Is Panama really your tax haven? Secrecy jurisdictions and the countries they harm

Abstract

Secrecy jurisdictions provide opportunities for nonresidents to escape the laws and regulations of their home countries by allowing them to hide their identities. In this paper we quantify which jurisdictions supply secrecy to which countries and assess how successful countries are in targeting that secrecy with their policies. To that objective, we develop the Bilateral Financial Secrecy Index (BFSI) which maps the financial secrecy faced by 82 countries and supplied to them by 131 jurisdictions, thus providing the study of the world of financial secrecy with unprecedented nuance. We then use the BFSI to evaluate the progress of two recent policy initiatives designed to curb financial secrecy: automatic information exchange (AIE) and the blacklisting of noncooperative jurisdictions. By embedding the role of power in the center of our analytical framework, we reconcile the apparently conflicting findings of the existing literature on the effectiveness of these policies. We show that secrecy jurisdictions engage in selective resistance depending on whom they are dealing with, and that the hypocrisy of Organisation for Economic Co-Operation and Development member countries lies at the heart of the design and operation of the AIE system and the blacklisting exercise. We argue that focusing policy on the most relevant secrecy jurisdictions, which – despite its pivotal role in recent offshore document leaks – only rarely include Panama, would enable countries to more effectively mitigate the harm caused by financial secrecy.