Finding the Secrecy World

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As some people are aware, one of my major activities at present is co-directing a research project for the Tax Justice Network which is being funded by the Ford Foundation. This project is called Mapping the Faultlines and the aim is to identify where and how illicit fund flows take place.

One of the initial significant problems that we have faced is in defining the language that is used to describe what is colloquially called the offshore world, even though no one knows what 'offshore' means.

As a result of that effort I tried to offer precise definitions of what I thought the terms tax haven and offshore financial centre might mean in the Tax Justice Network publication, Creating Turmoil, sent to the Treasury Select Committee in July this year. In that report I said:

Tax havens are places that create legislation designed to assist persons - real or legal - to avoid the regulatory obligations imposed upon them in the place where they undertake the substance of their economic transactions.

Offshore financial centres are not the same as tax havens. OFCs are the commercial communities hosted by tax havens which exploit the structures that can be created using the tax haven's legislation for the benefit of those resident elsewhere.

Given that no one seems able to offer more precise definitions than this, and given that these definitions are distinct and have value in use I remain of the opinion that they are a benefit, but it is apparent from subsequent discussion that almost no one is willing to give up their own view of what a tax haven or OFC is. In addition, the IMF has also, since I wrote Creating Turmoil, decided to drop the term offshore because of the ambiguity inherent in the term.

That does not mean the problem that these terms seek to describe has gone away. Far from it: we know that if anything it is becoming more significant, not least because the efforts to close it down are becoming more proactive.

In that case I have begun to develop a new language for the 'offshore' world. And I'm off to Montr?©al today to lecture on the subject, and will be repeating the performance at a conference in London in two weeks time. The paper I am presenting is here, and the slides here.

The point is not just about language though. It's about appreciating that the existing language that has been used has severely restricted the way in which regulation has taken place. That regulation has focused upon the activities that take place within a secrecy jurisdiction (our new preferred term for taxation, and which is also used by the likes of Carl Levin in the USA). The important point about it is that secrecy jurisdictions deliberately create law for use outside their domain and the secrecy providers (that is, the accountants, lawyers and bankers who work within secrecy jurisdictions) use that law to provide secret structures for the use of people resident elsewhere which become wholly unaccountable as a result, and for which they deny any responsibility. These structures do, therefore, operate in what we call the secrecy space, which some might in the past have called offshore, although inappropriately.

This secrecy space is not in the secrecy jurisdiction. In fact, that is the last place to look for it because it is very definitely, and deliberately not intended to be there. But the secrecy jurisdiction also, and deliberately, does not ask where the structures that it creates actually are. As far as they're concerned they are simply "elsewhere". The secrecy space is the " elsewhere" they ignore.

This means that the focus of regulation with in the secrecy world (the combined term for secrecy jurisdictions, secrecy providers and the secrecy space) has to change. It is entirely true that the secrecy jurisdictions are now reasonably well regulated. This however is completely irrelevant if we are seeking to tackle money-laundering, terrorist financing, tax evasion and financial instability. Those activities are all undertaken 'elsewhere' but no one knows where, except the secrecy providers, and as such it is the secrecy providers and not secrecy jurisdiction who now have to be the focus of attention (without in any way reducing the pressure on the jurisdictions themselves).

Read the paper I think you'll get the argument. It is one I will be returning to the time and again. I will also put up a glossary of this language is since I have time available.