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The hidden trillions: Secrecy, corruption, and the offshore interface

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Abstract

This paper considers the role of secrecy jurisdictions in creating a supply-side stimulus for corrupt practices and explores the use of the newly created Financial Secrecy Index as a tool for assessing and ranking such jurisdictions. Secrecy jurisdictions are a prominent feature of international financial markets, providing a combination of low or zero tax rates, lax regulation, weak international judicial cooperation, and—above all—legalised secrecy facilities. Citing the case of Barbados, this paper shows how an environment of legalised secrecy is purposefully created by not requiring disclosure of ownership information for corporations, trusts, foundations and other legal entities; through non-participation or ineffective participation in judicial cooperation and information exchange; and through laws to protect banking secrecy arrangements. Taken in combination these factors make secrecy jurisdictions attractive conduits for illicit cross-border financial flows and the harbouring of dirty money. Using secrecy jurisdictions as platforms for their operations, legal and financial intermediaries create complex and opaque offshore structures to facilitate economic crime and impede investigation. Current international efforts to stem the activities of secrecy jurisdictions are largely ineffective, but civil society is raising pressure for effective action to be taken against offshore secrecy.

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Notes

  1. Transparency International http://www.transparency.org/news_room/faq/journalists_faq accessed 20th August 2010

  2. From a memorandum concerning the Bahamas dated 3rd November 1961 submitted by Mr W.G. Hulland of the Colonial Office to Mr B.E.Bennett at the Bank of England: seen by the author in the Bank of England archive in July 1996.

  3. John Langton, quoted in Russell-Walling, E (2004/5) A Necessary Autonomy, International Securities, p.32

  4. Dr Gunter Woernle, quoted in “Swiss banks guard the secrets of their success.” Financial Times, 18/19 January 1997

  5. Konrad Hummler, quoted in “In the country where tax evasion is no crime, Swiss private banks are unrepentant about siphoning off other governments’ income.” The Guardian, 5th February 2009

  6. French finance minister D Strauss-Kahn, in a speech to the Paris Group of Experts, March 1999. Quoted in Christensen, J. and Hampton, M.P. (1999) All Good Things Come to an End, The World Today, 55(8/9) (Royal Institute of International Affairs)

  7. See http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore.pdf accessed 20 August 2006

  8. Jurisdiction reports for every secrecy jurisdictions investigated by the Mapping the Faultlines programme are available for download here in pdf format: http://www.secrecyjurisdictions.com/jurisdictionreports

  9. Dirty money is defined here as money that is obtained, transferred or used in an illicit way.

  10. See http://www.financialsecrecyindex.com/#british

  11. Detective Superintendent Des Bray, of the Commercial and Electronic Crime Branch, interviewed in the Adelaide Advertiser, Lawyers helping to launder money, 4 June 2007

  12. The Tax Justice Network has published a map of secrecy jurisdictions which can be accessed at http://www.taxjustice.net/cms/upload/pdf/mapamundi.pdf

  13. One scheme investigated by the author involved over fifty special purpose vehicles created in eleven different secrecy jurisdictions for the purpose of laundering embezzled funds from former Soviet Union countries.

  14. See http://www.taxresearch.org.uk/Blog/2008/05/10/africa-has-lost-607-billion/ accessed 22 July 2008

  15. Raymond Baker from the Center for International Policy, Washington, quoted from oral evidence given to the UK Africa All Party Parliamentary Group in January 2006.

  16. Education Minister Professor Aliya Babs Fafunwa quoted in Nigeria’s This Day, 6th June 2005

  17. Guy Smith, tax adviser, Moore Stephens, quoted in The Guardian, 18th March 2004

  18. P.J. Henehan, senior tax partner of Ernst & Young, in an article published in the Irish Times on 7th May 2004

  19. Speaking at the UK Houses of Parliament following the G-20 Finance Minister’s Meeting at Saint Andrews, Scotland, in November 2009.

  20. Opening statement of Senator Karl Levin before the U.S. Senate Permanent Sub-Committee on Investigations on Secrecy jurisdictions and U.S. Tax Compliance, 17th July 2008

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Acknowledgements

Financial support from the Ford Foundation for the Mapping the Faultlines research programme is gratefully acknowledged. The author is also grateful for the financial support of the Joseph Rowntree Charitable Trust.

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Authors and Affiliations

  1. Tax Justice Network International Secretariat, Chesham, UK

    John Christensen

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  1. John Christensen
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Correspondence to John Christensen.

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John Christensen is a development economist and director of the Tax Justice Network International Secretariat www.taxjustice.net . He has worked as an offshore financial intermediary, and for 11 years was economic adviser to the States of Jersey—a prominent secrecy jurisdiction.

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Christensen, J. The hidden trillions: Secrecy, corruption, and the offshore interface. Crime Law Soc Change 57, 325–343 (2012). https://doi.org/10.1007/s10611-011-9347-9

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