In 2009 the Tax Justice Network published its first Financial Secrecy Index, a project I directed in its first iteration (but not since). It was, as a result, at least to me, quite critical that it be explained why secrecy was (and remains) the key issue of concern with regard to the activities that the locations in question facilitate and deliberately permit.
To put this in context, for the TJN that secrecy has always been key to tax abuse.
For others, such as Global Witness, the key issue has been corruption.
Crime has, of course, always been an issue of concern for others: that is the focus of much money laundering attention.
However, the paper I wrote to explain the significance of secrecy jurisdictions highlighted what I think to be an issue if even greater concern that has not, as yet, received the attention it deserves. My paper was called 'Defining the Secrecy World: Rethinking the language of ‘offshore’. It was successful in one way: my use of the term secrecy jurisdiction has become widespread as a result, although I stress, I did not coin it; I did instead give it a clear definition.
However, what I really sought to do was describe what I called the 'secrecy space' within the 'secrecy world'. I argued was in 2009, and still think now, that this relationship is fundamental to the way in which global capitalism works. I did, as a result argue, that a major misconception about financial transparency concerns the assumption that this 'secrecy world' where so much of the world's trading and the vast majority of its shadow banking is recorded is geographically located: it is not. As I wrote then:
it is instead a space that has no specific location. This space is created by tax haven legislation which assumes that the entities registered in such places are ‘elsewhere’ for operational purposes, i.e. they do not trade within the domain of the tax haven, and no information is sought about where trade actually occurs… To locate these transactions in a place is not only impossible in many cases, it is also futile: they are not intended to be and cannot be located in that way. They float over and around the locations which are used to facilitate their existence as if in an unregulated ether.
That thinking is key to much if what I seek to do. I stress though; I am not saying these transactions are not recorded. Those of big commercial organisations (at least) are, necessarily, recorded. Even many of the criminal ones are recorded, at least so far as they impact on banking. The key point is not that: the key issue is that they are recorded in places where they do not occur which have decided for their own purposes that they are indifferent to the consequences of the transactions on this places where they actually have economic impact.
So, for example, no one really thinks there are hedge funds based in Cayman. We all know that the hedge fund managers in Mayfair and New York really operate these funds. But Cayman provides the secrecy jurisdiction that permits the creation of the secrecy space in which these transactions can take place, apparently unaccountably to anyone. That's the significance of 'elsewhere' in the language of offshore that I created. It means that transactions are recorded that are known to have significance 'elsewhere' but with no question being asked about where that other place might be, or what the consequence for that place that might flow from them are.
Let me give another example. Google claims to sell advertising from Ireland to Indian advertisers. No one really believes that the economic substance of these transactions arises in Ireland. Google, we now know from UK Public Accounts Committee hearings, employs local marketing teams around the world on relatively higher salaries than are paid to the Irish team who supposedly close these sales. As Margaret Hodge MP clearly concluded, it is with those local marketing organisations that the economic substance of these transactions lies. It's an affront to our intelligence for it to be claimed otherwise, and it's that arrogance of that claim that has harmed Google's reputation. But Ireland has created a secrecy jurisdiction that permits these transactions to be recorded without concern for the economic consequences or facts 'elsewhere'. And it is, let's be clear, secret: we do not know those consequences and that is not by chance; it is by design. It so happens that Google's accounts, prepared as they are on a consolidated basis, which mean many transactions material to understanding its affairs are hidden from view, that facilitate this process.
That is why we need country-by-country reporting: we need to know what the consequences of these secrecy spaces are. We can measure it only be the shadows it leaves: that is the mismatch between what we know from prima facie evidence occurs (the sales by Google in India and many other countries) and the story told that this is not the case in the accounts of Google.
Tax havens claim they are ceasing to have that status. The claim is that automatic information exchange will end their harmful practices. I dispute that. Tax evasion is only one of the harmful practices they permit. The permission they grant to the world's multinational corporations to operate unaccountably through the secrecy spaces they create may well be as pernicious, or worse. That secrecy has to be removed because it is what is undermining democracy, our way of life, our economic well being and the services we need to survive as communities. The battle against secrecy jurisdictions has a long way to go yet.
Note: The definition I gave to secrecy jurisdictions was:
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.