News

A league table of the world’s most secretive tax havens has been compiled by campaigners seeking greater transparency about the operation of ‘offshore’ finance centres.

The Financial Secrecy Index (FSI) analyses the level of secrecy each haven offers, and the extent of their reluctance to co-operate with other countries tax authorities.

These factors give each haven an ‘Opacity Score’ which is then combined with a weighting that reflects the scale of the cross-border financial activity the haven hosts, to determine its ‘financial secrecy’ ranking.

According to the index, the most secretive havens are: (1) USA (Delaware)ⁱ; (2) Luxembourg; (3) Switzerland; (4) Cayman Islands; (5) United Kingdom (London).

Full list here

The index has been drawn up by the Tax Justice Network, an international, non­aligned coalition of researchers and activists with a shared concern about the harmful impacts of tax avoidance, tax competition and tax havens, and Christian Aid, a leading UK development NGO.

John Christensen, director of the Tax Justice Network’s International Secretariat, said: ‘Secrecy is a core feature of the global financial system. Jurisdictions compete with each other to provide it in order to attract financial flows.

‘But this comes at a price. Financial secrecy provides cover for all manner of crimes and abusive practices: money laundering, tax evasion and avoidance, insider trading, terrorist financing, embezzlement, Ponzi schemes, illicit financial flows, fraud and much more.

‘The Financial Secrecy Index shows just how entrenched the problem of financial secrecy is. The index is an important tool that highlights the desperate need for new rules in international finance that would make the disclosure of information between different tax jurisdictions automatic.’

Mr Christensen added that Swiss-style bank secrecy is just one of many facilities that jurisdictions offer to provide confidentiality in international finance. In Anglo-Saxon countries, trusts and certain kinds of companies are often used to provide deeper, more devious forms of secrecy than can be achieved with bank privacy alone.

‘Many other barriers to the flow of information exist, ‘he said. ‘None of this would be possible without the legal framework the havens provide.’

In popular imagination, tax havens are palm fringed island idylls with luxury yachts, shady law firms and expensive offices festooned with the brass name plates of anonymous shell companies.

The FSI reveals a much broader picture. The main global suppliers of financial secrecy are in fact rich nations operating specialised enclaves like Delaware, often with links to smaller ‘satellite’ jurisdictions that are conduits for illicit financial flows into the mainstream capital markets.

The research identified one country in particular – the United Kingdom – with political and other links to a huge global network of tax havens. With half the world’s secrecy jurisdictions located in Commonwealth Countries, Crown Dependencies or British Overseas Territories, the UK’s historic support for financial secrecy globally has been substantial. Read more here…

Mr Christensen said Delaware in the US was particularly poor at disclosing information, although it was a hub of corporate activity. Luxembourg and Switzerland specialised in ‘traditional bank secrecy’, while the Caymans are now the fifth largest financial centre in the world because of the huge amount of corporate activity they attract from the Americas, as well as the large number of personal investment corporations based there.

Meanwhile London sits at the centre of a web of satellite jurisdictions. It is the most transparent of the jurisdictions in the index, but its importance in global offshore finance means that the secrecy it does provide has the potential to do more damage than, for example, small island havens which are less transparent but play a smaller role in global offshore finance.

The FSI uses twelve key financial secrecy indicators, identified in the Tax Justice Network’s Mapping the Faultlines project, in order to identify the provision of secrecy in each jurisdiction.

The indicators produced some striking statistics. For example, only one of the 60 jurisdictions reviewed - Monaco - requires all types of companies to disclose their beneficial ownership (see: http://www.secrecyjurisdictions.com/PDF/Monaco.pdf)

In other words, in 59 of the 60 havens, it is impossible to find out who owns the companies located within each. Not a single one has a central register of trusts and foundations that is publicly accessible via the internet. Read more here…

One of the routine uses of tax havens is to facilitate illicit financial flows. The World Bank has endorsed estimates by Raymond Baker, director of Washington-based Global Financial Integrity (GFI) in 2005 that illicit financial flows across borders ranged between $1trillion and $1.6 trillion per year, with half the money coming from developing and transitional economies.

