Sigmundur Gunnlaugsson came to power after the country’s financial collapse while hiding his offshore holdings of millions in bonds from Icelandic banks.. Gunnlaugsson rose to power on a wave of anti-bank anger in the aftermath of the Icelandic financial crisis, which saw the country’s three major banks fail spectacularly over a few days in October 2008.
Written by Ryan Chittum, Kristjánsson, Jóhannes Kr Bastian Obermayer & Frederik Obermaier Reykjavik
On May 15, 2014, the prime minister of Iceland stood before parliament answering questions about how aggressively his government would sniff out tax cheats and fraudsters who use secret offshore companies. Would Iceland follow Germany’s lead by purchasing revealing data from offshore whistleblowers?
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The prime minister, Sigmundur David Gunnlaugsson, hedged. It was “extremely important that people work together on this,” he agreed. But whether obtaining the information would be “realistic and useful” was unclear, he said, adding that he trusted tax officials to make the right decision.
What wasn’t known was that the offshore files Iceland was considering buying included offshore companies linked to him and at least two other top members of his ruling government.
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These findings emerge from millions of secret files obtained by the International Consortium of Investigative Journalists, the German newspaper Süddeutsche Zeitung and other media partners. More than 11 million documents show the inner workings of the Panamanian law firm Mossack Fonseca, one of the largest shell-company registration agents in the offshore world. The files reveal confidential information about 214,488 entities registered for individuals and companies in more than 200 countries and territories — including a company created in the British Virgin Islands in 2007 called Wintris Inc.
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Gunnlaugsson’s offshore saga
Gunnlaugsson rose to power on a wave of anti-bank anger in the aftermath of the Icelandic financial crisis, which saw the country’s three major banks fail spectacularly over a few days in October 2008. He led a group that campaigned for Iceland to reject bailing out international creditors on billions of dollars in deposits in the banks.
At age 38, he would become the youngest prime minister in the country’s history in 2013, promising to play hardball with foreign creditors, offer debt relief to struggling homeowners and end austerity programmes. The Mossack Fonseca documents show Gunnlaugsson’s family — unbeknownst to Icelanders — had a big personal stake in the outcome for bank creditors.Read More
In December 2007, Gunnlaugsson and his wife, Anna Sigurlaug Pálsdóttir, purchased Wintris from Mossack Fonseca through the Luxembourg branch of Landsbanki, one of Iceland’s three big banks. The couple used the shell company to invest millions of dollars in inherited money.
“The Icelandic banks formed branches, for example, in Luxembourg and the UK, and what they did there was create offshore companies for their clients to park all sorts of assets,” said Rob Jonatansson, a Reykjavik attorney.
Gunnlaugsson co-owned Wintris with his wife when he entered parliament in April 2009 and continued to hide it as he ascended to the prime minister’s seat.
In 2009, he sold his half of Wintris to his wife for one dollar.
On March 15, 2016, Pálsdóttir wrote a Facebook post disclosing the offshore company to the public for the first time. “The presence of the company has never been a secret,” she said. The Facebook post came four days after ICIJ partners Reykjavik Media and SVT (Swedish public television) asked the prime minister about Wintris in an interview.
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In that interview, SVT asked Gunnlaugsson if he knew about Wintris, he said, “Well, It’s a company — if I recall correctly — which is associated with one of the companies that I was on the board of and it had an account, which as I’ve mentioned, has been on the tax account. So now I’m starting to feel a bit strange about these questions because it’s like you are accusing me of something when you are asking me about a company that has been on my tax return.”
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Shortly thereafter, Gunnlaugsson stood up and walked out of the interview.
Palsdottir later said that the assets in Wintris were hers alone and that a bank’s mistake had led to Gunnlaugsson’s being listed as a co-owner.
It is unclear whether Gunnlaugsson’s political positions benefited or hurt the value of the bonds. The question “is really a tricky one,” said Þórólfur Matthíasson, an economist at the University of Iceland. “Nobody but the PM himself can answer that question.”
The Viking raiders
Iceland was a financial backwater until relatively recently. The country had no stock market until 1985, and its stodgy major banks were owned by the state. It made major moves to liberalise its economy in the 1990s. The government sold its banks to the private sector in the late 1990s and early 2000s and an influx of foreign capital spurred an epic expansion by the country’s financial industry. By 2008, the assets of the three major banks, Kaupthing, Landsbanki, and Glitnir had ballooned to $180 billion — 11 times the size of the national economy, in one of the greatest financial bubbles in history.
News media lauded Iceland’s business and financial titans as the New Viking raiders. The country’s economic elite snapped up billions of dollars of foreign businesses. Iceland’s stock market soared 800 per cent from 2001 to 2007.
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Then it all fell apart over three days in October 2008.
Iceland’s big three banks collapsed, sending the country’s economy into a depression. The stock market collapsed 97 per cent from its peak. The value of the Iceland’s currency fell by half.
Amid the chaos, it became clear that many of Iceland’s top bankers had lent money to their cronies through offshore companies and manipulated the market to make the banks look healthier than they were.
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Bank insiders did so by lending hundreds of millions of dollars to each other, the banks’ owners and favoured associates, allowing them to load up on shares in the Icelandic banks with no risk to themselves.
Indebted to the banks
The documents obtained by ICIJ detail the wider role of Mossack Fonseca in a global secrecy machine that helps the rich and the powerful hide their business dealings and hang on to more of their money, which results in other taxpayers paying more tax. They also shed light on the cozy ties among elites in Iceland.
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“Some of the cases have been so complex you actually don’t get through to see what’s actually in there,” says Olafur Hauksson, who led Office of the Special Prosecutor created after the crash.
Iceland’s tax authority did end up purchasing from whistleblowers a small portion of the documents relating to Mossack Fonseca in the hope of finding tax evaders and recovering lost revenue.
The documents purchased include information about Wintris, the shell company now owned solely by Gunnlaugsson’s wife.To date, authorities have said nothing publicly about what they’ve learned.
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