US overtakes Switzerland as financial secrecy jurisdiction, watchdog says

19 February 2020 9:03pm
wealth

18 February 2020. By Robert Thomason.

The US overtook Switzerland as the most complicit country in helping people hide wealth, said the Tax Justice Network, a UK-based group that tracks global financial secrecy. Switzerland, which had ranked worst on TJN's Financial Secrecy Index since 2011, improved its performance under Organisation for Economic Co-operation and Development standards while US transparency regulation worsened, the group said today.

Switzerland and the US are not the most secretive nations, but because they handle much of the world's finances they ranked poorly, TJN said. The non-governmental organization's 2020 Financial Secrecy Index ranks 133 countries based on a combination of two factors: the TJN's assessment of a country's financial secrecy, and the country's volume of financial transactions of non-residents.

The Cayman Islands, the worst performer on the Index's ranking, is among the world's most secretive jurisdictions and handles a relatively high share of non-resident financial transactions, TJN said in a statement explaining its results.

Switzerland has begun sharing information with more countries about the financial activity of non-residents, complying more fully with the OECD's Common Reporting Standard, TJN said. The group said Switzerland's increased compliance with the standard was the principal reason it improved from its typically worst position on the Index. The Index since 2011 had ranked Switzerland as the most secretive country.

The US, on the other hand, was considered by TJN to be more complicitous because New Hampshire adopted a law permitting the establishment of non-charitable private foundations requiring no disclosure of beneficiaries. The New Hampshire Foundation Act, passed in 2017, requires only directors and registered agents reveal themselves, and expressly says a registered foundation is a legal entity separate from beneficiaries.

The US also has not signed onto the OECD's Common Reporting Standard. "It instead implements its own standard, the Foreign Account Tax Compliance Act," TJN said in a statement accompanying the release of the Index. "Under FATCA, countries that have signed up to exchange information with US do not receive reciprocal information in return. Some countries receive no information in return while some receive partial reciprocity from the US where some basic information is shared."

TJN also noted the US has yet to pass laws requiring disclosure of the beneficial owners of corporations and limited liability companies, although legislation to do so has passed the House of Representatives and is under consideration in the Senate.

The UK's standing on the Index worsened considerably since 2018, when the UK was the 23rd most secretive country on the list. Today it's the 12th most secretive, TJN said.

"The UK's financial secrecy escalation extended to its network of satellite jurisdictions to which the UK outsources some of its financial secrecy activity," TJN said. "Often referred to as the UK spider's web, the network is made up of Overseas Territories and Crown Dependencies where the UK has full powers to impose or veto lawmaking, and where powers to appoint key government officials rest with the British Crown. At the centre of the network is the City of London, which receives and launders wealth brought in by the satellite jurisdictions."

Although many small countries may have extremely opaque financial laws, OECD economies are responsible for almost half — 49 percent — of the world's financial secrecy, TJN said.

"By outsourcing financial secrecy to their dependencies, OECD countries enable some of the worst forms of financial secrecy in the world while exercising stricter regulations on financial secrecy within their own borders," the TJN statement said, describing the practice as "hypocrisy."