The US is the world’s leading enabler of financial secrecy

Despite advances in information exchange and financial transparency, the amount of money that the world’s wealthiest individuals manage to conceal remains overwhelming: around $10 trillion (€9.5 trillion) is hidden offshore beyond the rule of law thanks to opaque legislation, according to estimates by the British organization Tax Justice Network (TJN). On Tuesday this organization published its latest Financial Secrecy Index, in which the United States comes out as the worst offender, followed by Switzerland and Singapore.

The US has very attractive tax regimes in states like Delaware, and it has been particularly disadvantaged in the TJN classification for not being part of key information exchange agreements, such as the Common Reporting Standard of the Organization for Economic Cooperation and Development (OECD). This mechanism, in which more than 100 countries participate, provided information in 2020 about $11 trillion in wealth and assets that were hidden.

“Globally, we’re starting to curb the financial secrecy used by Russian oligarchs, and also by tax evaders, corrupt politicians and organized crime around the world to hide and launder ill-gotten wealth. But the US, UK, Germany, Italy and Japan cut back that global progress by more than half, fuelling financial secrecy instead of fighting it,” said Alex Cobham, chief executive at the TJN.

The disclosure comes ahead of a meeting of G7 finance ministers in Germany between May 18 and 20.

The US topped the index after it increased its supply of financial secrecy to the world by almost a third (31%) since 2020, resulting in the largest supply of financial secrecy ever measured by the index, the TJN said in a statement.

The Joe Biden Administration is no stranger to the problem. Treasury Secretary Janet Yellen noted in December last year that the United States might be “the best place to hide and launder ill-gotten gains.”

The Financial Secrecy Index reveals the extent to which countries allow money to be hidden and laundered. The final score attributed to each territory – 141 jurisdictions have been analyzed in this report – depends both on the opacity of its legislation, that is, absent or low transparency and exchange of information with other countries, as well as on the volume of financial services offered to non-residents over the global total.

The US has declined in both variables compared to the previous report, which analyzed 2020 data: secrecy increased due to its breach of international standards and information exchange practices, said the analysis, while the volume of offshore financial services grew by 21%, reaching 25.8% of financial services provided to non-residents globally by all jurisdictions.

“Hypocritically, the US does require, under the Foreign Account Tax Compliance Act (FATCA) and its related inter-governmental agreements (IGAs), all countries to share information with it about US taxpayers’ financial accounts abroad, but the US shares little to no information in return with countries about their residents,” stated the report.

Singapore enters the list

After topping the previous ranking, the Cayman Islands – one of the many British Overseas Territories to offer advantageous tax regimes – dropped to 14th in this latest report, after authorities published data for the first time indicating the real extent of the financial services they provide to non-residents.

Switzerland remains near the top of the list, despite improving its score somewhat. The country, famous for many years for its unbreakable banking secrecy, takes second place in the 2022 report. In third place is Singapore, which went up two positions to join the podium of the most opaque territories for the first time. Hong Kong is in fourth place, followed by Luxembourg, one of the founding members of the European Union, which, however, Brussels does not include in its list of tax havens. Germany is the other EU country in the top 10, coming in at seventh position.

The UK is ranked 13th, but if its overseas territories included separately on the list (Jersey, Cayman Islands, British Virgin Islands) were taken into account, it would outrank the US to take first spot for enabling financial secrecy.