Nordic nations' corruption fight remains strong

A recurring theme of scandals bringing down Iceland prime ministers illustrates citizens’ intolerance toward corruption. Yet are attitudes, protests and political repercussions enough to reverse the trend of worsening corruption in Iceland and other Nordic nations?

For the second time in seven years, thousands of Icelanders gathered outside their Parliament in Reykjavík’s central Austurvöllur Square on April 4, 2016, to express outrage at perceived governmental corruption and demand Prime Minister Sigmundur Davíð Gunnlaugsson’s resignation. Although authorities refrained from using tear gas on the crowd this time (yogurt was the only semi-liquid, weaponized projectile flung by protesters), estimates indicated that as much as 6.6 percent of Iceland’s population joined the anti-government demonstration. Within days of the publication of the incriminating Panama Papers, the prime minister obliged the protesters and resigned. (See Iceland Parliament pelted with skyr, iceland monitor, April 4, 2016, and Iceland ousted one leader named in the Panama Papers, but ended up with another on the list, by Adam Taylor, The Washington Post, Jan. 11, 2017.)

Gunnlaugsson’s downfall stemmed from his failure to disclose, upon his 2009 election to Parliament, his ownership stake in a company set up by the firm Mossack Fonseca (which the Panama Papers made infamous), that was registered to him and his wife in the British Virgin Islands — a notorious tax haven for the global elites’ shell companies. He sold his stake in the company to his wife for $1 in 2009 after his election to Parliament but right before a new law would require him to disclose his involvement in the company. (See Iceland PM steps aside after protests over Panama Papers revelations, by John Henley, The Guardian, April 5, 2016.)

While his actions didn’t constitute a crime, they too closely resembled the shady, international financial machinations many Icelanders believed responsible for the collapse of the country’s financial system in 2008. The fact that the company registered to Gunnlauggson and his wife shared links to failed Icelandic banks didn’t help Gunnlaugsson’s case. It should come as no surprise that Icelanders didn’t approve of the prime minister and his wife squirreling away funds abroad rather than investing at home while also trying to recover funds as a creditor to the failed banks, especially with many Icelanders still dealing with debt or other economic hardships from the collapse. (See How ‘billionaire’ wife of Icelandic prime minister forced to quit over Panama Papers rowed with family over her inheritance, by Imogen Calderwood and Jenny Stanton, Daily Mail, April 7, 2016.)

Flashback for a bit of context

Let’s step back and set the Icelanders’ 2016 protests in context. As banks all over the world suffered during the global financial collapse of 2008, Iceland’s three largest private banks defaulted on their debts to international creditors, and the government nationalized them. This prompted Icelanders to stage protests for 14 weeks against the government’s handling of the financial crisis.

The demonstrations culminated in riots featuring tear gas, rubber bullets, arrests and injuries in late-January 2009, before then Prime Minister Geir Haarde announced the resignation of his government and new Parliamentary elections for April 2009. Haarde went on to accept sole responsibility for controversial donations to his Independence Party in 2006 from an Icelandic international investment company and one of the private banks that eventually defaulted. (See Independence Party Criticized for Controversial Donations, Iceland Review, April 14, 2009.)

A minority coalition government led by Jóhanna Sigurðardóttir took over, Icelanders  rejected repaying the private banks’ foreign creditors in the Icesave referendums and a special court eventually convicted Haarde of gross misconduct. Under Sigurðardóttir, the government more closely reflected the attitudes of Icelanders’ disdain for corrupt international financial influence, particularly through the Icesave referendums, which caused losses to many international creditors. (See ‘Total Victory’ for Iceland over UK in saga of Icesave depositors, by Ben Chu, Independent, Jan. 29, 2013.) Now back to Gunnlaugsson’s woes.

Three prime ministers fall

Ironically, the October 2016 elections that followed Gunnlaugsson’s resignation produced a dubious prime minister for Iceland in Bjarni Benediktsson — Gunnlaugsson’s finance minister and leader of the conservative Independence Party. The Panama Papers also implicated Benediktsson because of his power of attorney in an offshore investment firm based in the Seychelles, another popular tax haven. (See 69% of Icelanders want Finance Minister Bjarni Benediktsson to resign, Iceland Magazine, April 6, 2016.)

Shortly before the snap Parliament elections in 2017, leaked documents revealed that Benediktsson sold all his assets in one of Iceland’s main banks immediately prior to the government privatizing the bank in response to the global financial collapse. (See Iceland PM sold bank assets hours before financial crash, leaks show, by Jon Henley, Ingi Freyr Vilhjálmsson and Jóhannes Kr. Kristjánsson, The Guardian, Oct. 6, 2017.)

For those counting, that’s three prime ministers felled by corruption scandals linked to international financial matters in eight years for Iceland. However, unlike the other two, Benediktsson remained a government leader. He’s serving as finance minister once again.

The recurring theme of scandals bringing down prime ministers illustrates Icelanders’ attitudes of intolerance toward corruption and lack of confidence in their government in recent years. However, attitudes, protests and political repercussions apparently aren’t enough to reverse the trend of worsening corruption in Iceland — a trend evident throughout the Nordic countries.

