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 The Panama Papers showed the premier's wife owned an offshore
company with big claims on Iceland's banks, a undeclared conflict of
interest for Gunnlaugsson, infuriating many who hurled eggs and
bananas in street protests calling for him to step down.
The banks collapsed as the global financial crisis hit in 2008 and
many Icelanders blame politicians for not reining in their
debt-fueled binge and averting a deep recession.
The more than 11.5 million documents, leaked from the Panamanian law
firm Mossack Fonseca, have caused public outrage over how the
world's rich and powerful are able to stash their wealth and avoid
taxes while many people suffer austerity and hardship.
Mossack Fonseca, which specializes in setting up offshore companies,
denies any wrongdoing. On Tuesday, the Panamanian government sought
to defend the country's reputation.
Panama President Juan Carlos Varela's chief of staff told a news
conference that the government could retaliate after France
announced it would put the Central American country back on its
blacklist of uncooperative tax jurisdictions. The official, Alvaro
Aleman, said that no Panamanian company had been found to have
committed a crime.
He added: "We are not going to allow Panama to be used as a
scapegoat by third parties. Each country (implicated) is
responsible." The president had instructed the foreign ministry to
contact all of the dozens of countries implicated, Aleman said.
Among those named in the documents are friends of Russian President
Vladimir Putin, relatives of the leaders of China, Britain and
Pakistan, and the president of Ukraine.
Gunnlaugsson quit ahead of a planned vote of no-confidence, hours
after asking the president to dissolve parliament, a move which
would almost certainly have led to a new election.
The deputy leader of his Progressive Party, Sigurdur Ingi Johannsson,
told reporters the party will suggest to its coalition partners in
the Independence Party that he himself should become the new prime
minister.
Opposition parties said, however, that they still wanted a snap
general election. Any new election could see victory for the
anti-establishment Pirate Party, according to opinion polls the most
popular in Iceland.
With the fallout from the leaks reverberating across the globe,
British Prime Minister David Cameron also came under fire from
opponents who accused him of allowing a rich elite to dodge their
taxes.
And in China, the Beijing government dismissed as "groundless"
reports that the families of President Xi Jinping and other current
and former Chinese leaders were linked to offshore accounts.
U.S. President Barack Obama said the Panama Papers showed tax
avoidance was a major problem and urged the U.S. Congress to take
action to stop U.S. companies from taking advantage of loopholes
allowing them to avoid paying taxes.
"We’ve had another reminder in this big dump of data coming out of
Panama that tax avoidance is a big, global problem," he told
reporters.
"It’s not unique to other countries because frankly there are folks
here in America that are taking advantage of this same stuff. A lot
of it’s legal, but that’s exactly the problem."
An Iceland government spokesman has said the claims against
Iceland's collapsed banks held by the firm owned by Gunnlaugsson's
wife totaled more than 500 million Icelandic crowns ($4.1 million).
The prime minister has stressed his wife's overseas assets were
taxed in Iceland.
Icelandic government bonds saw their biggest selloff in five months
due to the uncertainty, with yields on 10-year bonds jumping 15.6
basis points to 5.891 percent.
"ABUSE MUST STOP"
In Britain, the leader of the opposition Labour Party demanded
the government tackle tax havens, saying it was time Cameron stopped
allowing "the super-rich elite" to dodge taxes.
"There cannot be one set of tax rules for the wealthy elite and
another for the rest of us," Labour leader Jeremy Corbyn said. "The
unfairness and abuse must stop."
He said Britain had a huge responsibility since many tax havens,
such as the British Virgin Islands and Cayman Islands, are British
overseas territories, while others such as Jersey or the Isle of Man
are British crown dependencies.
According to media that have seen Mossack Fonseca's files, more than
half of the 200,000 companies set up by the firm were registered in
the British Virgin Islands, where details of ownership do not have
to be filed with the authorities.
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Cameron has cast himself as a champion in the fight against tax
evasion in British-linked territories. But he was put on the spot by
the leaks, which named his late father and members of the ruling
Conservative Party among the list of clients who used Mossack
Fonseca's services.
Cameron said he did not own any shares or have offshore funds and
that neither he nor his wife and children benefit from offshore
funds.
"I have a salary as prime minister, and I have some savings, which I
get some interest from, and I have a house," he said.
Other leading figures and financial institutions responded to the
leak with denials of any wrongdoing as prosecutors and regulators
began a review of the investigation by the U.S.-based International
Consortium of Investigative Journalists (ICIJ) and other media
organizations.
Britain, France, Australia, New Zealand, Austria, Sweden and the
Netherlands are among nations that have started inquiries.
Panama is one of the most secretive of the world's offshore havens
and has refused to sign up to a global transparency initiative.
Mossack Fonseca said it was the victim of a campaign against privacy
and that media reports misrepresent the nature of its business.
Mossack Fonseca's Hong Kong office said on Tuesday the firm had
never been charged with or formally investigated for criminal
wrongdoing in its nearly 40 years of operation.
"We do not advise clients on how to operate their businesses. We
don't link ourselves in any way to companies we help incorporate,"
the firm said in a statement.
"Excluding the professional fees we earn, we don't take possession
of clients' money, or otherwise have anything to do with any of the
direct financial aspects related to operating these businesses."
"GROUNDLESS ACCUSATION"
The reports also pointed to offshore companies linked to the
families of Chinese President Xi and other powerful figures.
Chinese Foreign Ministry spokesman Hong Lei, when asked if the
government would investigate tax affairs of those mentioned in the
documents, told reporters the ministry would not comment on "these
groundless accusations".
Beijing also moved to limit local access to coverage of the matter.
State media denounced Western reporting on it as biased against
non-Western leaders.
The Hong Kong government said its tax department would take
"necessary actions" based on any information it received.
Credit Suisse and HSBC, two of the world's largest wealth managers,
dismissed suggestions they were actively using offshore structures
to help clients evade tax.
Both were among the banks that helped to set up complex structures
that make it hard for tax collectors and investigators to track the
flow of money, according to ICIJ.
The famous personalities drawn into the affair also included soccer
star Lionel Messi of Barcelona and Argentina. Spanish tax
authorities said they are investigating allegations of tax
irregularities involving Messi after the release of the documents.
A Messi family statement denied wrongdoing and said it "never used
the company" involved in the matter.
(Reporting by Reuters bureaux, Writing by Angus MacSwan and Grant
McCool; Editing by Kevin Liffey, Anna Willard and Meredith Mazzilli)
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