Iceland’s PM Resigns, as Governments Face Fallout From Panama Scandal

The leak of millions of records on offshore accounts claimed its first high-profile victim Tuesday as Iceland’s prime minister resigned amid outrage over revelations he had used such a shell company to shelter large sums while Iceland’s economy was in crisis.

The fall of Icelandic leader Sigmundur David Gunnlaugsson is the biggest fallout so far from the publication of the names of rich and powerful people linked to the leaks, dubbed the Panama Papers.

The announcement that Gunnlaugsson was stepping down came from the country’s agriculture minister. It followed the refusal by Iceland’s president to dissolve parliament and call a new election, and after thousands of Icelanders protested outside the parliament building in Reykjavik.

Gunnlaugson has denied any wrongdoing and said he and his wife have paid all their taxes. He also said his financial holdings didn’t affect his negotiations with Iceland’s creditors during the country’s acute financial crisis.

Gunnlaugson sought to call a snap election Tuesday, but President Olafur Ragnar Grimsson refused, saying he wanted to consult with other party leaders before agreeing to end the coalition government between Gunnlaugsson’s center-right Progressive Party and the Independence Party.

The leaked documents allege that Gunnlaugsson and his wife set up a company called Wintris in the British Virgin Islands with the help of the Panamanian law firm. Gunnlaugsson is accused of a conflict of interest for failing to disclose his involvement in the company, which held interests in failed Icelandic banks that his government was responsible for overseeing.

Meanwhile, other governments around the world tried Tuesday to contain the fallout from the Panama leaks.

China dismissed as “groundless” reports that relatives of current and retired politicians, including President Xi Jinping, own offshore companies.

The state media are ignoring the reports, and search results for the words “Panama documents” have been blocked on sites and social media.

And Ukraine’s president was accused of abusing his office, and of tax evasion by moving his candy business offshore, possibly depriving the country of millions of dollars in taxes.

The reports are from a global group of news organizations working in conjunction with the Washington-based International Consortium of Investigative Journalists. They have been processing the legal records from the Mossack Fonseca law firm that were first leaked to the German Sueddeutsche Zeitung newspaper.

Shell companies aren’t inherently illegal. People or companies might use them to reduce their tax bill legally, by benefiting from low tax rates in countries like Panama, the Cayman Islands and Bermuda. But the practice is frowned upon, particularly when used by politicians, who then face criticism for not contributing to their own countries’ economies.

Because offshore accounts and companies also hide the names of the ultimate owners of investments, they can be used to illegally evade taxes or launder money.

Mossack Fonseca says it obeys all laws relating to company registrations and does not advise people on how to evade taxes.

The firm said in a statement that “our industry is not particularly well understood by the public, and unfortunately this series of articles will only serve to deepen that confusion.

“The facts are these: while we may have been the victim of a data breach, nothing in this illegally obtained cache of documents suggests we’ve done anything wrong or illegal, and that’s very much in keeping with the global reputation we’ve worked hard to build over the past 40 years of doing business the right way.”

Members of the Group of 20 — which includes China — have agreed on paper to tighten laws relating to shell companies and make sure authorities can find out who the real owners are. Actual legislation at the national level , however, has lagged behind the promises.

The appearance of offshore accounts in political scandals is far from new. Shell companies played a role in the corruption scandal involving the Petrobras oil company in Brazil. The U.S. Justice Department said in an indictment last year that offshore accounts were used to mask the transfer of bribes to officials at a global sports federation.

China’s Foreign Ministry Spokesman Hong Lei said he would not discuss the reports further and declined to say whether the individuals named would be investigated.

“For these groundless accusations, I have no comment,” Hong told reporters at a regularly scheduled news conference.

Sueddeutsche Zeitung, working with NDR and WDR channels, reported Monday that 14 German banks had used Mossack Fonseca’s services to set up 1,200 letterbox companies for clients.

The report said use of offshore company registrations had spiked after the European Union introduced regulations in 2005 requiring countries to exchange tax information of physical persons, but not of companies. Many of the accounts, however, have since been closed.

The EU has since tightened its rules on offshore companies under its fourth Anti-Money Laundering Directive, which is being phased in, as national governments pass local laws to comply by June 26, 2017. The new rules tighten requirements for companies to keep accurate information on their real owners and to make that available to authorities.