Financial Secrecy Index

The Financial Secrecy Index (FSI) is a qualitative scoring of financial secrecy indicators, weighted by the economic flows of each country.[lower-alpha 1]

See also: Tax haven § Tax haven lists, and Tax havens § Definitions

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

Confusion

While related to tax havens, the FSI is not a list of tax havens per se, and it does not attempt to estimate actual taxes avoided or profits shifted, unlike the techniques used in compilation of modern tax haven lists. The FSI is therefore more correctly a list of financial secrecy jurisdictions. While having many similarities to tax havens, the FSI produces some results that are very different from established tax haven lists.[1][2]

The FSI showed jurisdictions like the U.S. and Germany, despite high tax rates, are large contributors to global financial secrecy,[3] however, this is often misinterpreted as implying that the US and Germany are "tax havens"; for example, foreign corporates do not move to the U.S. or Germany to avoid tax.[4][5][6] The FSI does not capture modern corporate tax havens, such as Ireland, the Netherlands and the United Kingdom, who maintain high levels of OECD–compliance and transparency, but are responsible for the global largest base erosion and profit shifting (BEPS) tax avoidance activity.[7]

For example, Apple's Irish "leprechaun economics" tax restructure in Q1 2015, the largest BEPS transaction in history, remained unknown for years due to Irish data-protection laws. The issue is the scoring by the FSI for some of the most favoured secrecy tools of modern tax havens (or Conduit OFCs): the unlimited liability company ("ULC"), trusts, and certain SPV structures (e.g. Irish QIAIFs), none of which file public accounts in havens like Ireland and the United Kingdom.[8][9] The FSI focuses on ownership of these tools (e.g. is the owner of a ULC recorded), versus visibility into the tools (e.g. is the ULC paying tax). An example of this disconnect, was the EU's €13 billion tax fine on Apple's two Irish ULCs in 2016,[lower-alpha 2] who while known, were found by the EU to be avoiding large amounts of Irish tax during the 2004–2014 period.

History

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.[10] The biennial FSI releases are widely reported in the general[11][12] and financial media,[13][14] and FSI scores now are seen in EU reports.[15] FSI scores are used as one indicator of the quality of AML/CFT systems in the Basel AML Index, a money laundering and terrorist financing risk assessment tool developed by the Basel Institute on Governance.

The 2018 FSI results were released on the Financial Secrecy Index portal,[16] and they update the 2015 FSI results.[17]

Financial Secrecy Index, 2018

One hundred and twelve countries and territories were included in the 2018 Financial Secrecy Index.[16]

