The Tax Justice Network has published its new Financial Secrecy Index this morning.
One of the issues on which it is surprisingly vague is just what a secrecy jurisdiction is. In the supporting narrative they say:
We use the term ‘secrecy jurisdiction’ interchangeably with the term ‘tax haven’ — depending on which aspect of a jurisdiction we want to emphasise. So for this project we generally prefer the term ‘secrecy jurisdiction.’
There is no generally agreed definition of what tax havens or secrecy jurisdictions are: the phenomenon has many different aspects and no definition captures them all. So we do not offer our own formal definition - though we do take a broad view of the phenomenon. Loosely speaking, a secrecy jurisdiction provides facilities that enable people or entities escape (and frequently undermine) the laws, rules and regulations of other jurisdictions elsewhere, using secrecy as a prime tool.
I admit I think that this is wrong. First of all there is a definition of secrecy jurisdictions. I offered it for the Tax Justice Network when creating the methodology for the Financial Secrecy Index in 2009 in a paper I wrote then entitled 'Defining the Secrecy World: Rethinking the language of ‘offshore’ '. The use of the term secrecy jurisdiction since that time is pretty much down to the work I did in that paper which said that there are two parts to the definition of a secrecy jurisdiction:
Firstly, secrecy jurisdictions create regulation that they know is primarily of benefit and use to those not resident in their geographical domain.
Second, secrecy jurisdictions create a deliberate, and legally backed, veil of secrecy that ensures that those from outside that jurisdiction making use of its regulation cannot be identified to be doing so.
I said then that these characteristics in combination define a secrecy jurisdiction. That remains my view now. I am not sure why the Tax Justice Network is no longer sure.
What I am now quite certain about is that the term does not mean a place is a tax haven, although in many cases it will be. So, for example, Ireland comes 47th on the FSI but has a low secrecy score of just 37. That does not, in my view make it a secrecy jurisdiction. But it has massive financial flows. That's because it is very obviously a tax haven. The two are distinct and very obviously different on occasion, and that now needs to be said.
It is undoubtedly true that in most (but not all) of the top secrecy jurisdictions listed by TJN secrecy is fundamental to their being a tax haven - and that is true of all the UK's Crown Dependencies and Overseas Territories, for example - but to suggest the terms are synonymous is, as experience has shown, just wrong. I am sorry that this impression is now being given because I do not think it correct.