Out with the Old, in with the Old
Lessons from Iceland’s brush with the Panama Papers
April 21, 2016
Apr 21, 2016
7 Min read time
Lessons from Iceland’s brush with the Panama Papers.
Icelanders gathered before parliament in Reykjavik on April 4, 2016, to express anger and hopes for a "new Iceland" following revelations that the prime minister had used a shell company to hide investments in the Icelandic banking sector. / Photograph: Art Bicnick / The Reykjavík Grapevine
Despite the spin in the press, the resignation of Iceland’s prime minister in the wake of the Panama Papers leak does not prove that transparency undermines corrupt power. Rather it shows just how resilient political-financial networks are.
When news outlets began publishing millions of documents from the Panamanian law firm Mossack Fonseca, exposing the tax shelters of powerful figures across the world, Iceland’s prime minister experienced the swiftest fallout. In response to the revelation of a shell corporation established by Sigmundur Davíð Gunnlaugsson and his wife in the British Virgin Islands, thousands of Icelanders turned out in Reykjavik’s Austurvöllur Square to protest in front of the parliament building. They threw eggs and chanted Vanhæf ríkisstjórn—“incompetent government.” Gunnlaugsson’s campaigned on promises that he would alleviate household debt by extracting wealth from hedge funds (he called them “vulture funds”) that were creditors for the three banks Iceland re-nationalized in 2009. Gunnlaugsson surprised many by negotiating a fairly good deal, but, thanks to the Panama Papers, we now know that one of the banks’ creditors was his wife, her identity hidden by a shell company, Wintris. Within twenty-four hours of the revelation that there might have been a conflict of interest, Gunnlaugsson stepped aside. Media coverage pitched this as a revolution reminiscent of 2009, when previous prime minister, Geir Haarde, and his government were the first political causalities of the global financial crisis.
Much of the corruption revealed in the Panama Papers is technically legal, but the hypocrisy is galling.
But some Icelanders see the situation differently, and with good reason. A former leader of the opposition Bright Future party, Heiða Kristín Helgadóttir, told me the country is caught in a Groundhog Day of political dysfunction. On social media, Icelanders have found colorful ways to express the same sense of déjà vu. After Gunnlaugsson stepped aside, artist Hugleikur Dagsson tweeted a cartoon showing two nearly identical rotund male politicians side by side, with the caption “Out with the old, in with the old.”
Of course, Iceland is not the only country trapped in an endless loop reminiscent of Bill Murray’s classic comedy. Above all, the Panama Papers demonstrate the deeply rooted cronyism that guarantees a rotating cast of the same unsavory characters—even in the most respected democracies.
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Bear in mind that Iceland is a best-case scenario, consistently ranked among the world’s most democratic and transparent countries. The Icelandic people are now quick to mobilize, a result of the 2008–9 financial crisis. They embrace new parties, such as the Pirate Party, which is part of a loosely affiliated international movement that advocates for digital freedom and transparency. Its unofficial leader, Birgitta Jónsdóttir, is a former collaborator with WikiLeaks.
The years between 2009 and 2013 seemed like a fresh start for an Icelandic economy that had been virtually bankrupted in 2008. It was the first time in three decades that the International Monetary Fund had been invited to assist a developed economy, but the government negotiated a good deal, managing to avoid the deepest cuts. In contrast to the United States, where the major banks have paid fines but no one has gone to jail, a number of bankers in Iceland were held accountable. By March 2016, sixty people had been prosecuted for crimes related to the collapse, and the CEOs of the three banks that had been lynchpins of the crisis were in jail. The financial economy that dominated Iceland for seven years has been replaced with new revenue, especially from tourism and the tech industry, leading to relatively strong economic growth.
But this month’s news is different. Even on the surface, Gunnlaugsson’s departure and replacement by his minister of fisheries—a formidable position in Iceland—means little. Though the protestors called for new elections, the governing coalition remains in power. It is the same coalition responsible for privatizing the country’s three national banks, which created the conditions for the 2009 financial collapse.
