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Africa/Global: Charting Where They Hide the Money, 2
March 12, 2018 (180312)
(Reposted from sources cited below)
"Overall, the City of London and [its] offshore satellites constitute by
far the most important part of the global offshore world of secrecy
jurisdictions. Had we lumped them together, the British network would
be at the top of our index, above Switzerland." - Tax Justice Network
The Financial Secrecy Index (FSI) for 2018, released by the Tax Justice Network on
January 31, is far more than a simple index. It is an in-depth survey as well as
ranking of the countries most deeply involved in concealing wealth through offshore
financial services. Based on a quantitative measure of the share of such cross-border
financial services based in each country, and an in-depth qualitative evaluation of
national laws and regulations affecting transparency and secrecy, the FSI provides
the indispensable context for investigative journalism exposes of specific cases and
advocacy by civil society groups at both national and international levels.
In striking contrast to Transparency International "Corruption Perceptions Index
(CPI) (https://www.transparency.org/), which rates countries on the basis of
observers' perceptions of the extent of corruption, the FSI focuses on the mechanisms
which permit the fruits of corruption and other hidden assets to be concealed.
Ironically, Switzerland, Luxembourg, and the Netherlands are ranked as among the
least corrupt on the CPI, but they also lead on the FSI as the best places to hide
the fruits of corruption, tax evasion, and other crimes.
The system that allows this to happen is in fact global, and its distribution by
country, by intention, is hard to track. This two-part AfricaFocus contains
substantive excerpts from the Financial Secrecy Index reports. The first part (sent
out by email and available on-line at http://www.africafocus.org/docs18/fsi1803a.php)
excerpts overview analyses from the authors covering the global picture and the
African continent. This second part, below, provides excerpts from country reports on
the United Kingdom, the United States, Kenya, Liberia, South Africa, and Mauritius.
Much more extensive data in narrative, database, and graphic formats, is available at
For previous AfricaFocus Bulletins on illicit financial flows, tax evasion, and
related topics, visit http://www.africafocus.org/intro-iff.php
++++++++++++++++++++++end editor's note+++++++++++++++++
Financial Secrecy Index 2018
The Financial Secrecy Index ranks jurisdictions according to their secrecy and the
scale of their offshore financial activities. A politically neutral ranking, it is a
tool for understanding global financial secrecy, tax havens or secrecy jurisdictions,
and illicit financial flows or capital flight.
An estimated $21 to $32 trillion of private financial wealth is located, untaxed or
lightly taxed, in secrecy jurisdictions around the world. Secrecy jurisdictions - a
term we often use as an alternative to the more widely used term tax havens - use
secrecy to attract illicit and illegitimate or abusive financial flows.
Illicit cross-border financial flows have been estimated at $1-1.6 trillion per year:
dwarfing the US$135 billion or so in global foreign aid. Since the 1970s African
countries alone have lost over $1 trillion in capital flight, while combined external
debts are less than $200 billion. So Africa is a major net creditor to the world -
but its assets are in the hands of a wealthy élite, protected by offshore secrecy;
while the debts are shouldered by broad African populations.
Yet all rich countries suffer too. For example, European countries like Greece, Italy
and Portugal have been brought to their knees partly by decades of tax evasion and
state looting via offshore secrecy.
A global industry has developed involving the world's biggest banks, law practices,
accounting firms and specialist providers who design and market secretive offshore
structures for their tax- and law-dodging clients. 'Competition' between
jurisdictions to provide secrecy facilities has, particularly since the era of
financial globalisation really took off in the 1980s, become a central feature of
global financial markets.
The problems go far beyond tax. In providing secrecy, the offshore world corrupts and
distorts markets and investments, shaping them in ways that have nothing to do with
efficiency. The secrecy world creates a criminogenic hothouse for multiple evils
including fraud, tax cheating, escape from financial regulations, embezzlement,
insider dealing, bribery, money laundering, and plenty more. It provides multiple
ways for insiders to extract wealth at the expense of societies, creating political
impunity and undermining the healthy 'no taxation without representation' bargain
that has underpinned the growth of accountable modern nation states. Many poorer
countries, deprived of tax and haemorrhaging capital into secrecy jurisdictions, rely
on foreign aid handouts.
This hurts citizens of rich and poor countries alike.
Full report at: https://www.financialsecrecyindex.com/PDF/UnitedKingdom.pdf
The United Kingdom is ranked 23rd on the 2018 Financial Secrecy Index, based on a low
secrecy score of 42 and a very large scale weighting, accounting for 17 percent of
the global market in offshore financial services.
Introduction and overview
The United Kingdom’s relatively low ranking on the secrecy index hides a much bigger
story. We regard the UK as one of the biggest, if not the biggest, single player in
the global offshore system of tax havens (or secrecy jurisdictions) today. There are
two reasons for the discrepancy between its ranking and its importance.
