By Kylie MacLellan and Ragnhildur Sigurdardottir
LONDON/REYKJAVIK (Reuters) - Iceland's Prime Minister Sigmundur David Gunnlaugsson resigned on Tuesday, becoming the first casualty of leaked documents from a Panamanian law firm which have shone a spotlight on the offshore wealth of politicians and public figures worldwide.
The Panama Papers showed the premier's wife owned an offshore company with big claims on Iceland's banks, a undeclared conflict of interest for Gunnlaugsson, infuriating many who hurled eggs and bananas in street protests calling for him to step down.
The banks collapsed as the global financial crisis hit in 2008 and many Icelanders blame politicians for not reining in their debt-fueled binge and averting a deep recession.
The more than 11.5 million documents, leaked from the Panamanian law firm Mossack Fonseca, have caused public outrage over how the world's rich and powerful are able to stash their wealth and avoid taxes while many people suffer austerity and hardship.
Mossack Fonseca, which specializes in setting up offshore companies, denies any wrongdoing. On Tuesday, the Panamanian government sought to defend the country's reputation.
Panama President Juan Carlos Varela's chief of staff told a news conference that the government could retaliate after France announced it would put the Central American country back on its blacklist of uncooperative tax jurisdictions. The official, Alvaro Aleman, said that no Panamanian company had been found to have committed a crime.
He added: "We are not going to allow Panama to be used as a scapegoat by third parties. Each country (implicated) is responsible." The president had instructed the foreign ministry to contact all of the dozens of countries implicated, Aleman said.
Among those named in the documents are friends of Russian President Vladimir Putin, relatives of the leaders of China, Britain and Pakistan, and the president of Ukraine.
Gunnlaugsson quit ahead of a planned vote of no-confidence, hours after asking the president to dissolve parliament, a move which would almost certainly have led to a new election.
The deputy leader of his Progressive Party, Sigurdur Ingi Johannsson, told reporters the party will suggest to its coalition partners in the Independence Party that he himself should become the new prime minister.
Opposition parties said, however, that they still wanted a snap general election. Any new election could see victory for the anti-establishment Pirate Party, according to opinion polls the most popular in Iceland.
With the fallout from the leaks reverberating across the globe, British Prime Minister David Cameron also came under fire from opponents who accused him of allowing a rich elite to dodge their taxes.
And in China, the Beijing government dismissed as "groundless" reports that the families of President Xi Jinping and other current and former Chinese leaders were linked to offshore accounts.
U.S. President Barack Obama said the Panama Papers showed tax avoidance was a major problem and urged the U.S. Congress to take action to stop U.S. companies from taking advantage of loopholes allowing them to avoid paying taxes.
"We’ve had another reminder in this big dump of data coming out of Panama that tax avoidance is a big, global problem," he told reporters.
"It’s not unique to other countries because frankly there are folks here in America that are taking advantage of this same stuff. A lot of it’s legal, but that’s exactly the problem."
An Iceland government spokesman has said the claims against Iceland's collapsed banks held by the firm owned by Gunnlaugsson's wife totaled more than 500 million Icelandic crowns ($4.1 million). The prime minister has stressed his wife's overseas assets were taxed in Iceland.
Icelandic government bonds saw their biggest selloff in five months due to the uncertainty, with yields on 10-year bonds jumping 15.6 basis points to 5.891 percent.
"ABUSE MUST STOP"
In Britain, the leader of the opposition Labour Party demanded the government tackle tax havens, saying it was time Cameron stopped allowing "the super-rich elite" to dodge taxes.
"There cannot be one set of tax rules for the wealthy elite and another for the rest of us," Labour leader Jeremy Corbyn said. "The unfairness and abuse must stop."
He said Britain had a huge responsibility since many tax havens, such as the British Virgin Islands and Cayman Islands, are British overseas territories, while others such as Jersey or the Isle of Man are British crown dependencies.
According to media that have seen Mossack Fonseca's files, more than half of the 200,000 companies set up by the firm were registered in the British Virgin Islands, where details of ownership do not have to be filed with the authorities.
Cameron has cast himself as a champion in the fight against tax evasion in British-linked territories. But he was put on the spot by the leaks, which named his late father and members of the ruling Conservative Party among the list of clients who used Mossack Fonseca's services.
Cameron said he did not own any shares or have offshore funds and that neither he nor his wife and children benefit from offshore funds.
"I have a salary as prime minister, and I have some savings, which I get some interest from, and I have a house," he said.
Other leading figures and financial institutions responded to the leak with denials of any wrongdoing as prosecutors and regulators began a review of the investigation by the U.S.-based International Consortium of Investigative Journalists (ICIJ) and other media organizations.
Britain, France, Australia, New Zealand, Austria, Sweden and the Netherlands are among nations that have started inquiries.
Panama is one of the most secretive of the world's offshore havens and has refused to sign up to a global transparency initiative. Mossack Fonseca said it was the victim of a campaign against privacy and that media reports misrepresent the nature of its business.
Mossack Fonseca's Hong Kong office said on Tuesday the firm had never been charged with or formally investigated for criminal wrongdoing in its nearly 40 years of operation.
"We do not advise clients on how to operate their businesses. We don't link ourselves in any way to companies we help incorporate," the firm said in a statement.
"Excluding the professional fees we earn, we don't take possession of clients' money, or otherwise have anything to do with any of the direct financial aspects related to operating these businesses."
The reports also pointed to offshore companies linked to the families of Chinese President Xi and other powerful figures.
Chinese Foreign Ministry spokesman Hong Lei, when asked if the government would investigate tax affairs of those mentioned in the documents, told reporters the ministry would not comment on "these groundless accusations".
Beijing also moved to limit local access to coverage of the matter. State media denounced Western reporting on it as biased against non-Western leaders.
The Hong Kong government said its tax department would take "necessary actions" based on any information it received.
Credit Suisse and HSBC, two of the world's largest wealth managers, dismissed suggestions they were actively using offshore structures to help clients evade tax.
Both were among the banks that helped to set up complex structures that make it hard for tax collectors and investigators to track the flow of money, according to ICIJ.
The famous personalities drawn into the affair also included soccer star Lionel Messi of Barcelona and Argentina. Spanish tax authorities said they are investigating allegations of tax irregularities involving Messi after the release of the documents.
A Messi family statement denied wrongdoing and said it "never used the company" involved in the matter.
(Reporting by Reuters bureaux, Writing by Angus MacSwan and Grant McCool; Editing by Kevin Liffey, Anna Willard and Meredith Mazzilli)