The most secretive financial systems in the world

The UK has climbed the world ranking of tax havens and is nearing the top 10 most secretive financial systems.

The Tax Justice Network (TJN) said the UK had become a more desirable place for businesses and super-rich individuals to hide their finances from the law, raising serious concerns about Britain’s post-Brexit strategy.

Why has the UK climbed the rankings?

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The TJN’s Financial Secrecy Index ranks countries on the size and secretiveness of their financial sectors every two years.

New rankings published this week show the UK is now 12th out of 133 countries, having shot up from its former ranking of 23rd.

Countries on the index decreased their secrecy scores by an average of three marks out of 100, while the UK increased its rating by four marks. It was the highest increase of any country.

The change was largely down to the “network of satellite jurisdictions to which the UK outsources some of its financial secrecy activity”, says TJN.

Because the UK’s “spider’s web” of regulatory control includes some of the highest ranking jurisdictions on the index, including the Cayman Islands, its ranking worsened.

And while the UK has become more secretive, other countries have have become more open. Many have made reforms with transparency in mind, including automatic sharing of information about non-resident taxpayers.

The TJN is calling for sanctions against countries including the UK, US and the Cayman Islands for “backsliding” on transparency since 2018.

TJN’s director and founder, John Christensen, said the UK’s worsening performance prompted concern about how it would operate after leaving the EU.

“The UK showed the world true leadership in 2016 by being the first country to adopt a public beneficial ownership register [for domestic companies] – now that progress has been thrown in reverse,” he said.

“The UK’s surge up the financial secrecy index raises serious concerns about the UK’s post-Brexit strategy to turn the City of London into a ‘Singapore-on-Thames’,” he added.

There are fears among some who think the City could become a low-tax, lightly regulated hub for individuals and business.

A Treasury spokesperson told The Guardian there had not been substantial changes to its corporate reporting rules that warranted changes to its ranking.

“We do not therefore recognise the basis for the Tax Justice Network’s assessment. We have been, and will continue to be, at the forefront of the global drive for greater tax transparency.”–––––––––––––––––––––––––––––––For a round-up of the most important stories from around the world - and a concise, refreshing and balanced take on the week’s news agenda - try The Week magazine. Start your trial subscription today –––––––––––––––––––––––––––––––

How did other countries fare?

The US stayed in second place in the rankings, largely because of a new law in New Hampshire that permits the establishing of non-charitable private foundations without the need for disclosure.

Clark Gascoigne, the interim executive director of the US-based Financial Accountability and Corporate Transparency (FACT) Coalition, said: “As the data clearly demonstrates, financial secrecy remains a major problem in the US – enabling crimes like human trafficking, tax evasion, and corruption both at home and abroad.”

Germany dramatically improved its place in the rankings from seventh in 2018 to 14th on the 2020 index.

The fall was down to Germany making several improvements to beneficial ownership registration requirements. New rules require companies, partnerships and foreign trusts to disclose who their beneficial owners are.

TJN’s Financial Secrecy Index 2020 rankings (2018 ranking in brackets)

1. Cayman Islands (3)

2. US (2)

3. Switzerland (1)

4. Hong Kong (4)

5. Singapore (5)

6. Luxembourg (6)

7. Japan (13)

8. Netherlands (14)

9. British Virgin Islands (16)

10. United Arab Emirates (9)

11. Guernsey (10)

12. United Kingdom (23)