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G7 Members Slowing Global Progress on Financial Transparency, Says Tax Justice Network | D+C

The Tax Justice Network recently released this year’s Financial Secrecy Index (FSI). The civil society organization supports the creation of a global asset register. Such an institution would help stem illicit financial flows and tax evasion.

According to the Tax Justice Network (TJN), a civil society organization based in Britain, the G7 countries are complicit in allowing Russian oligarchs to hide their wealth. As they try to make sanctions effective in response to Russia’s war in Ukraine, “they have to look at themselves,” says Network chief executive Alex Cobham. Financial secrecy facilitates tax evasion, corruption, money laundering and illicit financial flows in general. It also makes the effective imposition of sanctions more difficult.

The TJN uses 20 indicators to assess how well a country facilitates financial secrecy. Indicators include bank secrecy laws, business ownership records and cooperation on international tax information sharing. The more flaws a country’s financial system has, the more it provides “financial secrecy services” in ISP jargon.

According to the TJN, transparency generally improves thanks to reforms in various countries and increased international cooperation. However, he blames five G7 countries for slowing the trend. “The US, UK, Germany, Italy and Japan have more than halved this global progress,” Cobham said in May.

According to this year’s Financial Secrecy Index (FSI), the top twelve sinners are:

  • United States
  • Swiss
  • Singapore
  • hong kong
  • Luxemburg
  • Japan
  • Germany
  • United Arab Emirates
  • The British Virgin Islands
  • Guernsey
  • China
  • The Netherlands

Britain follows in 13th place, ranking below two of its dependent territories (Guernsey and the Virgin Islands).

How countries promote financial secrecy differs, but there are common patterns. Transactions made by companies, which do not disclose their owners, help mafia gangs or corrupt politicians to launder black money. Real estate investments are a way to store hidden wealth, especially when shell companies make the payments. Where whistleblowers in financial institutions are further penalized, illegitimate secrets are more likely to be kept. Lax enforcement of the law is another problem. The TJN explicitly accuses Germany of having only made a “disappointing implementation” of the new laws on transparency.

The FSI is compiled every two years. This time, 141 jurisdictions were assessed. The FSI includes estimates regarding the importance of a specific jurisdiction to the global economy. The countries that come out on top of the ISP therefore do not necessarily have the most secretive financial systems, but their impact on other countries is considered to be particularly strong.

Financial secrecy is an international problem because it helps super-rich players evade regulations (see Hans Dembowski at The TJN supports the establishment of a global asset registry. Such an institution could cover all individuals internationally who own assets worth more than 10 million euros. Probably the most prominent policymaker to endorse this idea is Mario Draghi, Italian Prime Minister and former President of the European Central Bank. Prominent economists such as Joseph Stiglitz, Thomas Piketty or Gabriel Zucman also support the proposal.

Tax Justice Network, 2022, press release: US tops financial secrecy rankings as G7 countries upend global progress on transparency.

Chimézie Anajama wrote this article as an intern at D+C/E+Z. She recently obtained her Masters in Development Management from Ruhr-Universität Bochum.

[email protected]
Twitter: @mschimezie

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