Iceland’s prime minister is under fierce pressure to step down after leaked documents showed his wife owned a secretive offshore company with a potentially multimillion-pound claim on the country’s collapsed banks – representing what opponents said was a major conflict of interest.

As opposition parties called a vote of no confidence in Sigmundur Davíð Gunnlaugsson for later this week, as many as 10,000 protesters – in a country of 330,000 – gathered outside parliament in central Reykjavik for an evening protest, chanting, banging drums and barricades, and blowing whistles. Some waved bananas, symbolising the belief of many that they were living in a banana republic.

“He’s just lost all credibility,” said Arntho Haldersson, a financial services consultant. “Our prime minister, hiding assets in offshore accounts … After all this country has been through, how can he possibly pretend to lead Iceland’s resurrection from the financial crisis? He should go.”

“He lied,” said Anna Mjöll Guðmundsdóttir, a tourism researcher. “These people, they say they’ve learned the lessons from what happened to us in 2008, but they’re still just hiding our money.” Tinna Laufey Ásgeirsdóttir, a university professor, agreed: “He’s not been forthright. If people had been informed of this they might have voted differently. The size of this demonstration shows how disappointed people are.”

Facebook Twitter Pinterest Iceland’s prime minister Sigmundur Davíð Gunnlaugsson speaks in parliament on Monday. Photograph: STR/EPA

The Panama Papers, released on Sunday, revealed that Gunnlaugsson and his wife, Anna Sigurlaug Pálsdóttir, bought a British Virgin Islands-based company from Mossack Fonseca, the Panamanian law firm at the centre of the leak, in 2007 to invest money from the sale of Pálsdóttir’s share of her family’s business.

Gunnlaugsson sold his 50% of the company to Pálsdóttir for $1 at the end of 2009, soon after he was elected as an MP for the first time and a year after the financial crisis that plunged Iceland into a devastating depression. He has never declared an interest in the company.

The prime minister’s office now says his shareholding was an error due simply to the couple having a joint bank account, and “it had always been clear to both of them that the prime minister’s wife owned the assets”. The transfer of ownership was made as soon as this was pointed out, a spokesman said.

Since he became prime minister in 2013, Gunnlaugsson has overseen sensitive negotiations with the creditors of the three big Icelandic banks that collapsed during the 2008 crisis – while knowing, the leaked documents show, that his wife’s offshore company, Wintris Inc, which lost 515m kronur (£2.8m) in the crash, was owed a sizeable sum from their bankruptcies.

Facebook Twitter Pinterest Protesters demonstrate against Gunnlaugsson in Reykjavik. Photograph: Stringer/Reuters

The Guardian has seen no evidence to suggest tax avoidance, evasion or any dishonest financial gain on the part of Gunnlaugsson, Pálsdóttir or Wintris.



On Monday Gunnlaugsson, 41, who was elected on a pledge to fight demands from the banks’ foreign customers – including British depositors – for full repayment, insisted he had broken no laws and had no intention of resigning.

“I have not considered quitting because of this matter nor am I going to quit because of this matter,” he told Icelandic television before facing an angry parliamentary session. “The government has had good results. Progress has been strong and it is important that the government can finish its work.”

He has said the assets were not “hidden in a tax haven” but were fully declared and taxed in Iceland, and insisted he and his two-party centre-right coalition government had always put the interest of the public before his own in dealing with the financial claims – even, he said, when it might disadvantage his own family.

Gunnlaugsson’s political opponents, local media and many ordinary Icelanders still struggling to recover from the crisis – which halved the value of the country’s currency, and required a bailout from the International Monetary Fund – feel he should have been open about his family’s overseas assets and the existence of Wintris.



Facebook Twitter Pinterest Up to 10,000 people gathered during a protest on Austurvöllur in front of the Icelandic parliament. Photograph: Birgir Þór Harðarson/EPA

“What would be the most natural and the right thing to do is that he resign as prime minister,” said Birgitta Jónsdóttir, of the opposition Pirate party. “There is great demand for that in society; he has totally lost all his trust and believability.”

The former Social Democrat prime minister Jóhanna Sigurðardóttir said Gunnlaugsson should go because he had “displayed his lack of faith in the Icelandic currency and economy”.

The coalition between Gunnlaugsson’s Progressive party and the Independence party of the finance minister, Bjarni Benediktsson – whose name also appears in the Panama Papers in connection with a Seychelles-based company of which he once owned a third – holds a comfortable 38 of the 63 seats in parliament.

But there were signs late on Monday that Gunnlaugsson might not be able to count on the automatic support of his coalition partners. Flying back from a holiday in Florida, Benediktsson declined to give his backing to the prime minister and said the Panama Papers revelations were “a heavy blow” for the government.

Tuesday’s parliamentary session has been cancelled, possibly giving the coalition partners time to sit down and see if the government can be saved. However one leading opposition figure said: “We think it is increasingly likely that the Independence party will pressure Sigmundur Davíð to resign to save their own skin, avoid elections, and hope that things calm down.”

Even if he is not forced to resign, rising public indignation could harm Gunnlaugsson’s future chances in a country still profoundly shocked by the way a small group of bankers and businessmen used shell companies in offshore tax havens to conceal their dealings in high-risk financial products, creating a financial bubble that, when it burst, brought the country to its knees.



Thor Tomasarson, a software engineer, said at the protest: “It just looks like he doesn’t have the interests of ordinary Icelanders at heart. He doesn’t care. He doesn’t see it matters that he hasn’t come clean. We don’t want someone like that representing our country.”

Wintris’s investments – bonds in Landsbanki, Glitnir and Kaupthing, banks that failed within days of each other in 2008 with liabilities of more than 10 times Iceland’s GDP – have reportedly shrunk to 15-30% of their original value, but are allegedly still worth several million pounds.



Benediktsson told the Guardian the company of which he had owned a third had been set up with two co-investors to buy a property in Dubai, but the deal had fallen through in 2009 and he had had no dealings with the company since.