October 26, 2020

Cayman Islands second for secret dealings

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Cayman Islands

The Cayman Islands has been placed second in a world list of global financial crime and malpractice, according to a report published.

The tax haven infrastructure that has enabled global financial crime and malpractice to flourish has barely been reformed, despite a pledge by the G20 leaders in 2009 to close it down, according to an index published by campaign group the Tax Justice Network.

Switzerland, the Cayman Islands, Luxembourg, Hong Kong and the US are placed among the top of the league as the most aggressive in providing secrecy in the latest financial secrecy index.

The UK, with the City of London and a network of overseas tax haven territories and dependencies including Jersey, Bermuda, the British Virgin Islands and the Caymans, also features prominently in the index’s dirty dozen of top offenders.

The UK Treasury said it did not recognise the picture presented in the index, adding that the UK government had demonstrated a clear commitment to tackling all forms of tax avoidance and evasion.

Two years on from Gordon Brown’s G20 summit pledge to tackle tax havens and the role they played in the global economic crisis, TJN says there has been little real progress. It claims the role in the Greek debt crisis of endemic tax evasion through offshore centres is being downplayed because the big powers in the G20 – the US, the UK, and Germany – are also key beneficiaries of tax havens, as the index shows.

TJN director John Christensen said secrecy jurisdictions not only facilitated widespread tax evasion by individuals, but “have become a central feature of global financial markets, creating the environment for fraud, avoidance of financial regulations, market manipulation, and money laundering”. The financial secrecy index is compiled from data collected by the OECD and IMF on flows of finance through individual offshore centres and on the extent to which jurisdictions co-operate with tax authorities in other countries. TJN also surveyed finance ministries directly about their tax agreements and disclosure rules to draw up secrecy scores. These were then weighted for the share each territory has of global offshore financial services to produce a ranking of most problematic havens.

Switzerland is ranked first and  Cayman Islands is placed second. “It facilitates a huge number of opaque offshore companies and trusts which can be used to hide all manner of illegitimate activities,” according to the index.

A spokeswoman for the Cayman Islands’ Financial Secretariat said the territory had taken an increasingly significant role in global transparency efforts in the last 10 years.

She argued there were no secrecy provisions in the islands’ jurisdiction that prevent information being obtained by the tax information authority which assists in international tax matters Luxembourg is accused by the TJN of being the “death star” superweapon in the world of tax havens because of its aggressive defence of financial secrecy and its resistance to EU efforts to close tax loopholes. It wins its place thanks to the sheer size and range of financial and secrecy services it provides, accounting for 13% of global offshore financial services, compared with Switzerland, 6%, and Cayman, 4%. The UK mainland has 20% and the US 21% of offshore services. The Luxembourg Bankers’ Association dismissed the index as “yet another pseudo-scientific compilation of random data for the most part wrong or deliberately misused to reach a pre-determined conclusion”.

Hong Kong, placed at number four, is said to be one of the fastest growing secrecy jurisdictions, thanks to Chinese economic growth and China’s elites using the territory to evade tax.

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