A new index has ranked the most “secretive” financial jurisdictions based on their offshore financial activities.
The Financial Secrecy Index is a new tool launched by The Tax Justice Network (TJN) to track and understand global financial secrecy, tax havens and illicit financial flows or capital flight.
According to the group, as much as $32 trillion of private financial wealth is located, untaxed or lightly taxed in secrecy jurisdictions around the world.
Secrecy jurisdictions are synonymous with the term “tax haven”, which often attract illicit and illegitimate or abusive financial flows.
These types of transaction have been estimated at around $1.6 trillion a year – far outweighing the $135 billion sent in foreign aid.
Africa is one of the biggest victims of this practice, TJN said.
“Since the 1970s African countries alone have lost over $1 trillion in capital flight, while combined external debts are less than $200 billion.”
“So Africa is a major net creditor to the world – but its assets are in the hands of a wealthy elites, protected by offshore secrecy; while the debts are shouldered by broad African populations.”
World’s biggest tax havens
With an FSI score of 1,466, Switzerland has been ranked the world’s biggest tax haven.
Switzerland is referred to as the “grandfather of the world’s tax havens”, as one of the world’s biggest financial centres, and one of the world’s biggest secrecy jurisdictions.
In September 2015 the Swiss Bankers’ Association reported that banks in Switzerland held $6.5 trillion in assets under management, of which it said 51% originated from abroad: this made Switzerland the world’s leader in global cross-border asset management, with a 28% share of the market.
According to the Financial Transparency Coalition (FTC), $2 billion – or approximately R28 billion at the current exchange rate – of SA’s GDP is being held by SA citizens in HSBC Swiss bank accounts.
While not typically associated with being a tax haven, the USA ranks in third, due to its relatively secretive business environment and the global scaling of the index’s scores.
TJN notes that the USA provides a wide array of secrecy and tax-free facilities for non residents, both at a Federal level and at the level of individual states.
Specifically, states like Delaware or Nevada are tolerant of highly secretive anonymous shell companies.
“While the United States has pioneered powerful ways to defend itself against foreign tax havens, it has not seriously addressed its own role in attracting illicit financial flows and supporting tax evasion,” the group said.
These are the 15 biggest tax havens in the world:
|10||United Arab Emirates||440.7|
The Financial Secrecy Index rankings are determined by scoring countries across 15 secrecy indicators, relating to banking secrecy, company ownership, efficiency of tax systems, information exchange, and international co-operation.
South Africa is the 61st biggest tax haven in the world – which is to say, it’s not really a tax haven at all, with an index rating of “moderatley secretive”.
Of the 15 indicators assessed by the FSI, only four lacked compliance from South Africa, mainly in the areas of transparency of beneficial ownership and in key aspects of corporate transparency regulation.
Specifically, South Africa does not maintain company ownership details in official records; it does not require that company ownership details are publicly available online; it does not require that company accounts be available on public record; and it does not require public country-by-country financial reporting by companies.
All other indicators were met, or partially met – with a particularly good performance in terms of tax and financial regulation and international standards and co-operation.
“In providing secrecy, the offshore world corrupts and distorts markets and investments, shaping them in ways that have nothing to do with efficiency,” the group said.
“Many poorer countries, deprived of tax and haemorrhaging capital into secrecy jurisdictions, rely on foreign aid handouts. This hurts citizens of rich and poor countries alike.”