The first is that the City of London, or “the City”, a term used to describe the UK
financial services industry centred on London, is on some measures the world’s
largest financial centre. As this report explains, this is built substantially on
‘offshore’ characteristics – though these characteristics in the UK’s own case aren’t
particularly predicated on financial secrecy but on other offshore offerings,
particularly lax financial regulation.
The second is that the UK is intricately connected to a large network of British
secrecy jurisdictions around the world, notably the three Crown Dependencies (Jersey,
Guernsey and the Isle of Man) and the 14 Overseas Territories, which include such
offshore giants as Cayman, the British Virgin Islands and Bermuda. Though these
jurisdictions have a measure of independence on internal political matters, Britain
supports and controls them: the Queen appoints many of their top officials, and her
head is on their stamps and banknotes. Illustrating the fact that these links are
above all financial, Jersey Finance, the official marketing arm of the Jersey
offshore financial centre, states that: “Jersey represents an extension of the City
Overall, the City of London and these offshore satellites constitute by far the most
important part of the global offshore world of secrecy jurisdictions. Had we lumped
them together, the British network would be at the top of our index, above
Switzerland. (In fact, the British network is even bigger than this ‘official’
network, and includes 54 Commonwealth countries, many of whose final court of appeal
is at the Privy Council in London.)
The UK’s status as both a key financial centre and a key player in a global web of
secrecy that extends to other jurisdictions, results in the creation of an
interconnected criminogenic environment both at home and abroad. The Panama Papers
and Paradise Papers have shone an increasingly strong light on the antisocial and
crime-fuelling activities of the Overseas Territories, while the dirty money
continues to swill at home. The UK is the second biggest centre for wealth management
after Switzerland, and at the same time its own National Crime agency acknowledges
that hundreds of billions of pounds of international criminal money are laundered
through its banks every year.
Full report at: https://www.financialsecrecyindex.com/PDF/USA.pdf
Introduction and Background
The United States is ranked second in the 2018 Financial Secrecy Index. This is based
on a secrecy score of 59.8, which is practically unchanged from 2015, although the
criteria have been made more demanding.
The rise of the US continues a long term trend, as the country was one of the few to
increase their secrecy score in the 2015 index. The con- tinues rise of the US in the
2018 index comes off the back of a signifi- cant change in the US share of the global
market for offshore financial services. Between 2015 and 2018 the US increased its
market share in offshore financial services by 14%. In total the US accounts for
22.3% of the global market in offshore financial services.
The U.S. provides a wide array of secrecy and tax-free facilities for non-residents,
both at a Federal level and at the level of individual states. Many of the main
Federal-level facilities were originally crafted with official tolerance or approval,
in some cases to help with the U.S. balance of payments difficulties during the
Vietnam War; however some facilities – such as tolerance by states like Delaware or
Nevada of highly secretive anonymous shell companies – are more the fruit of a race
to the bottom between individual states on standards of disclosure and transparency.
This building in Delaware is home to over 6,500 corporations,
and more than 200,000 businesses hold addresses at the location.
While the United States has pioneered powerful ways to defend itself against foreign
tax havens, it has not seriously addressed its own role in attracting illicit
financial flows and supporting tax evasion. It is currently a jurisdiction of extreme
concern for global transparency initiatives: instead of agreeing to join and comply
with the emerging glo- bal standard of multilateral information exchange, the OECD
Common Reporting Standards (CRS), it has stuck with its own FATCA model (see below),
which does not appear to mesh with the CRS despite technical similarities.
Washington’s independent-minded approach risks tearing a giant hole in international
efforts to crack down on tax evasion, money laundering and financial crime.
The U.S. has the largest share of the global market for offshore financial services;
its main rival is the City of London. However, unlike the City, which built its
strength on overseas empire and has historically been an outward-focused (hence
heavily offshore) financial centre, the financial markets of the United States were
always rather more domestically focused, and the influence of the US financial
industry is diluted in a relatively much larger economy.
Financial secrecy provided by the U.S. has caused untold harm to the ordinary
citizens of foreign countries, whose elites have used the United States as a bolthole
for looted wealth.
Full report at: https://www.financialsecrecyindex.com/PDF/Kenya.pdf
Kenya: Africa’s newest international financial centre
Kenya’s financial sector is highly secretive. The country scored 80 out of 100 in
terms of secrecy, which explains its high ranking of 27 in the Financial Secrecy
Index of 2018. Though the country’s share of the offshore world is not large, this
may be set to increase as the government positions Nairobi as the latest African
International Financial Centre.
Kenya lies on the east coast of Africa with a population of 48.46 million as of 2016.
