Tuesday, November 3rd 2009 - 11:30 UTC

Delaware, Cayman Islands and London City among “most secretive tax havens”

A league table of the world’s most secretive tax havens has been compiled by campaigners seeking greater transparency about the operation of ‘offshore’ finance centres. The Financial Secrecy Index (FSI) analyses the level of secrecy each haven offers, and the extent of their reluctance to co-operate with other countries tax authorities.

The Financial Secrecy Index was drawn up by Tax Justice Network

These factors give each haven an ‘Opacity Score’ which is then combined with a weighting that reflects the scale of the cross-border financial activity the haven hosts, to determine its ‘financial secrecy’ ranking.

According to the index, the most secretive havens are: (1) USA (Delaware); (2) Luxembourg; (3) Switzerland; (4) Cayman Islands; (5) United Kingdom (London).

The index has been drawn up by the Tax Justice Network, an international, non¬-aligned coalition of researchers and activists with a shared concern about the harmful impacts of tax avoidance, tax competition and tax havens, and Christian Aid, a leading UK development NGO.

John Christensen, director of the Tax Justice Network’s International Secretariat, said: “Secrecy is a core feature of the global financial system. Jurisdictions compete with each other to provide it in order to attract financial flows”.

“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”.

Mr Christensen added that Swiss-style bank secrecy is just one of many facilities that jurisdictions offer to provide confidentiality in international finance. In Anglo-Saxon countries, trusts and certain kinds of companies are often used to provide deeper, more devious forms of secrecy than can be achieved with bank privacy alone.

‘Many other barriers to the flow of information exist, ‘he said. ‘None of this would be possible without the legal framework the havens provide.’

In popular imagination, tax havens are palm fringed island idylls with luxury yachts, shady law firms and expensive offices festooned with the brass name plates of anonymous shell companies.

The FSI reveals a much broader picture. The main global suppliers of financial secrecy are in fact rich nations operating specialised enclaves like Delaware, often with links to smaller ‘satellite’ jurisdictions that are conduits for illicit financial flows into the mainstream capital markets.

The research identified one country in particular – the United Kingdom – with political and other links to a huge global network of tax havens. With half the world’s secrecy jurisdictions located in Commonwealth Countries, Crown Dependencies or British Overseas Territories, the UK’s historic support for financial secrecy globally has been substantial.

Mr Christensen said Delaware in the US was particularly poor at disclosing information, although it was a hub of corporate activity. Luxembourg and Switzerland specialised in ‘traditional bank secrecy’, while the Caymans are now the fifth largest financial centre in the world because of the huge amount of corporate activity they attract from the Americas, as well as the large number of personal investment corporations based there.

Meanwhile London sits at the centre of a web of satellite jurisdictions. It is the most transparent of the jurisdictions in the index, but its importance in global offshore finance means that the secrecy it does provide has the potential to do more damage than, for example, small island havens which are less transparent but play a smaller role in global offshore finance.

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