EU blacklist adds Cayman but addresses only 7% of global financial secrecy, while UK’s ‘Singapore on Thames’ threat looks increasingly self-defeating
The EU will add British territory Cayman to a blacklist of non-cooperative jurisdictions on Tuesday, firing a shot across the City of London’s bow while leaving other major enablers of financial secrecy off the list. The EU’s updated list will address countries responsible for supplying just 7.4 per cent of the world’s financial secrecy, as measured by the Tax Justice Network’s Financial Secrecy Index 2020. Cayman, which is expected to rank among the biggest suppliers of financial secrecy when the Financial Secrecy Index is published this evening, alone supplies nearly 5 per cent of the world’s financial secrecy.
The EU blacklist identifies jurisdictions that the EU deems to be in breach of international standards for financial transparency and cooperation against corporate tax abuse. The EU has announced the addition of Cayman, Panama, Palau and Seychelles to the blacklist, which had already included: American Samoa, Fiji, Guam, Oman, Samoa, Trinidad and Tobago, the US Virgin Islands, and Vanuatu.1
Despite the addition of one of the world’s greatest supplier of financial secrecy, the EU’s blacklist continues to fail to address other super suppliers of financial secrecy, including the US, Switzerland and EU member states. EU member states together supplied roughly a third of global financial secrecy in 2020, according to the upcoming Financial Secrecy Index, meanwhile the EU blacklist in all its versions has never covered as much as 10 per cent of global financial secrecy. The below chart shows the share of global financial secrecy covered by the current and previous versions of the EU’s blacklist and greylist. The greylist has been sharply cut since November 2019, with many jurisdictions now given a free pass.
What follows Brexit for the world’s biggest financial secrecy network?
The UK’s network of Crown Dependencies and Overseas Territories would, if taken as a single entity, have topped every previous of the Financial Secrecy Index. Often referred to as the UK spider’s web, the network is made up of Overseas Territories and Crown Dependencies where the UK has full powers to impose or veto lawmaking, and where powers to appoint key government officials rest with the British Crown. At the centre of the network is the City of London, which receives and launders wealth brought in by the satellite jurisdictions.
British dependencies are all expected to score as more secretive by the Financial Secrecy Index than at least some of the jurisdictions blacklisted by the EU. Most of the dependencies are expected supply more financial secrecy to the world than the jurisdiction blacklisted by the EU. With the UK now unable to lobby the EU – as a member state – on behalf of its network, the prospects of blacklisting are likely to grow. At the same time, the EU has maintained its consistent position that the UK’s own financial services sector will not be able to maintain access to the Single Market if the UK itself pursues its stated policy of cutting taxes and financial regulations, dubbed ‘Singapore on Thames’.
As the EU’s chief negotiator, Michel Barnier, put it: “…people in the United Kingdom bearing authority […] should not kid themselves about this – there will not be general, open-ended, ongoing equivalence in financial services.”2
Alex Cobham, chief executive at the Tax Justice Network, said:
“The UK government is threatening not ‘Singapore on Thames’ but ‘Cayman on steroids’ – a reckless race to the bottom on tax and financial regulation, in pursuit of global dirty money. The EU has been clear that this will threaten the City’s market access, and while the UK would ultimately benefit from rebalancing its economy away from finance, to go down this road while manufacturing is already exposed to a major shock risks aggravating the economic and human costs of Brexit quite needlessly.
“The other threat of the EU blacklist, and its politically biased application, is that it risks forcing lower-income countries to align their standards with OECD measures over which they had no influence, and which may not be appropriate to their needs.
“The EU has blacklisted the crown jewel of the UK’s tax haven network while letting other major tax havens off the hook. Cayman is one of the world’s greatest supplier of financial secrecy according to our Financial Secrecy Index, which will be published later today. Countermeasures must be taken against the money laundering and tax abuse that Cayman enables. But equal countermeasures must also be taken against the other super suppliers of financial secrecy like the US and Switzerland, and indeed some of the EU’s own member states – the EU must be willing to confront secrecy wherever it originates.
“The EU’s blacklisting of Cayman signals the end of carte blanche for UK secrecy post-Brexit, which has used the City of London and its network of Overseas Territories and Crown Dependencies to siphon and launder huge sums of dirty money from around the world for decades. The UK government is threatening not ‘Singapore on Thames’ but ‘Cayman on steroids’ – a reckless race to the bottom on tax and financial regulation, in pursuit of global dirty money. This would have damaging consequences for the UK as well as internationally, but it may prove to be the EU threat of blacklisting that actually saves the UK from itself.”
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The 2020 edition of the Financial Secrecy Index will be published at 18:00 CET on Tuesday 18 February 2020. The index provides a global ranking of countries most complicit in helping individuals to hide their finances from the rule of law. The Financial Secrecy Index 2020 reports progress on global transparency, but backsliding from the US, Cayman and the UK have prompted calls for sanctions. Press release is available on request.
Notes to Editor
- Read the EU’s announcement on the revised blacklist here.
- Michel Barnier quoted in https://www.independent.co.uk/news/uk/politics/brexit-deal-financial-services-eu-michael-barnier-sajid-javid-a9329026.html.