Global financial transparency is improving but the U.S. is threatening the progress according to the most recent Financial Secrecy Index by advocacy group Tax Justice Network.
While Switzerland remains at the top of the “secrecy” index, the U.S. has overtaken Cayman in the list of least transparent financial centers.
Despite the introduction of the Foreign Account Tax Compliance Act, which forces financial institutions worldwide to disclose the assets of U.S. taxpayers, the ranking singled out the United States as “the jurisdiction of greatest concern,” saying it provides very little information in return.
John Christensen, executive director of the Tax Justice Network, said the United States had “dealt global financial secrecy a devastating blow” by forcing strongholds such as Switzerland to open up. “But after this blistering start in efforts to protect itself, it is backsliding by failing to provide information in the other direction: refusing to participate directly in global transparency initiatives such as the multilateral automatic information exchange and, inexcusably, lobbying to block public country-by-country corporate reporting,” he added.
Nevertheless, the transparency scores of most countries have improved compared to 2013, the Tax Justice Network said, as a result of the global rollout of the automatic exchange of tax information and the establishment of central registries of beneficial ownership of companies and other entities in the European Union.
The EU has moved the furthest in its reforms, the tax advocacy group noted, and now also requires multinationals to break down their financials on a country-by-country basis.
However, “these global and regional initiatives are flawed and face sabotage by lobbies that have already weakened them,” the Tax Justice Network said.
“Secrecy-related financial activity risks being shifted to other areas such as the all-important trusts sector, where no serious action is being taken despite promises made by the G8 in 2013, and shell companies, where many secrecy jurisdictions such as Dubai, the British Virgin Islands or Nevada in the U.S. are refusing to open up.”
Not without glee, the organization noted that years ago its suggestions that automatic exchange of tax information, beneficial ownership registries and country-by-country reporting should be implemented globally were ridiculed. Yet today all three initiatives are endorsed by the G20 and automatic exchange of information is going to be rolled out worldwide from 2017.
None of these reforms would have taken place without pressure from civil society and the streets, said Liz Nelson, a director of the Tax Justice Network. “[G8] and G20 leaders will do nothing unless pushed from below. So it’s essential to keep up the pressure, especially on matters such as implementing public disclosure of company ownership and, crucially, of trusts,” she said.
Cayman’s secrecy score has improved markedly since the 2013 index, the Tax Justice Network said, due to its endorsement of the OECD’s common reporting standard as one of the 14 early adopters that will start exchanging tax information automatically from 2017.
According to the advocacy group, however, Cayman retains many “secrecy features” such as the Confidential Relationship Preservation Law. It also has shifted into “more lucrative activities that don’t rely on secrecy but pose major risks to global financial stability,” it added.
The Financial Secrecy Index combines a secrecy score with a weighting to create a ranking of the secrecy jurisdictions and countries that, according to TJN, “most actively promote secrecy in global finance.”
On closer inspection, Cayman’s ranks 45th out of 93 examined countries on the basis of its “secrecy score” but is pushed to fifth place in the “secrecy ranking” as a result of the size of its financial sector and importance in the global financial system.