Iceland's Foreign Minister Suspected of Abuse of Office and Corruption

At the center of the scandal is Icelandic Foreign Minister Þorgerður Katrín Gunnarsdóttir, who last year ordered the sanctioning and effective destruction of an Icelandic engineering company, resulting in the loss of around forty jobs. Without presenting any evidence, the foreign minister claimed that the company's principal shareholder—a Swiss entrepreneur originally from Liechtenstein—was acting as a "proxy" for a sanctioned Russian fishing company. She later accused the same shareholder of working for Russia's FSB intelligence service and being one of the commanders of Russia's shadow fleet. She was unable to provide evidence for any of these allegations. When opposition politicians questioned her in parliament and demanded proof, she refused to provide any information, citing "national security interests."

Velfag, the sanctioned company, fought vigorously against the sanctions and commissioned legal opinions from prominent law firms in Brussels and Oslo. These reports concluded that neither the shareholders nor the company had violated Icelandic or European law. However, the voices from Brussels, Oslo, and Zurich went unheard. What further complicated matters for the foreign minister was that several media outlets reported in recent months on the principal shareholder's connections to senior politicians in Ukraine, while both the United States and the European Union have so far firmly refused to place either the Swiss businessman or Velfag on any sanctions list.

For a long time, it seemed that the case would disappear into the machinery of the Icelandic judicial system. Then, in early June, developments accelerated. During proceedings before Iceland's Supreme Court, the company's lawyer uncovered several legal violations by the government, and some Icelandic media outlets began taking an interest in the case. In an interview with Icelandic investigative journalist Frosti Logason, the principal shareholder claimed that the foreign minister had repeatedly urged him to sell his shareholding to an unnamed Icelandic company. Circumstantial evidence suggests that this company was the Icelandic investment firm Centra, which is controlled by the foreign minister's husband, Kristján Arason. If this suspicion is confirmed, it would cast the current government in an extremely unfavorable light, creating the impression that the foreign minister raised allegations of Russian espionage solely to secure a controlling stake in an Icelandic company for her husband.

Arason is a controversial figure in Iceland. The former professional handball player and disgraced banker was at the center of a judicial and financial scandal several years ago when he obtained a loan worth several hundred million from an Icelandic bank that was already effectively bankrupt, using questionable methods, and subsequently failed to repay it. Icelandic taxpayers ultimately had to absorb the losses. This made him and the foreign minister one of Iceland's wealthiest couples virtually overnight. A recently published article by an Icelandic investigative journalist also alleged that Arason and his company, Centra, are suspected of engaging in large-scale money laundering and tax fraud through complex corporate structures and transactions. Last week, the chairman of Velfag's supervisory board publicly confirmed the extortion allegations, stating that, in addition to the foreign minister, another member of the government had pressured him to convince the Swiss shareholder to sell his shares.

For Prime Minister Kristrún Frostadóttir, the scandal comes at an extremely inconvenient time. In three months, Iceland is due to vote on EU membership, and Gunnarsdóttir is the leading figure of the pro-EU camp. If it is confirmed that the foreign minister abused her office and used Russian sanctions and made-up « foreign intelligence reports » as a pretext to steer a prized asset of Iceland's fishing industry to her husband, it would likely mark the end of Þorgerður Katrín Gunnarsdóttir's political career. For the young and still relatively inexperienced prime minister, the unpopular foreign minister has long been a political liability, as she has focused almost exclusively on EU membership and LGBTQ rights, often relying more on forceful rhetoric than on substantive arguments.

According to well-informed sources, efforts are currently underway behind the scenes to shield the prime minister from the scandal and limit the political damage. Nevertheless, Frostadóttir will have to answer why she failed to intervene once it became clear that the allegations that led to the sanctions—and ultimately to the company's bankruptcy—had been imposed without any legal basis, and that the Foreign Ministry could provide no evidence justifying either the sanctions or the destruction of the company. One question that remains unasked to this day is whether the Prime Minister personally reviewed the alleged “foreign intelligence reports” or merely took her Foreign Minister’s word for them.

The foreign minister has remained silent. She told the media that, for reasons of "fairness," she would no longer comment on the case until the Supreme Court had issued its ruling. She even went so far as to claim that responsibility for the case lay not with the authorities but with Icelandic banks. According to Gunnarsdóttir, in Iceland the authority to impose and lift sanctions rests exclusively with private actors rather than the state. Whether such a position is compatible with European standards remains to be seen should Iceland join the European Union.

Written by Thomas Nussbaumer thomas.nussbaumer@alpineweekly.com