In 2016, Kenya was identified as one of the fastest growing economies in Sub-Saharan
Africa with GDP per capita over 1445 US$ and GDP growth improving by 6% in 2016, up
from 5.6% in 2015, driven by construction, manufacturing, finance and insurance,
rebound in the tourism industry, strong remittance inflows, information and
communication technology, and wholesale and retail trade. Kenya also takes the lead
in East Africa on Foreign Direct Investment (FDI) with a majority of inflows being
attributed to extractives and infrastructure projects. The key economic goal set out
in Kenya’s Vision 2030 is to sustain high levels of economic growth. However, key
development challenges remain, including inequality, healthcare, education and
According to a study done by Oxfam Kenya, less than 0.1% of the population own more
wealth than the bottom 99.9%. The rising inequality in Kenya cannot be ignored. In
the recently published Paradise Papers, a former minister was identified as having
London based assets owned through a Mauritius based company.
Introducing the Nairobi International Financial Centre
In an effort to achieve a ‘well-functioning financial system in order to accelerate
economic growth by encouraging FDI, safeguarding the economy from external shocks,
and establishing Kenya as a leading financial centre in Eastern and Southern Africa’,
8 the Government of Kenya included the Nairobi International Financial Centre as one
of the commitments for Vision 2030.
As a result, in September 2017, the Nairobi International Financial Centre (NIFC)
Act, No. 25 of 2017, entered into force to provide a legal framework for the
development of the NIFC and the NIFC Authority. According to the National Treasury, 9
the purpose of the NIFC is to establish a ‘stable, efficient and globally competitive
financial services sector in Kenya’ with the ultimate objective of encouraging
domestic and foreign investment, generating saving opportunities and contributing to
overall economic growth.
The Lord Mayor of the City of London Corporation and one of the City Corporation’s
main lobbying bodies, the City UK, have strongly influenced and participated in the
design and implementation of the NIFC.
Full report at: https://www.financialsecrecyindex.com/PDF/Liberia.pdf
Liberia: America’s outpost of financial secrecy
Liberia’s secrecy jurisdiction is an example of where state sovereignty has been
outsourced, almost wholesale to foreign interests. In setting up the registry, the
Liberian government have effectively privatised a key function of the state and even
it appears some parts of Liberian law itself.
The result is that Liberia permits the establishment of some of the most powerful
secrecy instruments in the world, which is reflected in its secrecy score of 80.
Although Liberia’s reputation as a secrecy jurisdiction has threatened to cause
substantial damage to the reputation of country abroad, very little is known about
Liberia’s tax haven role in the country itself. Its offshore corporate registry is
located and managed in the United States.
The History of the Liberian Secrecy Jurisdiction
The Liberian corporate registry was developed alongside the Liberian Shipping
Registry. The story goes that the US Secretary of State, Edward Stettinius visited
Liberia on his way back from the Yalta Peace Conference following world war two, and
saw the potential of the country. In 1947 he formed Stettinius Associates and set up
a number of development projects in the country, the shipping registry being one of
The US had an interest in the establishment of a shipping registry in a neutral
country, which would allow world trade to carry on unhindered in times of war.
With the help of lawyers from Esso and the State Department, Stettinius Associates
drafted Liberia’s first maritime law. To reassure potential clients it was written
into the law that the registry must be located in the United States, and managed by a
US citizen. Throughout the history of the registry, the company operating the
Liberian registry has been staffed by retired US generals and former employees of the
US coast guard,
After its foundation in 1948 Liberia’s shipping registry grew quickly. In 1949 the
country had just five ships registered under a Liberian flag. By 1955 it had
overtaken Panama, the then leading flag of convenience in terms of tonnage
registered. By 1965 it had surpassed the United Kingdom, the historic leading nation
in terms of shipping.
The popularity of the Liberian registry was driven by its status as a flag of
convenience, which is a kind of tax haven for ships. A flag of convenience is when a
ship owner will register their vessel in a country other than their home country in
order to take advantage of favourable tax rates or other regulations. Flags of
convenience have been controversial for as long as they have existed, particularly
due to their impact on labour standards.
Alongside the shipping register developed the Liberian Corporate Registry. The
Corporate registry allowed ship owners to set up a Liberian company to own their
ships. This in turn allowed ship owners to avoid corporation tax on the profits
generated from their shipping activities and to keep the ownership of the vessels
Since 2000 the contract to operate the Liberian registry has been owned by LISCR, the
Liberian International Shipping and Corporate Registry, based in Vienna, Virginia, a
suburb of Washington D.C. in the USA. LISCR is itself registered in the tax haven of
Delaware, United States.
Full report at: https://www.financialsecrecyindex.com/PDF/SouthAfrica.pdf
South Africa’s secrecy score of 56.10 is the lowest secrecy score of the nine African
jurisdictions included in the Financial Secrecy Index 2018. Yet its global
significance is the greatest of any of the African countries, reflecting the relative
size of South Africa’s economy.
