The Financial Secrecy Index, created by the Tax Justice Network, ranks jurisdictions according to the measured secrecy of their financial activities. It is a meant as a politically neutral ranking tool for politicians, lawmakers, and the general public alike to better understanding global financial secrecy, tax havens or secrecy jurisdictions, and illicit financial flows or capital flight.
There’s an estimated $21 to $32 trillion of private financial wealth being held in secrecy jurisdictions (i.e. tax havens) around the world. Wealthy clients seek out the best jurisdiction for avoiding taxation and skirting local laws that would otherwise require them to pay more or disclose more information.
But the problem goes far beyond obscene amounts of tax evasion. Secrecy of this scale distorts world markets and investments.
The Financial Secrecy Index found that the world’s most important providers of financial secrecy are also some of the world’s biggest and wealthiest countries. In fact, the richest OECD member countries are the main recipients of or conduits for this kind of secrecy.
Having a more in-depth understanding of who is benefiting and providing these opportunities helps to shed light on why international efforts to crack down on tax havens and financial secrecy have thus far been so ineffective. When the main beneficiaries of these gigantic inflows are the ones creating the rules, corruption is inevitable.
Luckily, the study has also found that there is improvement ahead. For the first time since the creation of the index in 2009, they are seeing policy changes and more widespread public awareness that is having a real impact.
For example, the G20 countries have mandated the OECD to put together a new global system of automatic information exchange with the first exchange due in 2017.
The index uses 15 secrecy indicators (KFSIs).
- Banking secrecy: Does the jurisdiction have banking secrecy?
- Trust and Foundations Register: Is there a public register of trusts/foundations, or are trusts/foundations prevented? This applies both to local trusts and foundations, as well as to local management of foreign trusts.
- Recorded Company Ownership: Does the relevant authority obtain and keep updated details of the beneficial ownership of companies?
- Public Company Ownership: Does the relevant authority make details of ownership of companies available on public record online for free, or for less than US$10/€10?
- Public Company Accounts: Public Company Accounts: Does the relevant authority require that company accounts are made available for inspection by anyone for free, or for less than US$10/€10?
- Country-by-Country Reporting: Are all companies required to publish country-by-country financial reports?
- Fit for Information Exchange: Are resident paying agents required to report to the domestic tax administration information on payments to non-residents?
- Efficiency of Tax Administration: Does the tax administration use taxpayer identifiers for analyzing information efficiently, and is there a large taxpayer unit?
- Avoids Promoting Tax Evasion: Does the jurisdiction grant unilateral tax credits for foreign tax payments?
- Harmful Legal Vehicles: Does the jurisdiction allow cell companies and trusts with flee clauses?
- Anti-Money Laundering: Does the jurisdiction comply with the FATF recommendations?
- Automatic Information Exchange: Automatic Information Exchange: Does the jurisdiction participate fully in multilateral Automatic Information Exchange via the Common Reporting Standard?
- Bilateral Treaties: Does the jurisdiction have at least 53 bilateral treaties providing for information exchange upon request, or is it part of the European Council/OECD convention?
- International Transparency Commitments: Has the jurisdiction ratified the five most relevant international treaties relating to financial transparency?
- International Judicial Cooperation: Does the jurisdiction cooperate with other states on money laundering and other criminal issues?
This Years Rankings
Switzerland ranked number one for financial secrecy for the third consecutive time, but it did scored slightly better than in the past in part because of recent international pressures. In 2011 and 2013 Switzerland was scoring 78. This year they came in at 73.
The Swiss performed most poorly in eight of the 15 secrecy indicators including corporate transparency regulation, transparency of beneficial ownership, and efficiency of tax and financial regulation.
Hong Kong, the United States, Singapore, and Cayman Islands made up the rest of the top five.
Here is the complete list.