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Il 2011 Financial Secrecy Index

07/10/2011

October 4, 2011. Today we launch our 2011 Financial Secrecy Index, the biggest investigation of global financial secrecy in world history. It combines a secrecy score with a weighting to create a ranking of the countries that most aggressively provide secrecy in global finance.
The new FSI, which follows our inaugural index of 60 jurisdictions published in 2009, considers 73 jurisdictions to reveal a world where most of the biggest suppliers of secrecy are either OECD countries, EU members, or their dependencies. Britain plays an especially prominent role.

Secrecy is alive and well

World leaders at a G20 summit meeting in April 2009 promised that“the era of banking secrecy is over” and put the OECD, a club of rich countries, in charge of implementing its wishes. Many people hoped this marked the start of a serious crackdown on tax havens, or secrecy jurisdictions.

But they have let us down. The rhetoric is trillions of dollars away from reality. The Financial Secrecy Index (FSI) reveals that financial secrecy is as entrenched as ever.

Why are things still so bad?

Secrecy jurisdictions, popularly known as tax havens, have been frantically signing information-exchange agreements with other jurisdictions, to qualify for a ‘white list’ put together by the OECD. Nearly all are on the white list now, and each proclaims itself to be co-operative, respectable, transparent, clean and well-regulated. But the OECD’s standards are woefully inadequate. To squeeze information out of a secrecy jurisdiction, you must already know the information for before you ask for it! This is not effective information exchange. G20 leaders asked the OECD to drain a swamp – and the OECD has been handing out drinking straws.
Many jurisdictions, while merrily signing up to these information-exchange agreements, have quietly been adding stronger and more devious new secrecy facilities to their already ferocious offshore arsenals.
Moves by the likes of Jersey and Guernsey to allow the use of foundations, for instance, constitute just one of many areas of concern. Recent deals between Switzerland, on the one hand, and Germany and the UK on the other, that will entrench Swiss banking secrecy in exchange for highly uncertain (and probably very small) short-term tax revenues, demonstrate that politicians in all three countries are prepared to protect a secrecy industry that operates in the service of criminal elites. Hong Kong and Singapore have welcomed huge inflows of tax-evading and other criminal money as they cash in on those limited attempts in the United States and Europe to track down illicit funds. Luxembourg continues to play an especially pernicious and aggressive role undermining European efforts to promote financial transparency. The United Kingdom remains as committed as ever to its global network of secrecy jurisdictions that feed vast assets, and the business of handling those assets, through to the City of London.

Some bright spots

There have been occasional bright spots since 2009, though these are often less important than they appear.
• A path-breaking initiative in the United States to push forwards country-by-country reporting in the Dodd-Frank Act has reduced its secrecy score. The United States also deserves credit for seriously cracking down on tax evasion facilitated by Swiss banks. It remains a massive secrecy jurisdiction in its own right, however.
• There has been some penetration of Swiss banking secrecy – though only in very limited ways. Switzerland has adopted a ‘circle the wagons’ approach, making incremental concessions here and there, but keeping its core secrecy model firmly intact.
• Belgium, Guernsey and the Isle of Man improved their secrecy scores after they decided to adopt a model of automatic information exchange with the European Union: an approach that represents the basis for the gold standard of information exchange.
• Although the OECD’s model of information exchange does not effectively deter tax evasion and other crimes, the OECD’s Global Forum peer review process has, despite its political weaknesses, delivered some useful pressure on jurisdictions to shape up.
• Some jurisdictions, such as Denmark and Spain, stand out as being “moderately secretive” -- the cleanest on our 2011 rankings – though even these are very far from being clean.
• More than anything, a general public mood amid economic crisis and austerity is changing the political culture for the better, across the world. Tax evasion, for instance, is far less tolerated than it was just a few years ago.

Why has my own country’s ranking changed since 2009?

The Financial Secrecy Index ranking is significantly different from the one we published in 2009. Several factors lie behind the changes, but two are dominant.
First, we have added 13 new jurisdictions, including some of the world’s biggest financial centres. Many people will be surprised to see the likes of Germany and Japan coming in the top 10 world secrecy jurisdictions, but this is where the analysis leads us. (See which countries we have added here.)
Second, we have changed the way we calculate the FSI. A jurisdiction’s ranking is built on two components: a secrecy score, based on the secrecy facilities it offers, and a weighting, based on the size of its financial sector. After long deliberation, we decided this year to mathematically enhance the importance of the secrecy score relative to the weighting. So jurisdictions with big financial centres such as the United States, United Kingdom and Ireland have moved down, while those with a high secrecy score, such as Switzerland, Cayman, Jersey and Panama, have moved up. We think this shift in emphasis helps focus attention where it is needed.