How does secrecy affect market economies?

Secrecy jurisdictions are not a peripheral issue but one of the most important facets of globalised financial markets. 

The top six jurisdictions in the Financial Secrecy Index account for just over half of the global trade in offshore financial services. According to some measures, over half of banking assets and liabilities are routed through secrecy jurisdictions; more than half of world trade passes (on paper) through them; virtually every major multinational company uses secrecy jurisdictions for a variety of unspecified purposes, and at least US$21 trillion of private financial assets are held in offshore structures worldwide, largely escaping taxes, criminal laws, financial regulation, and disclosure.

Secrecy distorts markets because it shifts investments and financial flows away from where they will be most productive and towards where the owners of capital can extract the greatest gains from secrecy. It hinders effective regulation and law-making, and enables rent-seeking, as insiders reap the gains from global markets while shifting the costs and risks on to the shoulders of others. The result of this distortion and corruption of markets is a world of steepening inequality, rampant financial crime, and impunity for elites in rich and poor countries alike. 

By identifying the providers of secrecy, the Financial Secrecy Index turns the spotlight on the jurisdictions that prevent international trade and markets from benefiting the majority of the world’s population. 

Secrecy jurisdictions also played a central role in fostering the conditions for the most recent global financial crisis, and served as the main cross-border transmission belt for shocks and contagion during the various stages of crisis. Read more about all this here.