Switzerland tops latest financial secrecy index

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Investec
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While Switzerland isn’t the most financially secretive nation in the Tax Justice Network’s recently published report, its combination of size and secrecy pushed it into first place, the worst rank in the Financial Secrecy Index 2018. Size is factored in because it measures the damage a nation’s financial secrecy has on the world, says The Tax Justice Network.

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The underlying financial secrecy score is made up 20 Key Financial Secrecy Indicators, which include banking secrecy, company and partnership ownership records, anti-money laundering, information exchange and legal cooperation.

Before adjusting for size, the most financially secretive country is the island nation of Vanuatu (88.58). The least secretive is Slovenia (41.83). Switzerland, with a score of 76.45, was ranked 26th out of 112 nations, before its size was factored in.

Described as the grandfather of the world’s tax havens and home to 25% of global cross-border asset management, Switzerland leads in wealth management with US$2.0 trillion in assets under management in 2014, compared to the $1.6 trillion and $1.4 trillion for the UK and US respectively, according to Deloitte.

The authors point out that while Switzerland has made improvements to its secrecy regime, following outside pressure, it can to some degree be summarised as “white money for rich and powerful countries; black money for vulnerable and developing countries.” Or in other words, it will exchange information with rich countries if it has to, but will continue offering citizens of poorer countries the opportunity to evade their taxpaying responsibilities, said the report.

Size also propelled the US up the overall financial secrecy ranking. Its financial secrecy score of 59.83, when factored up to account for size, pushed it into second place in the Financial Secrecy Index.

The US’s worst black spots however, are lost in its average. The states of Delaware, Nevada, and Wyoming, home to many secretive shell companies with no discernible owners, are described in the report as ‘captured states’, where decisions about relevant legislation are taken between lawmakers and financial services interests behind closed doors.

The report also points out that the UK’s Financial Secrecy Index rank of 23rd and financial secrecy score of 42.35 is questionable. If the UK was lumped together with all of its overseas dependencies it might be the biggest single player in the global offshore system of tax havens. According to the report, the UK is intricately connected to a large network of British secrecy jurisdictions around the world, notably the three Crown Dependencies of Jersey (65.45), Guernsey (72.45) and the Isle of Man (63.58), and 14 Overseas Territories, which include Cayman (72.28), the British Virgin Islands (68.65) and Bermuda (73.05).

In addition, the report sets out the history of financial secrecy in each country. In Switzerland, the industry started when Catholic French kings used the secrecy of Geneva’s banks to avoid being seen to be dealing with ‘heretical’ Protestant bankers. In the UK it is a product of empire and the political independence of the City of London, the world’s oldest continuous municipal democracy. In the US it was born from a desire to to attract foreign capital to shore up growing external balance of payments deficits.

The consistent theme is a focus on national self-interest and disregard for other nations.