Iceland has jailed 26 bankers, why won't we?

There are many reasons to admire Iceland, but here is another one: it has just sentenced five senior bankers and one prominent investor to prison for crimes relating to the economic meltdown in 2008. And with these two separate rulings made last month in the Supreme Court and Reykjavik district court, the nation that gambled so heavily on the markets and lost so disastrously in the consequent crash has sent 26 financiers to jail for combined sentences of 74 years.

The authorities pursued bank bosses, chief executives, civil servants and corporate raiders for crimes ranging from insider trading to fraud, money laundering, misleading markets, breach of duties and lying to the authorities. Others still await trial after this fishing nation with fewer people than Sunderland stupidly tried to take on the world’s financial titans.

Meanwhile the economy that collapsed so spectacularly has rebounded after letting banks go bust, imposing capital controls and protecting its own citizens over all other losers.Not all the convicted bankers ended up behind bars. But this determination to hold people to account for actions that caused intense financial misery contrasts strongly with Britain, most of the rest of Europe and the United States. Yes, fines totalling £150bn have been imposed on the 20 biggest banks for transgressions such as market manipulation, money-laundering and mis-selling mortgages. Yet these costs fall on shareholders and, by hampering the banks’ ability to lend, the wider community - while the perpetrators carry on collecting their obscene bonuses.

No wonder electorates struggling with austerity feel angry. As we await the latest inquiry into the Iraq War, we should not forget Britain never bothered holding a proper inquiry into the financial meltdown that still heavily impacts on public finances. There was the muted Vickers commission into banks, while next week sees the release of a major report into events at HBOS that led to a £20.5bn taxpayer bailout. Yet although the downturn was the most dramatic financial event for decades, we have not seen anything similar to the deep investigations and reforms unleashed in the United States.

The HBOS report is expected to answer why more of its bankers were not investigated by the Financial Services Authority. The only enforcement action it took was against the head of corporate lending, fined £500,000 and banned from the financial services industry for overzealous promotion of aggressive expansion. And one director lost his knighthood - just like Fred Goodwin, the shamed head of Royal Bank of Scotland. But the loss of these titles hardly compares with the prison sentences being handed out in Reykjavik.

In New York, a couple of minor British bankers have just been convicted of manipulating inter-bank lending rates. In London, the massive HSBC is playing political games over whether to move its headquarters to another country to stave off regulatory pressures.

This is the bank, remember, fined £1.2bn after a US investigation found it was laundering money for gangsters and rogue nations, then discovered to be helping wealthy clients evade tax in dozens of countries. Its former boss became a government minister and then chairman of the British Museum; his non-domiciled successor keeps saying mistakes are all in the past as he seeks looser controls.

Last week chancellor George Osborne said he understood public fury towards the sector. He talked tough, comparing rogue bankers who rip off ordinary people with shoplifters who go to prison, but claimed laws were not in place during the crash to allow regulators and lawmakers to pursue criminal charges against wrongdoers. ‘Some criminal charges have been brought, but not as many as would have been the case if the laws were better.’

New laws to make prosecution of bankers easier are welcome, with offences for reckless misconduct and rigging markets. Only time will tell if these prove effective. But just a few months ago the chancellor indicated he wanted an end to ‘banker bashing’, then days later the aggressive head of the City’s watchdog was ousted after saying he would ‘shoot first’ and ask questions later. Nor should we forget Barclay’s chief executive telling MPs ‘the time for remorse is over;’ the following year, he was forced to quit over the Libor scandal.

Restraining bad behaviour in the City of London boils down to attitudes; there were, after all, fraud and dishonesty laws that could have been used if the desire was there. In Iceland Olafur Hauksson, a former police officer from a fishing village, was put in charge of more than 100 investigators with a mission to bring financial miscreants to book. ‘Why should we have a part of our society that is not being policed or without responsibility,’ he asked. ‘It is dangerous that someone is too big to investigate. It gives a sense there is a safe haven.’

Hauksson was right - and this is even more true in Britain. We have one million people in financial services; it is our biggest exporter and a crucial chunk of our economy. So it is in the national interest to see this sector well-run, well-regulated and widely-trusted by the public. And those who support free markets, such as the Conservatives, should be the ones fighting hardest to root out the crooks, crony capitalists, pirates and tax dodgers that do such damage to the cause. This is why Iceland was right to jail bankers - and Britain wrong to merely slap a few wrists and strip away a couple of knighthoods.