This is where bad bankers go to prison

Iceland is the only nation that put top finance executives behind bars after the 2008 crisis. Still, fears of crony capitalism remain

Iceland's Kviabryggja Prison is an old farmhouse bound by the North Atlantic on one side and fields of snow-covered lava rock on another.

Kviabryggja Prison in western Iceland doesn't need walls, razor wire, or guard towers to keep the convicts inside. Alone on a wind-swept cape, the old farmhouse is bound by the frigid North Atlantic on one side and fields of snow-covered lava rock on another. To the east looms Snaefellsjokull, a dormant volcano blanketed by a glacier. There's only one road back to civilisation.

This is where the world's only bank chiefs imprisoned in connection with the 2008 financial crisis are serving their sentences, Bloomberg Markets magazine reports in its forthcoming issue. Kviabryggja is home to Sigurdur Einarsson, Kaupthing Bank's onetime chairman, and Hreidar Mar Sigurdsson, the bank's former chief executive officer, who were convicted of market manipulation and fraud shortly before the collapse of what was then Iceland's No.?1 lender. They spend their days doing laundry, working out in the jailhouse gym, and browsing the internet. They and two associates incarcerated here - Magnus Gudmundsson, the ex-CEO of Kaupthing's Luxembourg unit, and Olafur Olafsson, the No 2 stockholder in the bank at the time of its demise - can even take walks outside, like Kviabryggja's 19 other inmates, all of whom were convicted of nonviolent crimes.

It may not be hard time, but it's a far cry from the giddy days when the Kaupthing bankers hosted parties for clients aboard yachts in Monte Carlo and hired the likes of pop legend Tom Jones to serenade guests at London galas. In sentencing these financiers to serve terms of up to five and a half years, the Icelandic courts have done something authorities in the world's two great banking capitals, New York and London, haven't They've made bankers answer for the crimes of the crash. "The Icelandic banks went overboard," says Olafur Hauksson, the onetime small-town police chief who in January 2009 was appointed special prosecutor to investigate the banking cases. "They were basically bankrupt."

Hauksson is still at it. In March his office indicted five others for market manipulation and fraud, including Larus Welding, former CEO of Glitnir Bank. In all, there have been 26 convictions of bankers and financiers since 2010. Welding declined to comment.

Holding its most powerful bankers accountable should have been a satisfying result for Iceland's 333,000 residents. But a brewing scandal involving a secret share sale by the country's biggest lender, Landsbankinn, has raised fears that the crony capitalism that marked the precrash era still lingers. The soaring popularity of an insurgent political movement called the Pirate Party, meanwhile, shows that anger continues to simmer beneath the surface of Iceland's recovery. "The mood of society is still fairly dismal," says Stefan Olafsson, a professor of sociology at the University of Iceland. "There is a loss of trust in politics, institutions, and parties. You could blame the nation for being ungrateful, because politicians have done some good things after the crisis. There is a contradiction."