A Singular Fall From Power And The Rise Of The Pirate Party

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Icelanders are catching their breath after an eventful week that it started with an infamous interview on April 3 where the then prime minster Sigmundur Davíð Gunnlaugsson failed to tell the truth on being confronted with Wintris, a BVI company in the name of his wife and himself. The following day, Icelanders broke all records in demonstrations and on the third day Gunnlaugsson resigned as a prime minister. Now Gunnlaugsson has gone on indeterminate leave. His party will hardly be keen on keeping Gunnlaugsson as a leader; one of its MPs says Gunnlaugsson lied. The Progressive’s vice chairman has replaced Gunnlaugsson as an MP and the coalition stays on, with some reshuffling. The question is what more the Panama papers will expose of Iceland, the most offshorised country in the world. The political effects aren’t yet clear but the popularity of the Pirate party has grown. And all of this is happening in country where the economy is thriving.

“It’s October 2008 all over again,” many Icelanders said following the famous, or infamous, TV interview April 3 with then prime minister Sigmundur Davíð Gunnlaugsson on his BVI company Wintris. There was this sense that the whole world was watching and Iceland, embodied in this one hapless politician who couldn’t but lie about an offshore company he clearly didn’t want to discuss, wasn’t putting on a brilliant performance.

When the TV interview was aired all over the world, Icelanders were already familiar with Wintris and the story Gunnlaugsson wanted to tell. The Panama documents contradicted his version. But he wasn’t the only Icelandic politician mentioned in the Panama papers: minister of finance and leader of the Independence party Bjarni Benediktsson was linked to a Seychelles company as is Ólöf Nordal minister of justice, through her husband, an Alcoa director. The companies these two are linked to were dissolved some years ago contrary to Wintris.

Already by Monday evening, 24 hours after the interview, Gunnlaugsson had lost the support of the Independence party. Benediktsson’s first comment, from his family’s pied à terre in Florida, was that the government was not necessarily continuing as if nothing had happened. Therefore, the question Tuesday morning was just how Gunnlaugsson’s departure would take place, not if – but no one had foreseen such a messy and ungracious departure.

All of this has simply strengthened the Pirate party even further; after all, that party thrives on the unpopularity of the other parties rather than its own deeds.

On Monday April Gunnlaugsson announced he would be taking a leave without mentioning when he would be back. Although he remains a party leader the Progressive party hardly plans to commit a collective hara-kiri by having him lead the party in the coming elections; there are already voices from his party demanding that he should step down as a leader and an MP. Benediktsson still struggles to silence questions regarding his offshore company.

In spite of the political tempest the economy is booming, largely due to factors outside of Icelandic control such as tourism, good fisheries, high fish prices on foreign markets and low oil prices.

March 15: Wintris introduced in an inaccurate and misleading statement

Wintris was first brought to the attention of Icelanders on Facebook March 15 by Gunnlaugsson’s wife, Anna Sigurlaug Pálsdóttir. From the first presentation of a company “registered abroad” the Wintris saga has infuriated Icelanders due to misleading and false information.

Pálsdóttir stated she felt forced to mention Wintris in order to silence slanderous rumours. Further she claimed that due to some unspecified European Union regulations she, as the prime minister’s wife, was under a particularly strict control.

This latter statement was shown to be baseless; possibly she somehow had in mind rules on “Politically Exposed Persons,” irrelevant in this context. Wintris wasn’t registered abroad but offshore, a very different matter. Thus, the first statement was misleading to say the very least and now, four weeks after first mentioning Wintris Gunnlaugsson has still not been able to silence questions raised by Wintris and his earlier attempts to clarify the issue.

Pálsdóttir didn’t mention that her Facebook statement rose from the fact that four days two journalists, a Swedish journalist and an Icelandic one had asked her husband about Wintris on camera. Gunnlaugsson’s spokesman only reluctantly mentioned the queries to Icelandic media some days after the Facebook statement without mentioning how Gunnlaugsson had reacted to the questions.

Tax issues still unexplained

Gunnlaugsson has time and again stated he has paid all taxes due. A letter from a KPMG employee to support that tax had been paid, published March 16 didn’t suffice to stamp out suspicion.

In particular, the prime minister hasn’t answered questions if “Controlled Foreign Corporation,” CFC, form, has been filed on Wintris. This weekend, Gunnlaugsson stated in an interview that no CFC form was needed for Wintris because it is not an operational company. Yet, according to the Icelandic tax code no such distinction is made as to an CFC form, it should be filed for all companies in low-tax jurisdictions. In addition, BVI companies and many other offshore companies can only be holding companies. That’s the whole idea.

Pálsdóttir’s wealth stems from inheritance her father paid her in 2007, after she sued her him for her share of the inheritance claiming her brother, a well-known businessman in Iceland, had been favoured so far. As she already owned these assets when she married Gunnlaugsson in 2010, signing a pre-nuptial would have been the correct form or having her specified by her father as the sole owner of the assets. No documents have been brought forward to show that Wintris only belongs to her.

