According to the Tax Justice Network, the US has overtaken Switzerland to take second place in a global ranking of countries most complicit in facilitating illicit financial flows, while the UK is the worst backslider in financial secrecy practices.
“An Anglo-American axis of secrecy now constitutes by far the greatest global threat of corruption and tax abuse,” said the Tax Justice Network in a commentary accompanying the release of its new Financial Secrecy index.
“We are calling on policymakers to prioritise sanctions against these backsliders.”
The Cayman Islands, a UK overseas territory, now top the Tax Justice Network’s financial secrecy list, while Switzerland is third.
Last week, within a few weeks of Brexit, the European Union added the Cayman Islands to a blacklist of nine countries it sees as the worst offenders in promoting financial secrecy.
However, while recognising the EU’s move as a clear indication of Britain’s loss of influence on the EU’s decision-making processes, at the same tie the Tax Justice Network criticised the EU for failing to act against “EU member states, powerful countries or any tax haven that really matters.”
“An Anglo-American axis of secrecy now constitutes the greatest global threat of corruption and tax abuse”
Switzerland, Andorra, Luxembourg and Liechtenstein, for example, are all absent from the EU’s tax haven blacklist.
According to the Tax Justice Network, the US has leapfrogged Switzerland in its international financial secrecy rankings largely because of a new law in New Hampshire permitting the establishment of non-charitable private foundations without the need for disclosure.
This continues a recent trend of US state legislation helping people to hide their wealth behind corporate structures, trusts and foundations.
Oliver Bullough, author of a book called ‘Moneyland’ and a recent guest on the New Money Review podcast, said last year that the US is rapidly overtaking traditional financial secrecy locations like Switzerland due to the laws on trusts in states like South Dakota.
South Dakota allows the creation of perpetual trusts, which protect the assets of beneficiaries indefinitely against claims from ex-spouses, disgruntled business partners, creditors or litigious clients.
The assets held by South Dakotan trust companies have risen more than fivefold in a decade, and are forecast to reach $355bn by the end of 2020.
The UK has increased its secrecy score more than any other country in the Financial Secrecy index
Meanwhile, the UK has increased its secrecy score more than any other country in the Financial Secrecy index, the Tax Justice Network said, due to what it calls the UK’s worsening tolerance for financial secrecy practices.
“The UK’s financial secrecy escalation extended to its network of satellite jurisdictions to which the UK outsources some of its financial secrecy activity,” the Tax Justice Network said.
“Often referred to as the UK spider’s web, the network is made up of overseas territories and crown dependencies where the UK has full powers to impose or veto lawmaking, and where powers to appoint key government officials rest with the British Crown,” the Tax Justice Network said.
“At the centre of the network is the City of London, which receives and launders wealth brought in by the satellite jurisdictions. If the UK and its network of overseas territories and crown dependencies were treated as a single entity, this UK spider’s web would rank first on the Financial Secrecy index,” the Tax Justice Network said.
“A more secretive City of London is bad news for everybody”
John Christensen, founder of the Tax Justice Network, said:
“The UK showed the world true leadership in 2016 by being the first country to adopt a public beneficial ownership register – now that progress has been thrown in reverse.”
“The UK’s surge up the Financial Secrecy Index raises serious concerns about the UK’s post-Brexit strategy to turn the City of London into a ‘Singapore-on-Thames’. This should be particularly concerning for EU countries, which collectively reduced their supply of financial secrecy to the world by 8 percent, while the UK escalated its supply by 26 percent.”
“A more secretive and poorly regulated City of London is bad news for everybody, including people in the UK.”
However, the global trend is for reduced financial secrecy, says the Tax Justice Network. It says the total financial secrecy measured by its index has shrunk by 7 percent since 2018, meaning less room for secretive banking, anonymous shell company ownership or anonymous real estate ownership.
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