Icelandic PM proposes party's vice chairman take over

REYKJAVIK, Iceland — Iceland's embattled prime minister, facing accusations of conflict of interest because of offshore accounts, stepped aside Tuesday and proposed that the vice chairman of his party take over.

Sigmundur David Gunnlaugsson has become be the first major figure brought down by a leak of more than 11 million financial documents from a Panamanian law firm showing the tax-avoidance arrangements of the rich and famous around the world.

Sigurdur Mar Jonsson, press secretary of the Icelandic government, said in a statement Tuesday that Gunnlaugsson has suggested Sigurdur Ingi Johannsson, his Progressive Party's vice-chairman, takes over as prime minister for "an unspecified amount of time."

Iceland's president has not yet confirmed any changes to the leadership and the situation remained muddled as hundreds of protesters gathered outside parliament to demand the ouster of Gunnlaugsson.

There were contradictions throughout the afternoon and evening as officials first said Gunnlaugsson had resigned as prime minister, statements that were later contradicted by the press secretary's communique, which indicated he was only stepping down for a period of time. The statement also suggested that Gunnlaugsson would remain as party chairman.

It was not clear if new elections would be held or if the governing coalition would be able to weather the crisis that developed several days ago with the release of the Panama papers.

The lack of a clear resolution angered some protesters who blew whistles and banged on pots and pans in front of parliament.

Revelations in the Panama Papers about offshore accounts held by Gunnlaugsson and his wife have infuriated many residents who suffered during the financial collapse of 2008 and 2009.

Gunnlaugsson has denied wrongdoing and said he has paid taxes and done nothing illegal regarding his offshore holdings.

Opposition lawmakers say the holdings amount to a major conflict of interest with his job.

Gunnlaugsson said his financial holdings didn't affect his negotiations with Iceland's creditors during the country's acute financial crisis. Those assertions did little to quell the controversy.

The prime minister sought at first to dissolve parliament Tuesday and call an early election, but President Olafur Ragnar Grimsson said 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 president met with Independence Party lawmakers later Tuesday to discuss the governmental crisis. Gudlaugur Thor Thordarson, chairman of the Independence Party, criticized the prime minister for unilaterally seeking to dissolve parliament.

"It was a total surprise for us to see that. I don't think it was the rational thing to do. I've never seen it done before in Icelandic politics and I hope that I will not see it again," he said.

The impact in Iceland from the leaks has been the most dramatic, but leading officials in Russia, Ukraine, China, Argentina and other countries are also facing questions about possibly dubious offshore schemes used by the global elite.

The leaked documents allege that Gunnlaugsson and his wife set up a company called Wintris in the British Virgin Islands with the help of Mossack Fonseca, 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.

Arni Pall Arnason, leader of the opposition Social Democratic Alliance, said Gunnlaugsson's position was not tenable.

Iceland, a volcanic island nation with a population of 330,000, was rocked by a prolonged financial crisis when its main commercial banks collapsed within a week of one another in 2008.

Since then Icelanders have weathered a recession and been subjected to tough capital controls — another reason the prime minister's offshore holdings rankle many.