This week, the Tax Justice Network (“TJN”) released the 2022 Financial Secrecy Index, which ranks jurisdictions according to “their secrecy and the scale of their offshore financial activities.” The findings revealed that, for the very first time, the United States tops the list as the world’s largest enabler of financial secrecy surpassing notorious offshore havens like Switzerland and the Cayman Islands. The latter, which topped the last index, experienced a significant drop to the 14th spot after enacting reforms on transparency. For the United States, its refusal to share information about non-residents accounts with foreign tax authorities was cited as a key factor in its ranking. Notably, according to the TJN, “along with the United States, five of the G7 nations are responsible for slashing progress in financial secrecy reform by more than half: the United Kingdom, Japan, Germany and Italy.”
While the findings may surprise some, it appears to be in line with the ‘Paradox of Money Laundering’ described in a 2020 Sigma Ratings newsletter. The paradox states that jurisdictions that score well on financial crime indicators are actually the places where people want to hide their cash. Notably, according to the TJN, “while lower-income countries supply only one percent of financial secrecy measured, they are the most vulnerable to ‘feel the sting’ of its consequences,” as evidenced by the Dos Santos network in the recent Luanda Leaks.
The Financial Secrecy Index, as the TJN rightly notes, reveals that traditional stereotypes of tax havens, as small palm fringed islands, are misconceived and that wealthy OECD nations, with their territories, are the main recipients of illicit cash. The TJN theorizes that the international effort to crackdown on illicit finance has been so ineffective because “it is the recipients of these gigantic inflows that set the rules of the game.” Whatever the reason behind the ineffectiveness may be, the recent revelations strongly support the case for a new approach to combat illicit finance.