Secrecy undermines South Africa’s own tax base. The country’s elite, and South
African and foreign multinational companies within its borders exploit weaknesses in
legislation and use other secrecy jurisdictions to reduce their tax obligations in a
country with deep inequality.
The entanglement of business and state interests and the use of secrecy jurisdictions
dates to Apartheid-era sanctions busting in which many countries were complicit. The
ensnaring of the state by business interests did not stop with the end of the
Apartheid regime. In fact, the recent ‘Gupta Leaks’ reveal the extent of what is
described by some South Africans, including former Public Protector Thuli Madonsela,
as state capture.
Capital flight from South Africa and by South African companies
South African finance ministers have not shied away from calling out the problem of
capital flight. In the 2016 Budget Speech, then Finance Minister Pravin Gordhan said,
‘We will continue to act aggressively against the evasion of tax through transfer
pricing abuses, misuse of tax treaties and illegal money flows. Drawing on the work
of the OECD, the G20 joint project on base erosion and profit shifting and
independent bodies such as the Tax Justice Network, further measures will be taken to
address such revenue losses, including inappropriate use of hybrid debt instruments’.
The South African Revenue Service has indicated that the country is at very high risk
of illicit financial flows, and particularly transfer pricing, and that some of the
largest companies listed on the Johannesburg Stock Exchange, including SAB Miller and
Anglo American, have been implicated in tax avoidance stories relating to other
countries. According to South African civil society group African Monitor the
country’s legal and regulatory framework for anti-money laundering from criminal
activity and counter-terrorist financing is robust, but ‘there is little focus on
other forms of illicit financial flows, especially those perpetrated by the
South African companies which have an increasing footprint across sub-Saharan Africa
are also complicit in draining the coffers of other African nations. Telecoms giant
MTN – the largest cell phone company on the continent in terms of subscribers – has
shifted billions of Rand, for example, from its subsidiaries in Ghana, Nigeria and
Uganda through Mauritius. These countries have responded by freezing payments and
Uganda has notified the company of outstanding taxes owed.
Full report at: https://www.financialsecrecyindex.com/PDF/Mauritius.pdf
The islands of the Republic of Mauritius lie just 2,000 kilometres off the southeast
coast of Africa. Financial secrecy casts a long shadow over the idyllic sandy
beaches. In entering double taxation agreements with 43 nations, 16 of which are
African states, Mauritius enables companies and individuals to reduce their tax bill
across the world. India and many African nations suffer as a result.
Mauritius’ secrecy score of 72.35 in the Financial Secrecy Index 2018 reflects the
nation’s ongoing contribution to illicit financial flows from some of the countries
that require the public finances the most. Positioned as the ‘gateway to Africa’, 2
Mauritius is in the process of ratifying, signing, or negotiating double taxation
agreements with a further 14 African countries. Of its 11 Tax Information Exchange
Agreements, none are signed with African jurisdictions.
The Mauritian ‘miracle’: from sugar to secrecy
At independence from the British in 1968, Mauritius was a mono-crop sugar economy.
Today, financial intermediation rather than the primary commodity sector is a key
driver of the economy. In 2017, financial and insurance activities contributed 12.3%
to GDP and this has been growing at over 5% per annum since 2015. In contrast, the
sugar sector continues to contract.
To encourage export-led industrialisation and economic diversification, export
processing zones were set up in Mauritius in the 1970s with concessions to foreign
investors. Duty exemptions on imported raw materials and free repatriation of
capital, profits and dividends lured in investors and similar terms persist today.
The 1988 Banking Act laid the foundation for Mauritius’ offshore industry, while the
1992 Mauritian Offshore Business Activities Act established the country as an
‘international financial centre’. Over 20,000 global business companies were
registered in Mauritius in 2017, managed by the Financial Services Commission. Even
30 of the 100 largest US incorporated companies have entities present in Mauritius.
Global business companies may be registered in Mauritius, but they conduct most
business outside the island. Just over half of these (‘category 1’) are resident for
tax in Mauritius so can access tax treaties the country has signed.
The island state levies a general corporate tax rate of 15%, no capital gains tax and
no withholding tax on interest and royalties for global business companies. A series
of tax incentives are also given, including an 8-year tax holiday for companies with
a global headquarters administration licence. The package is sweetened further by the
absence of foreign exchange controls, thin capitalisation rules, and controlled
foreign company legislation.
Missing public money
Recent revelations in the Paradise Papers 16 build on other tales of the role
Mauritius plays in the offshore secrecy world. More than half a million of the 13.4
million secret records from offshore law firm Appleby that were investigated by over
90 media partners spearheaded came from Appleby’s Mauritius office. Many, many
stories emerged of the way companies and individuals use the network of tax treaties
and low tax regime in Mauritius to reduce their tax bill.
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