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	975.92	3.08%	58	12.13%
7	Germany	768.95	2.42%	59	5.17%
8	Taiwan	743.38	2.34%	76	0.50%
9	United Arab Emirates	661.15	2.08%	84	0.14%
10	Guernsey	658.92	2.08%	72	0.52%
11	Lebanon	644.41	2.03%	72	0.51%
12	Panama	625.84	1.97%	77	0.27%
13	Japan	623.92	1.97%	61	2.24%
14	Netherlands	598.81	1.89%	66	0.90%
15	Thailand	550.60	1.74%	80	0.13%
16	British Virgin Islands	502.76	1.59%	69	0.38%
17	Bahrain	490.71	1.55%	78	0.11%
18	Jersey	438.22	1.38%	65	0.38%
19	Bahamas	429.00	1.35%	85	0.04%
20	Malta	426.31	1.34%	61	0.71%
21	Canada	425.84	1.34%	55	1.75%
22	Macao	424.92	1.34%	68	0.24%
23	United Kingdom	423.76	1.34%	42	17.37%
24	Cyprus	404.44	1.28%	61	0.55%
25	France	404.18	1.27%	52	2.52%
26	Ireland	387.94	1.22%	51	2.66%
27	Kenya	378.35	1.19%	80	0.04%
28	China	372.58	1.17%	60	0.51%
29	Russia	361.16	1.14%	64	0.26%
30	Turkey	353.89	1.12%	68	0.14%
31	Malaysia	335.11	1.06%	72	0.07%
32	India	316.62	1.00%	52	1.16%
33	South Korea	314.06	0.99%	59	0.36%
34	Israel	313.55	0.99%	63	0.19%
35	Austria	310.41	0.98%	56	0.56%
36	Bermuda	281.83	0.89%	73	0.04%
37	Saudi Arabia	278.58	0.88%	70	0.05%
38	Liberia	277.29	0.87%	80	0.02%
39	Marshall Islands	275.29	0.87%	73	0.04%
40	Philippines	269.81	0.85%	65	0.09%
41	Italy	254.14	0.80%	49	0.92%
42	Isle of Man	248.68	0.78%	64	0.09%
43	Ukraine	246.25	0.78%	69	0.04%
44	Australia	244.36	0.77%	51	0.61%
45	Norway	242.85	0.77%	52	0.55%
46	Liechtenstein	240.86	0.76%	78	0.01%
47	Romania	232.30	0.73%	66	0.06%
48	Barbados	230.95	0.73%	74	0.02%
49	Mauritius	223.47	0.70%	72	0.02%
50	South Africa	216.44	0.68%	56	0.18%
51	Poland	215.40	0.68%	57	0.15%
52	Spain	213.89	0.67%	48	0.77%
53	Belgium	212.97	0.67%	44	1.56%
54	Sweden	203.55	0.64%	45	1.01%
55	Latvia	195.65	0.62%	57	0.11%
56	Anguilla	195.04	0.62%	78	0.01%
57	Indonesia	188.79	0.60%	61	0.05%
58	New Zealand	178.56	0.56%	56	0.10%
59	Costa Rica	168.78	0.53%	69	0.01%
60	Chile	168.64	0.53%	62	0.04%
61	Denmark	166.12	0.52%	53	0.15%
62	Paraguay	158.52	0.50%	84	0.00%
63	St. Kitts and Nevis	152.55	0.48%	77	0.00%
64	Portugal	151.63	0.48%	55	0.08%
65	Puerto Rico	151.06	0.48%	77	0.00%
66	Vanuatu	149.27	0.47%	89	0.00%
67	Uruguay	148.20	0.47%	61	0.03%
68	Aruba	148.05	0.47%	76	0.00%
69	Dominican Republic	147.09	0.46%	72	0.01%
70	Czech Republic	145.10	0.46%	53	0.09%
71	Finland	142.23	0.45%	53	0.09%
72	Iceland	139.69	0.44%	60	0.03%
73	Brazil	138.00	0.44%	49	0.16%
74	Hungary	132.73	0.42%	55	0.05%
75	Tanzania	128.92	0.41%	73	0.00%
76	Slovak Republic	127.89	0.40%	55	0.05%
77	Seychelles	125.26	0.40%	75	0.00%
78	Guatemala	123.63	0.39%	73	0.00%
79	Croatia	119.36	0.38%	59	0.02%
80	Greece	118.58	0.37%	58	0.02%
81	Samoa	115.90	0.37%	78	0.00%
82	Mexico	107.57	0.34%	54	0.03%
83	Gibraltar	107.44	0.34%	71	0.00%
84	Curacao	105.66	0.33%	75	0.00%
85	Venezuela	105.03	0.33%	69	0.00%
86	US Virgin Islands	101.89	0.32%	73	0.00%
87	Turks and Caicos Islands	98.08	0.31%	77	0.00%
88	Bolivia	94.82	0.30%	80	0.00%
89	Bulgaria	91.38	0.29%	54	0.02%
90	Belize	86.30	0.27%	75	0.00%
91	Brunei	85.60	0.27%	84	0.00%
92	Monaco	82.93	0.26%	78	0.00%
93	Estonia	79.47	0.25%	51	0.02%
94	Maldives	74.87	0.24%	81	0.00%
95	Ghana	68.85	0.22%	62	0.00%
96	Dominica^†	62.02	0.20%	77	0.00%
97	Lithuania	58.75	0.19%	47	0.02%
98	Antigua and Barbuda	54.53	0.17%	87	0.00%
99	Montenegro	52.64	0.17%	63	0.00%
100	Cook Islands	44.97	0.14%	75	0.00%
101	Grenada	44.61	0.14%	77	0.00%
102	Macedonia	39.76	0.13%	61	0.00%
103	Botswana	39.45	0.12%	69	0.00%
104	Slovenia	35.32	0.11%	42	0.01%
105	Andorra	35.05	0.11%	66	0.00%
106	Gambia	34.51	0.11%	77	0.00%
107	Trinidad and Tobago	27.86	0.09%	65	0.00%
108	Nauru	26.32	0.08%	67	0.00%
109	San Marino	24.31	0.08%	64	0.00%
110	St. Lucia	21.52	0.07%	78	0.00%
111	St. Vincent and the Grenadines	21.38	0.07%	70	0.00%
112	Montserrat	16.53	0.05%	78	0.00%

  United Kingdom, Crown Dependencies, and British Overseas Territories

  Independent countries (plus one associated state) under the jurisdiction of the Judicial Committee of the Privy Council

^† Dominica abandoned the JCPC in March 2015

Methodology

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.[18] 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).[19] The largest global financial centres as well a major conduit ofcs feature high on this list.

