Secrecy indicators

The Financial Secrecy Index is a ranking of jurisdictions based on combining a qualitative measure (a secrecy score, based on 20 secrecy indicators) with a quantitative measure (the global weighting to give a sense of how large the offshore financial centre is). The secrecy score and the weighting are arithmetically combined with a special formula - the cube of a jurisdiction's secrecy score is multiplied by the cube root of its global scale weight - to create the final score, which is then used for the FSI ranking. Full details of our methodology are available here.

Below are the twenty secrecy indicators that we have used to assess jurisdictions. Click on each one for a detailed description of the indicator. Below this list is a short summary of each indicator.

  1. Banking Secrecy
  2. Trusts and Foundations Register
  3. Recorded Company Ownership
  4. Other Wealth Ownership
  5. Limited Partnership Transparency
  6. Public Company Ownership
  7. Public Company Accounts
  8. Country-by-Country Reporting
  9. Corporate Tax Disclosure
  10. Legal Entity Identifier
  11. Tax Administration Capacity
  12. Consistent Personal Income Tax
  13. Avoids Promoting Tax Evasion
  14. Tax Court Secrecy
  15. Harmful Structures
  16. Public Statistics
  17. Anti-Money Laundering
  18. Automatic Information Exchange
  19. Bilateral Treaties
  20. International Legal Cooperation
  

"You’ve treated my country unfairly!"

The Financial Secrecy Index (predictably) gets attacked by the secrecy jurisdictions. The most common attacks are below – here they are, with our generic responses.
“You are x-bashing” (e.g. “Swiss-bashing.”)
  No we aren’t. We “bash” everyone. Read, for example, the UK or US reports before levelling that accusation.
“We’ve been peer-reviewed by abc and they say we smell of roses!”
  We do not use ‘accepted international standards’ as our benchmarks. We want things to improve, so we set a higher bar. Tough luck.
“You haven’t taken our xyz recent reform into account !”
  In almost all cases, this is because we have a clear cut-off date (generally, end of September) to enable us to compare countries fairly. We give no special treatment on this. Your reforms probably would not affect your country’s ranking anyway, not least because most other countries are improving too. We will include your reforms in the next edition of the Financial Secrecy Index.
“There isn’t any data.”
  That may be because you are focussing on the narrative reports. Those are political and economic histories. You need to consult the database reports. They are available here.

 

A short summary of each secrecy indicator

Our 20 secrecy indicators can be grouped around four broad dimensions of secrecy, which overlap to some extent. These are A) ownership registration; B) legal entity transparency; C) integrity of tax and financial regulation; and D) international standards and cooperation. Here is a very brief summary of each. 

The summaries below skirt over many nuances; if you disagree with a jurisdiction's assessment, make sure you consult the detailed indicator above, not the summary below.

A: Ownership Registration

There can be a considerable distinction between the legal owner of an asset and the beneficial owner. Essentially, the beneficial owner or owners are the warm-blooded humans who ultimately control or have the power to enjoy the asset or benefits derived from the asset. Quite often, the legal owner is a different person or people: for example, the trustee of a trust is technically the legal owner of the assets in the trust, but they may only manage the trust assets under precise instructions; the trustee cannot take personal benefits from the trust (other than fees for services provided).

Indicator 1: Banking Secrecy 

This measures the extent to which relevant information about the beneficial owners of bank accounts must be recorded, verified and maintained by the relevant bank, and if this is shared with competent local authorities to allow information exchange. This information must be readily accessible without too many hurdles (such as requiring a court order) placed in the way of access. Furthermore, prison terms should not apply even if banking secrecy is breached and large transactions should routinely be reported to a government agency.

Indicator 2: Trusts and Foundations Register

This indicator looks at the extent to which a jurisdiction records and publishes details about the various parties to trusts and/or private foundations in a central register on the internet. Because it can be hard to pin down exactly who the beneficial owner of a legal structure really is, we require registries to reveal all relevant parties of these arrangements. Alternatively, not all jurisdictions' laws provide for the creation of private foundations, which is created as if foundations were made fully transparent. 