Isolated island nation

Iceland might not immediately come to mind when those outside Europe think of Nordic countries. Many associate this island nation — somewhat isolated in the North Atlantic — with otherworldly glacial landscapes, northern lights and impossible-to-pronounce volcanoes. However, Iceland shares a cultural, political and ethnic heritage with other Nordic countries, and cooperates culturally and politically with them through the Nordic Council — the official body for formal inter-parliamentary cooperation.

The Nordic countries (Finland, Norway, Sweden, Iceland, Denmark and its territories) enjoy reputations as countries with high standards of living, some of the strongest social benefits in the world — which many refer to as the Nordic model — and a lack of corruption. (See 18 reasons why Nordic countries are better than yours, Emily Lodish, Public Radio International, Feb. 21, 2014.)

According to the Nordic Council, the modern Nordic model “is characterized by a public sector that provides its citizens with welfare services and a social safety net. Specifically, this includes child benefits, parental leave, health services and hospitals, all of which are free at the point of delivery. … The basic values underpinning the model are compassion, tolerance and the conviction that all humans are of equal worth.”

The Nordic countries frequently are near the top of Transparency International’s Corruption Perception Index (that’s good), which ranked all the countries within the top 15 in its 2017 edition. Denmark was second, Finland and Norway tied for third, Sweden tied for sixth with Singapore, and Iceland tied for 13th with Australia and Hong Kong.

Nordic countries have lowest corruption in survey. Higher index ranking connotes less national corruption. Source: Transparency International's Corruption Perceptions Index 2017.

These countries remain strong in the rankings when compared to the rest of the world, but their scores, other than Norway, have all decreased since 2012, which indicates that corruption issues are worsening in the region.

Like other areas of the world, globalization and an increase in immigration — particularly asylum seekers — has pressurized the idyllic Nordic model over the last decade and caused the ascendency of far-right, anti-immigration political parties in the region, particularly in Denmark and Sweden. (See “ Nordic anger over immigration fuels populist vote,” by Alistair Scrutton, Reuters, Sept. 10, 2013.)

Other Nordic countries have also experienced instances of public officials’ conflicts of interest suggesting nepotism or cronyism, which can erode the public’s faith in their country’s institutions.

These phenomena are apparent in other regional fraud or corruption scandals, while not ascending to the level of impact of Iceland’s troubles, represent cause for concern. To wit:

• A criminal network in Denmark and Sweden illegally evaded Value Added Tax (VAT) regulations while selling mobile phones and earned more than 1 million euros, much of which funded terrorist recruitment operations.
• Reports revealed that at least 36 Islamic State fighters that expatriated from Denmark continued to receive state benefits while fighting. (See Denmark vows action after Isil fighters revealed to be receiving benefits payments, by Richard Orange, The Telegraph, Dec. 27, 2016.)
• The prosecutor general of Finland’s National Bureau of Investigation received an indefinite suspension after directing business to his brother’s company for eight years.

Solid anti-fraud Nordic region

Despite these and other highly publicized corruption and other fraud cases, the Nordic countries, including Iceland, appear to remain strong in their fight against corruption compared to the rest of Europe and the world.

As sociopolitical factors change in the near future, the Nordic countries will need to keep their effective policies strong and potentially make some updates or corrections to combat common corruption issues, including foreign bribery, failure to disclose conflicts of interest by public officials and political financing, the latter two of which often go hand-in-hand.

For one, the Organisation for Economic Co-operation and Development (OECD), which promotes policies to improve the economic and social well-being of people around the world, has issued recommendations to each Nordic country detailing weaknesses of their foreign bribery legislation in relation to the implementation of the OECD Anti-Bribery Convention. These countries have addressed many of these issues, but some still remain unresolved.

Beyond foreign bribery and conflict of interest issues, the lack of clear and transparent rules for contributing money to political candidates or parties can also enable government corruption, especially when members of parliament or other government figures aren’t required to make financial disclosures related to potential conflicts of interest.

For example, Transparency International’s analysis of Finland mentions “indistinct borders between public and private interests, where some people holding public office are not always maintaining a proper culture of recusing themselves from decisions that may affect them,” as being partially responsible for the drop in Finland’s Corruptions Perception Index score. 

Despite these areas for potential improvement, the Nordic countries are fine examples because they still exceed all other geopolitical groups of countries in their anti-corruption ratings.

Takeaways for fraud examiners

The 2018 ACFE Fraud Examiners Manual provides four core principles or values necessary for good corporate governance: accountability, transparency, fairness and responsibility. (4.307-4.308) Nordic citizens appear to be cognizant of these values as they hold their leaders’ feet to the fire. And they challenge fraud examiners in that part of the world to encourage management in the public and private sectors to uphold their trust to all stakeholders.

Mason Wilder, CFE, is a research specialist with the ACFE. Contact him at mwilder@ACFE.com.