This report supports the conclusion that working in conditions of secrecy has become an inherent part of the work of bankers and accountants. Whether wittingly or unwittingly their presence in secrecy jurisdiction helps them or their clients avoid the impact of laws and regulations in those places where they undertake most of their trade. We suggest that this has led to a culture of creative non-compliance with laws and regulations that are likely to increase the volume of illicit financial flows and crime. At the same time, investment by banks and the Big 4 firms in lobbying for laws and regulations that reduce transparency is likely to have resulted in further opacity in the world’s financial system.
A statistical correlation identified in the research supports both hypotheses.
The research quantifies the number of institutions allowed to undertake banking and financial intermediation in each secrecy jurisdiction surveyed. It also identifies the number of offices in secrecy jurisdictions run by the Big 4 accountancy firms (in order of size: PricewaterhouseCoopers (PWC), Deloitte, Ernst & Young (E&Y) and KPMG) who combined dominate the world’s auditing, tax and accounting markets. Together these banks, financial intermediaries and accountants can be termed “secrecy providers”.
The authors established the number of banks or credit/financial institutions (used interchangeably in this paper) from various sources, mainly: BIS statistics5 ; Peer Review reports prepared by OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes (GF)6 ; U.S. Department of state’s International Narcotics Control Strategy Reports (INCSR)7 and, whenever in doubt about intercountry comparability, the central banks’ websites of the jurisdiction in question. The definition used means as a consequence that the number of banks may not always be fully consistent across countries because there is no single globally agreed definition of what constitutes a ‘bank’.
Four key characteristics have been used to include categories of financial institutions as banks for the purpose of this research: banks are always regulated and supervised; banks are entitled to take deposits and to grant loans in the jurisdiction of concern; banks have access to central bank deposit insurance schemes; and banks are capable of making payments and offering current accounts to the public.
The data for the presence of the Big 4 and the location of their offices was taken from the Big 4’s own websites.
- A high number of banks and Big 4 firms per capita in a jurisdiction results in them having a disproportionate political influence, and tends to lead to an increase in the financial secrecy offered by such places through law and regulations.
- There are indications that banks and accountants, on occasion, fail to meet the required standards of behaviour expected by law or codes of ethics.
- Designing commercial tax abuse schemes and turning a blind eye upon suspicious transactions have become an inherent part of the work of bankers and accountants.