The United States has overtaken Switzerland, according to the Tax Justice Network, as a haven for financial secrecy crimes such as tax evasion and money laundering, ranking second behind the Cayman Islands. These rankings were reported by the Tax Justice Network in its 2020 Financial Secrecy Index. The United States has come under criticism in recent years in its war on Switzerland’s financial secrecy status, with critics arguing that the U.S. has implemented many of the same practices it is fighting overseas. The new rankings parallel observations from Freeman Law several years ago in its article, A Brave New World: The Panama Papers and the United States’ Role as a Tax Haven.
The Financial Secrecy Index bases its rankings on how large a role the country’s financial system plays in enabling secretive banking. The top rankings are reserved for the countries that have legal and financial systems that most allow criminals and wealthy individuals to hide and launder money from around the world. In previous years, Switzerland stood at the top. This marks the first year that the United States has beat out Switzerland and that the Cayman Islands has made the top of the list.
According to the 2020 Index, the United States beat out Switzerland, in part, due to a 15% increase in its supply of financial secrecy to the world, contrasted with Switzerland’s reduction of 12% in its global financial secrecy. The United States’ increase in financial secrecy supply is attributed to a rise to 63 out of 100 in its secrecy score, largely in part due to a new law in New Hampshire permitting non-charitable private foundations to be established without the need for disclosure. Switzerland’s reduced supply of global financial secrecy is due to Switzerland’s decreased secrecy score after increasing the number of countries with which it automatically exchanges information under the Common Reporting Standards.
The Index criticized the United States for having so far not signed up for the Common Reporting Standards, which currently has 105 signatories. Instead, the United States continues to use its own standard, the Foreign Account Tax Compliance Act (FACTA), which does not guarantee a reciprocal sharing of information.
The Index criticizes the countries within the Organization for Economic Co-operation and Development (OECD), a forum made up of 36 market economy member states that coordinate on policy matters. The 2020 Index notes that OECD countries account for 49% of all financial secrecy in the world, largely by outsourcing financial secrecy to their dependencies, such as the U.S. Virgin Islands. This allows OECD countries to exercise strict regulations within their own borders while enabling extreme financial secrecy through their dependencies. The Index praised Germany for its shift from OECD to transparency, noting Germany’s improvement in its disclosure and publication requirements.
The Index did note that global financial secrecy has shrunk overall, with a reduction of 7% since 2018. The Index attributes reductions to reforms such as increases in automatic exchange of information and beneficial ownership registration. The largest factor contributing to reduction was more countries automatically exchanging information under the Common Reporting Standard.
Based on its findings and the measures leading to global reduction of financial secrecy, the Tax Justice Network issued recommendations for countermeasures against non-cooperating jurisdictions and actors, corporate tax transparency by converging toward the new Global Reporting Initiative (GRI) tax standards, and the addition of public registration of beneficial owners and legal owners of all legal vehicles to the Financial Task Force’s binding recommendations.
The Index findings demonstrate that, while there is still a long way to go in combating financial secrecy, the overall global trend appears to be a decline. In addition, a move toward financial transparency and reforms that aims to make banking industries, in both home countries and their dependencies, more transparent and in line with other global leaders may reduce crimes such as money laundering, human trafficking, and other types of criminal activity.
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