financial transparency an international comparison john christensen
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FINANCIAL TRANSPARENCYAn International Comparison
John Christensen
A global network of researchers and
practising professionals working with
advocacy and campaigning activists to
remedy financial market failures,
promote just tax policies and tackle the
harm caused by tax havens.
Launched in March 2003, the
network now spans across over 80
countries on 6 continents.
“ And yet the paradox of this open world is that in many ways, it’s still so closed and secretive…
We want to use the G8 to drive a more serious debate on tax evasion and avoidance…
This is an issue whose time has come.”
PM David Cameron addressing the World Economic Forum on 24th January 2013
“The bad news is that financial secrecy is still very much alive and well.”
Conceptual issues: what are we dealing with?
Measuring secrecy: constructing a Financial Secrecy Index FSI qualitative component: Secrecy score FSI quantitative component: Global scale weight
Applications: what does the FSI reveal? Contrasting views of the geography of secrecy (lists, indices) Assessing G8 commitments on tax and transparency
Conclusions
5
Overview
Why is there no consistent definition and identification of ‘tax havens‘, and why has every attempt to date to address problems associated with them failed?
‘Tax havenry‘ is a matter of degree, not a binary variable (Wójcik 2012: p.7);
Tax is not the crucial element for problems created by ‘tax havenry‘ – rather, secrecy is (Murphy 2008);
Blacklist approaches are hard to insulate from political influence.
6
Conceptual issues
‘Secrecy jurisdiction‘ is a potentially more useful and precise concept
Definition: A secrecy jurisdiction is one which provides facilities that enable people or entities escape or undermine the laws, rules and regulations of other jurisdictions elsewhere, using secrecy as a prime tool.
Because “virtually any country might be a `haven’ in relation to another” (Picciotto 1992: 132), more nuance needed in order for definition to be operational.
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Conceptual issues (2)
The Financial Secrecy Index identifies and ranks secrecy jurisdictions according to their contribution to opacity in international finance
The index combines qualitative and quantitative data
Qualitative data based on secrecy indicators is used to produce a secrecy score for each jurisdiction
Quantitative data is used to establish a global scale weight for each jurisdiction based on its share of the global market for cross-border financial services
The secrecy score and the weighting is combined arithmetically to produce a ranking
Measuring secrecy Moderately secretive
Exceptionally secretive
31-40
41-50
51-60
61-70
71-80
81-90
91-100
Chart 1 - How Secretive?
Chart 2 - How Big?
tiny
large
huge
small
Knowledge of beneficial ownership
Key aspects of corporate transparency regulation
Efficiency of tax and financial regulation
International standards and cooperation
1 Banking secrecy
4 Public company ownership
7 Fit for information exchange
11 Anti-money laundering
2 Trust and foundation register
5 Public company accounts
8 Efficiency of tax administration
12 Automatic information exchange
3 Recorded company ownership
6 Country-by-country reporting
9 Avoids promoting tax evasion
13 Bilateral treaties
10 Harmful legal vehicles
14 International transparency commitments
15 International judicial cooperation
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Fifteen financial secrecy indicators
• Does not adequately curtail banking secrecy• Does not put details of offshore trusts on public record• Does not maintain official record of ultimate company
ownership• Does not put ultimate company ownership details on
public record• Does not require companies to file annual financial
records• Does not require listed companies to report on a country-
by-country basis• Does not require domestic paying agents to report on
distributions to non-residents• Has refused to engage in automatic information exchange• Has a weak information exchange treaty network and a
weak commitment to global AML standards• Allows the creation and operation of harmful legal
vehicles (protected cell companies)OPACITY SCORE: 80 out of a possible 100Further information here: www.financialsecrecyindex.com
© Tax Justice Network 2013
2013 – example jurisdiction
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Blacklists: small, marginally more secretive; most < 40% GSWFSI: include larger players; near 100% coverage by GSW.
Application: Blacklists vs FSI
www.financialsecrecyindex.com
Exceptionally secretive
Moderately secretive
2013 FSI: Top Twenty Secrecy Jurisdictions by Secrecy Score and Global Scale Weight
“I do not think it is fair any longer torefer to any of the Overseas Territoriesor Crown Dependencies as tax havens.”
Hansard. SEPT-2013
15
Policy implications Importance of major players (G8) cleaning house;Limited benefits from ‘usual suspect’ squeeze;Inclusive steps if dev. countries to benefit.
Recap: Two broad goals (how are we doing?)Goal 1: to contribute to and encourage research by
collecting data and providing an analytical framework to show how jurisdictions facilitate illicit financial flows
Goal 2: to focus policy debates, encourage and monitor policy changes globally towards more financial transparency, by engaging the media and public interest groupings
Conclusions
The Price of Secrecy Raise risk premiums
Harm tax systems and public finance
Facilitate economic free-riding and
increases inequality
Reduce the efficiency of resource
allocation
Increase the profitability of economic
crime
Encourage rent-seeking activities
Damage trust and institutional quality
“They say that the ancien regime in France fell in the 18th century because the richest country in Europe, which had exempted its nobles from taxation, could not pay its debts. France had become . . . a failed state. In the modern world the nobles don’t have to change the laws to escape their responsibilities: they go offshore.”
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