A storm is coming

The interrogation room in which Iceland’s recent history was rewritten is sparse, furnished only with a table, some chairs, and a computer. A camera is fixed to the wall, and the frosted, double-glazed windows have completely blocked out the sound of the gale-force winds in Reykjavik’s Faxafloi Bay.

It was in this room that some of Iceland’s most powerful bankers, executives, and investors had to answer to special investigator Olaf Hauksson. A tall man with a heavy build, Haukkson has spent the past six years investigating the transactions that brought Iceland’s economy to its knees in October 2008.

At the time, the country’s three biggest banks folded within just three days, in part because their senior executives had illegally doctored the stock listings of their own banks. “Market manipulation”, as Hauksson curtly calls it.

When asked what happened to the three bank bosses in the end, Hauksson grins. “They all went to jail,” he says, pointing to the empty chairs. “They sat right there.”

Olafur Hauksson has only just begun to wrap up proceedings for the biggest scandal in Iceland’s history. And it’s entirely possible that the publication of the Panama Papers will trigger the next one. 

Another storm

The names of many Icelandic public officials show up in the internal documents of Mossack Fonseca (Mossfon), the Panamanian offshore provider. Among them are Prime Minister Sigmundur David Gunnlaugsson, Finance Minister Bjarni Benediktsson, and the Minister of the Interior, Ólöf Nordal. The data reveals that all three politicians have links to anonymous offshore companies, which they have neglected to disclose. The Panama Papers also include the names of Hrólfur
Ölvisson, the chairman of the prime minister’s Progressive Party, several of Iceland’s wealthiest men, a number of former top bankers, and at least one high-level government advisor. The number of suspects is shockingly high for a country of just 330,000 inhabitants.

Iceland is in for another storm, it seems.

People flying into Reykjavík in early 2016 land in a country still healing from the last crisis. The fault lines of the financial earthquake that hit the country in the fall of 2008 ran deep. For several months, Iceland found itself at the center of the global financial crisis. At the time, three of Iceland’s largest banks – Landsbanki, Kaupthing, and Glitnir – collapsed almost simultaneously under the weight of their foreign debts.

The bank failure quickly triggered a chain reaction. Iceland’s stock market plunged by 90 percent, the Icelandic Krone lost half its value, and the country’s GNP saw a ten percent decrease. As its economy fell apart, Iceland’s reputation was also hit hard, both at home and abroad. Thousands of protesters descended on parliament and threw stones, eggs, and snowballs.

The world looked on in bewilderment at the sudden downfall of the former Scandinavian role model, long the darling of anti-corruption organizations like Transparency International. The bankers once celebrated as bold “financial vikings” in Iceland and elsewhere were to blame. They had given each other unsecured loans worth hundreds of millions in an attempt to manipulate the stock prices of their banks. To cover up the true purpose of these transactions, on paper the loans mostly went to offshore companies. As the Panama Papers now show, Mossack Fonseca set up many of them. Without these shell companies, the fraudulent dealings that inflated the bubble could probably have been immediately exposed.

In the seven years since the crisis, special prosecutor Olafur Hauksson has become a celebrity in Iceland. By 2016, 27 executives had been sentenced to prison, and Icelanders celebrated each conviction with fervor. Even former Prime Minister Geir Haarde didn’t get off scot-free: Iceland’s parliament voted to charge him with gross negligence. However, the result of ended up being more like a token gesture. It was ascertained only that Haarde had failed to sufficiently inform his cabinet of important developments during the crisis.

This backstory is important when considering the offshore companies of current Icelandic politicians. Iceland’s population is still angry about the crisis and its aftermath. For this reason, Prime Minister Sigmundur Gunnlaugsson has a lot of explaining to do.

According to the Panama Papers, Gunnlaugsson and his partner Anna Sigurlaug Pálsdóttir, who he married in 2010, were registered at the end of November 2007 as the shareholders of a shell company called Wintris Inc. Shortly before this, the company had been founded in the British Virgin Islands. But for reasons that remain unclear, the registration was backdated to October 7.

At the time, Gunnlaugsson was working as a journalist and radio host, and Pálsdóttir was (and still is) an anthropologist. Both of them come from very wealthy families.

