Secrecy Indicators 

Ultimately this indicator assesses whether a jurisdiction provides banking secrecy. It measures three important areas: the scope and breadth of information banks must collect and report, how accessible the data is for competent authorities, and whether there are consequences such as prison terms for breaching banking secrecy, which can prevent whistleblowers from revealing information vital to criminal investigations for example. The information that banks are required to keep is often the most effective means of identifying the beneficial owners hidden behind complicated legal structures and therefore, recording and reporting the right information is one of the most effective ways to investigate and prevent criminal or illicit financial activity such as embezzlement, illegal arms trading, or tax fraud.

Trusts and private foundations are two legal structures that are often used to cloak the true beneficial ownership of an asset and therefore can easily be used to conceal illicit activity or to allow wealth owners to control and use their wealth behind a regulation-free façade. A central register that records the true beneficial ownership of trusts and private foundations would break down the deliberate opacity of these structures and enhance proper legal and regulatory enforcement as a result. This indicator, therefore, measures whether trusts and private foundations are available as a legal structure in the jurisdiction; the scope, breadth, and accuracy of registration information required for trusts and private foundations; and the availability of this information in online central registries.

This indicator assesses whether a jurisdiction requires all companies to submit legal and/or beneficial ownership information upon incorporation to the relevant government authority and to keep it updated. A company formed without any recorded beneficial ownership information can act as a shell company, shifting money illicitly and concealing the true beneficiaries of these transactions, thus enabling perpetrators to launder illicit proceeds of corruption, tax evasion, drug trade, and much more. Reliable and comprehensive ownership information allows regulatory bodies and law enforcement agencies to effectively follow the trail of who is benefiting from illicit funds to more easily root out perpetrators and ultimately discourage these illicit activities.

This indicator assesses whether a jurisdiction publishes beneficial and/or legal ownership information of real estate assets online and whether it offers and promotes freeports – or similar sites such as bonded warehouses – for storing valuable assets and whether it requires the registration and cross-border automatic exchange of the identities of legal and/or beneficial owners of the stored valuable assets. The secrecy around the ownership of real estate makes the sector attractive for money laundering, investing the proceeds of crime, and utilizing aggressive tax avoidance structures. Similarly, the storage of valuable assets – such as art, antiquities, gold bars, etc. – in freeports allows enormous values to be held inside a tax and regulation no man’s land where they can be exchanged or sold without ever leaving the freeport in a large financial transaction that will never be subject to any sort of regulatory measures.

This indicator sits between section A (ownership registration) and B (legal entity transparency) as it integrates two aspects of the transparency of partnerships with limited liability, such as limited partnerships (LPs) or limited liability partnerships (LLPs). Regarding beneficial ownership and/or legal ownership it assesses whether a jurisdiction requires all types of partnerships with limited liability to publish ownership online for free or against a fee. Regarding annual accounts, it checks whether all partnerships with limited liability are required to file their annual accounts with a governmental authority/administration and to make them accessible online for free or against a fee. Not requiring this kind of transparency from partnerships makes it simple for them to be abused in order to hide illicit activities such as the proceeds from bribery or corruption. If we think of limited liability as a privilege, then a minimum level of transparency to prevent such problematic activities must be acknowledged as the cost of limited liability protection. 

This indicator considers whether a jurisdiction requires all companies not listed on a public stock exchange to publish updated beneficial ownership and/or legal ownership information in an online and freely accessible public record. While other indicators in the Financial Secrecy Index cover whether this information must be reported to the authorities, it is also crucial for that information to be made available to the public. Publishing beneficial ownership information online maximises the deterrent effect of data transparency and prevents corruption by holding companies and governments accountable to citizens.

This indicator considers whether a jurisdiction requires all companies to file their annual accounts with a governmental authority/administration and to make them freely accessible online. Public availability of accounts makes it possible for citizens, investors, journalists, and public officials to assess companies that enjoy limited liability on matters of fair trade, environmental protection, the realisation of human rights and similar charitable purposes and severely inhibits transfer mispricing and other tax avoidance techniques.

Multinational corporations often engage a profit shifting strategy called abuse of transfer pricing wherein they artificially relocate their profits, and thus their tax burden, to low tax jurisdictions. Companies benefit greatly from public services funded by tax dollars where they operate: they employ workers who have been educated in the public school system and arrive to work on public transportation, they run factories and offices connected by public infrastructure. When corporations avoid their obligations to contribute to those tax-funded services, citizens either have to foot the bill through higher personal taxes that should have come from corporate income tax or simply go without vital public services. Country by country reporting is the most effective way to reveal and deter this shifty practice by multinationals and is a vital component in combatting financial secrecy. This indicator measures whether certain multinational companies are required to publicly publish worldwide financial data on a country by country reporting basis.

This indicator considers three aspects of a jurisdiction’s rules on corporate tax disclosure: local filing of global country-by-country reports (CbCR) related to OECD’s BEPS Action 13; accessibility of unilateral cross-border tax rulings; and the disclosure and publication of extractive industries contracts. Disclosure is by definition the opposite of secrecy. Disclosing important information regarding the way companies are treated legally ensures that all companies, regardless of size or influence, receive equal treatment under the law. These measures can also deter harmful profit shifting and identify predatory jurisdictions that purposefully attract profit shifting at the expense of other nations.

