Report: US Ranks as Third for Financial Secrecy
by Jessica Schieder, 11/19/2015
The Tax Justice Network has released the largest ever survey of global financial secrecy. The United States ranks third—only Switzerland (#1) and Hong Kong (#2) pose larger threats to financial transparency efforts, according to the index.
Many countries have improved their scores since the index was last released. But the United States’ performance has deteriorated relatively, falling behind the Cayman Islands, Luxembourg, and Singapore. The Financial Security Index score weights secrecy by how important the country is to the global economy. A country’s “secrecy score” (which could have a value of between 31 and 100) shows how opaque operations in the country are, how willing the country is to share taxpayer information with other countries, and how engaged the country is in fighting money-laundering (i.e., the higher the score, the more easy it is to hide assets). The global scale weight, reflects the size of the countries’ share of offshore financial services in the global economy.
The below table shows the top ten most financially secretive countries, according to the index.
A lack of financial transparency allows more than $21 trillion of private financial wealth to exist in low-tax or tax-free havens around the world. The existence of secrecy jurisdictions, or tax havens, robs countries—including the United States—of taxes, aids corruption, and protects criminals.
“The secrecy world creates a criminogenic hothouse for multiple evils including fraud, tax cheating, escape from financial regulations, embezzlement, insider dealing, bribery, money laundering, and plenty more,” according to the Tax Justice Network.
As the largest economy in the world, the United States has a significant impact on financial sector standards. Regulatory changes made domestically to increase financial transparency would touch a huge number of multinational firms, as well as tax-avoiding individuals. In order to reduce financial secrecy, Tax Justice Network recommends that nations:
- Require public disclosure of beneficial ownership (meaning the true owners with effective control) of companies, trusts, and foundations
- Establish an automatic information exchange (AIE) between nations so that countries can compare and verify the taxes paid in different jurisdictions
- Require multinationals to publicly report profits earned and taxes paid in each country where they are operating
- Hold bankers, accountants, lawyers, and others who facilitate tax evasion accountable for their role in tax evasion
The United States has a responsibility both as an economic powerhouse and as a democracy to hold corporations and high-powered individuals accountable for the taxes they owe and to crack down on those who exploit tax havens for criminal activity. Implementing these recommendations would demonstrate that the U.S. has some commitment toward reducing tax evasion and other criminal activity that requires secret bank accounts.
For Further Reading:
IRS Calls on Coca-Cola to Pay Up, The Fine Print, 10/26/2015
Will Justice Prioritize Corporate Wrongdoers?, Fine Print, 9/24/2015
Developing Nations Push Corporations to Pay Their Fair Share, The Fine Print, 7/23/2015