A storm is coming
By Frederik Obermaier and Bastian Obermayer
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 Panama papers, Gunnlaugsson and his partner Anna Sigulaug Palisdottir, who were married in 2010, were registered at the end of 2007 as the shareholders of a shell company called Wintris Inc. Shortly before this the company was founded in the Virgin Islands. But for reasons that remain unclear, the registration was backdated to October 7.
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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.
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