Secrecy Jurisdictions’ Spheres of Influence and International Cooperation Against Tax Avoidance: The Bilateral Financial Secrecy Index

The Lux Leaks, Panama Papers, Paradise Papers and other recent offshore leaks have increased public pressure on governments to cooperate internationally against tax avoidance and to implement financial transparency measures. As examples of these measures we consider the bilateral tax information exchange agreements countries sign with each other as well as EU member states’ tax haven blacklists. We compare these proclamatory indicators of which tax havens are considered important by other countries with an indicator of which tax havens empirically pose the most important threat in providing financial secrecy. To that objective we estimate a newly developed Bilateral Financial Secrecy Index for each country and thus identify which secrecy jurisdictions are important for which countries, income groups and regions. Generally, we observe a high degree of heterogeneity across secrecy jurisdictions. According to our results, only Jersey and Luxembourg seem to be secrecy jurisdictions of importance to all income groups, while four of the top ten secrecy jurisdictions for low-income countries do not appear in any other top ten grouping. Through regional analysis, four major regional secrecy hubs emerge (Mauritius, Singapore, United Arab Emirates, United States) and five minor hubs (the Bahamas, Bahrain, the Cayman Islands, Jersey, Luxembourg). We find that OECD member countries provide more than half the world's financial secrecy and that they provide most financial secrecy to all income groups, including the poorest ones; whereas low- and lower-income countries provide a very small share of global financial secrecy. Overall, the provision of secrecy seems to be much more concentrated in high income countries than is the exposure to secrecy – a relationship which does not hold for lower middle and low-income groups. We compare the results of the Bilateral Financial Secrecy Index with the information exchange agreements and the blacklists of tax havens to reveal cases when the policies are well-aimed and when not. We discuss the implications of this new geography of financial secrecy for further research and policy recommendations - the results point policy makers' limited resources and attention towards the most relevant secrecy jurisdictions for given countries.