Here are the top 10 places where you can hide money from prying eyes rather easily.
Even if you’ve worked for some years trying to prevent the problems caused by tax havens, people will still ask you which places are the best in the world to shield your money from taxes. Working with the Tax Justice Network I set out to provide a definitive answer.
“Best” is, of course, a pretty subjective term, so it needed definition. We used two. The first was a measure of a place’s opacity, or how secret it is. There’s good reason for that. Some time ago I gave up trying to define what a tax haven is, as that proved to be a pretty thankless task. Instead I suggested that unless a place is a secrecy jurisdiction, which means that regulation is intentionally created for the primary benefit and use of those not resident there, it really can’t operate as a tax haven. In effect, secrecy jurisdictions create regulation that is designed to undermine the legislation or regulation of another jurisdiction.
To facilitate its use, secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that shields the identities of those making use of its flexible regulatory system. This is important. Even though people who use secrecy jurisdiction claim their activities are perfectly legal, it seems they don’t want people to find out about them. So secrecy is a key.
Financial Secrecy Index
Secondly, enjoying secrecy in a place that does not have the know-how to handle money is not of much use if, like most users of secrecy jurisdictions, you want to move money without too many questions being asked. That’s why we added another criterion, a pretty simple one: To be considered significant, a place had to have the capability to move money in serious quantities, or it just didn’t rank.
These two characteristics, when combined, create an index of secrecy jurisdictions, or tax havens if you prefer, called the Financial Secrecy Index.
The research was fascinating. First we had to determine what places were secrecy jurisdictions. To do this we created a “list of lists” looking at tax haven listings over a period of more than 30 years and selecting for testing, broadly speaking, all those that came on two lists or more over that period. Then our team researched data on a wide range of issues — about 200 variables per location.
The Usual Suspects
Twelve criteria were then selected as key indicators of opacity, varying from whether there was formal banking secrecy or not, to whether accounts were required to be on public record, to how many tax information exchange agreements the jurisdictions had. The place got a mark for being opaque and none if it was transparent. This produced a list of the usual suspects: Switzerland, Malaysia (Labuan), Barbados, Bahamas, Vanuatu, Belize, Brunei, Dominica, Samoa, Seychelles, St. Lucia, St. Vincent and Grenadine, and Turks and Caicos.
Next we had to determine the amount of cash flowing through each location using International Monetary Fund data. The top 10 here were:
The U.K. (City of London), the U.S. (Delaware), Luxembourg, Switzerland, Cayman Islands, Ireland, Hong Kong, Singapore, Belgium and Bermuda.
The Big Top 10
Of course we’re not saying that all of this cash is illicit — far from it — but if you’re going to hide illicit cash, where better to do it? Where it stands out from the crowd, or where it can be lost like a needle in the proverbial haystack? Big numbers help the owner of dubious cash lose theirs in the crowd, and the places named above are big.
Combine the two rankings (deploying a little mathematics along the way, I admit) and you get the overall top 10 list. These are the 10 most significant secrecy jurisdictions in the world, in the opinion of the Tax Justice Network: the U.S. (Delaware), Luxembourg, Switzerland, Cayman Islands, the U.K. (City of London), Ireland, Bermuda, Singapore, Belgium and Hong Kong.
That final list is going to surprise, shock or even annoy a lot of people, but there is good reason for listing places like London and Delaware as tax havens among those which might be considered the more usual suspects.
The Square Mile
Secrecy is not something, as many like to think, that happens “over there.” But it is really happening in places like America too. Delaware in the U.S. provides a degree of corporate secrecy for those who operate there that makes it highly significant. Incidentally Nevada (also in the U.S.) and other states also offer this feature, but because more companies use Delaware, it stood out from the crowd.
London richly deserves its place on the list too. It’s not just because many of the more “usual suspect’’ jurisdictions — everywhere from Jersey to the Cayman Islands — are all beneficiaries of British protection and support. The truth is that each of these operates as a branch office for the City of London, the square mile that is the epicenter of finance in London.
The City is almost a government in and of itself, within the U.K., wholly captured and controlled by the finance industry that holds for ransom the rest of its economy. From there untold flows move around the world, many hidden by that ultimate British secrecy invention: the trust. Because of the financial power of the City — seen time and time again during the current economic crisis — the government of the UK seems quite unable to challenge it, and the transactions the City wants to execute.