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The Tax Justice Network created the Financial Secrecy Index in 2009, and upgrade the FSI biennially

The Financial Secrecy Index (FSI) was created by the Tax Justice Network (TJN) in 2009 to identify and rank the scale of the contribution of global jurisdictions to individual and/or corporate tax avoidance and tax evasion, that was independent of the, potentially more politicised, OECD-IMF type rankings.[1][2]

The process starts with the collation of a large database of 20 qualitative factors that look at "Secrecy Indicators" (SI), which are a jurisdiction’s ownership registration, legal entity transparency, tax and financial regulation and international co-operation and treaties, to assess how secretive it is. The higher the SI score, the more secretive the jurisdiction to financial activities.[3] The highest 2018 SI score was 89 for Vanuatu, and the joint lowest was 42 for the United Kingdom and Slovenia. To understand the scale of the contribution of jurisdictions, these SI scores are adjusted by a "Global Scale Weight" (GSW), which is quantitatively estimated from IMF Balance of Payments data, to get the "FSI Value". In this way, jurisdictions with very high SI scores but small financial flows (i.e. Vanuatu), can be compared with jurisdictions with lower SI scores but bigger financial flows (i.e. Luxembourg).[4] The largest global financial centres as well a major conduit ofcs feature high on this list.

The Financial Secrecy Index started with 60 jurisdictions in 2009, but the latest 2018 FSI now extends to 112 jurisdictions. As well as a ranking table outlining Secrecy Indicators, Global Scale Weights, and FSI Values, the TJN also produces a separate secrecy report on each individual jurisdiction, providing further comment and analysis.[5] A team of in-house TJN analysis, combined with external researchers, spend over a year compiling the FSI database.[6] The biennial FSI releases are widely reported in the general[7][8] and financial media,[9][10] and FSI scores now are seen in EU reports.[11] The FSI showed that major jurisdictions, like the US and Germany, are large contributors, when the scale of their financial flows are taken into account, to global financial secrecy.[12] The FSI has also been able to capture the effect of jurisdictions like Luxembourg, who have better quartile secrecy scores, but whose large fund flows, make them major FSI locations. However, the FSI is not the only measure of potential tax impropriety. An example is Ireland, which, has a reasonable overall FSI score, but who still appears as one of the largest platforms for global tax avoidance activities in other studies including by the University of Amsterdam's CORPNET (Conduit and Sink OFCs), and by acclaimed economist Gabriel Zucman, "The Missing Profits of Nations".[13] The 2018 FSI results were released on the Financial Secrecy Index portal,[14] and they update the 2015 FSI results.[15]

Contents

Financial Secrecy Index, 2018Edit

One hundred and twelve countries and territories were included in the 2018 Financial Secrecy Index.[14]