Mossfon documents reveal that the Luxemburg branch of Landsbanki acted as an intermediary. One of the bank’s employees put in the order for Wintris Inc. with the Mossfon office in Luxemburg and requested full power of attorney for Gunnlaugsson and Pálsdóttir. In an email, the banker wrote:     

Wintris was then issued two shares. One for Anna Sigurlaug Palsdottir. And one for Sigmundur David Gunnlaugsson.

In March 2008, Wintris Inc. opened an account at Crédit Suisse in London. As the data shows, the company’s affairs were based in four tax havens, with the offshore company in the British Virgin Islands, the law firm in Panama, an intermediary in Luxemburg, and the account at a Swiss bank. These are the key points revealed in the Panama Papers.

However, in this case, the pivotal information is buried in a different leak: in March 2010, Wikileaks published a previously confidential list that comprised almost 30,000 claims made against the insolvent Kaupthing-Bank. In part, the list was made public to expose greedy speculators. One of the creditors on the list: Wintris Inc. The offshore company was also listed as a creditor of Landsbanki on a list published in 2009. According to an insider, Wintris also held bonds at Glitnir, the third insolvent bank. The total current value of these bonds amounts to about EUR 3.6 million.

In response to a request for comment, Gunnlaugsson confirmed that Wintris owned bonds. He and his partner thus may have had personal financial interests at all three of the banks. While this would have been insignificant in 2007, Gunnlaugsson went into politics shortly after. In 2009, he was appointed chairman of the Progressive Party and elected to parliament in April of the same year. At the time, a new transparency regulation for Iceland’s members of parliament entered into force. As a parliamentary spokesperson confirmed to SZ, it obliged MPs to disclose any company shareholdings exceeding 25 percent.

Sigmundur Gunnlaugsson never reported his involvement with Wintris Inc., even though he ostensibly held 50 percent of its shares at the time. Was this a breach of the Icelandic parliament’s regulation? Gunnlaugsson denied any wrongdoing in his response to SZ’s request for comment. He argued that companies that don’t really do any business are not subject to the regulation. 

On December 31, 2009, Gunnlaugsson sold his half of Wintris to his partner Anna Pálsdóttir. According to the contract found in the Panama Papers, the company – worth millions – was sold for one US Dollar.

An affair involving an offshore company would be unpleasant for any head of government. But in Gunnlaugsson’s case it is a severe blow to his political integrity.

His rise to power began as part of “InDefence”, short for “In Defence of Iceland”, a grassroots political movement that was born after the three Icelandic banks collapsed. One of its slogans was “Icelanders are NOT terrorists,” which was a response to the British government’s controversial reaction to the Icelandic banking crisis. After the insolvent Landsbanki was nationalized in the fall of 2008, Great Britain demanded that Iceland guarantee the savings deposits of British nationals. When the Icelandic central bank refused to comply, the British government tried to get the money back by freezing Icelandic assets on the spot. To do this, Great Britain used counter-terrorism laws. In the blink of an eye, Scandinavia’s fallen star suddenly found itself in the same category as Al-Qaida.

Elected in 2009, Iceland’s center-left government attempted a compromise that would have included providing guarantees for British savings accounts. This enraged InDefence, and the movement’s supporters successfully rejected the government’s plans in three consecutive referendums on the matter. At the time, Gunnlaugsson seemed like a strong representative of the Icelandic people’s interests.

A conflict of interest

Insiders have said that Gunnlaugsson didn’t mention to his fellow InDefence campaigners that his family held bonds worth millions at the three bankrupt banks. The prime minister insists that the InDefence policy he helped fight for at the time even reduced the value of Wintris assets because he argued in favor of prioritizing savings over bonds.

Gunnlaugsson yet again failed to disclose his personal business interests when he was elected prime minister in 2013, even though he would inevitably be involved in making decisions that also affected the interests of creditors.

