Guardian: US overtakes Caymans and Singapore as haven for assets of super-rich

http://www.theguardian.com/politics/2015/nov/02/united-states-overtakes-caymans-singapore-tax-haven-financial-secrecy-index

US overtakes Caymans and Singapore as haven for assets of super-rich

But financial secrecy index report notes if UK and affiliated tax havens such as Jersey were treated as one, it would top the list

Simon Bowers

2 November 2015

The US has overtaken Singapore, Luxembourg and the Cayman Islands as an attractive haven for super-rich individuals and businesses looking to shelter assets behind a veil of secrecy, according to a study by the Tax Justice Network (TJN).

The US is ranked third, behind Switzerland and Hong Kong, in the financial secrecy index, [1] produced every two years by TJN.

But the study noted that if Britain and its affiliated tax havens such as Jersey were treated as one unit it would top the list.

The performance of the US will come as a surprise to Barack Obama's administration, which has been widely credited with doing more than any other government to compel offshore banks to hand over information on hidden assets.

In recent years the US has also won unprecedented disclosure battles with Swiss banks notorious for protecting client information behind Switzerland's secrecy laws.

"Though the US has been a pioneer in defending itself from foreign secrecy jurisdictions it provides little information in return to other countries, making it a formidable, harmful and irresponsible secrecy jurisdiction," the TJN report said.

The scale of hidden offshore wealth around the world is difficult to assess. The economist Gabriel Zucman [2] has put it at $7.6tn ((GBP)4.9tn), [3] while the TJN's James Henry, a former chief economist at consultancy McKinsey, estimated three years ago it could be more than $21tn. [4]

The US states of Delaware, Wyoming and Nevada have for decades been operating as onshore secrecy havens, specialising in setting up shell companies catering to overseas individuals and companies seeking to hide assets.

"The US has not seriously addressed its own role in attracting illicit financial flows and supporting tax evasion," the TJN report found.

Shockwaves were sent through the offshore industry two years ago when US laws came into force compelling banks and other financial companies to hand over details of overseas assets belonging to American citizens. If they refused, under the Foreign Account Tax Compliance Act (Fatca), [5] firms faced punishing US taxes.

The aggressive unilateral approach -- loathed by tax havens -- was quickly seen as setting a new gold standard for cross-border information sharing in the battle against tax evasion and money laundering. The Organisation for Economic Cooperation and Development quickly drew up copycat measures, but their effectiveness still depends on agreement from major financial centres.

So far the US appears not to be cooperating with the creation of a common standard [6] for information sharing between countries, as drawn up by the OECD. Without its support, TJN argues, several other countries have felt they too can afford to offer only partial support for the project.

"Washington's independent-minded approach risks tearing a giant hole in international efforts to crack down on tax evasion, money laundering and financial crime," the TJN report said.

As long ago as 2009, Obama set out his determination to take on the offshore industry, making it a campaigning issue in his first presidential race. He highlighted the case of Ugland House, the Cayman Islands head office of the law firm Maples & Calder, where he said 12,000 US-based corporations were housed.

"That's either the biggest building in the world or the biggest tax scam in the world," he said. But critics quickly pointed to similar examples in the US, [7] such as 1209 North Orange Street, Delaware, used as an address by more than 6,500 companies.

Like the US, Britain too remains a central player in the vast financial secrecy industry despite championing corporate transparency on the international stage, the TJN report found. It came 15th in the 2015 index.

New laws to create a public register of ownership for every UK company, and free online searches for company accounts, have helped Britain's standing. But the TJN study is highly critical of the UK's failure to force its global network of affiliated offshore tax havens -- including Jersey, the British Virgin Islands, Bermuda and the Cayman Islands -- to produce similar ownership registers.

Britain has also played an important role in preventing transparency initiatives [8] from extending to offshore trusts, TJN said.

"Though the UK isn't in our top 10, it supports a network of secrecy jurisdictions around the world ... whose trusts and shell companies hold many trillions of dollars' worth of assets," the report said. "Had we treated the UK and its dependent territories as a single unit it would easily top the 2015 index, above Switzerland."

The TJN's financial secrecy index measures a range of secrecy criteria with the result for each jurisdiction then weighted according to the size of financial services offered to non-residents. The index has been used by asset tracing specialists and parliamentary inquiries, and has appeared in peer-reviewed academic journals.

TJN's 2015 financial secrecy index rankings (2013 placing):

1. Switzerland (1)

2. Hong Kong (3)

3. US (6)

4. Singapore (5)

5. Cayman Islands (4)

6. Luxembourg (2)

7. Lebanon (7)

8. Germany (8)

9. Bahrain (13)

10. UAE (16)

11. Macao (22)

12. Japan (10)

13. Panama (11)

14. Marshall Islands (23)

15. UK (21)

[1] http://www.financialsecrecyindex.com/

[2] http://www.theguardian.com/commentisfree/2015/oct/11/inequality-will-continue-until-corporations-stop-avoiding-tax

[3] https://www.washingtonpost.com/blogs/monkey-cage/wp/2015/09/21/american-businesses-gave-themselves-a-6-tax-cut-over-the-last-15-years-heres-how-they-did-it/

[4] http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_120722.pdf

[5] https://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA

[6] http://www.oecd.org/ctp/exchange-of-tax-information/automatic-exchange-of-financial-account-information.htm

[7] http://www.theguardian.com/business/2009/nov/01/delaware-first-choice-tax-haven

[8] http://www.financialsecrecyindex.com/faq/britishconnection