The Financial Secrecy Index (FSI), developed by the Tax Justice Network in 2008, ranks jurisdictions based on the opaqueness of their financial markets. Put more crudely, the FSI, designed to complement Transparency International’s Corruption Perceptions Index, ranks the world’s tax havens, or secrecy jurisdictions.
Developed in cooperation with government officials, researchers and civil society organizations from many countries, the FSI uses only publicly verifiable sources. It combines two measures—one qualitative, one quantitative. The qualitative measure is an Opacity Score based on existing laws, regulations and treaty information. The quantitative measure weighs each jurisdiction based on the scale of the offshore financial services it hosts. The Opacity Score is the more important of the two. Using an assessment of how aggressively a jurisdiction provides secrecy facilities, the score highlights specific features likely to attract illicit financial flows.
The degree of opacity is assessed using 12 indicators grouped into three themes: transparency of ownership information, transparency of corporate activity and engagement in international cooperation to combat harmful practices.
Once an individual jurisdiction assessment has been completed, the aggregated results are arithmetically squared to emphasize differences in transparency among jurisdictions. This emphasis is important, since even small differences in the secrecy on offer can facilitate significant volumes of illicit financial flows. Finally, the values are normalized by dividing through by 100, giving an Opacity Score between 0 (absolutely transparent) and 100 (absolutely opaque).
The quantitative data, weighting each secrecy jurisdiction according to the scope of its cross-border financial services activity, uses either IMF data on cross-border trade in financial services or, where that data is unavailable, estimates of holdings of foreign portfolio assets. The quantitative and qualitative datasets are combined arithmetically by simple multiplication.1
A jurisdiction with a larger share of the offshore finance market and a moderate degree of opacity might receive the same overall ranking as a smaller but more secretive jurisdiction. The reasons are clear: The index reflects not only secrecy but also scale. In this way, the FSI provides an objective and politically independent assessment of how secrecy jurisdictions facilitate and encourage illicit financial flows.
The results of FSI calculations are somewhat surprising. For decades it has been popularly believed that bank secrecy such as that offered by Austria, Luxembourg and Switzerland is the touchstone of offshore financial skulduggery. But a range of other mechanisms can achieve the same end. Offshore trusts, for example, or certain kinds of anonymous companies offered by places like Delaware in the United States, are used to disguise identities and ownership in far more devious and effective ways than bank secrecy alone.
Assessed on the prevailing combination of Federal and state laws and regulations, the United States receives a 92 percent Opacity Score. Given its huge scale of cross-border financial services transactions, it ranks as the world’s number one secrecy jurisdiction, with Delaware noted in particular for its corporate secrecy and lack of judicial cooperation in information exchange. Luxembourg ranked second, followed by Switzerland, the Cayman Islands and the City of London.2
1. Is there a legal right to banking secrecy?
2. Is there a public registry of
information concerning trusts and foundations?
3. Are details of corporate beneficial ownership accessible to the public?
4. Are details of corporate beneficial ownership kept updated by
a competent authority?
Key aspects of
5. Are corporate accounts available at reasonable cost for inspection by the public?
6. Does the jurisdiction allow corporate redomiciliation (changing its official location) without trace?
7. Does the jurisdiction allow the creation of protected cell companies that can be used to shield assets and information?
8. Has the jurisdiction received a largely compliant FATF rating with no non-compliant ratings?
9. Does the jurisdiction cooperate with independent research?
10. Does the jurisdiction fully participate in effective information exchange?
11. Has the jurisdiction signed a minimum of sixty bilateral treaties providing for broad information exchange covering all tax matters?
12. Does the jurisdiction’s authority have effective access to bank information for information exchange purposes?
|2009 Financial Secrecy Index|
|Secrecy Jurisdiction||Opacity Score||Overall Rank|
|UK (City of London)||42||5|
|British Virgin Islands||92||16|
|Isle of Man||83||24|
|Brunei*, Dominica*, Samoa*, Seychelles*, Saint Lucia*, Saint Vincent and Grenadines*, Turks & Caicos Islands*|
|Antigua & Barbuda*, Cook Islands*, Gibraltar*,
Grenada*, Marshall Islands*, Nauru*,
Saint Kitts & Nevis*, US Virgin Islands*
|Liechtenstein*, Anguilla*||87||joint 55|
|Secrecy Jurisdiction||Opacity Score||Overall Rank|
|*Jurisdictions marked with an asterisk are ranked according to their opacity score.|
2Despite an Opacity Score of 42 percent, ranking it most transparent overall, London featured high on the index because of its predominant role in global offshore financial services. London sits at the hub of a global network of highly opaque jurisdictions, including the British Virgin Islands, Cayman Islands and Channel Islands—all intricately linked to London through British Empire attachments—which cumulatively account for half of the secrecy jurisdictions assessed by the index.