Financial Secrecy Index Shedding light on global financial secrecy 2016 Annual Meeting of Community of Practice on Composite Indicators and Scoreboards 29 September 2016 Markus Meinzer, TJN, Director 1
Overview 1. Motivation & Conceptual Issues 2. Index structure FSI qualitative component: Secrecy score FSI quantitative component: Global scale weight Combination Secrecy score * Global scale weight 3. Results FSI 2015 4. Outlook FSI Review 2016 2
1. Motivation & Conceptual Issues FSI published by Tax Justice Network. Identifies and ranks secrecy jurisdictions ( tax havens ) by their contribution to opacity in international finance Long-term project: 60 jurisdictions (2009), 73 (2011), 82 (2013) and 102 (2015) Two broad objectives: 1. Research: by collecting data and providing an analytical framework for (facilitation of) illicit financial flows 2. Impact: initiate, support and monitor policy changes globally towards more financial transparency by engaging the media, policy makers & academia 3
America, the country that has arm-twisted so many others to join the transparency revolution, is dragging its feet.
1. Motivation & Conceptual Issues FINANCIAL SECRECY INDEX FSI: Panama # 13 Panama Papers OECD s GLOBAL FORUM Ready to Move to Phase 2 One of the most reliable predictors of a country s dealings with Mossack Fonseca is how it scores on the Financial Secrecy Index No longer subject to monitoring All Countries
1. Motivation & Conceptual Issues Concern for harm caused by tax havens and illicit financial flows Yet no agreed definitions of tax havens, offshore financial centres or even offshore finance (Cobham/Jansky/Meinzer 2015) you know it when you see it approach (Gordon/IRS 1981) Inconsistent listings and policies towards tax havens 6
Source: Meinzer 2016 N jurisdictions on 1 list N jurisdictions on all 8 lists = 3.4 Graph 2: Jurisdictions incidence on international tax haven listings How many of the 84 jurisdictions are listed on how many international tax lists (out of 8)? N jurisdictions on 1 list N jurisdictions on all 8 lists = 2.2 7
1. Motivation & Conceptual Issues 22 June 2015: 29 June 2015: 12 Oct 2015 Quelle: http://www.ft.com/cms/s/0/23f1cffa-1696-11e5-9883- 00144feabdc0.html#axzz3pmCAGFhp; 27.10.2015. Quelle: http://bernews.com/2015/06/bermudablacklisted-latvia/; 27.10.2015. Quelle: http://www.volksblatt.li/nachricht.aspx?p 1=fl&id=97599&src=vb; 27.10.2015. 8
1. Motivation & Conceptual Issues Why is there no consistent definition and identification of tax havens, and why have attempts to address problems associated with them failed? Blacklist approaches are difficult to insulate from political influence. Tax havenry is a matter of degree, not a binary variable (Wójcik 2012: 7); virtually any country might be a `haven in relation to another (Picciotto 1992: 132). Tax is not the crucial element for problems created by tax havenry rather, secrecy is (Murphy 2008). Secrecy jurisdiction is a potentially more useful and accurate concept (broadly defined and explored first by Murphy 2008). Definition: A secrecy jurisdiction provides facilities that enable people or entities escape or undermine the laws, rules and regulations of other jurisdictions elsewhere, using secrecy as a prime tool. 9
2. Index Structure FSI measures contribution to global financial secrecy via two components: (Secrecy Score) How much opacity each jurisdiction offers to non-residents (to allow them to escape/undermine laws, rules, taxes elsewhere) WEIGHTED BY (Global Scale Weight) The jurisdiction s market share of financial services for nonresidents (based on IMF s Zoromé 2007) SECRECY SCORE GLOBAL SCALE WEIGHT COMBINATION
2. Index Structure Secrecy Score fed by 15 equally weighted Key Financial Secrecy Indicators (KFSIs) All data feeding the KFSIs is publicly available in database reports, fully referenced to public data sources A maximum of 46 variables feeds the KFSIs, and the database reports contain up to 204 variables for each of the 102 countries Principle of data analysis: lowest available transparency denominator is decisive 11
2. Index Structure Lowest available transparency denominator!
2. Index Structure Global Scale Weight for jurisdiction i is defined as: Exports offinancial services (true or extrapolated) i Sum of all world exports offinancial services (true & extrapolated) Data FSI All True data (BOPS) 66/102 125/247 Extrapolations - asset data (IIP/CIPS) 10/102 25/247 Extrapolations - liability data (CIPS) 25/102 71/247 No data 1/102 24/247 13
2. Index Structure Both components are combined in the following way in order to attribute an FSI value to each jurisdiction i: Financial Secrecy Index i = Secrecy Score 3 i 3 Global Scale Weight i An example to illustrate reason for combination: 14
