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Europe & Central Asia

Iceland risk report

Updated:

The rule of law is strong in Iceland, and the tolerance for corruption is low. Although isolated cases of corruption do occur, it is not an obstacle to business. Iceland’s General Penal Code (GPC) criminalizes the acts of giving and receiving a bribe, abuse of office, trading in influence and fraud. It establishes criminal liability for individuals and companies, and forbids bribery between businesses and foreign public officials. While there is no distinction made between bribes and facilitation payments, the illegality of gifts and hospitality depends on their intent and the benefit obtained. Since the financial crisis, a number of fraud scandals have been uncovered in the financial sector, revealing conflicts of interest between businesses and political figures, as well as abuse of public funds. This has exposed institutional weaknesses and raised fundamental questions about the integrity of the governing institutions.

Judicial system Very low risk

There is a low risk of corruption in Iceland's judicial system. The judiciary is independent of the other branches of government (ICS 2017). Companies express confidence in the independence of the judiciary and perceive the efficiency of the legal framework pertaining to the settling disputes and challenging regulations to be satisfactory (GCR 2017-2018). Bribes and irregular payments in return for favorable judicial decisions are considered very rare (GCR 2015-2016). Only about one-third of citizens express confidence in the system (GRECO 2015). Many observers have noted that the courts are biased since almost all the judges attended the same law school (SGI 2017). Foreign parties do not face discrimination in Icelandic courts (ICS 2017). Enforcing a contract requires less time and costs compared to the average in OECD high-income countries (DB 2018).

Iceland is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

Police Very low risk

The reliability of Icelandic police services to protect companies from crime is considered very high (GCR 2017-2018). The government has effective mechanisms in place to investigate and punish abuse and corruption (HRR 2016).

Public services Very low risk

There is a low risk of corruption in Iceland's public services sector. Bribes in the public sector are very rare (GCR 2015-2016). Icelandic authorities and the administration respects the rule of law and their actions are generally predictable (SGI 2017). Although bureaucratic delays can occur, the system as a whole is transparent (ICS 2017). Despite the fact that the public services sector is transparent, inefficient government bureaucracy is cited as one of the most important obstacles to doing business in Iceland (GCR 2017-2018). Iceland is a member of the European Economic Area (EEA), meaning that most commercial legislation and directives of the European Union are in effect (SGI 2017). There are concerns that a practice of nepotism exists; unqualified individuals are appointed to public office (SGI 2017).

Starting a business takes more time compared to the average required in OECD high-income countries (DB 2018). While dealing with construction permits takes more steps than elsewhere in the region, the total time required is nearly half of the OECD high-income average (DB 2018). Companies can consult the 'Invest in Iceland' information portal which includes sector-specific information, general information on the business climate and more.

Land administration Very low risk

There is a low risk of corruption in Iceland's land administration. Companies generally express confidence in the government's ability to protect property rights (GCR 2017-2018). Expropriation is possible under Icelandic law, provided that the expropriation is done in the public interest and full compensation is paid (ICS 2017). Registering property in Iceland takes fewer steps and only a fraction of the time compared to other OECD high-income countries (DB 2018).

Tax administration Very low risk

Corruption risks when dealing with the tax administration in Iceland are low. Companies report that bribes and irregular payments in the tax administration are very rare (GCR 2015-2016). Companies should note that Iceland’s Income Tax Act prohibits bribes from being tax deductible. Low corporate tax rates and low energy prices are among the primary incentives for attracting investors, but following the bank crisis which created a large fiscal gap for the state, the government has raised corporate taxes to generate revenue (SGI 2017). Companies make twenty-one tax payments a year, which is almost double the OECD high-income average (DB 2018). However, the total time required to file taxes is slightly below the OECD high-income average (DB 2018).

In one case, Iceland's former Prime Minister, Sigmundur Davíð Gunnlaugsson, resigned from office over revelations in the Panama Papers that he and his wife owned an overseas firm pursuing claims against Iceland's failed banks, representing a conflict of interest (New York Times, Apr. 2016). In another unrelated case in September 2017, it was revealed that Iceland's former Prime Minister, Bjarni Benediktsson, sold all his assets in one of Iceland's major banks just hours before the government took control of the country's collapsing financial sector in 2008 (The Guardian, Oct. 2017). Prime Minister Benediktsson was forced to resign his office after controversy erupted over his alleged role in covering up a scandal involving his father (The Guardian, Sept. 2017).

