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Exposing global financial secrecy

To a world that doesn’t care.
Many of the big players in this opaque world of secrecy are first-world countries … so is the OECD complicit? Image: Shutterstock

The Tax Justice Network published its Financial Secrecy Index 2020 on Tuesday.

To recap, financial secrecy is a ‘sanctioned’ way of refusing to share financial information with legitimate authorities such as those involved in tax and law enforcement. 

It facilitates the flow of corrupt money through opaque structures, thereby enabling ill-gotten gains to be hidden. It also makes it possible for corporations and wealthy individuals to avoid taxes.

Jurisdictions that sanction financial secrecy have many names – tax havens, tax-friendly countries, financial centres, tax shelters and so on.

Read: Cayman Islands lure South Africans with tax-free pay, opportunities (2017)

Some purport to have developed special expertise (for example, in insurance) in an attempt to legitimise their activities.

These jurisdictions attract the brightest specialists (bankers, lawyers, accountants). And they deal in billions.

The key to any opaque structure is anonymity, where it is impossible to determine the identity of the beneficial owner of a company (or trust or foundation) or its beneficiaries.

Other common denominators of jurisdictions that offer financial secrecy include:

  • The easy registration of shell companies;
  • Lower taxes on companies that operate outside of the jurisdiction;
  • Access to a wide double taxation treaty network; and
  • Lax regulatory requirements (such as audited annual financial statements).

Islands have generally been in the spotlight for facilitating tax avoidance and other murky activities. The Cayman Islands is one example. Panama, also in the spotlight recently, confused many as it is a narrow isthmus of land with surrounding islands.

Read: New rules make ‘brass plate’ companies extremely risky

But many of the big players in this opaque world of secrecy are so-called first-world countries and, in fact, prominent members of the Organisation for Economic Co-operation and Development (OECD).

The OECD has however been spearheading the international drive to tackle tax avoidance by, inter alia:

  • Issuing guidelines (such as the transfer pricing guidelines);
  • Its base erosion and profit shifting (Beps) initiative;
  • Introducing country-by-country reporting;
  • Driving the automatic exchange of tax information standard; and
  • The most recent Global Anti-Base Erosion (GloBE) initiative.

The OECD reports to the G20 finance ministers on the progress made in combatting international tax avoidance as well as proposed international tax reforms that will be suggested to its member states.

The OECD dropped the term tax haven some years ago in favour of the bland ‘non-cooperative jurisdiction’.

It is possible to be a member of the OECD and not adopt any of its proposals. The only prerequisite for belonging is the ability to pay the hefty membership fee.

According to the 2020 Financial Secrecy Index (FSI) , the top purveyors of financial secrecy in 2019 were:

  • The Cayman Islands
  • The US
  • Switzerland
  • Hong Kong
  • Singapore
  • Luxembourg
  • Japan
  • The Netherlands
  • The British Virgin Islands, and
  • The United Arab Emirates (UAE). 

In 2018, Switzerland, the US and the Cayman Islands topped the index.

Is it significant that the US, Switzerland, Luxembourg, Japan, and the Netherlands are members of the OECD? And that the US and Japan are also members of the G20?

Is this why the OECD no longer publishes a list of tax havens?

With the US harbouring tax-haven states such as Delaware, Nevada and Wyoming – as well as gambling jurisdictions known for money laundering such as Miami, Nevada and Arizona – perhaps it is unsurprising that it is at number two on the index. Is it significant that the US refuses to take part in the OECD initiative of automatic exchange of tax information with other countries?

What is significant is that Africa cannot swim alone against a tide powered by some of the most financially powerful countries in the world, and their many overpaid enablers of secrecy, corruption and tax avoidance.

Alarming

Having sight of the list of jurisdictions that rank high on the secrecy index is alarming.

And when there are leaks of information from those jurisdictions, the process of unravelling the complex labyrinth of structures, unpacking the evidence, and turning it into a fiscal amount is laborious, time-consuming, and requires expensive specialist skills.

Organisations such as the OECD should demonstrate their commitment to tackling financial secrecy by taking a stand – and that means going up against powerful members. The G20 should do likewise.

* Barbara Curson has represented the South African Revenue Service at many international forums, including the Commonwealth Association of Tax Administrators, Brics, the Ibsa (India, Brazil, South Africa) Dialogue Forum, the OECD (tax avoidance working party and Beps focus groups), and the Joint International Tax Shelter Information Centre.