This indicator reviews the extent to which a jurisdiction requires domestic legal entities to use the Legal Entity Identifier (LEI), a globally standardised unique identification number for legal entities engaging in financial transactions. Company names may be misspelled or change over time and between countries. A unique and uniform number with established data verification procedures is the only real way to connect data about a legal entity’s financial activity globally and this level of cross border identification is essential to efficiently collect, administer and exchange data with partner jurisdictions to root out the entities being used as vehicles for large scale embezzlement, money laundering, tax evasion and other forms of corruption.

This indicator considers the capacity of jurisdictions’ tax administration to collect and process data for investigating and ultimately taxing those people and companies who usually have the means and opportunity to escape their tax obligations, leaving behind other citizens to pick up the deficit in tax revenue or to go without essential public services. The indicator assesses organisational capacity, informational data processing preconditions as well as the availability of rules for targeted collection of intelligence about complex and risky tax avoidance activities.

For personal income tax, most countries have adopted the residence principle meaning they levy taxes on individuals who reside within their borders and therefore use the public services which are funded by tax revenues. This also means that individuals should be taxed on their worldwide income, regardless of its source location, in their resident jurisdiction. This indicator measures how effectively jurisdictions can tax their residents based on their worldwide income and whether the jurisdiction has tight residency and citizenship rules that would prevent non-resident individuals from easily or artificially obtaining legal residency or citizenship to avoid paying taxes in their own resident jurisdiction.

In our modern world of increased globalisation and cross border financial activity, overlapping tax claims (double taxation) have created an environment in which jurisdictions compete for investments by lowering tax rates and exempting sources of income. In the end these tax wars are detrimental to all, creating a race to the bottom that can only lead to the blanket non-taxation of capital income. A unilateral tax credit system removes the threat of double taxation and therefore the incentive to lower tax rates in order to remain competitive on the global market. This indicator measures how effective a country’s tax regime is at frustrating this type of tax avoidance and discouraging harmful tax competition by analysing whether a jurisdiction includes worldwide capital income in its income tax base and if it grants unilateral tax credits for foreign tax paid on certain foreign capital income.

This indicator assesses the transparency of a jurisdiction’s judicial system in tax matters, by analysing the public online availability of tax verdicts and judgements. Public availability of verdicts are often considered to be important pillars of a modern democratic state and are an important part of the basic fundamental human right to a fair trial. Judicial transparency not only holds the judicial system and public officials accountable to the public for their decisions, but also provides clarity to citizens and other actors about the right way to interpret the law.

This indicator assesses the availability of four harmful instruments and structures within the legal and regulatory framework of a jurisdiction: the circulation of large bank notes; the existence of unregistered bearer shares; the existence of “Series limited liability companies” and/or “protected cell companies”; and the availability of flee clauses for trusts. These harmful structures create a legal environment with little to no accountability for bad actors looking to hide illicit activities, corruption, and/or tax fraud and avoidance and therefore are harmful to financial transparency the public interest.

This indicator measures the public availability of ten relevant statistical datasets related to international trade, financial positions, foreign investment, and transparency measures. These datasets together provide a comprehensive overview of a country’s economic and financial engagement with the rest of the world and offers valuable insights into how they engage with other nations, including whether they act properly and fairly towards them or regularly take advantage of other jurisdictions.

This indicator examines the extent to which the anti-money laundering (AML) regime of a jurisdiction meets the recommendations of the Financial Action Task Force (FATF), the international body dedicated to counter money laundering and the financing of terrorism. The Financial Action Task Force recommendations outline the minimal financial transparency safeguards that a jurisdiction should have in place in order to effectively combat money laundering. Compliance with these measures demonstrates a nation’s willingness and ability to prohibit domestic money launderers and criminals from around the world to deposit and launder the proceeds of crime (e.g., drug trafficking, tax evasion) through their own financial system.

The Multilateral Competent Authority Agreement (MCAA) provides the multilateral legal framework to engage in automatic exchange of information (AEOI) pursuant to OECD’s Common Reporting Standard (CRS). Automatic information exchange prevents corporations and individuals from abusing bank accounts they hold abroad to hide the true value of their wealth and income, and pay less tax than they should at home. This indicator assesses whether jurisdictions have signed the MCAA; how many jurisdictions it currently exchanges information with under the framework of the MCAA; if the jurisdiction has put in place any obstacles that prevent effective implementation of the MCAA measures; any extra improvements that a jurisdiction has implemented beyond the MCAA standards; and whether a jurisdiction in engaging in pilot projects assisting developing countries with automatic exchange of information.

This indicator considers whether a jurisdiction has signed and ratified the Amended Council of Europe / OECD Convention on Mutual Administrative Assistance in Tax Matters (“Multilateral Tax Convention”) which enables information exchange upon request among participating jurisdictions. Being a party to this Multilateral Tax Convention determines whether a nation has in place an effective information exchange network in order to investigate suspected tax fraud or evasion across borders.

This indicator measures the extent to which a jurisdiction participates in international transparency commitments – such as the 2003 UN Convention against Corruption and the 1999 UN International Convention for the Suppression of the Financing of Terrorism –  and engages in international judicial cooperation on money laundering and other criminal matters along the guidelines of the Financial Action Task Force – including aspects such as mutual legal assistance and extradition requests in relation to money laundering. A commitment to international cooperation in these matter signals to those engaged in organised crime, bribery, terrorism and largescale tax evasion that a jurisdiction is committed to the principles of preventing their harmful behaviour and creates an environment in which these actors would find it difficult to thrive.