Rank Country or territory FSI Value FSI Share Secrecy Score Global Scale Weight
1    Switzerland 1,589.57 5.01% 76 4.50%
2   United States 1,298.47 4.09% 60 22.30%
3   Cayman Islands 1,267.68 4.00% 72 3.79%
4   Hong Kong 1,243.68 3.92% 71 4.17%
5   Singapore 1,081.98 3.41% 67 4.58%
6   Luxembourg 0,975.92 3.08% 58 12.13%
7   Germany 0,768.95 2.42% 59 5.17%
8   Taiwan 0,743.38 2.34% 76 0.50%
9   United Arab Emirates 0,661.15 2.08% 84 0.14%
10   Guernsey 0,658.92 2.08% 72 0.52%
11   Lebanon 0,644.41 2.03% 72 0.51%
12   Panama 0,625.84 1.97% 77 0.27%
13   Japan 0,623.92 1.97% 61 2.24%
14   Netherlands 0,598.81 1.89% 66 0.90%
15   Thailand 0,550.60 1.74% 80 0.13%
16   British Virgin Islands 0,502.76 1.59% 69 0.38%
17   Bahrain 0,490.71 1.55% 78 0.11%
18   Jersey 0,438.22 1.38% 65 0.38%
19   Bahamas 0,429.00 1.35% 85 0.04%
20   Malta 0,426.31 1.34% 61 0.71%
21   Canada 0,425.84 1.34% 55 1.75%
22   Macao 0,424.92 1.34% 68 0.24%
23   United Kingdom 0,423.76 1.34% 42 17.37%
24   Cyprus 0,404.44 1.28% 61 0.55%
25   France 0,404.18 1.27% 52 2.52%
26   Ireland 0,387.94 1.22% 51 2.66%
27   Kenya 0,378.35 1.19% 80 0.04%
28   China 0,372.58 1.17% 60 0.51%
29   Russia 0,361.16 1.14% 64 0.26%
30   Turkey 0,353.89 1.12% 68 0.14%
31   Malaysia 0,335.11 1.06% 72 0.07%
32   India 0,316.62 1.00% 52 1.16%
33   South Korea 0,314.06 0.99% 59 0.36%
34   Israel 0,313.55 0.99% 63 0.19%
35   Austria 0,310.41 0.98% 56 0.56%
36   Bermuda 0,281.83 0.89% 73 0.04%
37   Saudi Arabia 0,278.58 0.88% 70 0.05%
38   Liberia 0,277.29 0.87% 80 0.02%
39   Marshall Islands 0,275.29 0.87% 73 0.04%
40   Philippines 0,269.81 0.85% 65 0.09%
41   Italy 0,254.14 0.80% 49 0.92%
42   Isle of Man 0,248.68 0.78% 64 0.09%
43   Ukraine 0,246.25 0.78% 69 0.04%
44   Australia 0,244.36 0.77% 51 0.61%
45   Norway 0,242.85 0.77% 52 0.55%
46   Liechtenstein 0,240.86 0.76% 78 0.01%
47   Romania 0,232.30 0.73% 66 0.06%
48   Barbados 0,230.95 0.73% 74 0.02%
49   Mauritius 0,223.47 0.70% 72 0.02%
50   South Africa 0,216.44 0.68% 56 0.18%
51   Poland 0,215.40 0.68% 57 0.15%
52   Spain 0,213.89 0.67% 48 0.77%
53   Belgium 0,212.97 0.67% 44 1.56%
54   Sweden 0,203.55 0.64% 45 1.01%
55   Latvia 0,195.65 0.62% 57 0.11%
56   Anguilla 0,195.04 0.62% 78 0.01%
57   Indonesia 0,188.79 0.60% 61 0.05%
58   New Zealand 0,178.56 0.56% 56 0.10%