The backroom dealings reported in the press resemble something from House of Cards. While the Progressive Party announced that the prime minister had offered to resign, later that night he said he was instead temporarily stepping aside. The country’s president, Ólafur Ragnar Grímsson, claimed that the prime minister asked him to sign papers dissolving parliament. On Grímsson’s reading, Gunnlaugsson’s threat of dissolution was intended to pressure the head of the Independence Party to save him. These kinds of private power plays have become commonplace in Iceland’s politics; a similar deal brought Gunnlaugsson to power in 2013, even though his Progressive Party had won fewer votes than the Independence Party.
To insiders, Gunnlaugsson had always seemed to be a pawn. At thirty-eight, he was the youngest prime minister in the world when he took office. What he lacked in political experience, he had in money and connections: the privileged son of a prominent politician and businessman, much of his wealth comes from his wife, Anna Sigurlaug Pálsdóttir, whose father amassed a fortune as the owner of Iceland’s only Toyota dealership. Gunnlaugsson’s tenure was just the latest evidence that the country’s power centers operate as an informal and opaque boys club. President Grímsson has served an unprecedented five terms. Over twenty years, he has significantly extended the powers of the presidency, with backing from business and fishing interests, remnants of elite families whose power dates to independence from Denmark in 1944. The Independence Party appears to be even stronger. Its leader, Finance Minister Bjarni Benediktsson, is also implicated in the Panama Papers, along with some six hundred Icelanders in total, the highest rate of involvement, per capita, in the world.
In other words, while the Panama Papers’ exposure of powerful figures’ tax shelters may help map the connections between finance and politics, in Iceland as elsewhere, the underlying networks of power are deeply entrenched and most likely will survive the latest embarrassing disclosure.
Indeed, if best-case Iceland retains business as usual, one could hardly expect better from, say, Russia, infamous for its political corruption. The Kremlin’s propaganda machine quickly trivialized new details about two billion dollars of President Vladimir Putin’s fortune by casting the Panama Papers as yet another empty attack by the West. But as Karen Dawisha, author of Putin’s Kleptocracy (2014), notes, “What we see from these papers is that Putin has set his friends up in business through stock options” in a way that brought “the money back into his own family’s orbit.” While those implicated in Iceland are accused of grift on a much smaller scale, the con is the same. Putin and his allies control most of Russia’s economy; Icelandic commentator Alda Sigmundsdóttir writes that Iceland’s elites “treat this country as their own little kingdom,” using “its resources and valuables at will.” Putin rules Russia as a patron managing networks of private exchange. Likewise, multiple sources have described President Grímsson as the “godfather” of Iceland’s politics. On April 18, he announced that he was going to run for yet another four-year term, a reversal of his New Year’s declaration, in order to save Iceland from its current crisis.
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In her 2009 book Shadow Elite, Janine Wedel describes a new kind of flexible network at play, not just in post-communist contexts such as Russia, but also in the United States, where only one person has so far been named in the Panama Papers. Wedel finds that, instead of engaging in illegal activities, elites have been changing the rules to suit their goals, relying in part on the revolving door between government and the private sector. Much of what stinks of corruption—including the use of shell companies and offshore accounts—is legal. This appears to be true, for example, of the allegations connected to U.K. Prime Minister David Cameron and Ukrainian President Petro Poroshenko. But the hypocrisy is galling. Cameron asked citizens to endure austerity, and Poroshenko promised “to wipe the country clean” of corruption, while both benefitted from offshore accounts. (Illustrating Poroshenko’s resilience, it was his rival for power, Prime Minister Arseniy Yatsenyuk, who resigned this month.)
And even with smoking guns in hand, attempts to bring politically connected financial elites to justice often end in disappointment. Just days after Gunnlaugsson’s departure, it was announced that, owing to a law passed last year limiting criminal sentences, three of the convicted bankers were released early, having serving just one year of their four-to-five year sentences. Ólafur Ólafsson—one of the three freed bankers and executive chairman of shipping company Samskip—returned to work this week. For now, he has to live in a halfway house and wear an ankle bracelet for surveillance. Otherwise, things are back to normal.
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April 21, 2016
7 Min read time