US overtakes Switzerland on financial secrecy index, Caymans leap over both to the top
Chris Hamblin, Editor, London, 18 February 2020
The Tax Justice Network’s biennial Financial Secrecy Index 2020, published today, has revealed that financial secrecy around the world is decreasing as a result of the policies of the Organisation of Economic Co-operation and Development. The Cayman Islands, moreover, have leapt to the top.
New Hampshire's transgression
America's rise on the index springs from the passage of a law in New Hampshire that permits the establishment of non-charitable private foundations without the need to divulge the identities of thir founders, beneficiaries or beneficial owners to the authorities. Switzerland has helped itself in the eyes of the TJN by automatically exchanging information about the financial activities of non-resident individuals, corporations and legal vehicles with more and more countries in accordance with the Common Reporting Standard. The US has yet to sign up to that standard, which has 105 signatories. Switzerland’s score has also lessened because fewer non-residents keep their money there.
In October the US House of Representatives passed a Bill — the Corporate Transparency 'Act' — to end the abuse of anonymous companies. The Senate Banking Committee is considering similar legislation, which it calls the ILLICIT CASH 'Act.' The dustbin of history is littered with Bills that never ended up on the US federal statute book, but American legislators nevertheless like to call them 'Acts' even though they have never become law and never will, to the confusion of compliance officers in other nations.
The United Kingdom - going backwards fast?
The UK has increased its 'secrecy score' by 4 marks, more than any other country, both at home and (to use a fashionable phrase) through its 'spider web' or 'second empire' of dependant jurisdictions. Its overall supply of financial secrecy to the world, however, has risen by a whopping 26% since 2018, moving it up from 23rd to 12th. The City of London receives and launders wealth brought in by the satellite jurisdictions. These include the British Virgin Islands which ranks 9th and Guernsey which ranks 11th. These 'spider web' jurisdictions on average increased their supply of financial secrecy to the world by 17% over the last two years, which is more than double the rate at which countries around the world on average reduced their supply to global financial secrecy. If the UK and its network of Overseas Territories and Crown Dependencies were treated as a single entity, they would rank first on the index.
John Christensen, a director and founder of the Tax Justice Network, wrote in the report: “The UK showed the world true leadership in 2016 by being the first country to adopt a public beneficial ownership register – now that progress has been thrown in reverse. The UK’s post-Brexit strategy [is] to turn the City of London into a ‘Singapore-on-Thames’. EU countries...collectively reduced their supply of financial secrecy to the world by 8%."
Jurisdictions at large
OECD countries are responsible for 49% of all financial secrecy in the world, as measured by this year's index. They directly supplied 35% of it and indirectly supplied 14% through their dependencies to which they outsource some of their financial secrecy. These include the US Virgin Islands and Curaçao, along with the British 'spider web.'
The member-countries of the OECD, despite their valiant proclamations about tidying up finance, are outsourcing financial secrecy to their dependencies. OECD countries have an average secrecy score of 54 out of 100 but their dependencies have a score of 73. The TJN finds this hypocritical. Non-OECD countries (excluding OECD dependencies) have an average secrecy score of 67.
Germany has done very well in the eyes of the TJN, reducing its supply of financial secrecy to the world by 35% and taking its ranking down from 7th in 2018 to 14th. This is mainly due to the registration of data that pertains to beneficial ownership.
The 'Luanda Leaks,' reported on in our sister publication Offshore Red, have played their part in the rankings. This year's index is the first one to rank Angola. The country plays a minor part in the global provision of financial services to non-residents, but is highly secretive. It is now listed as the 35th biggest enabler of financial secrecy in the world and its secrecy score stands at 80 out of 100 – the second highest of any country except the Maldive Islands.
Reasons to be cheerful
The quantity of financial secrecy in the world is shrinking, having dropped by a hefty 7% since 2018 according to the index. There is less in the way of secretive banking, anonymous shell company ownership and anonymous real estate ownership in the world. The biggest reforms have been in the automatic exchange of information and registers of beneficial ownership, whereas reforms to do with country-by-country reporting have been weak.
Liz Nelson, a director at the Tax Justice Network, wrote in the report: “While countries have dragged their feet on introducing public country-by-country reporting, corporations around the world have voluntarily begun to publish their country by country reports under the new GRI tax standard, published last year.”
There is nothing official about the so-called Global Reporting Initiative (GRI) standard. Published in December, it calls for the public reporting of every company’s business activities and payments in each tax jurisdiction. Global investors, civil society groups, labour organisations, accountancy firms and multinationals had a hand in its authorship.
By way of explanation...
The Common Reporting Standard (CRS) calls on jurisdictions to collect information on the financial activities of non-resident individuals, corporations and legal vehicles and automatically exchange that information with the jurisdiction in which the individual, corporation or legal vehicle resides. The OECD brought it into effect in July 2014 and it has steadily seen more and more countries - except the United States - sign up to it and increase the number of countries with which they exchange information.
The UK's 'spider web' consists of the following British Overseas Territories and Crown Dependencies: the Cayman Islands, the British Virgin Islands, Guernsey, Jersey, Gibraltar, Bermuda, the Isle of Man, Anguilla, the Turks and Caicos Islands and Montserrat.
In the report Alex Cobham, the chief executive at the Tax Justice Network, sums up his outfit's feelings about these places by decrying the "deplorable Anglo-American axis of secrecy that has actively chosen to double down on the practices that exacerbate corruption, tax abuse and global inequalities.”
The other OECD dependencies of concern are: Aruba; Curaçao; Puerto Rico; and the US Virgin Islands.