Indicator 3: Recorded Company Ownership 

This indicator assesses whether a jurisdiction requires all limited liability companies to submit legal and/or beneficial ownership information upon incorporation to the relevant government authority, and to keep it updated. This indicator does not consider whether or not this information is made public. 

Indicator 4: Other Wealth Ownership

This indicator assesses the ownership transparency of real estate and of valuable assets stored in freeports. Regarding real estate, it checks whether a jurisdiction requires online publication of the beneficial and/or legal owners of real estate for free or against a fee. Regarding freeports, it analyses whether a jurisdiction offers and promotes its freeports (or similar venues such as bonded warehouses) for the storage of 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.

Indicator 5: Limited Partnership Transparency

This indicator sits between section A (ownership registration) and B (legal entity transparency) as it integrates two aspects of the transparency of limited partnerships. Regarding beneficial ownership and/or legal ownership it assesses whether a jurisdiction requires all types of limited partnerships to publish ownership online for free or against a fee. Regarding annual accounts, it checks whether all limited partnerships are required to file their annual accounts with a governmental authority/administration and to make them accessible online for free or against a fee.

 

B: Legal Entity Transparency

Beyond the registration of necessary information with public authorities, the availability of such information to the general public is essential to make sure that powerful players such as multinational businesses and global elites are held accountable. Ownership, structure and accounting data is not only relevant to investors, but also to the wider public. Making such data available online allows the timely access to accurate information to investigative journalists and researchers, and ensures a more predictable and transparent business environment.

Indicator 6: Public Company Ownership

This indicator considers whether a jurisdiction requires all available types of companies with limited liability to publish updated beneficial ownership and/or legal ownership information on public records accessible for free via the internet, for free or against a fee. This indicator only assesses companies which are not listed on a public stock exchange.

Indicator 7: Public Company Accounts

This indicator considers whether a jurisdiction requires all available types of company with limited liability to file their annual accounts with a governmental authority/administration and to make them accessible online for free or against a fee.

Indicator 8: Country by Country Reporting

This indicator measures whether the companies listed on the stock exchanges or incorporated in a given jurisdiction are required to publish publicly worldwide financial reporting data on a country by country reporting basis.

Indicator 9: Corporate Tax Disclosure

This indicator considers three aspects of a jurisdiction’s rules on corporate tax disclosure. Regarding global country-by-country reports (CbCR), and related to OECD’s BEPS Action 13, it assesses whether a jurisdiction ensures its own access to the CbCR of any foreign Multinational Enterprises with domestic operations and over EUR750 million global consolidated turnover. Regarding unilateral cross-border tax rulings, the indicator assesses whether all unilateral cross-border tax rulings are published online for free, or if at least some are made available upon payment of a fee. Regarding extractive industries contract disclosure, the indicator assesses whether a jurisdiction publishes extractive industries (mining and petroleum) contracts online for free and if contract disclosure is required by law.

Indicator 10: Legal Entity Identifier

This indicator reviews the extent to which a jurisdiction requires domestic legal entities to use the Legal Entity Identifier (LEI). A global LEI system has been developed under the guidance of the Financial Stability Board and provides a unique identification number for legal entities engaging in financial transactions. Sometimes labelled a global business card for legal entities, all legal entities incorporated in any country can apply for and use a LEI. 

 

C: Integrity of tax and financial regulation

Various institutional or structural factors encourage damaging economic behaviour worldwide. For instance, if a tax administration does not have the means to enforce local tax laws, this fosters a culture of non-compliance. If a jurisdiction has lenient tax residency and citizenship rules and no comprehensive personal income taxes, it may invite non-residents to take up fake residency to continue evading taxes by frustrating automatic information exchange. Finally, the availability of large banknotes equips its user with anonymous means of payment.

Indicator 11: Tax Administration Capacity

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 most means and opportunities to escape their tax obligations. 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.

Indicator 12: Consistent Personal Income Tax

This indicator analyses whether a jurisdiction applies a personal income tax regime which is compatible with the (progressive) income tax systems of most jurisdictions worldwide, or if its laws provide laxity around citizenship and/or residency, and if its personal income tax legislation is narrow in scope, resulting in financial secrecy sinks for tax dodgers and criminals. Two dimensions of a jurisdiction’s legal framework are jointly analysed – if the personal income tax regime is comprehensive, and whether a jurisdiction‘s citizenship or residency status can be acquired against a passive investment or payment.