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:

${\displaystyle FSI_{i}=GSW_{i}^{1/3}\times SS_{i}^{3}{,}}$

where ${\displaystyle GSW_{i}}$ is Global Scale Weight of jurisdiction and ${\displaystyle SS_{i}}$ is Secrecy Score of jurisdiction.[20]

Secrecy Indicator Scores

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:[20]

${\displaystyle SS_{i}={\frac {\sum _{k=1}^{20}{KFSI_{k}}}{20}}{.}}$

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 Weights

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.

${\displaystyle GSW_{i}={\frac {{\text{𝐸𝑥𝑝𝑜𝑟𝑡𝑠 of 𝑓𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠}}_{i}}{\text{𝑆𝑢𝑚 𝑜𝑓 𝑔𝑙𝑜𝑏𝑎𝑙 𝑒𝑥𝑝𝑜𝑟𝑡𝑠 𝑜𝑓𝑓𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠}}}{.}}$

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.[20]

See also

• Conduit and Sink OFCs
• Tax haven
• Corporate tax haven
• Offshore financial centre
• Ireland as a tax haven
• United States as a tax haven

Notes

1. Because of the weighting of the financial secrecy indicators, the FSI is often mislabeled as a quantitative index; however it is a qualitative index
2. Apple Sales International ("ASI"), and Apple Operations Europe ("AOE")

References

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. "U.S.The mega-haven". The Economist. 5 November 2015.
4. Jesse Drucker (27 January 2016). "The World's Favorite New Tax Haven Is the United States". Bloomberg.com.
5. Wood, Robert W. (27 January 2016). "The World's Next Top Tax Haven Is...America". Forbes. Retrieved 7 June 2016.
6. Swanson, Ana (5 April 2016). "How the U.S. became one of the world's biggest tax havens". Washington Post. Retrieved 23 April 2016.
7. "Ireland is the world's biggest corporate 'tax haven', say academics". Irish Times. 13 June 2018. New Gabriel Zucman study claims State shelters more multinational profits than the entire Caribbean
8. "New report: is Apple paying less than 1% tax in the EU?". Tax Justice Network. 28 June 2018. The use of private "unlimited liability company" (ULC) status, which exempts companies from filing financial reports publicly. The fact that Apple, Google and many others continue to keep their Irish financial information secret is due to a failure by the Irish government to implement the 2013 EU Accounting Directive, which would require full public financial statements, until 2017, and even then retaining an exemption from financial reporting for certain holding companies until 2022
9. "Ireland's playing games in the last chance saloon of tax justice". Richard Murphy. 4 July 2018. Local subsidiaries of multinationals must always be required to file their accounts on public record, which is not the case at present. Ireland is not just a tax haven at present, it is also a corporate secrecy jurisdiction.
10. "FSI Team". Tax Justice Network. 2018.
11. Pegg, David (30 January 2018). "UN urged to launch global effort to end offshore tax evasion". The Guardian. Retrieved 22 March 2019.
12. "Australia a safe haven for illicit funds, but Switzerland the world's worst". Sydney Morning Hearld. 31 January 2018.
13. "Report Says U.S. Is World's Second-Biggest Tax Haven". Bloomberg News. 30 January 2018.
14. "U.S. Becomes World's Second-Biggest Tax Haven". Wall Street Journal. 30 January 2018.
15. "Offshore activities and money laundering: recent findings and challenges" (PDF). EU Parliament. March 2017. p. 41.
16. "Financial Secrecy Index - 2018 Results". Tax Justice Network. January 2018.
17. "Financial Secrecy Index - 2015 Results". Tax Justice Network. 2 November 2015. Archived from the original on 8 December 2015. Retrieved 5 December 2015.
18. "Secrecy Indicators". Tax Justice Network. 2018.
19. "Global Scale Weight". Tax Justice Network. 2018.
20. "Financial Secrecy Index 2018 Methodology" (PDF). Tax Justice Network. January 2018.

External links

• Financial Secrecy Index 2018
• Financial Secrecy Index Portal