The Tax Justice Network and Christian Aid have compiled a report on the world’s most secretive financial centres. Called the Financial Secrecy Index, it is a league table of banking opacity, showing which parts of the world are least likely to cooperate with international financial reform. Here’s the top five:
- Delaware, US
- Luxembourg
- Switzerland
- Cayman Islands
- City of London, UK
These are the places that have set the transparency standards low – business accounts don’t need to be made public, for example. Business ownership is hard to trace. If you’re a foreign tax office trying to chase up the business duties owed to you, good luck getting these guys to open their books.
Membership in this hall of shame depends on both qualitative and quantitative criteria. The index looked at the scale of each banking centre, the amount of cross-border financial activity going on, as well as the levels of secrecy. So London isn’t nearly as secretive as Switzerland, but it is far larger. London’s moderate secrecy does far more damage than a tiny offshore operation with more extreme lack of transparency. That explains Delaware coming top too. Thanks to their generous state corporation laws, 50% of all US companies are registered in the country’s second smallest state.
This is, of course, where the tax dodging takes place. Labyrinthine networks of companies and shell companies, registered offices in obscure parts of the world, corporate profits swelled by billions of dollars of tax left unpaid. Every economy in the world needs business taxes, but poorer countries are losing out most. According to Christian Aid’s Missing Millions report (pdf), developing countries lose $160 billion a year to tax evasion. That’s 1.5 times the global aid budget. For every $10 given in aid, $15 dollars is siphoned out of the economy, a net loss and a slap in the face to those trying to open their markets and trade their way out of poverty.
Vince Cable, now Business Secretary, has been outspoken about the issue of tax havens in the past. “Tax avoidance and evasion is unacceptable at the best of times” he wrote recently, adding that in a recession it was “utterly offensive.” Now that he has the power to do something himself, it’s worth reminding him of his words. You can add your name to a letter to Vince Cable here.
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