Indicator 13: Avoids Promoting Tax Evasion

This indicator considers whether a jurisdiction facilitates tax avoidance and encourages tax competition with its treatment of capital income in local income tax law. The indicator assesses 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. The types of capital income included are interest and dividend payments. 

Indicator 14: Tax Court Secrecy

This indicator assesses the openness of a jurisdiction’s judicial system in tax matters, by analysing two relevant aspects. Regarding the openness of court proceedings in civil/administrative and criminal tax matters, it evaluates whether the public always has the right to attend the full proceedings and cannot be ordered to leave the court room when a party invokes tax secrecy, bank secrecy, professional secrecy or comparable confidentiality rules. With respect to public availability of verdicts or judgements, the indicator assesses whether all written decisions resulting from civil/administrative or criminal tax proceedings are published online for free or against a fee.

Indicator 15: Harmful Structures

This indicator assesses the availability of four harmful instruments and structures within the legal and regulatory framework of a jurisdiction. With respect to large banknotes, the indicator considers whether a jurisdiction issues or accepts the circulation of large banknotes of its own currency, of value greater than EUR/GBP/USD 200. Regarding bearer shares, it assesses whether companies are available with unregistered bearer shares. Regarding “series limited liability companies” (Series LLCs) or “protected cell companies” (PCCs), the indicator considers whether a jurisdiction allows the creation of such companies. Finally, and with respect to trusts, the indicator assesses whether a jurisdiction prohibits the administration of (foreign or domestic law) trusts with flee clauses for any trustee within its territory. 

Indicator 16: Public Statistics

This indicator measures the degree to which a jurisdiction makes publicly available ten relevant statistical datasets about its international financial, trade, investment and tax position.

 

D: International standards and cooperation

Financial globalisation has increasingly meant that countries need to co-operate and share information about each other’s taxpayers, if they are to tax and police their citizens and criminals effectively. Some co-operation mechanisms are bilateral, while several multinational initiatives are either in place or under preparation. The research in this section draws on the recommendations issued by the Financial Action Task Force, and considers multilateral agreements and standards developed by the Organisation for Economic Cooperation and Development, and the United Nations.

Indicator 17: Anti-Money Laundering

This indicator examines the extent to which the anti-money laundering regime of a jurisdiction is failing to meet the recommendations of the Financial Action Task Force , the international body dedicated to counter money laundering.

Indicator 18: Automatic Information Exchange

This indicator assesses (1) whether jurisdictions have signed the Multilateral Competent Authority Agreement (MCAA) which provides the multilateral legal framework to engage in automatic exchange of information (AEOI) pursuant to OECD’s Common Reporting Standard (CRS), (2) with how many other jurisdictions information exchange takes place under the MCAA, (3) to what extent hurdles are placed in the way of effective information exchange under the MCAA, 4) to what extent it is improving the transparency and use of AEOI data, and (5) whether a jurisdiction engages in a pilot project to assist developing countries.

Indicator 19: Bilateral Treaties

This indicator examines the extent to which a jurisdiction has entered into 10effective information exchange relationships conforming to the ‘upon request’ standard developed by the OECD and the Global Forum. The number of 108 stems from the number of jurisdictions that (as of November 2019) have adhered to the multilateral Amended Council of Europe / OECD Convention on Mutual Administrative Assistance in Tax Matters (“Tax Convention”) which enables information exchange upon request among adherent country pairs.

Indicator 20: International Legal Cooperation

This indicator measures the extent to which a jurisdiction participates in international transparency commitments and engages in international judicial cooperation on money laundering and other criminal matters. While the former considers the adherence of a jurisdiction to international commitments such as the 2003 UN Convention against Corruption or the 1999 UN International Convention for the Suppression of the Financing of Terrorism, the latter assesses cooperation along the guidelines of the Financial Action Task Force, including aspects such as mutual legal assistance and extradition requests in relation to money laundering.