The UK is the most important player in tax havens
The Tax Justice Network’s new Financial Secrecy Index shows global financial secrecy remains alive and well.
In November, the Tax Justice Network (TJN) published the biggest ever survey of global financial secrecy. An estimated $21 to $32 trillion of private financial wealth is located, untaxed or lightly taxed, in ‘secrecy jurisdictions’ (or tax havens) around the world.
Since the 1970s African countries alone are estimated to have lost over $1 trillion in capital flight, dwarfing their current external debts of ‘just’ $190 billion and making Africa a major net creditor to the world. But those assets are in the hands of a few wealthy people, protected by offshore secrecy, while the debts are shouldered by African populations. Compare that $1 trillion in capital flight with the $130 billion or so in global foreign aid.
So for every dollar of aid provided by OECD countries to developing nations, ten dollars or so flow back, under the table, towards OECD nations and their offshore satellites. Yet rich countries suffer too: in the recent global financial crisis, European countries like Greece, Italy and Portugal have been brought to their knees by decades of secrecy and tax evasion.
UK at the center
The Financial Secrecy Index shows that the United Kingdom is the most important global player in the financial secrecy world. While the UK itself ranks only in 21st place, it supports and partly controls a web of secrecy jurisdictions around the world, from the Cayman Islands and Bermuda to Jersey and Gibraltar. Had the entire British network been aggregated it would easily top the index, far above Switzerland.
David Cameron recently told the House of Commons: “I do not think it is fair any longer to refer to any of the Overseas Territories or Crown Dependencies as tax havens. They have taken action to ensure that they have fair and open tax systems.”
TJN’s research shows how baseless that claim is. While the British Virgin Islands, Cayman Islands and some other British jurisdictions have recently curbed some secrecy offerings, others have expanded theirs. TJN assessed the territories across fifteen ‘secrecy indicators’ such as banking secrecy, publicly available company ownership, promotion of tax evasion and anti-money laundering. The table below shows the worst offenders.
Worst offenders
The Index also reveals how broader claims by the leading powers, to have cracked down effectively on tax havens, are bogus.
Rather the Index reveals that the traditional stereotype of tax havens as small, palmfringed islands is wrong. The world’s most important providers of financial secrecy are some of the world’s biggest and wealthiest countries. Illicit financial flows that keep developing nations poor are predominantly enabled by rich OECD member countries and their satellites, which are the main recipients of or conduits for these illicit flows.
The implications for global power politics are clearly enormous, and help explain why widely heralded international efforts to crack down on tax havens and financial secrecy have been rather ineffective, despite many fine words from G20 and OECD countries: for it is these countries, which receive these gigantic inflows, that set the rules of the game.
Some positive trends are evident. Crucially, automatic information exchange is now recognised as the effective global standard for tackling tax evasion and multinational initiatives are making headway. And, with public tolerance for offshore financial secrecy having fallen sharply, there is potential for real political change. But for now the infrastructure of global financial secrecy remains alive and well.
The only realistic way to address these problems comprehensively is to tackle them at root: by directly confronting offshore secrecy and the global infrastructure that creates it. A first step is to identify the jurisdictions that make it their business to provide offshore secrecy. That’s just what TJN’s Index does.
2013 Financial Secrecy Index
1 Switzerland
2 Luxembourg
3 Hong Kong
4 Cayman Islands*
5 Singapore
6 USA
7 Lebanon
8 Germany
9 Jersey*
10 Japan
11 Panama
12 Malaysia (Labuan)
13 Bahrain
14 Bermuda*
15 Guernsey
* British overseas territory or crown dependency. If Britain’s network were assessed together, it would be at the top.Jurisdictions are ranked by combining a secrecy score with a weighting
representing the scale of each jurisdiction’s activities. For the full index, indicators and methodology.