In a 2009 update, GFI estimated annual illicit cross-border flows out of developing countries alone at about $850 billion -$1 trillion. In testimony before the U.S. House of Representatives, Raymond Baker compared these figures to the size of foreign aid flows, which have ranged up to just $100 billion annually.

He noted: ‘For every dollar Western governments have been handing out across the top of the table, crooked Western banks, businesses and middlemen of various descriptions have been taking back up to ten dollars of illicit proceeds under the table’.

The FSI’s authors consider the main global initiative against tax havens -efforts being led by the Organisation for Economic Co-Operation and Development (OECD) to achieve greater transparency -woefully inadequate.

In April 2009, following the London G20 summit, the OECD announced a list would be established of financial centres which fail to co-operate with other jurisdictions on tax and transparency issues.

‘Unfortunately, the OECD system is based on extremely weak standards of transparency and information exchange,’ said Alex Cobham, policy manager at Christian Aid.

‘All a haven has to do to get its name removed from the list is to sign bilateral disclosure agreements with 12 other countries. Even if that number is increased, the problems will remain insurmountable -these agreements are riven with loopholes which make them virtually impossible to implement.

‘Such flaws are perhaps unsurprising because, as the FSI shows, the biggest secrecy providers are in fact OECD members. The global body mandated to lead the fight against secrecy is therefore deeply compromised and conflicted in its aims.

‘Nonetheless, the meeting of G20 Finance Ministers in St Andrews on 7 November has the chance to impose a level playing field among all jurisdictions, by mandating the creation of a multilateral agreement for the exchange of tax information, with effective sanctions against those jurisdictions providing offshore financial services which do not sign up – whether they are OECD members or not.

‘Tackling secrecy in international finance requires a range of strategies, and a long-term approach. Crucially, we need to effect significant cultural change, so that the world becomes less tolerant of secrecy.

‘In addition, international accounting standards need to be changed to force companies trading internationally to disclose the profits made, and taxes paid, in every country where they operate. That way abuses could be quickly spotted.’

Clear international standards are needed, Mr Cobham added, for collecting and providing information on beneficial and legal ownership related to corporations, trusts, foundations, and a range of other facilities that secrecy jurisdictions provide.

And the economics profession should start researching how secrecy shapes and distorts international financial flows, and how secrecy in one jurisdiction can have an impact on other jurisdictions.

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For further information please contact:

John Christensen on 07979 868302 or Alex Cobham on 0798 2236863

Email: info@taxjustice.net

Notes to Editors:

1) The FSI is designed to identify the key contributors to global financial secrecy, on a jurisdiction-by-jurisdiction basis. However, in some important cases, different levels of secrecy prevail in different sub-jurisdictional entities. Since financial flow data are only systematically and comparably available at a jurisdictional level, this creates a potential problem. To deal with this, and recognising the impact that even marginal secrecy differences can have on the volume of illicit flows, we treat the most secretive sub-jurisdictional entity as representative of the potential for opacity of the whole jurisdiction, and therefore base its Opacity Score on this. The most obvious case where we have applied this technique is with the US state of Delaware, which is taken as representative of the maximum secrecy available within the whole jurisdiction.

Contact: Monique Danziger
mdanziger@gfip.org
202-293-0740

WASHINGTON, DC — According to a new analysis of financial jurisdictions prepared by UK-based civil society group Tax Justice Network, the state of Delaware is the most secretive financial jurisdiction in the world. Based on the laws and practices of 60 financial jurisdictions the Financial Secrecy Index (FSI) ranks jurisdictions according to their level of secrecy and the extent to which they cooperate with tax authorities in other countries.

The top five most secretive jurisdictions behind Delaware are: (2) Luxembourg; (3) Switzerland; (4) Cayman Islands; (5) United Kingdom (London). The full rankings are available at www.financialsecrecyindex.com.

Global Financial Integrity has compiled the following statistics on U.S. banking secrecy and related financial indices:

• According to the Delaware Secretary of State’s office their operating budget was $12 million in 2007 and they made $24 million in the fees for expedited incorporation filings alone.
• There are currently some 695,000 active entities registered in Delaware, including 50 percent of the corporations publically traded on the U.S. stock exchange.
• New business formations in Delaware are currently running at about 130,000 per annum.
• The growth of private individual deposits by non-residents was most robust in the United States outranking other popular financial jurisdictions such as the Cayman Islands, United Kingdom, and Luxembourg with total non-resident deposits equalling $2.6 trillion in 2007.

