Right at the top of the index, which is compiled every two
years and ranks jurisdictions according to their secrecy and
the scale of their offshore financial activities, are some of
the biggest, richest and most powerful countries in the world.
"Rich OECD member countries and their satellites are the main
recipients of or conduits for" illicit flows of capital, the
Tax Justice Network (TJN) report states.
Switzerland ranked first on the list, but the TJN says the
UK "would easily top" the index if it were treated as a single
entity along with its dependencies and overseas territories,
which include the Cayman Islands, the Channel Islands, the Isle
of Man and the British Virgin Islands. Treated individually,
the UK ranked 15th. The US came third and Germany eighth.
Hong Kong and Singapore continued their rise through the
rankings and are now ranked second and fourth respectively, in
part because tighter regulations in the West have displaced
illicit wealth eastward.
The index upends stereotypes about tax havens, or 'secrecy
jurisdictions’, as the TJN prefers to call them,
because of the way it is constructed. Each jurisdiction is
given a secrecy score based on 15 indicators, including banking
secrecy, and the TJN then weights these scores with a measure
of each jurisdiction’s financial muscle.
"In this way", the group argues, "the Financial Secrecy
Index offers an answer to the question: by providing offshore
financial services in combination with a lack of transparency,
how much damage is each secrecy jurisdiction actually
The TJN stresses that whether or not a jurisdiction is a tax
haven is a question of degree: every country falls somewhere on
a spectrum of secrecy.
In a study published this summer the TJN and James Henry,
former chief economist at McKinsey, a major consultancy firm,
estimated that between $21 trillion and $32 trillion of
unreported private financial wealth was hidden in tax havens by
the end of 2010. That’s more than the US and
Japanese economies - the biggest and third biggest in the world
"Developing countries are among the biggest losers from
financial secrecy," John Christensen, co-founder and director
of the TJN, told The World Weekly. This is "not only
because they suffer from large outflows of much needed capital
which could usefully boost investment and employment, but also
because they suffer from widespread tax evasion, which
undermines their public finances and inhibits long-term growth
prospects due to underinvestment in education, health services,
security and other public services."
In a 2012 study, James Boyce and Leonce Ndikumana of the
University of Massachusetts, Amherst, estimated that 33
sub-Saharan African countries lost more than $1 trillion
because of capital flight from 1970 to 2010 (in 2010 dollars,
adjusted for inflation). The OECD has estimated that developing
countries lose around three times more to tax havens than they
receive in aid every year.
Richer countries suffer, too. The public finances of Greece,
Italy and Portugal have been crippled in part because of
decades of tax evasion and "state looting via offshore
secrecy", the TJN notes.
Beyond its impact on public accounts, financial secrecy
brings with it a host of social, economic and political
side-effects. It can help concentrate power in unaccountable
political and business elites and distort financial markets by
channelling capital to where it can be stored most secretively,
instead of to where it would be most productive.
Large companies counter that their activity invests in
economies and creates jobs around the world.
"While profit has become something of a dirty word,
it’s important to remember that many corporations
reinvest their profits in research and product development,
which in turn tends to lead to job creation, further economic
growth and, ultimately, more tax," Eric Schmidt, chairman of
Google (now Alphabet), wrote in The Guardian
in May 2013.
Henry also prefers to look on the bright side, but in a
different sense. He sees the vast sums of hidden financial
wealth as "a huge pile... that might be called upon to
contribute to the solution of our most pressing global
A work in progress
Tax professionals are also criticised in the report. "The
market for financial secrecy is highly profitable, both for the
banks, law firms and accounting practices that sell secrecy
products to their clients, and for the tax haven countries like
Switzerland, the US and UK which attract huge volumes of
illicit financial flows," said Christensen. "Illicit flows
boost the value of both the US dollar and the pound, helping to
prop up economies that have been running current account
deficits for decades."
