Panama secrecy leak claims first casualty as Iceland PM quits

[REYKJAVIK] The Panama secrecy leak claimed its first casualty after Iceland's Prime Minister Sigmundur David Gunnlaugsson stepped down following allegations he had sought to hide his wealth and dodge taxes.

The decision was announced in parliament after the legislature became the focus of street protests that attracted thousands of Icelanders angered by the alleged tax evasion efforts of their leader. Mr Gunnlaugsson, who will step back a year before his term was due to end, gave in to mounting pressure from the opposition and even from corners of his own party. He will continue as chairman of his Progressive Party and has handed over the premiership to his vice chairman "for an unspecified amount of time," according to a statement from his office.

"What this exemplifies more than anything else is that there's a growing lack of tolerance over the way that the international financial system has been gamed and rigged by corrupt elites," Carl Dolan, director of Transparency International's EU division, said in a phone interview from Brussels.

The Panama files, printed in newspapers around the world, showed that the 41-year-old premier and his wife had investments placed in the British Virgin Islands, which included debt in Iceland's three failed banks. The leaked documents therefore also raise questions about Mr Gunnlaugsson's role in overseeing negotiations with the banks' creditors. Ironically, the offshore investments were held while Iceland enforced capital controls.

Mr Gunnlaugsson is the second Icelandic premier to resign amid a popular uprising, after Geir Haarde was forced out following protests in 2009.

Mr Gunnlaugsson always looked to be the most vulnerable of the politicians implicated in the documents. From Moscow to Islamabad and Buenos Aires, most public figures have managed to beat off the revelations with either outrage, denial or indifference. None of those tactics worked for Gunnlaugsson, whose first response was to walk out of an interview with Swedish TV, a clip that went viral after the leaks were published on Sunday.

"The Iceland PM is the tip of the iceberg in terms of how much political instability we'll see long-term on the basis" of the leaks, Ian Bremmer, president of the New York-based Eurasia Group, said by phone on Tuesday.

Iceland's electorate balked at the alleged tax evasion and Gunnlaugsson's initial refusal to budge. Police on Monday erected barricades around the parliament in Reykjavik as protesters beat drums and pelted the legislature with eggs and yogurt. Almost 10,000 people gathered, according to police, while organizers said the figure was twice as high. As Mr Gunnlaugsson was announcing his resignation, hundreds of protestors had gathered in front of the parliament building for a second day of demonstrations on Tuesday.

Other political leaders have also been forced to defend themselves since the leaked documents surfaced. UK Prime Minister David Cameron said he has no offshore funds or trusts amid demands for an inquiry from opposition leader Jeremy Corbyn.

Mr Dolan said that if the situation in Iceland is replicated, whereby a politician "has a secret stake in a company that has benefited from the decisions of his government," then he would expect "more heads to roll." In recent years, "we've had prime ministers in Slovenia and the Czech Republic who have resigned over these kinds of issues," Mr Dolan said.

"The only difference with the Panama papers is the source of the information - it came from a massive data leak." Mr Gunnlaugsson is one 12 world leaders to be singled out after the International Consortium of Investigative Journalists, or ICIJ, uncovered that he and his wife had an offshore account to manage an inheritance. His wife, Anna Sigurlaug Palsdottir, previously revealed the account in a Facebook posting in March after the premier was questioned about the money.

According to the ICIJ report, Ms Palsdottir says she has always paid all her taxes owed on an account by the name of Wintris, which was confirmed by her tax firm, KPMG. ICIJ cited a leak covering documents spanning leaders and businesses across the globe from 1977 to 2015 from Panama-based law firm Mossack Fonseca, a top creator of shell companies that has branches in Hong Kong, Miami, Zurich and more than 35 other places around the world.

"The Prime Minister and his wife have provided detailed answers to questions about the assets of the PM's wife," according to a statement sent from Mr Gunnlaugsson's office.

"They have never sought to hide these assets from Icelandic tax authorities." Mr Gunnlaugsson put his agriculture minister forward as his proposed replacement. The outgoing prime minister will remain chairman of the Progressive Party, which has governed in a two- party coalition since 2013.

Finance Minister Bjarni Benediktsson, who is also the leader of the Independence Party, said he is looking into whether the coalition that has existed between his group and Gunnlaugsson's party can continue. He will also ask the opposition to withdraw the motion of no confidence it brought on Monday. He said the main focus of the government should remain an orderly unwinding of the capital controls that have shielded Iceland's markets since late 2008.

"We will also have to discuss when we'll eventually call elections, whether we'll complete this term which ends in April next year or not," Mr Benediktsson said.

The coalition would stand to lose an election were one held today. A Frettabladid poll published on Wednesday showed the government getting only 29.5 per cent backing. Meanwhile the opposition Pirate Party, which among other things targets splitting up the investment and retail operations of banks, would get 43 per cent. The two other parties in the opposition would get a combined 21.4 per cent, the poll showed.

Birgitta Jonsdottir, a spokeswoman for the Pirate Party, which is also behind the no confidence motion against the government, said there are no plans to withdraw it. If the current coalition holds, it will still have 40 of the 63 seats in Iceland's parliament until an election is called.

BLOOMBERG