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COMMENTS   9

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A tax is not supposed to be a donation. Taxation is supposed to be a transaction. The taxpayer is supposed to receive services of similar value in return for his tax contributions. When the taxpayer receives less than fair value in return for his tax contributions, then the difference is lost to theft, confiscation or expropriation. The taxpayer in Switzerland receives many excellent services in return for is tax payments. The small group of South African taxpayers receive nothing in return for their tax contributions.

The South African taxpayer is being expropriated without compensation. The average voter abused his power over the legislature to legalise the plunder of some people’s property. The South African tax regime forms the heart of the destructive socialist redistributive engine. The sole purpose of the law is to protect property. This purpose of the law has been corrupted to such an extent that the law now violates property rights. The law has become a tool of extortion, a tool of plunder. Theft has been legalised. The mere fact that a certain action is legal, does not make it just and fair though.

The legalisation of plunder, that we call tax legislation, makes it impossible for the children of hardworking people to inherit the proceeds of the efforts of their parents. All the many forms of taxation simply expropriate the assets of families. Now, these same highwaymen and thugs who use a corrupted legal system to extort the proceeds of our efforts, call us criminals for trying to protect our property for the benefit of our children?

“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation”. – Vladimir Lenin

I agree with your points regarding tax not being a donation, but think that your ire is in this case misdirected. As South-Africans we see articles such as these in the light of our government taxing us to death and still demanding more. In a global context, however, financial secrecy is exactly the mechanism used by kleptocrats to move wealth offshore.

Offshore: that which is physically present, but legally absent. Nevis, St Kitts, Virgin Islands, etc. The places where the so-called ‘naughty’ money (proceeds from small-scale tax dodging) mixes with the truly evil money.

Oliver Bullough wrote a rather informative book on this called Moneyland. Even though it focuses mostly on London, Nevis, Russia and Ukraine, the same concepts apply: that the super-rich have mechanisms available to them to launder ill-gotten proceeds and purchase passports (and even diplomatic immunity) that are not available to Joe Soap.

The wealthy are sick and tired of their hard earned wealth being taxed by corrupt government who misappropriates their money and pay themselves hefty packs on monies they do not know how they are generated in the 1st place….

Then you have the bad guys, who will use the rich peoples ideas of reducing taxes to their advantage because of the anonymity provided by such systems.

Why would Anglo American, Microsoft, Amazon, AB Inbev, Apple, Sasol, just to name a few, declare their full profits if they know that they will only be used to bailout Eskom and SAA. The wealthy are not stupid people. They would not have managed to create successful businesses if were that stupid.

Again as point out a complex thing to balance.

While you are making the point for the wealthy, do the blue collar working class have a foot to pay less?

Look at the taxpayer bailouts in 2008 for the financial corporations in the US and on top their high earning leaders were paid their “hard earned” money the same.

Just talking about a general tax or not is too simplistic there are section of industry such as financial engineers that surely need more taxation and others that don’t.

Soros and Gates said higher taxes fort the extremely wealthy would be good, yet Soros said the fact that in the US such taxes can not be implemented shows who is really in control.

@ I read the piece again and again, I find no reference of the blue collar workers hiding their money in the so-called Tax havens. When an article is written about them doing that, I will gladly engage with you.

@ I read the piece again and again, no mention of Anglo American, Microsoft, Amazon, AB Inbev, Apple, Sasol hiding money in the so-called Tax havens.

And not sure where Eskom comes from…

In the socialist looting environment that is SA today it would have been much better if looted capital was not exported to tax havens.

In fact if these tax havens were not available state capture would have been less devastating and less interesting to international criminals who see our socialist politicians as fair game.

Good to see the good work done in the Channel Islands bearing fruit… ensuring we here in Jersey & Guernsey remain compliant – providing a great jurisdiction for investors to properly and legitimately diversify their investment risk and associated returns internationally.

Wealthy families using tax havens for ill-gotten gains? Where have I heard this recently? Guptas, Zuma, UAE, Dubai …

I’m surprised that King Mswati III hasn’t gotten in on the act with eSwatini just a hop and a skip away from Luthuli House. But then he’s already worth some R2 billion already, so a dollar or two more may be like too much hard work.

End of comments.

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