Reykjavík Grapevine - 08.12.2017, Qupperneq 14

When the Panama Papers leak broke
last year, then Prime Minister Sigmun-
dur Davíð Gunnlaugsson wasn’t the
only Icelander revealed to be involved
in some shady dealings. In fact, Iceland
featured most prominently of all in the
leak, which revealed how the global rich
use shell companies and offshore enti-
ties to avoid paying taxes. While it may
have been over a year and a half since
the Panama Papers, all the mechanisms
are still in place for the rich to hide
their money. Iceland’s financial world,
it turns out, has a few unique quali-
ties that led to its prominence when it
comes to cheating on your taxes, and
making a lot of money.
When the banks help you
hide your money
In order to tackle this subject properly,
we spoke with Þórður Snær Júlíusson,
the editor of online magazine Kjarninn
and a journalist who has delved deeply
into the world of Icelandic finance. He
traces the origins of the tax shelter
problem to way back before the 2008
financial crash (although plenty of peo-
ple get rich off the crash, as we will see).
“Taxes on businesses were quite
high in the late 90s, early 2000s,” he ex-
plains. “When the banks set up shop in
Luxembourg, they started inviting their
clients to create these offshore entities
so they could pay a little bit less tax on
the yield of their finances. But then,
those taxes went down in Iceland, so
that wasn't really a reason anymore. So
after that, the reason was to hide away
money, to avoid taxes completely. Noth-
ing else really makes sense. All three
Icelandic banks were encouraging their
clients to move their money into these
offshore entities.”
How to get rich off a
tanking economy
When the financial crash of 2008
struck, most of us saw our wages lose
a tremendous amount of purchasing
power. The value of the
króna tanked, and ordinary
Icelanders struggled to
make ends meet. However,
Iceland’s super-rich not only
did just fine; they actually
turned a profit, due to poli-
cies designed to protect the
economy.
Capital controls went
into effect shortly after the
crash. This included a Cen-
tral Bank policy whereby, if you wanted
to buy foreign currency with krónur,
you had to do so at a 20% discount, e.g.,
buying a 100,000 krónur worth of euros
could only be done for 80,000 krónur.
At the same time, if you wanted to
buy krónur with foreign currency, you
were given a 20% premium, e.g., you
could get €120,00 worth of krónur for
€100,000.
This policy may have been intended
to keep krónur in Iceland, but it also had
a bonus effect: all those rich Icelanders
who kept their money in offshore enti-
ties, in dollars or euros, now stood to
increase their assets by 20% simply by
moving their money back home.
Just the tip of
the iceberg
Nothing's really changed much since,
except for the lifting of all capital con-
trols. Some Icelanders are still squirrel-
ing away money in offshore
accounts. It’s difficult to de-
termine just how much tax
is lost. What we do know is:
we’ve only seen a small bit of
the problem.
“What we saw in the Pan-
ama Papers was first and
foremost the most promi-
nent clients of Landsbanki,”
Þórður says. “That's just one
bank of three. They had the
largest portion of clientele with off-
shore entities, and that hasn't really
been revealed to the extent Landsbanki
was. I would imagine we've just seen the
tip of the iceberg.”
14 The Reykjavík Grapevine
Issue 21 — 2017
Þórður Snær Júlíusson, the editor of Kjarninn
“I would
imagine
we've just
seen the
tip of the
iceberg.”
High Rollers: The Wacky
World Of Icelandic Finance
Tax shelters and a volatile currency means big gains for a few

Words:
Paul Fontaine
Photos:
Art Bicnick
Austurvöllur square has been a public
gathering space for Icelanders since
the 1930s. Though the square is now
home to many cafés and restaurants,
the presence of the statue of Indepen-
dence leader Jón Sigurðsson seems
to inspire a spirit of protest as well.
Arguably Iceland’s bloodiest upris-
ing in modern history occurred here
on March 30, 1949, when demonstra-
tors expressed vociferous opposition
to the Alþingi’s (Icelandic parliament)
move to join NATO. As Iceland had been
de-militarised in 1869, the decision to
cooperate with major powers engaged
in a Cold War was widely seen as an
unnecessary contradiction of the na-
tion’s peaceful principles. After rocks
were thrown at the parliament build-
ing, police soon resorted to firing tear
gas at protesters, who subsequently
dispersed. Austurvöllur continues this
legacy today, and was most recently
home to Iceland’s biggest-ever mass
protest, provoked by Sigmundur Da-
við’s naming in the 2016 Panama Pa-
pers. While this gathering of around
22,000 Icelanders removed Simmi Dab-
bi from his post, it seems likely it'll soon
be called upon again, given the current
political climate. GR
TIME CAPSULE
Austurvöllur

The scene of Iceland's biggest ever protests, on a quiet day