Customs administration Very low risk

There is a low risk of corruption in Iceland's customs administration. Companies indicate that irregular payments and bribes during customs procedures are very rare (GETR 2016). Companies express satisfaction with the time-predictability of import procedures but only express moderate satisfaction with the efficiency of the clearance process (GETR 2016). Companies do complain about burdensome import procedures (GETR 2016). The costs and time required to handle border compliance significantly exceed the OECD high-income average (DB 2018).

Public procurement Low risk

There is a moderately low corruption risk in the public procurement sector. Companies report that irregular payments of bribes rarely occur in relation to the awarding of contracts and licenses (GCR 2015-2016); however, favoritism may taint the decisions of procurement officials when deciding upon contracts (GCR 2017-2018). Transparency is occasionally a concern in procurement as public procurement processes are established by the government on an ad-hoc basis (ICS 2017). Under the Public Procurement Law, economic operators can be debarred from participation in government procurement if they have been convicted of a criminal offense, including bribery and corruption. Businesses are recommended to implement procurement due diligence procedures.

Legislation

Iceland’s General Penal Code (GPC) criminalizes the acts of giving and receiving a bribe, abuse of office, trading in influence and fraud. It establishes criminal liability for individuals as well as companies, and forbids bribery between businesses and of Icelandic and foreign public officials. Anti-corruption laws are generally well enforced (HRR 2016). Notwithstanding, the government has been criticized for not taking effective actions against foreign bribery (FCPA Blog, Apr. 2015). For instance, the Penal Code does in practice not effectively criminalize bribery of officials in foreign state-owned entities, and the obligation on officials to report foreign bribery is not clarified (FCPA Blog, Apr. 2015). The code does not distinguish between bribes and facilitation payments. The illegality of gifts and hospitality depend on their intent and benefit obtained, and whether the act has led to an undue advantage or improper influence of a person’s decision-making. Sanctions range from thirty days to three years' imprisonment for active bribery (domestic and foreign), and a maximum of six years for passive bribery. A company can be held criminally liable and ordered to pay fines for corruption offenses committed by individuals acting on their behalf. Other legal anti-corruption measures include codes of conduct for government staff and ministers to regulate conflicts of interest, and require those affected to report illegal activities. A code of conduct for MPs has been developed and adopted in March 2016. It is reportedly in line with the code of conduct of members of the Parliamentary Assembly of the Council of Europe (GRECO 2015). Iceland has made progress on its integrity framework, but integrity rules still need strengthening in a number of areas (GRECO 2017). The Rules on Financial Accounts of Political Parties addresses the disclosure of accounts and donations made to political parties and candidates. Iceland lacks a strong policy framework since historically corruption has not been seen as a large problem (SGI 2017).

Iceland is a signatory to the OECD Anti-Bribery Convention, the United Nations Convention Against Corruption (UNCAC), the Council of Europe’s Criminal Law Convention against Corruption, and the Group of States Against Corruption (GRECO).

Civil society

Freedom of expression is guaranteed and protected under the Constitution (SGI 2017). Iceland's media environment is diverse and operates without government restrictions and interference (FotP 2016). A parliamentary resolution established the International Modern Media Institute (IMMI), which spearheads the Icelandic Modern Media Institute and aims at transforming Iceland into a global safe haven with unprecedented transparency and legal protection for the press, bloggers, and whistleblowers (FotP 2016). Iceland's Freedom of Information Act guarantees access to government information but has been criticized for falling short in facilitating public access to information in practice (FotP 2016). Iceland’s media environment is considered 'free' (FotP 2017).

Many civil society groups operate freely and enjoy extensive government cooperation (FitW 2016). Governments occasionally consult academic experts when drafting laws (SGI 2017). The constitution guarantees freedom of assembly, and these rights are generally respected by the government (HRR 2016).

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