Reports finds U.S. financial secrecy worsening

Money
by J.C. Derrick
Posted 11/02/15, 04:30 pm

WASHINGTON—The United States is one of the world’s most secret financial jurisdictions, according to a watchdog group’s new global ranking.

The Tax Justice Network, an international think tank based in the United Kingdom, on Monday unveiled the 2015 Tax Secrecy Index, which lists the countries that most allow financial secrecy at home and promote it abroad. The U.S. takes third in the latest ranking, up from sixth place in 2013.

“[The U.S.] is more of a cause for concern than any other individual country—because of both the size of its offshore sector, and also its rather recalcitrant attitude to international cooperation and reform,” the organization said in a statement.

Financial transparency laws have improved in most countries since 2013, according to the Tax Justice Network, but the U.S. is one of the few places where secrecy has worsened. Unlike most other wealthy nations, the U.S. has declined to participate in a global tax information sharing system called the Common Reporting Standard.

Instead, the U.S. has chosen to implement its own information-sharing law, the Foreign Account Tax Compliance Act (FATCA), 2010 legislation designed to crack down on tax evasion among U.S. citizens living abroad. Many financial transparency advocates support the law, but so far the U.S. has mainly used it to collect—and not share—information from other countries.

“The United States dealt global financial secrecy a devastating blow by forcing strongholds such as Switzerland to open up,” said John Christensen, executive director of the Tax Justice Network. “But after this blistering start in efforts to protect itself, it is backsliding by failing to provide information in the other direction.”

Last year WORLD published a four-part series (see here, here, here, and here) showing how corrupt politicians, oligarchs, drug traffickers, and others use lax incorporation laws to create U.S.-based shell companies, and then stash their stolen money in secret bank accounts. The activity helps perpetuate poverty in developing countries, especially in places like the Balkans and Africa—which lost an estimated $50 billion annually between 2000 and 2008.

FATCA, while flawed, could help prevent foreign nationals from finding safe haven in the U.S. for their ill-gotten gains. But Christensen insists that will happen only if the Internal Revenue Service reciprocates the information-sharing it demands from other countries: “The USA must finally overcome its historically rooted, deep opposition to reasonable tax data sharing with its trade and investment partners.”

Switzerland, the grandfather of financial secrecy, remains atop the Tax Justice Network ranking, despite some concessions made under international pressure. Hong Kong, No. 2 on the list, is the only other country ranked higher than the United States. Singapore, Cayman, Luxembourg, Lebanon, Germany, Bahrain, and Dubai/UAE round out the top 10.

The United Kingdom did not make the list, but it “remains a huge concern” because its dependencies and territories are top financial shelters. A network of tiny jurisdictions, including Cayman, Bermuda, Jersey, and the British Virgin Islands, is home to trusts and shell companies holding trillions of dollars in assets.

Among other positive developments, the report noted widespread movement toward beneficial ownership registries that would identify persons behind shell companies. For example, the European Union has begun requiring its member states to make ownership information available to those with a legitimate interest in it.

Lawmakers recently filed bipartisan legislation to the same effect in the U.S., but so far secretaries of state—who collect easy incorporation fees to pad state coffers—are leading the opposition to it. 

“Traditional stereotype of tax havens is misconceived,” the Financial Accountability and Corporate Transparency (FACT) Coalition said a statement ahead of the report’s U.S. release on Monday. “The world’s most important providers of financial secrecy are not small, palm-fringed islands as many suppose, but some of the world’s biggest and wealthiest countries—including the United States.”

J.C. Derrick

J.C. is WORLD’s deputy chief content officer and WORLD Radio’s managing editor based in Dallas. Follow J.C. on Twitter @jcderrick1.

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