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  1. Wealth
October 5, 2011

Switzerland tops new Financial Secrecy Index, Luxembourg threatens

By Spear's

Although Switzerland has taken over from the US at the top of the Financial Secrecy Index, it turns out to be Luxembourg which has most to fear from this year’s publication

Although Switzerland has taken over from the US at the top of the Financial Secrecy Index, it turns out to be Luxembourg which has most to fear from this year’s publication.

John Christensen, director of the Tax Justice Network which published the FSI, says he and fellow researchers were threatened during their investigation into financial practices in Luxembourg (or ‘Death Star’ as Christensen calls it). Luxembourg is third in this year’s list.

‘Our researchers in civil society in Luxembourg were being were being told, “If you touch this area, we’ll come down on you like a ton of bricks,”’ Christensen explains. ‘I had one banker threaten me, physically. It got to the point where the banker, who was perfectly charming when I first met him, said: “I wouldn’t come back to Luxembourg if I were you, Mr Christensen.”’

Download the Financial Secrecy Index 2011 here

In contrast, Switzerland despite ‘working very hard’ at maintaining financial secrecy, at least tolerates ‘robust democratic debate’ on the issue, he argues.

The FSI ranks 73 jurisdictions according to the secrecy of their financial services and their global share of the market for offshore financial services.

Although it has signed several well-publicised tax-agreements, Switzerland has climbed two places since the last FSI in 2009. It is closely followed by the Cayman Islands in second place, and then Luxembourg, Hong Kong and the USA.

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Japan and Germany, who were not included in the 2009 FSI, went straight into the top ten most secretive financial centres, despite neither country being considered conventional ‘tax havens’, and the UK ranked thirteenth.

Belgium, Guernsey and the Isle of Man all made substantial moves towards transparency, falling down the tables since the last FSI in 2009, after signing up to the EU automatic information exchange procedure.
To compile the FSI, researchers collected 214 pieces of information from each of the 73 countries ranked, which were used to measure 15 separate indicators of financial secrecy. Each country’s financial secrecy score was weighted against its market share of offshore financial services.

According to John Christensen, the final ranking reflects ‘which jurisdictions are the most aggressive in providing secrecy in international finance’ and whether ‘banking secrecy is enshrined in law, and more importantly, are banks able to provide information as to who their clients are and what the nature of the transactions are?’

Switzerland’s rise to top place is partly because of a change in the way the index is calculated. Compared to 2009, the index places increasing importance on the secrecy, rather than the size, of the jurisdiction’s financial sector. Christensen is dismissive of Switzerland’s recent information exchange agreements, saying that in practice non-automatic tax information agreements (around the world) are difficult to apply.

‘If you want to make an application because you think John Christensen is evading tax using an offshore account in Jersey, you have to approach the Jersey courts with a pretty large dossier explaining why, and what information and evidence you have. And that creates a situation where yes, hundreds of tax information agreements have been signed, but there’s no evidence that they are having any useful effects. And when we talk to these officials, they say: “It’s just too difficult to prepare the information.”’

Christensen is similarly unconvinced by the OECD’s ranking of uncooperative tax havens, which since its launch in 2009 has seen all members move off the blacklist and onto the whitelist. He argues that given that the OECD countries include some of the largest players in terms of offshore finance, the system is equivalent to ‘letting Mr Fox set the security barriers for the hen house’.

‘The game being played here,’ he adds, ‘is a window-dressing exercise to convince the public that a lot of progress has been made since 2009, when in practice the progress is minimal.’

London’s secrecy score of 45 is relatively modest compared to that of Switzerland (78), the Cayman Islands (77) or Belize and the Turks and Caicos islands which both score 90. However, London occupies an exceptional position given its close links with other offshore centres.

‘London doesn’t operate in isolation, London has a whole network of satellite jurisdictions across the world and that’s where all the dirty stuff is shifted. I remember in Jersey (where he worked as an investigator) I was always told: “If you’ve got a client who you really think is dodgy, point them in the direction of the British Virgin Islands or Gibraltar,”’ says Christensen. Of the 73 jurisdictions in the FSI, nearly half are connected to Britain. This figure includes three crown dependencies, seven of its fourteen overseas territories, and 25 Commonwealth countries.

For Christensen, the FSI is a way of looking at the ‘supply side of corruption’, because he believes that the lack of transparency in a financial system encourages corrupt behaviour, including money laundering, tax evasion and embezzlement.

Download the Financial Secrecy Index 2011 here

by Sophie McBain

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