2. Index Structure Whose secrecy provisions pose a bigger risk?
2. Index Structure 16
3. Results FSI 2015 Ranking FSI 1 Switzerland 2 Hong Kong 3 USA 4 Singapore 5 Cayman Islands 6 Luxembourg 7 Lebanon 8 Germany 9 Bahrein 10 Dubai / UAE Average of SS 68.0 Sum of GSW 56.5% Secrecy Score Global Scale Weight Vanuatu United States Samoa United Kingdom Liberia Luxembourg St. Lucia Germany Brunei Darussalam Switzerland Antigua & Barbuda Cayman Islands Lebanon Singapore Marshall Islands Hong Kong S.A.R. Bahamas France Belize Ireland 81.9 57.4 0.5% 78.7% FSI TAX HAVEN LISTS
3. Results FSI 2015 FSI 2015 - FINAL RESULTS RANK Jurisdiction FSI Value 4 Secrecy Score 5 Global Scale Weight 6 1 Switzerland 2 1.466,1 73 5,625 2 Hong Kong 2 1.259,4 72 3,842 3 USA 2 1.254,8 60 19,603 4 Singapore 2 1.147,1 69 4,280 5 Cayman Islands 1,2 1.013,2 65 4,857 6 Luxembourg 2 817,0 55 11,630 7 Lebanon 2 760,2 79 0,377 8 Germany 2 701,9 56 6,026 9 Bahrain 2 471,4 74 0,164 10 United Arab Emirates (Dubai) 2,3 440,8 77 0,085 11 Macao 420,2 70 0,188 12 Japan 2 418,4 58 1,062 13 Panama 2 415,7 72 0,132 14 Marshall Islands 405,6 79 0,053 15 United Kingdom 1,2 380,2 41 17,394 16 Jersey 2 354,0 65 0,216 17 Guernsey 339,4 64 0,231 18 Malaysia (Labuan) 3 338,7 75 0,050 19 Turkey 320,9 64 0,182 20 China 312,2 54 0,743 21 British Virgin Islands 1,2 307,7 60 0,281 18
4. Outlook FSI Review 2016 1. Independent Statistical Audit by JRC, ongoing 2. FSI expert stakeholder survey, January to March 2016 Collecting feedback and suggestions for improvement Testing support for suggested changes 86-136 respondents economics, accounting, law and political science experts within civil society; international institutions; rating agencies; tax authority officials 3. Reform proposal, ongoing (end 2016) 19
Literature Cobham, Alex/Janský, Petr/Meinzer, Markus 2015: The Financial Secrecy Index: Shedding New Light on the Geography of Secrecy, in: Economic Geography 91: 3, 281 303. Gordon, Richard/Internal Revenue Service - US Treasury 1981: Tax Havens and Their Use by United States Taxpayers - an Overview (13.1.1981), Washington, DC. Hines, James R./Rice, Eric M. 1994: Fiscal Paradise: Foreign Tax Havens and American Business, in: Quarterly Journal of Economics 109: 1, 149-182. Johannesen, Niels/Zucman, Gabriel 2014: The End of Bank Secrecy? An Evaluation of the G20 Tax Haven Crackdown, in: American Economic Journal: Economic Policy 6: 1, 65-91. Meinzer, Markus 2016: Towards a Common Yardstick to Identify Tax Havens and to Facilitate Reform, in: Rixen, Thomas/Dietsch, Peter (Eds.): Global Tax Governance What is Wrong with it, and How to Fix it, Colchester, 255-288. Murphy, Richard 2008: Finding the Secrecy World. Rethinking the language of offshore, in: http://www.taxresearch.org.uk/blog/2008/08/27/finding-the-secrecy-world/; 8.9.2008. Murphy, Richard 2009: Where are the World s Secrecy Jurisdictions?, Downham Market, in: http://www.secrecyjurisdictions.com/pdf/sj_mapping.pdf; 18.07.2013. Palan, Ronen/Murphy, Richard/Chavagneux, Christian 2010: Tax Havens. How Globalization Really Works, London. Picciotto, Sol 1992: International Business Taxation. A Study in the Internationalization of Business Regulation, London. United States Senate - Committee on Finance 2002: Grassley Works to Stop Abusive Tax Shelters, Corporate Flight (May 10, 2002), Washington, DC, in: http://www.finance.senate.gov/newsroom/ranking/release/?id=770c61f8-32ad-4ca9-b447-0c22ea0b7df7; 30.9.2013. Wojcik, Dariusz 2012: Where Governance Fails: Advanced Business Services and the Offshore World, in: Progress in Human Geography, 1-18. Zoromé, Ahmed 2007: Concept of Offshore Financial Centers: In Search of an Operational Definition (IMF Working Paper), Washington D.C., in: http://www.imf.org/external/pubs/ft/wp/2007/wp0787.pdf; 20
Thank you! More Information: http://www.financialsecrecyindex.com http://www.taxjustice.net http://www.treasureislands.org/ 21