Just last year, Gunnlaugsson’s government agreed to a controversial deal. Until then, creditors who pulled their money out of Iceland were charged a 39 percent “stability tax”. Gunnlaugsson agreed to replace this with a “stability contribution” from the remaining assets of the nationalized banks. According to experts, this move will reduce the amount of money going to the state by more than two billion euros. Instead, these two billion will go to creditors, among them Wintris Inc., the company now owned exclusively by Gunnlaugsson’s wife. To some extent, Gunnlaugsson was on both sides of the negotiating table – a clear conflict of interest.

In March 2016, an Icelandic and a Swedish TV journalist, who cooperated with SZ in researching this article, confronted the prime minister about the shell company in an interview:

A few days later, his wife posted a statement on Facebook claiming that she was sole owner of Wintris, and that she had filed taxes for the company from the very beginning. She also maintained that the bank had mistakenly named Gunnlaugsson as a shareholder. While planning their 2010 wedding at the end of 2009, they had noticed and corrected the error.

To clarify the matter, SZ contacted the Landsbanki employee who had forwarded both names to Mossack Fonseca in 2007. He said it was “highly unlikely” that the bank had inadvertently entered a wrong name for the company owner and power of attorney holder.    

The Gunnlaugson case has become a political issue

Gunnlaugsson responded to a request for comment by explaining that he already had a joint account with his future wife at the time, and this was why share certificates had been issued to both of them. However, according to Gunnlaugsson, it was clear that the company belonged to his wife. Icelandic banks frequently offered their customers such offshore constructs at the time. Since his wife paid taxes on the couple’s assets, he argued that Wintris could not be considered to be “located in a tax haven” and could thus not be “seen as an offshore company”.

When Icelandic media picked up on Anna Sigurlaug Pálsdóttir’s Facebook post, the “Gunnlaugsson Affair” became a political issue even before the Panama Papers exposed its true scale. The opposition has called for the prime minister’s resignation and new elections. One newspaper has argued that the affair is one of the “biggest breaches of confidence” in Iceland’s parliamentary history.

Gunnlaugsson was absent at the last parliamentary session before the Easter break. Bjarni Benediktsson, Iceland’s finance minister and chairman of Gunnlaugsson’s coalition partner, declared to the MPs that he knew nothing about the prime minister’s company.

What Benediktsson, whose family is one of Iceland’s wealthiest, did not mention: the SZ had also sent him a request for comment about his own offshore company. In response to this request, he later confirmed that he held a 33 percent share of Falson & Co., a shell company founded in 2005 in the Seychelles. 

According to documents that Benediktsson provided SZ, the company was still active as recently as 2009, and was established in order to purchase real estate in Dubai. Benediktsson was already a member of parliament in 2009, and was thus required by the rules of Parliament to disclose his shareholding.

In a 2015 television interview, Benediktsson stated: “I have never held assets in a tax haven or anything like that”. Upon request, Benediktsson has now claimed he “wasn’t aware” that the company was registered in the Seychelles, but that the company had been registered for tax purposes.

The Panama Papers also reveal that Iceland’s minister of the interior Ólöf Nordal and her husband had power of attorney for Dooley Securities S.A., an offshore company located in Panama. She explained that the company was founded for her husband but was never used, and this was why she never disclosed the company’s existence.

Hrólfur Ölvisson, the managing director of Gunnlaugsson’s Progressive Party, says the offshore companies the Panama Papers link him to have long been inactive, and that everything is legal.

The agenda has been set

The story of the Icelandic affair has one more twist: in the summer of 2015, Iceland’s tax authorities acquired internal Mossfon data from a whistleblower. The documents included information on about 250 companies, including Wintris Inc., Falson & Co, and Dooley Securities S.A. At the time, the offer to purchase this data was the subject of public debate in Iceland. Finance Minister Benediktsson argued that “giving an anonymous person a suitcase full of money” was “completely unthinkable”. In turn, Prime Minister Gunnlaugsson stated that it was “unclear” whether the offshore data was “realistic and useful”.

Benediktsson and Gunnlaugsson now declare that they have always been in favor of purchasing the data.

The Icelandic parliament’s Easter break will end this Monday. The agenda for the first parliamentary session has likely already been set.

Collaborators: Jóhannes Kr. Kristjánsson, Ryan Chittum