank itself was actually buying up its own shares, so they couldn't deny what had actually been happening . . . They were obligated to react on that."

Some have argued that it was easier for Iceland to be aggressive because of its small size, whereas the big US and European banks were more systemically important. Eric Holder, the former US attorney-general, said in 2013 that it was difficult to prosecute large banks "when we are hit with indications that if you do prosecute . . . it will have a negative impact on the national economy, perhaps even the world economy." He later backtracked but no chief executive at a big US bank has yet been prosecuted.

Iceland's rapid rise and sudden crash was certainly devastating. Stefan Olafsson, an Icelandic professor, has called it "probably the most rapid expansion of a banking system in the history of mankind".

Its collapse caused Iceland's currency to plummet, which in turn led to inflation and loan repayments soaring. Many Icelanders who had taken out loans in yen or Swiss francs at a lower rate of interest found they were now facing penury.

"Almost everyone was affected by the crisis one way or another," Hauksson reflects now, yet he is clear about the imperative to investigate. "It's a bad thing, whether a society is small or big, to have these matters unsolved. These are the most serious economic crimes that have ever been committed in Iceland. Taking into account how many people it touches, how it affects the economy, if this behaviour had not been dealt with, it would have been a fault for the system," he says.

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"Let's have some more," he says eagerly and, minutes later, we return from the buffet with our small plates laden with lamb, chicken, salmon, potatoes and mushrooms. Hauksson has taken some more sushi as well. "One time is never enough."

Brought up in Reykjavik, the fourth of five children in a middle-class family, Hauksson's eldest brother was handicapped from birth so he and his sisters helped look after him.

"In a way my whole life I have been working," he explains. "During some prosecutions we are more at work than home. It is bad, working late hours and weekends, and it wears people out. We have had incidents at work where we have actually had our employees very badly ill. I have four times seen one of my employees going into an ambulance. That's not an easy thing, so you actually feel a little bit the pressure that comes with the job."

After law school he rose through the ranks to become head of police in Akranes, a sleepy town of 6,500 people across the bay from Reykjavik. His biggest investigations were "attempted murder or a drug case", he says. His main tasks included collecting taxes and dealing with family affairs. He also issued parking fines and broke up drunken brawls. He had no financial experience.

The role of special prosecutor must have seemed a thankless task on an island where the elite is small and interconnected? "No one wanted it," he says, recalling his decision to belatedly throw his hat into the ring. "Maybe I was too narrow-minded when I decided to apply. Maybe everyone else knew that this would be horrific. I don't know. But I found it appealing," he says.

Hauksson was provided with advice on how to set up the special prosecutor's office by Eva Joly, a Norwegian-born, French investigating judge known for her cases against Elf Aquitaine and Crédit Lyonnais. He was also aided by the Icelandic parliament's special investigation commission - a kind of "truth and reconciliation" report on the crisis published in 2010.

Hauksson started off with a staff of three and "no computers, no phones, nothing". By 2013, under a centre-left government that came to power after the popular uprising known as the "pots and pans revolt", the special prosecutor had 109 people working for him. Two years later, with the party that was in power before the crisis back in office, his budget and staff was slashed again. Yet he ploughed on, securing conviction after conviction and even securing a retrial in one case due to a lack of impartiality from one judge, who then proceeded to attack him in no uncertain terms.

As we tuck into the chicken, I ask Hauksson about where he gets the personality to withstand the pressure. "The stubbornness?" he asks with a smile. "Of course, I have been in this system for a long period of time and in a way you know your way around, you know what's proper, what's decent . . . You have to be persistent and you have to be very much self-driven because there is no one else driving the case to the court."

He argues the crimes themselves are simple matters such as embezzlement, merely with a complicated "wrapping" of financial jargon around them. Is it like gang crime, I ask, where you know one of a group did the crime but you can't work out who? "It's maybe more that you are almost looking into some well-organised criminality," he replies.

There's time for one more trip to the buffet, this time to collect a selection of desserts, and in my case some cheese. Hauksson orders a coffee and immediately sets off on a long anecdote about a fishing trip the previous week, his first for a long time. "I found myself a bit rusty. I was doing poorly at the beginning of the day. It's always interesting to know how nature can teach us lessons, because in the last hour I got a bite.

"I fought with that fish for 40 minutes and it went up and down. And I thought that it was either me or the fish," he says, pausing to eat some dessert. "It ended that the fish won. It broke the line. Most often I would have been raging but this time I felt humbled . . . I will be in better shape next time."

Hauksson may have been clearing up financial wrongdoing, but Iceland is still struggling on the political side. Its prime minister was forced to resign in April after appearing in the Panama Papers' revelations about offshore companies. The anti-establishment Pirate party were the big gainers in early elections held in October and may still end up in government. Still, trust in Iceland's parliament is one of the very lowest in Europe. Did the politicians miss a chance to rebuild trust? "Maybe the work of our politicians should be more transparent, there should have been fewer scandals, and more focus on re-establishing the trust," Hauksson says.

With the restaurant thinning out of the few tourists who have been eating alongside us, I ask Hauksson about the recent extraordinary boom in foreigners visiting Iceland. The number of tourists has jumped from about 500,000 in 2010 to an expected 2.4m next year, raising fears of another bust to come like the financial one.

Hauksson says such booms and busts have long been in Iceland's nature as a nation depending on the vicissitudes of the sea. "The fish is coming and going, and if it is coming you try everything possible to get it, and when it's going it's not out there any more and you have to take the hard times. It's always tops and bottoms."

Richard Milne is the FT's Nordic and Baltic correspondent

Illustration by James Ferguson

Copyright The Financial Times Limited 2016