Gunnlaugsson states that he didn’t register Wintris in the parliamentarians’ register of interest because it belongs to his wife. He tells a story of the company “mistakenly” bearing his name to begin with. Panama documents counteract his version; there is no indication he wasn’t supposed to own the company.

The unexpected creditor

Wintris already exposed the prime minister to the dilemma of being a prime minister in a Western country that is fighting the opacity of offshorisation. But more was to come: it turned out that Wintris held claims in the collapsed banks due to investing in the banks’ bonds before the collapse. Thus, the prime minister who was one of those forming the policy on how to deal with the banks’ estates had a hidden skin in that game.

Gunnlaugsson claims it would have been awkward if it had been known that his wife’s company held these claims. Others beg to differ: it was hardly any less awkward to be seen as having been compromised because of Wintris. I don’t for a moment think the outcome of the negotiations with the banks’ creditor was influenced by the fact that the prime minister had financial interests in that process. But in a Western democracy it is unacceptable that such interests had been hidden.

April 3: TV interview exposes a web of lies and deceit

Icelanders had been drip-fed information on Wintris prior to the April 3 interview: from March 15 when Wintris’ existence first became public knowledge in Iceland until the April 3 interview Gunnlaugsson had tried as he could to make the matter go away. It hadn’t. On the day of the interview he made his final attempt: in a blog he yet again told his version and in particular attacked Rúv (and the writer of this blog) for unfair reporting.

Gunnlaugsson’s Wintris story seemed unconvincing before the interview April 3. He had not used the time up to the interview wisely. The Progressive parliamentary group had no idea what awaited them when they sat down in front of the TV set to watch an Icelandic programme on the Panama documents watched by practically every Icelander.

Gunnlaugsson’s ungraceful dealing with the unexpected questions regarding Wintris was certainly embarrassing. Worse was, as Progressive MP Frosti Sigurjónsson has now stated, that Gunnlaugsson seemed to have lied about Wintris.

Wintris was set up in 2007, the couple had moved to Iceland by 2008 and there would have been ample time to repatriate the company to Iceland. Even keeping the money invested abroad doesn’t explain the existence of Wintris: it is perfectly possible to invest without owning an offshore vehicle.

In addition to the above, the story as told in the documents was i.a. that Gunnlaugsson had on December 31 2009 sold his share in the company to his wife for $1; the date is significant since tax reporting rules changed the following day. This also means that he owned the company when he was elected as an MP in March 2009. Yet, in spite of this sale Gunnlaugsson still held power of attorney in Wintris.

Extolling the virtues of Iceland – and yet keeping one’s assets abroad

Worst of all is perhaps the hypocrisy: Gunnlaugsson has talked at length about the need to drum up Iceland, extolling the virtues of all things Icelandic. It upsets Icelanders that Gunnlaugsson didn’t trust Iceland with his family’s own money, which had indeed originated in Iceland. And with Iceland locked in capital controls since November 2008 neither people nor companies can invest abroad. Indeed, even a sale of $1 in a foreign company would have needed an exemption from the Central Bank; it’s not clear if this exemption was sought for Gunnlaugsson’s sale in Wintris.

In one of his first speeches abroad, at a meeting in London in autumn 2013 held by Invest in Iceland, Icelandic banks and public bodies, he ended his speech by saying he hoped “to see you and your money in Iceland.” – Neither investors nor Icelanders knew at the time that the wealth of his family was firmly placed outside of Iceland.

Tuesday April 5: threats, bluff and a resignation shrouded in euphemism

Already on Monday evening I had heard from sources that the Independence party was unwilling to save Gunnlaugsson and wanted him out. The first public announcement was a Facebook message from Gunnlaugsson early on Tuesday stating there were only two option he could offer: either that the Independence party supported him or he would call an election.

This he wrote after he had talked to Benediktsson but without mentioning that Benediktsson told him he saw a third option: a government without Gunnlaugsson.

Gunnlaugsson’s Facebook message sounded like a threat and that’s how president Ólafur Ragnar Grímsson understood the situation when Gunnlaugsson asked to see him at 11am. Gunnlaugsson arrived with his permanent secretary and another civil servant from the prime minister’s office. These two waited while Gunnlaugsson talked to Grímsson. The meeting ended with Gunnlaugsson storming out, unwilling to talk to the waiting media.

Grímsson however took the unprecedented steps of informing the media: he said Gunnlaugsson had asked him to dissolve parliament and call election. Grímsson denied, saying he didn’t feel Gunnlaugsson had conferred with Benediktsson and his MPs; Grímsson felt, like Benediktsson there was the third option, of the coalition finding their feet together thus calling Gunnlaugsson’s bluff. Now it was Gunnlaugsson who had run out of option: he was forced to resign.

