Ministry of Justice email dated 31 December 2008 - for information

Posted 01/01/2009 - 09:58 by bruceila

31st December 2008
Kaupthing, Singer & Friedlander Isle of Man (KSFIoM) Ltd

Thank you for your email of 22 October 2008 addressed to Jack Straw, the Lord Chancellor, which has been passed to me for reply. Please accept my apologies for the delay in getting back to you.

The Ministry of Justice, is the UK Government Department with responsibility for managing the UK’s relationship with its Crown Dependencies (Jersey, Guernsey and the Isle of Man).

I would like to assure you that the ministerial teams in both the Ministry of Justice and the Treasury sympathise with all those depositors who funds caught up in the crisis with the Icelandic banks and that, in line with the UK’s constitutional responsibilities, Treasury is representing the interests of the Isle of Man in negotiations with the Icelandic authorities.

You may find it helpful if I set out some details of the relationship between the UK and the Isle of Man before I address your specific concerns.

The Isle of Man (like its sister Crown Dependencies) is not part of the UK but is a self-governing dependency of the Crown. It has its own directly elected legislative assembly, administrative, fiscal and legal systems and its own courts of law. The Isle of Man is not represented in the UK Parliament and UK legislation does not extend to it. The UK Government is constitutionally responsible for the defence and international representation of the Isle of Man.

My understanding is that Kaupthing Bank, hf and Icelandic bank, operated a number of companies including Kaupthing, Singer & Friedlander UK (KSFUK) and Kaupthing, Singer & Friedlander Isle of Man (KSFIoM). Both KSFUK and KSFIoM were subsidiaries of the parent bank in Iceland.

The business models of many banking operations in the Crown Dependencies involve the practice of upstreaming deposits for treasury management by the parent company. In practice this means that banks incorporated in the Crown Dependencies deposit an amount equal to a significant portion of their deposits they receive from customers with their parent company. In the case of KSFIoM, significant sums had been deposited with its sister company, KSFUK. Importantly, money that a customer had placed with a bank on deposit (including with a sister company) belongs to the bank in which it had been placed. The customer only has a debt claim against that bank. A bank that has received money on a deposit may chose to place this money with a second bank; in this case, the bank effectively placing its own money with the second bank. The customer that placed the original deposit does not have any direct legal claim to the deposit with the second bank. This is the position with yourselves (and many other depositors) are in, in relation to funds they deposited with KSFIoM.

Yours sincerely,
Selina M Bailey

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