Iceland’s embattled prime minister, Sigmundur Davíð Gunnlaugsson, has become the first major casualty of the Panama Papers, stepping aside from his office amid mounting public outrage that his family had sheltered money offshore.

What was planned as a mass protest in Reykjavik on Tuesday evening turned to muted satisfaction as demonstrators vented their anger following revelations that Gunnlaugsson once owned – and his wife still owns – an offshore investment company with multimillion-pound claims on Iceland’s failed banks.

“We were hoping parliament would be dissolved,” said Steingrimur Oli Einarsson, a fish oil trader, one of a few hundred to brave a freezing northeasterly wind on parliament square in downtown Reykjavik.

“Of course we’re happy the prime minister has stepped down. But we are not satisfied with who is taking over from him, and with the fact that the government itself is still there.”

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Gunnlaugsson’s office said in a statement that he was not resigning, but “handing over the office of prime minister for an unspecified time” to Sigurður Ingi Jóhannsson, the agriculture and fisheries minister.

Gunnlaugsson was “very proud” of his success resurrecting Iceland’s economy after the 2008 financial crisis, the statement said, and “especially proud of his government’s handling of ... the creditors of the failed Icelandic banks”.

Outside parliament, Sigrin Eiroksdottir, a pre-school teacher, said the occasion “doesn’t really feel like any kind of victory. There is so much still to put right in this country in terms of ethics, of how the world looks at us.”

Lara Gardarsdottir, an illustrator, said: “It’s good news he’s resigned, yes. But we need far more drastic change. We’re left with the same gang in charge. And the guy who’s replacing the prime minister, a couple of days ago he was saying he saw nothing wrong in what he’d done.”

The move still requires the formal approval of both the junior partner in the centre-right coalition government, the Independence party, and Iceland’s president, Ólafur Ragnar Grímsson, and a snap election is still a possibility.

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The country’s leftwing opposition parties, who earlier this week presented a motion of no confidence in the government, said they were by no means satisfied. “It is clear our demand for new elections still stands,” the Left Green party leader, Katri­n Jakobsdottir, said.

The prime minister, who has repeatedly denied any wrongdoing, had earlier sought to remain in office by asking to dissolve parliament and call new elections. But after the president turned him down, the prime minister met senior Progressive party officials and reportedly suggested himself that he step down.

The Independence party leader, finance minister Bjarni Benediktsson, whose name also appeared in the leaked documents in connection with a Seychelles-based company of which he once owned a third, was holding talks with Grímsson, who flew back early from the US to sound out all of Iceland’s parliamentary party representatives as the island’s political crisis deepened on Tuesday.

The leaked documents from the Mossack Fonseca law firm in Panama reveal Gunnlaugsson and his wife, Anna Sigurlaug Pálsdóttir, bought a British Virgin Islands-based offshore company, Wintris Inc, in December 2007 to invest her share of the very substantial proceeds from the sale of her father’s business, Iceland’s only Toyota importer.



Gunnlaugsson sold his 50% stake to his wife for a symbolic $1 at the end of 2009, eight months after he was elected to parliament as an MP for the centre-right Progressive party. He failed, however, to declare an interest in the company either then or when he became prime minister in 2013.



His office has said his shareholding was an error due simply to the couple having a joint bank account and that 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. The prime minister also denies he was required to declare an interest.

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

Gunnlaugsson’s office said in the statement that the couple had provided “detailed answers to questions” about the Wintris assets, which they had “never sought to hide”. The holdings had been reported as an asset on Pálsdóttir’s income tax returns since 2008 and all relevant taxes had been paid accordingly in Iceland, it said. No parliamentary disclosure rules had been broken.

But Gunnlaugsson’s political opponents and many ordinary Icelanders, more than 10,000 of whom staged a first mass protest outside parliament on Monday night, have been outraged at what many see as an attempt by their prime minister – even if he has done nothing illegal – to hide money offshore.

Such allegations are particularly incendiary in Iceland, which was brought almost to its knees in the financial crisis of 2008 by the recklessness of a small group of bankers and businessmen – several of whom are now in jail – who used offshore companies to conceal their dealings in high-risk financial products.



Plunged into a deep depression from which it has only recently recovered, Iceland had to be bailed out by the International Monetary Fund. It also introduced strict capital controls on the amount of money that could be taken out of the country – another reason why the question of offshore holdings inflames Icelandic opinion.

Gunnlaugsson is also accused of a serious conflict of interest for failing to disclose his involvement with the company.

Wintris held millions of pounds worth of bonds in Landsbanki, Glitnir and Kaupthing, the three big Icelandic banks that collapsed in the crisis with liabilities of more than 10 times the country’s GDP – and whose bankruptcies the prime minister’s government was responsible for overseeing.

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Opponents are also angered by what many Icelanders see as hypocrisy: Gunnlaugsson rose to power as part of a grassroots group called In Defence of Iceland, pledging to protect the country from its “vulture” foreign creditors and relieve the burden on ordinary Icelanders – and stressing how important it was to keep Icelandic assets in Iceland.

On Tuesday even members of Gunnlaugsson’s own party called for him to resign. City councillors from his own constituency of Akureyri said he should step down over what they described as a crisis of confidence.



Opposition MPs are much more outspoken. “People just feel humiliated and very, very angry,” said Birgitta Jónsdóttir of the radical Pirate party, which opinion polls currently estimate is the country’s largest with the support of between 35% and 42% of the electorate.

“After what happened to this country in 2008 we needed honesty, transparency and integrity from our leaders,” Jónsdóttir told the Guardian. “None of these things have been evident in this whole story.”

Árni Páll Árnason, leader of the opposition Social Democratic Alliance, said Gunlaugsson’s position was simply no longer tenable.

“I think it’s obvious that we cannot tolerate a leadership that is linked to offshore holdings,” Árnason said. “Iceland cannot be the only western European democratic country with a political leadership in this position.”