Yet again, Gunnlaugsson tried to define things his own way: he wasn’t resigning but only “stepping aside” as he insisted on calling the result of his spectacular flop where he had tried to force the Independence party to either support him or else face elections.

In the evening came another breath-taking move by Gunnlaugsson: he claimed Grímsson had misunderstood his move or was lying – he hadn’t made any threats and was only scouting the possibilities. Yet, the president’s story fully rhymed with Gunnlaugsson’s Facebook message that morning. Grímsson quickly corrected him: he hadn’t misunderstood and he, Grímsson was in charge.

The weekend following the Panama interview Gunnlaugsson tried yet again to redefine the course of events: his two options that fateful Tuesday had sprung for his magnanimous attempt to save Benediktsson from what might have been a coup in the Independence party. Again, an interpretation few take seriously and certainly denied by Benediktsson.

Offshore stinks

Things are certainly going well in Iceland in terms of the economy. However, there has been a growing sentiment over the last months that the corrupt business practices from the boom haven’t been eradicated: that the banks are still selling assets to favoured clients and that political ties still matter.

Adding Wintris and the Panama connections to this sentiments has created a poisonous atmosphere in Iceland, as seen from the fact that never have so many people demonstrated in Iceland as on April 4. Demonstrations have continued though nothing like on that day.

Like in may other countries Trust is in short supply in Icelandic politics. However, trust could easily be greatly mended just by telling the truth – but that hasn’t quite been understood.

Gunnlaugsson came into Icelandic politics in autumn of 2008. He went to Norway just after the collapse claiming it would be no problem getting a Norwegian loan to save Iceland. Nothing came of it. Following questions from the media on his CV after being elected the Progressives’ leader in January 2009 he gave conflicting answers as to what he had been studying, where and when.

Gunnlaugsson’s great interest is city planning and cultural heritage; he tried unsuccessfully to get his own sketches of new buildings in the centre of Reykjavík agreed on and amassed power over cultural institutions under his office. Apart from the lying, much of his doings were simply weird but not necessarily in an endearing way.

A new coalition with the old parties under a new prime minister

Gunnlaugsson suggested that Sigurður Ingi Jóhannsson should be his successor and named a new foreign minister, not from the parliamentary group but an economist from the Central Bank, Lilja Alfreðsdóttir, who having been his adviser is seen to be close to Gunnlaugsson. Appointing Alfreðsdóttir hardly won Gunnlaugsson much popularity among Progressive’s MPs.

During the weeks of wrangling over Wintris Jóhannsson had been a staunch supporter of Gunnlaugsson, at one time saying it was difficult to own money in Iceland, implying that owning an offshore company was logical. This comment went viral. On his first appearance in Alþingi today Jóhannsson had completely changed his tune, now wanting to ban Icelanders owning offshore companies. Benediktsson is still fighting nagging suspicions regarding his offshore ties.

It remains to be seen how the new government of the old coalition will tackle things. Now that the Gunnlaugsson’s government has found an agreement with the creditors of the banks’ estate, an important step towards lifting the capital controls, the next needs to be re the offshore króna. That step has taken much longer than previously thought, indicating that it’s clearly much complicated problem to solve than it appeared to be.

The pirates will shape the political future

The left side of Icelandic politics is still in tatters. On the whole, the four old parties – the two coalition parties, the social democrats and the Left Green, in addition to the much younger Bright Future, a split from the social democrats – do not appeal to voters.

Instead, voters are flocking to the untested Pirate party who score well above 30% in opinion polls with the old big party, Independence party at ca. 20%, their lowest every. The Progressive party has fallen below 10%; both coalition parties got 25% in the last elections. Other parties are around 10% except Bright future that hover around 5%.

The pirate MPs make a point of not promising much except that they will try finding a logical solution to the problems as they arise. They also want to position themselves beyond the old schism of left and right, want new politics of participation and direct democracy. As to the economy their policies are not clear.

Their great emphasis has been on a new constitution, set in motion after the 2008 collapse, never brought to fruition but already existing in a draft. Once Alþingi has voted on it the pirates want to call another election; the constitution has to be agreed on by two parliaments. Many see a new constitution as something of a pet project of no urgency, with the danger that the pirates get lost in this process rather than focusing on more important issues.

The new government hasn’t set a date for the coming election; it should be in either September or October. If by that time the political undercurrents in Iceland haven’t changed greatly it’s clear that the pirates will be setting the political agenda and will almost certainly be in a position to choose a coalition partner.

As a sign of the great discontent one business leader said to me well before the Panama papers shook Icelandic politics: “I can’t wait to see the pirates in power; they can’t be worse than what we have now.”

*Image: Flickr / Flo


About the Author

Sigrún Davídsdóttir
Sigrún Davídsdóttir is an Icelandic journalist based in London. Her interests are European and international politics and economy, the eurocrisis, banking, tax havens and corruption (often through the prism of the Icelandic financial collapse in 2008) - as well as arts, culture and food.