59   Costa Rica 0,168.78 0.53% 69 0.01%
60   Chile 0,168.64 0.53% 62 0.04%
61   Denmark 0,166.12 0.52% 53 0.15%
62   Paraguay 0,158.52 0.50% 84 0.00%
63   St. Kitts and Nevis 0,152.55 0.48% 77 0.00%
64   Portugal 0,151.63 0.48% 55 0.08%
65   Puerto Rico 0,151.06 0.48% 77 0.00%
66   Vanuatu 0,149.27 0.47% 89 0.00%
67   Uruguay 0,148.20 0.47% 61 0.03%
68   Aruba 0,148.05 0.47% 76 0.00%
69   Dominican Republic 0,147.09 0.46% 72 0.01%
70   Czech Republic 0,145.10 0.46% 53 0.09%
71   Finland 0,142.23 0.45% 53 0.09%
72   Iceland 0,139.69 0.44% 60 0.03%
73   Brazil 0,138.00 0.44% 49 0.16%
74   Hungary 0,132.73 0.42% 55 0.05%
75   Tanzania 0,128.92 0.41% 73 0.00%
76   Slovak Republic 0,127.89 0.40% 55 0.05%
77   Seychelles 0,125.26 0.40% 75 0.00%
78   Guatemala 0,123.63 0.39% 73 0.00%
79   Croatia 0,119.36 0.38% 59 0.02%
80   Greece 0,118.58 0.37% 58 0.02%
81   Samoa 0,115.90 0.37% 78 0.00%
82   Mexico 0,107.57 0.34% 54 0.03%
83   Gibraltar 0,107.44 0.34% 71 0.00%
84   Curacao 0,105.66 0.33% 75 0.00%
85   Venezuela 0,105.03 0.33% 69 0.00%
86   US Virgin Islands 0,101.89 0.32% 73 0.00%
87   Turks and Caicos Islands 0,098.08 0.31% 77 0.00%
88   Bolivia 0,094.82 0.30% 80 0.00%
89   Bulgaria 0,091.38 0.29% 54 0.02%
90   Belize 0,086.30 0.27% 75 0.00%
91   Brunei 0,085.60 0.27% 84 0.00%
92   Monaco 0,082.93 0.26% 78 0.00%
93   Estonia 0,079.47 0.25% 51 0.02%
94   Maldives 0,074.87 0.24% 81 0.00%
95   Ghana 0,068.85 0.22% 62 0.00%
96   Dominica 0,062.02 0.20% 77 0.00%
97   Lithuania 0,058.75 0.19% 47 0.02%
98   Antigua and Barbuda 0,054.53 0.17% 87 0.00%
99   Montenegro 0,052.64 0.17% 63 0.00%
100   Cook Islands 0,044.97 0.14% 75 0.00%
101   Grenada 0,044.61 0.14% 77 0.00%
102   Macedonia 0,039.76 0.13% 61 0.00%
103   Botswana 0,039.45 0.12% 69 0.00%
104   Slovenia 0,035.32 0.11% 42 0.01%
105   Andorra 0,035.05 0.11% 66 0.00%
106   Gambia 0,034.51 0.11% 77 0.00%
107   Trinidad and Tobago 0,027.86 0.09% 65 0.00%
108   Nauru 0,026.32 0.08% 67 0.00%
109   San Marino 0,024.31 0.08% 64 0.00%
110   St. Lucia 0,021.52 0.07% 78 0.00%
111   St. Vincent and the Grenadines 0,021.38 0.07% 70 0.00%
112   Montserrat 0,016.53 0.05% 78 0.00%
  Independent countries (plus one associated state) under the jurisdiction of the Judicial Committee of the Privy Council

