Iceland PM defiant, as EU weighs reaction to Panama leaks

The head of Iceland’s prime minister could be the first to roll in the Panama Papers scandal, amid calls for EU states and institutions to do more to combat tax dodging.

At least 9,000 Icelanders have pledged on social media to protest outside parliament in Reykjavik on Monday (4 April). Another 25,000 people have signed a petition for prime minister Sigmundur David Gunnlaugsson to resign.

Opposition MPs are also pushing for no confidence vote in the next few days, while Iceland’s president, Olafur Ragnar Grimsson, cut short his US trip to come home and manage the crisis.

The backlash comes after journalists got hold of leaked files from a Panamanian firm which has spent the past 40 years creating shell firms for elite clients to help them pay less tax.

The leak revealed that Gunnlaugsson had hidden financial interests in Icelandic banks which collapsed in 2008 and that he may have made personal financial gain from government decisions on recovery of lost funds.

He himself has said he won’t go and walked out of a TV interview on Monday saying that questions about his private life were “inappropriate.”

His defiance was matched by other VIPs named in the so called Panama Papers affair.

When asked by media on Monday if British PM David Cameron had hidden any money from the taxman, his spokeswoman said: “That is a private matter.”

The question came after revelations that his late father had used the Panamanian firm, Mossack Fonseca, to create offshore firms.

The European Commission also leapt to the defence of Spanish commissioner Miguel Agnes Canete after it came out that his wife had created an offshore entity.

The commission said that, under Spanish law, the entity had nothing to do with him and that his EU code of conduct declaration is fully correct.

The commission’s spokesman, Margaritis Schinas, scolded journalists in a press briefing, saying the commission “won’t be lectured” on tax probity.

A senior EU official also wrote to EUobserver to complain about an earlier headline, which said Canete was “implicated” in the affair.

“How about ‘indirectly implicated?’,” the official said.

In Moscow, a spokesman for Russian leader Vladimir Putin said the leaks are a form of “Putinophobia” designed to create “instability” in Russia ahead of parliamentary elections.

Russian state media compared the news to Nazi-type propaganda.

In Kiev, president Petro Poroshenko said: “Having become a president, I am not participating in management of my assets, having delegated this responsibility to the respective consulting and law firms. I expect that they will provide all necessary details.”

The leaks had indicated that Putin’s closest personal friends are involved in a $2 billion corruption racket.

They had indicated that Poroshenko tried to stash his personal wealth in secretive structures when the war in east Ukraine was going badly in August 2014.

Investigations announced

The massive leak has prompted several EU member states to announce criminal investigations into potential tax fraud.

The list on Monday evening included Austria, France, the Netherlands, Spain, Sweden, and the UK.

Aside from the big names, including also football stars and royals, the leak showed that tens of thousands of wealthy Europeans - 732 people in Belgium, for instance - used Mossack Fonseca’s asset-hiding services.

They showed that EU jurisdictions - especially Cyprus, Luxembourg, and the UK - hosted most of the highly aggressive offshore entities created by the Panamanian lawyers.

They also showed that EU banks - such as HSBC and Societe Generale Bank & Trust Luxembourg - were among the most active in creating offshore structures for their clients.

Commenting on the affair on Monday, EU competition commissioner Margrethe Vestager told Danish paper Finans Borsen the revelations are probably "the tip of the iceberg" because there are many other companies which offer similar services to Mossack Fonseca.

Call to action

The scandal also prompted MEPs and civil society leaders to call for EU-level action.

Anneliese Dodds, a British centre-left MEP specialising in tax matters, said that “tax havens, and the companies that use them … [should] be banned from accessing EU funds.”

The European Network on Debt and Development, a Brussels-based NGO, said: “If countries introduced registries where the public can see who owns the companies operating in our societies, it would make it impossible to set up fake companies to hide dirty money.”

Transparency International EU (TI) said: “Nothing short of public transparency about corporate ownership can stop the rot.”

TI and British-based charity Oxfam also urged the commission to oblige multinationals to disclose tax and financial data in the 28 EU states on a country-by-country basis.

The current bill, which is going through the EU legislative mill, currently calls for aggregate EU reporting only and limits the burden to firms that have a turnover of at least €750 million a year.

The reference to multinationals comes after a previous scandal, LuxLeaks, which exposed that EU states’ sweetheart deals with giant firms like Amazon and Starbucks see them pay next to nothing in tax in Europe.

EU weighs options

Pierre Moscovici i, the EU financial affairs commissioner on Monday, also said the Panama leaks argue in favour of stronger EU laws.

"It is vital that multinational companies pay their taxes where they generate profits," he told the RTL broadcaster. "I am in favour of total transparency for these accounting and fiscal data," he said.

Other EU personalities were more cautious, however.

Vestager, in her Finans Borsen interview, noted that her mandate is limited to going after EU states which break the rules not individuals.

Alain Lamassoure i, the French centre-right MEP who is leading European Parliament work on tax avoidance, said he wants more information before deciding how to proceed.

EU officials also told press in Brussels on Monday that existing legislation in the field should be enough if it is being properly implemented.

“It is impossible to say at this stage what is legal or not legal … We have to wait for further revelations and see the documents to see if harmul activities were conducted after new rules came into place,” one EU contact said, referring to EU laws passed after the 2008 to 2011 banking crisis.

“If fiscal optimisation prevented states from getting revenues they are due, we will will see what we can do,” the official added.

Paying the cost

Susana Ruiz, the tax policy advisor at Oxfam, noted that tax avoidance and tax evasion have a direct cost on other people’s lives.

She said “poor countries lose $170 billion” a year to tax-dodging schemes, while “400 million people don’t even have access to basic healthcare.”

Mark Gaelotti, a US scholar of Russian affairs, said the Putin revelations expose the way he controls the country’s big men.

“When Putin wants to reward his friends, he allocates them contracts and monopolies they can milk for all their worth. But in return, they know that likewise they are rich only so long as they have political power and Putin's goodwill,” he said.

He noted that according to INDEM, an independent think tank in Russia, corruption costs Russian people up to a third of the country’s GDP.

“Put it another way: Corruption by the Russian elite could be costing the country up to six times as much as all the sanctions imposed by the West since Russia invaded Crimea,” he said.