The latest Financial Secrecy Index (published by Transparency International on Jan. 30, 2018) ranks countries according to their secrecy and the scale of their offshore financial activities. Politically neutral, it is a potential location analysis tool for understanding global financial secrecy, secrecy jurisdictions, and illicit financial flows or capital flight.
From $21 to $32 trillion of private financial wealth is located, untaxed or lightly taxed, in secrecy jurisdictions (better known as “tax havens”) around the world. These countries use secrecy to attract illegitimate financial flows. Illicit cross-border financial flows are estimated at $1-1.6 trillion per year: dwarfing the $135 billion in global foreign aid.
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 élite, protected by offshore secrecy. Yet all rich countries suffer too. For example, Greece, Italy and Portugal have been brought to their knees partly by decades of tax evasion and state looting via offshore secrecy.
In identifying the most important providers of international financial secrecy, the Financial Secrecy Index (FSI) reveals that traditional stereotypes of tax havens are misconceived. The most important providers of financial secrecy harboring looted assets are mostly not small, palm-fringed islands as many suppose, but some of the world’s biggest and wealthiest OECD countries. The top 7 FSI offenders ranked are: Switzerland, U.S., Cayman Islands, Hong Kong, Singapore, Luxembourg, and Germany. Click here for the full 2018 rankings of 112 countries.
The only realistic way to address these problems is by directly confronting offshore secrecy and the global infrastructure that creates it. A first step is to identify as accurately as possible the countries that make it their business to provide offshore secrecy. This is what the FSI does.
Classroom discussion questions:
- How does FSI differ from the two location analysis index tools in Tables 8.1 and 8.2?
- Explain the meaning and purpose of FSI.