MethodologyEdit

Since Financial Secrecy Index has been created on purpose to measure contribution of jurisdictions to the global problem of financial secrecy, the FSI value represents the secrecy score for each jurisdiction weighed by the size of each jurisdiction’s share of the global market for financial services provided to non-resident clients:

 

where   is Global Scale Weight of jurisdiction and   is Secrecy Score of jurisdiction. [16]

Secrecy Indicator ScoresEdit

Secrecy Scores are based on Key Financial Secrecy Indicators, which measure secrecy in different dimensions, such as ownership registration, legal entity transparency, integrity of tax and financial regulation and international standards and cooperation. Secrecy Score for each jurisdiction is obtained by taking the arithmetic average of the 20 Key Financial Secrecy Indicators: [16]

 
Dimension of secrecy Key Financial Secrecy Indicator What is measured
Ownership Registration Banking secrecy Existence and availability of relevant banking information (including the maintenance of records on transactions for at least 5 years), the possibility of imprisonment or custodial sentencing for breaching banking secrecy.
Trusts and Foundations Register Completeness and availability of information on all trusts and private foundations (including information on the true beneficial ownership).
Recorded Company Ownership Сompleteness and relevance of information regarding both legal and beneficial ownership.
Other Wealth ownership Ownership transparency of real estate and of valuable assets (art, precious stones, antiquities, cash, gold bars, wines and classic cars) stored in freeports.
Limited Partnership Transparency Completeness and availability of information regarding legal and beneficial ownership and annual accounts of limited partnerships.
Legal Entity Transparency Public Company Ownership Completeness and availability of information on legal and beneficial ownership for all available types of companies with limited liability.
Public Company Accounts Accessibility of annual accounts of all available types of companies with limited liability.
Country by Country Reporting Completeness of financial information on global action on a country-by-country basis published by the companies listed on the stock exchanges or incorporated in a given jurisdiction.
Corporate Tax Disclosure Requirements for filling CbC reports by multinational corporations (including those whose head office is not in the given jurisdiction) and accessibility of all unilateral cross-border tax rulings.
Legal Entity Identifier Requirements for usage and updating Legal Entity Identifier.
Integrity of tax and financial regulation Tax Administration Capacity Capacity of jurisdiction to collect and process data for investigating and ultimately taxing large taxpayers and high-net-worth individual.
Consistent Personal Income Tax Complexity of Personal Income Tax regime and rules on citizenship/residency acquisition.
Avoids Promoting Tax Evasion Whether a jurisdiction includes worldwide capital income in its income tax base and if it grants unilateral tax credits for foreign tax paid on certain foreign capital income.
Tax Court Secrecy Openness of a jurisdiction’s judicial system in civil and criminal tax proceedings.
Harmful Structures Availability of large banknotes (of value greater than 200 EUR/GBP/USD), unregistered bearer shares, series LLCs or protected cell companies(PCC) and trusts with flee clauses.
Public Statistics Availability of relevant statistical datasets about jurisdiction’s international financial, trade, investment, and tax position.
International Standards and Cooperation Anti-Money Laundering Extent of compliance with the recommendations of the Financial Action Task Force.
Automatic Information Exchange Whether jurisdictions have signed the Multilateral Competent Authority Agreement and engage in a pilot project to assist developing countries.
Bilateral Treaties Level of jurisdiction’s participation into efficient information exchange relationships conforming to the ‘upon request’ standard developed by the OECD and the Global Forum.
International Legal Cooperation Extent to which a jurisdiction participates in international transparency commitments and engages in international judicial cooperation on money laundering and other criminal matters.

Global Scale WeightsEdit

Global Scale Weights represent the relative importance of each jurisdiction regarding its share of offshore financial services activity in the global total and measure a potential for each jurisdiction to contribute to the global problem of financial secrecy. GSW is defined as a proportion of the export value of financial services of each jurisdiction represented in FSI in the aggregated export value of financial services in 231 jurisdictions where export values were established.

 

For the 154 jurisdictions(including the 85 represented in FSI), data on exports of financial services provided by IMF’s Balance of Payments Statistics has been used. For the remaining 77 jurisdictions(including the 27 represented in FSI), the export value of financial services has been received by extrapolating from data on stocks of internationally-held financial assets. [16]

See alsoEdit

Notes and referencesEdit

  1. ^ "Leading economies blamed for fiscal secrecy by Tax Justice Network". Financial Times. 30 October 2009. 
  2. ^ "Lifting the Veil - An index of financial secrecy". The Economist. 6 November 2013. 
  3. ^ "Secrecy Indicators". Tax Justice Network. 2018. 
  4. ^ "Global Scale Weight". Tax Justice Network. 2018. 
  5. ^ "FSI Team". Tax Justice Network. 2018. 
  6. ^ "FSI Team". Tax Justice Network. 2018. 
  7. ^ "UN urged to launch global effort to end offshore tax evasion". The Guardian. 30 January 2018. 
  8. ^ "Australia a safe haven for illicit funds, but Switzerland the world's worst". Sydney Morning Hearld. 31 January 2018. 
  9. ^ "Report Says U.S. Is World's Second-Biggest Tax Haven". Bloomberg News. 30 January 2018. 
  10. ^ "U.S. Becomes World's Second-Biggest Tax Haven". Wall Street Journal. 30 January 2018. 
  11. ^ "Offshore activities and money laundering: recent findings and challenges" (PDF). EU Parliment. March 2017. p. 41. 
  12. ^ "U.S.The mega-haven". The Economist. 5 November 2015. 
  13. ^ "The Missing Profits of Nations" (PDF). Gabriel Zucman (University of Berkley). April 2018. p. 32. 
  14. ^ a b "Financial Secrecy Index - 2018 Results". Tax Justice Network. January 2018. 
  15. ^ "Financial Secrecy Index - 2015 Results". Tax Justice Network. November 2, 2015. 
  16. ^ a b c "Financial Secrecy Index 2018 Methodology" (PDF). Tax Justice Network. January 2018. 

External LinksEdit