The Task Force on Financial Integrity and Economic Development will hold a press briefing Monday, November 2nd, at the National Press Club at 9am to discuss the Index and implications of U.S. policy initiatives including the Foreign Account Tax Compliance Act and Incorporation Transparency and Law Enforcement Act.

To R.S.V.P. contact Monique Danziger at mdanziger@gfip.org or 202-293-0740.

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Premiere of Tax Justice Network’s Financial Secrecy Index: A Ranking of Tax Havens

What: Breakfast Briefing with presentations by:

• Jack Blum, Tax Justice Network, USA
• Jim Henry, Tax Justice Network, USA
• Sarah Lewis, Tax Justice Network, USA
• Raymond Baker, Global Financial Integrity

Where: The National Press Club (Winners Room), Washington, DC, USA
When: Monday, November 2, 2009
(Food served at 8:45, Briefing 9:00am-10:00am)

R.S.V.P. to Monique Danziger, + 1 (202) 293-0740 mdanziger@gfip.org

The Financial Secrecy Index (FSI) is a first-of-its-kind ranking of the most secretive and uncooperative jurisdictions—tax havens— in the world.  Based on intensive research and analysis the index ranks 60 jurisdictions according to their degree of opacity and the scale of their cross-border financial services activity.

Join us for an exclusive first-look at the Financial Secrecy Index and discussion of such topics as:

• Is the United States a tax haven?
• What are the next steps for the G20 on tax havens and tax evasion?
• Legislation pending in Congress on the issues of tax evasion, banking secrecy, money-laundering, and other illicit financial practices.
• How can the United States be a leader in international efforts to combat tax evasion and banking secrecy?
• Impact of tax havens on the developing world.

For more information, visit www.financialsecrecyindex.com.

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Two weeks ago we launched our new website for the Mapping the Faultlines project, which explores the furtive world of secrecy jurisdictions where furtive types get up to all sorts of monkey business.

Now we launch another site, www.financialsecrecyindex.com which takes you step-by-step into the details of our new ranking of secrecy jurisdictions. The ranking results will be published at the start of November, but we the know the results already and we can confidently say that they will turn many people’s pre-conceptions on their head.

We are also fairly confident that the rankings we publish in the Financial Secrecy Index will replace the failed OECD black / grey / white lists which came out in April 2009 and immediately fell flat on their faces.

Today the Tax Justice Network launches a major new project called Mapping the Faultlines, backed by research funding from the Ford Foundation. This has been the biggest and most elaborate research effort ever undertaken to look at how secrecy operates through global financial markets.

As the project brief notes, it is intended to complement work by Global Financial Integrity in Washington, D.C., looking at the magnitudes of these problems.

While putting together this material, which would run to more than 1,800 pages if printed, we have felt like explorers charting territory previously mapped in only the scantiest detail. Before we set off on this trip there was only a fragmented collection of partial studies conducted by various organisations, public and private, which, like the old Victorian explorers’ maps, showed only distorted parts of a larger reality. Mapping the Faultlines brings all this information, and more, together into a coherent whole for the first time.

We knew from the outset of our research that the core selling point of what are popularly known as “tax havens” is not tax, but secrecy. Tax considerations are always secondary to the provision of secrecy. We therefore prefer the term “secrecy jurisdiction” instead of “tax haven.”

What secrecy jurisdictions do, above all, is to provide facilities that enable people or entities to undermine the laws, rules or regulations of other jurisdictions, using secrecy as their prime tool.

The topography of secrecy jurisdictions has been heavily distorted by false images and supremely well-financed propaganda campaigns, leading to a popular perception that it is the small, palm-fringed islands like Cayman, or Alpine tourist destinations like Liechtenstein, which are the principal providers of financial secrecy in the global system. These places are important, of course, but one striking early result from this project (we will provide more on this in the coming weeks) is that the biggest sources of financial secrecy worldwide are to be found in major rich-world financial centres, especially in the OECD (and Britain plays an especially important role.) This all helps explain why the OECD, which the G20 has tasked with leading the fight against the secrecy jurisdictions, has produced such a confused and inadequate initiative, and a “white list” of jurisdictions that looks more like a whitewash.

