What are the politics of secrecy?

Many jurisdictions listed in the FSI are commonly described as tax havens, and tax havens are often perceived to be small palm-fringed islands filled with sleazy law firms, motor yachts and numerous brass plates of shell companies. Sunny places for shady people.  

The FSI reveals a much richer and more complex political story. The world’s biggest players in the supply of financial secrecy are mostly not the tiny, isolated islands of the popular imagination - but rich nations: mostly either members of the Organisation for Economic Co-operation and Development (OECD) or ‘satellites’ of OECD countries, particularly Britain.

We are also particularly concerned about the United States, as well as several countries on the European continent: Luxembourg, Switzerland and (yes) Germany are also in our top 10. OECD member countries and their various dependencies account for well over 80 percent of the global market in offshore financial services.

Chart 1 illustrates the issue.

KEY for both charts

Red indicates exceptionally secretive; dark green indicates moderately secretive. Country codes are here.

This has important implications. The G20 group of countries have given the Paris-based OECD responsibility for tackling financial secrecy and secrecy jurisdictions (or tax havens). The OECD has played a pivotal role not just in terms of secrecy, but in setting the global terms of corporate tax, tax treaties and more.

Misunderstanding geography

Quite often, when one country tries to crack down on another country's predatory activities this is portrayed as a "battle" between two countries. For example, when the United States began arresting Swiss bankers in 2008, this framing of the problem was very helpful for Swiss bankers, who were able to rally most of the nation behind them by portraying an image of plucky Alpine defenders facing the big American bully. But this 'geographical view' is misleading. It is important to change the frame of reference. This was most importantly not a battle about one country versus another, but about the politics of wealth. This particular fight is better understood as a struggle between wealthy U.S. tax evaders and criminals and their financial enablers (in Switzerland and elsewhere) - against ordinary U.S. taxpayers and the rule of law. It is essentially the same story in all other countries.

The politics of secrecy is thus a fascinating and complex tale, then, about power struggles between rich nations and poor nations, on the one hand, and between wealthy, law-escaping élites and ordinary folk inside countries, on the other: and often a combination of the two.