Ref. Ares(2018)1325259 - 09/03/2018 Financial Secrecy Index 2018 Methodology Including Statistical Audit by Joint Research Centre of the European Commission1 Tax Justice Network2 Abstract: This paper explains the construction of the qualitative and quantitative components of the Financial Secrecy Index (FSI) 2018. The qualitative component is composed of 20 Key Financial Secrecy Indicators. The paper explains what each measures, including any methodological changes since FSI 2015, what the underlying data sources are, and how the overall secrecy scores are calculated. Questions of research principles and process are also addressed. With respect to the quantitative component, the underlying data sources and methods for data extrapolation are explained. The combination of the qualitative and quantitative components is then detailed. Furthermore, the results of the statistical audit by the Joint Research Centre of the European Commission are presented. Finally, the Annex provides the quantitative datasets used for the calculation of the FSI 2018. The project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 727145 1 The chapter on the results of the statistical audit of the FSI was written by William Becker and Michaela Saisana. 2 This paper is based to some extent on materials published in 2009, 2011, 2013 and 2015 on www.financialsecrecyindex.com/ and on some occasions uses its text without explicitly highlighting this fact. It is deemed appropriate since the authorship is broadly the same. The creation of the FSI 2018 and its methodology was a team effort by far too many experts to thank individually, and we are grateful to all. Closely involved in drafting (parts) of this methodology were Alex Cobham, Andres Knobel, Lucas Millan-Narotzky, Miroslav Palanský, Moran Harari and Petr Janský. All remaining errors are the responsibility of Markus Meinzer. Financial Secrecy Index 2018 Methodology Contents 1. Summary .............................................................................................................................3 2. The Qualitative Component: Secrecy Scores..........................................................................6 2.1 Main Changes 2015-2018 .................................................................................................6 2.2 Underlying Data and Procedural Issues ............................................................................8 2.3 Guiding Methodological Principles ...................................................................................9 2.4 Secrecy Score ................................................................................................................. 10 3. The 20 KFSIs 2018 ................................................................................................................ 11 3.1 KFSI 1 – Banking Secrecy ............................................................................................... 13 3.2 KFSI 2 – Trust and Foundations Register ....................................................................... 19 3.3 KFSI 3 – Recorded Company Ownership ....................................................................... 25 3.4 KFSI 4 – Other Wealth ................................................................................................... 33 3.5 KFSI 5 – Limited Partnership Transparency ................................................................... 46 3.6 KFSI 6 – Public Country Ownership ............................................................................... 55 3.7 KFSI 7 – Public Company Accounts ................................................................................ 63 3.8 KFSI 8 – Country-By-Country Reporting ........................................................................ 66 3.9 KFSI 9 – Corporate Tax Disclosure ................................................................................. 77 3.10 KFSI 10 – Legal Entity Identifier ................................................................................... 85 3.11 KFSI 11 – Tax Administration Capacity ........................................................................ 91 3.12 KFSI 12 – Consistent Personal Income Tax .................................................................. 97 3.13 KFSI 13 – Avoids Promoting Tax Evasion ................................................................... 105 3.14 KFSI 14 – Tax Court Secrecy ....................................................................................... 111 3.15 KFSI 15 – Harmful Structures ..................................................................................... 117 3.16 KFSI 16 – Public Statistics .......................................................................................... 126 3.17 KFSI 17 – Anti-Money Laundering ............................................................................. 129 3.18 KFSI 18 – Automatic Information Exchange .............................................................. 133 3.19 KFSI 19 – Bilateral Treaties ........................................................................................ 141 3.20 KFSI 20 – International Legal Cooperation ................................................................ 146 4. Quantitative component: Global Scale Weights ............................................................... 153 5. The FSI – Combining Secrecy Scores and Global Scale Weights ........................................ 158 6. The JRC Statistical Audit of the Financial Secrecy Index 2018 ........................................... 163 Summary ............................................................................................................................ 163 6.1 Construction of the Financial Secrecy Index ............................................................... 163 6.2 Exploring the data ....................................................................................................... 168 1 2018 © Tax Justice Network Financial Secrecy Index 2018 Methodology 6.3 Transformation and Aggregation ................................................................................ 175 6.4 Communicating the FSI results .................................................................................... 186 6.5 Robustness .................................................................................................................. 187 6.6 Conclusions .................................................................................................................. 190 References ......................................................................................................................... 192 Appendix ............................................................................................................................ 192 7. TJN’s Response to JRC Audit .............................................................................................. 195 Literature ............................................................................................................................... 199 Annexes ................................................................................................................................. 203 Annex A: FSI 2018 - Ranking of 112 Jurisdictions1 ............................................................. 203 Annex B: Assessment Logic of 20 KFSIs, all details ........................................................... 207 Annex C: Detailed breakdown of results for 20 KFSI ......................................................... 226 Annex D: Secrecy Scores, alphabetical order .................................................................... 230 Annex E: Secrecy Scores, descending order ...................................................................... 231 Annex F: Global Scale Weights, alphabetical order ........................................................... 232 Annex G: Global Scale Weights, alternatives .................................................................... 233 G.1.1: GSW18A - Trade in financial services ...................................................................... 234 G.2: Using FDI data ............................................................................................................ 236 G.3: Using CPIS derived liabilities ...................................................................................... 237 G.4: Using trade in services data ....................................................................................... 237 G.5: Using trade in goods data .......................................................................................... 237 G.6: Using bank deposit data ............................................................................................ 238 G.7: GSWα ......................................................................................................................... 238 G.9: Summary .................................................................................................................... 239 2 2018 © Tax Justice Network Financial Secrecy Index 2018 Methodology 1. Summary The Financial Secrecy Index (FSI) uses a combination of qualitative data and quantitative data to create a measure of each jurisdiction’s contribution to the global problem of financial secrecy. Qualitative data based on laws, regulations, cooperation with information exchange processes and other verifiable data sources, is used to prepare a secrecy score for each jurisdiction.