Our systematic and objective research project confirms more anecdotal evidence of this that was already available, such as from Jason Sharman in March 2009 who concluded that:

“The United States, Great Britain and other OECD states have chosen not to comply with the international standards which they have been largely responsible for putting in place.”

The Ford Foundation funding has enabled us to look carefully at the secrecy arrangements of 60 jurisdictions around the world, based on research going back 30 years and drawn from the work of the OECD, the IMF, independent academics, and our own endeavours. Although the secrecy jurisdictions are deeply implicated in the currrent global economic crisis, this was not the main focus of our investigation. Our focus was on illicit financial flows –see “Key Findings” on the Mapping the Faultlines home page.

Our research work led the project team eventually to select 12 key criteria of secrecy. This helps dispel widespread popular misconceptions, which hold that it is bank secrecy that is the touchstone of these places’ opacity.

Bank secrecy is important, of course, but many other less well-known mechanisms are just as important, such as trusts, a British invention which potentially offer deeper and even more devious forms of secrecy with bank secrecy. Very often, different secrecy mechanisms are used in tandem with each other, to provide further veils of opacity. So we judge jurisdictions also by things such as their willingness to exchange information with other jurisdictions or to cooperate with international research, and, crucially, their ability to cooperate with information exchange: many jurisdictions, for example, are quite willing to sign up to information exchange treaties, but then they take steps so that there is no information available to exchange in the first place!

We are still populating this study: most of the information and data is already up there, including 60 individual jurisdiction reports for these places, but more details, and updates are steadily being included. With such a huge volume of material and data, we accept that errors may have crept in. If you find errors, please let us know – but read this first.

This is only the first stage of this project: assembling the research data. Our next steps will be to use it for other projects to analyse what is going on, and to propose policy measures. Over the coming weeks, months and years we will be rolling out startling new research, data and analysis based on this new data.

President Leonel Fernández of the Dominican Republic has just called at the United Nations General Assembly for a tax on offshore deposits:

“This charge, in support of the eight Millennium Development Goals, should be applied to capital deposited in tax havens, offshore banks and international financial centres,” he said in his speech at the General Assembly.”

We are delighted to see these issues being brought to such forums at last. He cited the work of TJN, the OECD, Oxfam and Christian Aid, all of which are now pointing at the problem. We applaud his language, too: Fernández spoke of global inequalities being due, partly, to “the existence of a global financial architecture prone to lack of transparency, secrecy, money laundering, tax evasion and fraud.

Well said. Bit by bit, the momentum continues to build.

From Switzerland’s Le Temps newspaper this morning (translated from the French)

“The Ticino lawyer Fabrizio Pessina, from Chiasso, was arrested at Malpensa airport (Milan) on March 2 on his return from Spain where he had been playing golf. The financial brigade was interested in him, in the context of an investigation into two Italian businessmen suspected of diverting funds from a real estate project in Milan. On Fabrizio Pessina’s personal computers the investigators found, it seems by chance, a list of 552 Italian taxpayers with the details of their bank accounts, including the names of their offshore companies registered in Switzerland, Gibraltar, Liechtenstein and in the British Virgin Islands. The 552 accounts involve 1.2 billion Euros under management.”

“A second list, whose origin hasn’t been clearly established but whose details have appeared in the press, involves 200 clients of the Italian subsidiary of UBS… involving around one billion Euros”

From AFP:

“All French banks will begin taking steps in March to close their branches and subsidiaries in countries deemed to be tax havens by the OECD, the deputy head of the French banking federation said on Thursday.

“French banks have taken the decision to commit to the closure of their subsidiaries and branches that are on the OECD grey list in March 2010,” he said after a meeting with French President Nicholas Sarkozy.”

Congratulations to our French friends and partners who have pushed on this issue. BNP Paribas was the first, and we’re pleased to see others following. But the ones on the OECD whitewash, sorry, white list, are every bit as bad. Now is the time for the OECD to up the ante significantly: the OECD list system is entirely inadequate, but this move at least is a positive one.