So all those hedge funds that are threatening to pull out of the UK and move to Switzerland amid the threat of more draconian EU legislation should really be heading for… beautiful downtown Delaware!
That’s according to the latest findings from the 2009 Financial Secrecy Index, a ranking compiled by the Tax Justice Network, a UK-based organisation that the FT described last week as a “respected campaign group” (and which describes itself as an” international, nonaligned coalition of researchers and activists with a shared concern about the harmful impacts of tax avoidance, tax competition and tax havens”) and Christian Aid, a UK development NGO.
In its 2009 index, the group found that the US state was the most secretive financial jurisdiction — and by implication, the most attractive to companies because it does not tax profits realised outside the state and does not require companies to be physically present.
The survey of laws, practices and size of inflows in 60 jurisdictions put Delaware first, followed by Luxembourg and then Switzerland. According to the index, the 10 most secretive havens are: (1) The US (Delaware); (2) Luxembourg; (3) Switzerland; (4) Cayman Islands; (5) UK (London); (6) Ireland; (7) Bermuda; (8) Singapore; (9) Belgium; (10) Hong Kong.
The “loser” — or rather, the winner in disclosure terms — was, of all places, Monaco. That is because the ranking is based on a composite of total offshore activity and measures such as whether a jurisdiction “obtains beneficial ownership information about companies” and the degree of cooperation in turning over requested financial information — and apparently Monaco comes up trumps on most of those fronts.
As for the Swiss, before regulators could breathe a collective sigh of relief for not topping the TJN ranking, the country’s NGOs, including Alliance Sud, an umbrella group of development organisations, and the Berne Declaration — both founder members of the Tax Justice Network — said Switzerland’s third place was “nothing to be proud of”.
It was undoubtedly still something of a relief — and a source of some schadenfreude — to the Swiss, who have suffered international criticism, led by the US, for their famed banking secrecy, to read Sarah Lewis, executive director of TJN, quoted by Reuters saying: “While the US has been jumping up and down and saying ‘Aha, bad, wicked Swiss banks,’ the US is doing exactly the same things as far as non-resident bank account holders”.
The UK, now trying to be an international standard bearer for financial regulation, also came in for a pasting, being singled out by TJN for its political and other links to a “huge global network of tax havens”. As the group noted:
With half the world’s secrecy jurisdictions located in Commonwealth countries, Crown dependencies or British overseas territories, the UK’s historic support for financial secrecy globally has been substantial.
The US, meanwhile, led by Delaware, took in $2,600bn in deposits from non-resident corporations and individuals in 2007, according to the TJN index.
The group noted:
In popular imagination, tax havens are palm fringed island idylls with luxury yachts, shady law firms and expensive offices festooned with the brass name plates of anonymous shell companies. The FSI reveals a much broader picture. The main global suppliers of financial secrecy are in fact rich nations operating specialised enclaves like Delaware, often with links to smaller ’satellite’ jurisdictions that are conduits for illicit financial flows into the mainstream capital markets.
Indeed, as the FT notes, “The question of the degree of blame attached to rich nations and tax havens for failings in financial transparency has become highly political in the wake of the credit crunch”.
Related links:
London’s nightmare is New York’s dream - FT Alphaville
London lags Delaware - The Long Room
