The Financial Secrecy Index (FSI) has been compiled by the organisations in a bid to increase the transparency of offshore finance centres.
It gives each country an ‘opacity score’ according to the level of secrecy of each haven and the extent of their reluctance to co-operate with other countries tax authorities. The opacity score is combined with a weighting that reflects the scale of the cross-border financial activity the haven hosts to determine the ‘financial secrecy’ ranking.
The index ranks the US as the most secretive haven, followed by Luxembourg, Switzerland, the Cayman Islands and the UK, bucking the stereotype of tax havens as palm fringed islands.
John Christensen, director of the Tax Justice Network’s International Secretariat, said trusts and certain kinds of companies were often used to provide “more devious” forms of secrecy than could be achieved with bank privacy alone.
“Secrecy is a core feature of the global financial system. Jurisdictions compete with each other to provide it in order to attract financial flows,” he said.
“But this comes at a price. Financial secrecy provides cover for all manner of crimes and abusive practices: money laundering, tax evasion and avoidance, insider trading, terrorist financing, embezzlement, Ponzi schemes, illicit financial flows, fraud and much more.
“The Financial Secrecy Index shows just how entrenched the problem of financial secrecy is. The index is an important tool that highlights the desperate need for new rules in international finance that would make the disclosure of information between different tax jurisdictions automatic.
He added: “Many other barriers to the flow of information exist. None of this would be possible without the legal framework the havens provide.”
|PIC1|Research by Christian Aid has found that the main global suppliers of financial secrecy are rich nations operating in specialised enclaves like Delaware that often have links to smaller ‘satellite’ jurisdictions that are conduits for illicit financial flows into the mainstream capital markets.
It pointed to the UK in particular, as half the world’s secrecy jurisdictions are located in Commonwealth countries, Crown dependencies or British Overseas Territories. London, he said, was at the centre of a network of satellite jurisdictions and although it ranked the most transparent of the jurisdictions in the index, had the potential to do more harm than small island havens because of its more important role in global offshore finance.
Tax dodging has been one of Christian Aid’s main campaigns in 2009. In September, the aid agency called upon G20 leaders to agree to reforms that would automatically reveal the identities of businesses and individuals with offshore funds and the amounts involved.
It is also pressing the international community to reform tax regulations to make it obligatory for companies and corporations.
In the same month, Christian Aid handed over an Alternative Tax Award to the offices of the International Accounting Standards Board in London. The award is given to banks, financial institutions and accountancy firms to highlight the impact of tax dodging on poor countries.
The Organisation for Economic Co-Operation and Development announced in April that it would publish a list of financial established centres that faith to cooperate with other jurisdictions on tax and transparency issues. Christian Aid’s policy manager, Alex Cobham, said OECD’s plans were woefully inadequate.
“Unfortunately, the OECD system is based on extremely weak standards of transparency and information exchange,” he said.
“All a haven has to do to get its name removed from the list is to sign bilateral disclosure agreements with 12 other countries. Even if that number is increased, the problems will remain insurmountable - these agreements are riven with loopholes which make them virtually impossible to implement.
“Such flaws are perhaps unsurprising because, as the FSI shows, the biggest secrecy providers are in fact OECD members. The global body mandated to lead the fight against secrecy is therefore deeply compromised and conflicted in its aims.”
Mr Cobham called on G20 finance ministers to mandate the creation of a multilateral agreement for the exchange of tax information when they meet in St Andrews on Saturday. He said effective sanctions should be levied against jurisdictions that provide offshore financial services but fail to sign up.
He said: “Tackling secrecy in international finance requires a range of strategies and a long-term approach. Crucially we need to effect significant cultural change so that the world becomes less tolerant of secrecy.”