Icelandic authorities react to UK gov't 'terror' move

The Icelandic government has hired a law firm following the Treasury's use of anti-terrorist legislation to freeze all Landsbanki assets in the UK.

Landsbanki, which traded under the Icesave brand in the UK, took millions of pounds of deposits from ordinary savers, local authorities, public bodies and charities.

The Treasury said its asset-freezing powers enable it to freeze assets in cases where this is necessary so as to protect the financial stability of the UK in addition to cases where there is a terrorism threat.

Geir Haarde, prime minister of Iceland, said the UK government's "unprecedented actions" has led it to review its legal position.

He said: "The government of Iceland has appointed a British law firm, which is now working to prepare a case, and the Icelandic government has also taken various measures to ensure that the British public is made aware of our point of view."

A Treasury spokesperson said the it is in ongoing discussions with the Icelandic authorities to find a solution that protects both depositors and creditors in Icelandic banks and enables the freezing order to be lifted.

He said: "These asset-freezing powers enable the UK government to act in a broad range of circumstances, for example in cases where there is a threat to the UK economy or a part of it as a result of action which has been or is likely to be taken by a foreign government or institution. This was the basis upon which we acted last week.

"Good progress is being made in these negotiations and we would hope that further legal action can be avoided."