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

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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.

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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

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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.”

Questions