Public pressure forces Iceland’s prime minister to step down over Panama Papers

Protesters in Reykjavik, Iceland on 4 April

Iceland’s Prime Minister Sigmundur Gunnlaugsson resigned on Tuesday just one day after thousands of people marched in the streets protesting his use of secret bank accounts facilitated by Mossack Fonseca, a Panamanian law firm which had as clients Gunnlaugsson and his wife.

Iceland was the only country that jailed top financial executives behind bars in the aftermath of the 2008 financial crisis. This Monday, an estimated ten percent of the population attended protests around the country, to demand the resignation of their prime minister.

For the past three weeks, Icelandic media have covered a serious conflict of interest and lack of financial disclosure on the part of Gunnlaugsson. With the release of the Panama Papers, this national story hit global headlines.

People, who have suffered through the 2008 financial crisis that all but bankrupted the country and severely dented livelihoods took their anger to the streets.  The protests were broadcast live on as many as 75 television stations worldwide. Over 11 per cent of Icelanders also signed an online petition calling for the prime minister’s resignation.

Here’s why. In the aftermath of Iceland´s massive banking failure of 2008 and the drastic depreciation of the Icelandic currency that followed, capital controls were put in place. Domestic and foreign investors were prohibited from transferring funds from the country.

Gunnlaugsson, a leader of the Progressive Party, was elected to lead the government in 2013 on the campaign promise that he would reach agreement with foreign creditors (“vulture funds” as he called them) and lift capital controls in exchange for a hefty tax to counteract the damage to the króna and finance debt relief to local homeowners on a massive scale.

At the same time an offshore creditor company of the failed Icelandic banks, owned by the Prime Minister and his family, went undisclosed.

Prime Minister Gunnlaugsson and his then partner had been greatly enriched through a family dispute settlement resulting in an advance inheritance being paid out to his wife-to-be.

The Panama Papers clearly show that Gunnlaugsson was the joint owner, since 2007, of an offshore company, Wintris Inc, registered on Tortola, British Virgin Islands.

On New Year’s Eve 2009, he transferred his 50 per cent share to his now wife for US$1, a day before controlled foreign corporation (CFC) rules were put in place in Iceland. The Panama Papers have revealed that Wintris Inc, in October or November 2009, i.e. while Gunnlaugsson was still its legal owner and a member of Parliament, had bankruptcy claims in excess of US$4 million against the estates of Iceland’s failed banks.

Until the revelations of the Panama Papers came to light, Gunnlaugsson, then Prime Minister, had never disclosed his conflict of interests.

Cabinet avoided introducing whistleblower protection and code of ethics

During Gunnlaugsson’s tenure as prime minister, the Icelandic government has failed to discuss a proposed bill on whistleblower protection, refused to sign a draft code of ethics applicable to cabinet ministers, and failed to implement several stern recommendations for anti-corruption reforms urged by GRECO.

On the positive side, partly as a result of the banking collapse, Iceland has a robust and independent free media, which has reported vigilantly on the prime minister’s conduct and continued to question him on his undisclosed financial affairs.

The Panama Papers, along with the investigative work of Icelandic journalist and the public pressure that lead to PM Gunnlaugsson’s resignation are a testament to the importance of independent media and a vibrant civil society in holding the powerful to account.