Multinationals rightly indicate that politicians set the
law, that they abide by it, and that they would be mad to pay
extra tax voluntarily. "Politicians - not companies - set the
rules," wrote Schmidt. "When legislators are doing the lobbying
and companies are articulating the law as it stands,
it’s a confusing spectacle for everyone."
In recent years, however, politicians have taken major steps
to combat financial secrecy, through initiatives such as
automatic exchange of information (AEoI) and the Common
Reporting Standard (CRS) – measures the TJN thinks
will "significantly tighten up global financial secrecy".
Additionally, a form of country-by-country reporting (CbCR),
which forces multinational corporations to break down their tax
dealings in every country in which they operate, is now
endorsed by the G20.
The European Union’s Fourth Anti-Money
Laundering Directive, adopted this summer, requires member
states to record the beneficial owners of companies within
their borders in public registers, a measure that should fill
some gaps in the information gathered by the CRS.
Factor in the OECD’s base erosion and profit
shifting (BEPS) action plan, and tax authorities now have a
huge arsenal of new powers and legislation with which to clamp
down on multinationals compared to just five years ago.
Christensen said pressure from civil society has been
"absolutely crucial" in driving this political sea-change.
"More has been achieved in the past five years than in the
preceding 50 years, and this is largely due to demands from the
TJN and its affiliates for specific policies like CbCR and a
multilateral convention on automatic tax information
Some companies think these initiatives are overly
aggressive. Representatives of the banking sector, for example,
have said the CRS will be too expensive to implement and that,
since the costs are not recoverable, the burden will ultimately
fall on shareholders.
Another concern is that the new regulations will make double
taxation more likely. Defending the system in place in 2013,
under which Google paid most of its taxes in the US, Schmidt
wrote: "This system ensures that the same profits are not taxed
twice, or even more than that, across different countries,
something that would reduce any company’s ability
to invest in future research or new jobs."
As Terry Hayes, senior tax writer at Thomson Reuters, wrote
last year, it has also been suggested that "BEPS reforms that
impose new compliance costs may dampen innovation and
entrepreneurship", especially for small and medium-sized
But there are also analysts who think recent measures do not
go far enough. Some areas, such as the creation of a public
registry of offshore trusts, appear to have seen little
progress, while developing countries have largely been
sidelined in the decision–making process. Despite the
UN Financing for Development conference held in Addis Ababa in
July, which saw NGOs argue for extended powers to be given to
the existing UN tax body, the OECD retains huge influence over
global tax policy, with its members arguing that they hold the
expertise to lead on tax issues.
The TJN describes the US, one of the few countries with a
secrecy score that has worsened since 2013, as the jurisdiction
of "greatest concern". It has taken aggressive action to claim
taxes from US individuals and companies
in jurisdictions such as Switzerland, but has failed to
crack down on those using the US to escape taxation elsewhere.
It has not signed the CRS, instead implementing its own
programme, the Foreign Account Tax Compliance Act (FATCA),
which collects information on Americans abroad but does not
exchange much information about people exploiting the US as a
Meanwhile, the UK government has pursued "what can at times
appear a Janus-faced
approach" to financial secrecy, according to a report compiled
by the Eurodad network of NGOs in conjunction with the EU. It
has nudged its dependencies and overseas territories forwards
in AEoI but has not pressed them to adopt public registers of
beneficial ownership, despite leading international calls for
A spokesperson for HM Treasury, the UK government department
responsible for public finances and economic policy, told
The World Weekly that "effectively tackling tax
evasion and avoidance is a UK priority" and said "this
government has taken a number of steps to ensure multinationals
pay their fair share of tax and played a critical role in
establishing the OECD’s BEPS plan".
"We want to ensure the UK has some of the most competitive
taxes in the world but that these taxes get paid," the
Richard Murphy, director of Tax Research, told The World
Weekly he was "cautiously optimistic" about recent
regulatory developments, but said it remains to be seen if
there are concrete results. This, he said, depends on whether
sufficient data on financial secrecy exists and, if so, whether
it can be collected and shared. "We are in a period of
This is based on a longer article, written by Joe
Wallace and published by The World