Mapping Financial Secrecy

A safe harbour provision is granted under statute or a regulation on the condition that the party performed its actions in good faith. In effect they excuse inadvertent breaches of the law when undertaken in good faith and without intention of securing advantage. In US tax it can mean an accounting method that avoids legal or tax regulations and allows for a simpler method of determining a tax consequence than those methods described by the precise language of the tax code.

Taxes on sales can be levied in two ways. Firstly, as a general sales tax added to the value of all sales with no allowance for claiming a rebate on tax paid. Secondly, as a value added tax (VAT) (some times called a Goods and Services Tax) charged by businesses on sales and services but which allows businesses to claim credit from the government for any such tax they are charged by other businesses. The burden of VAT therefore falls almost entirely on the ultimate consumers. Sales taxes and VAT are both regressive taxes since lower income households always spend a higher proportion of their income on consumption and therefore invariably spend a greater proportion of their income on this tax than do the better off. VAT is the most widely used form of sales tax being found in almost all countries bar the USA, where a sales tax is used. VAT has been severely criticised as one of the standard demands by the IMF and World Bank under what has been called the ‘Washington Consensus’ as a condition for development finance and support.

Measures a country might take against a non-cooperative tax haven. Measures endorsed by the G20 include :· increased disclosure requirements on the part of taxpayers and financial institutions to report transactions involving non-cooperative jurisdictions;· withholding taxes in respect of a wide variety of payments;· denying deductions in respect of expense payments to payees resident in a non-cooperative jurisdiction;· reviewing tax treaty policy;· asking international institutions and regional development banks to review their investment policies; and,· giving extra weight to the principles of tax transparency and information exchange when designing bilateral aid programs.

Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.

The lawyers, accountants, bankers, trust companies and others who provide the services needed to manage transactions in the secrecy space. These organisations, working together, congregate in a secrecy jurisdiction for the purpose of providing these services.

The unregulated spaces that are created by a secrecy jurisdiction that are suggested to be outside their domain and so are treated by them as being ‘elsewhere’ or ‘nowhere’. Both of these are domains without geographic existence.

The collective term for the sum total of the operations facilitated by the secrecy jurisdictions, the secrecy space and the secrecy providers. What was once called ‘the offshore world’. It is more than the unregulated market because that is total of the commercial consequence of operations within the secrecy space: the secrecy world encompasses the unregulated market and all those who create and promote secrecy jurisdictions and what they offer.

See company secretary

An unregulated transaction undertaken by an entity created using the law or regulation of a secrecy jurisdiction that is not reported to those authorities elsewhere that have legitimate interest in it despite there being an obligation for such report to be made.

The legal instrument (paper or electronic) that proves entitlement to a financial property right is a security. It might relate to share or stock ownership in a limited liability entity such as a company or corporation, to a bond issued in respect of debt or to the contract for a future right, derivative or other financial instrument. In each case the document indicates a right to ownership of the asset and a right to receive the income derived from it.

Assets appropriated by regulatory authorities from those found guilty of or suspected of money laundering offences.

Any benefit from a trust that is returned to the settlor. Under UK law such benefits are prohibited but many secrecy jurisdictions now permit the creation of trusts from which the settlor may benefit as a beneficiary or by way of return of the trust property. There is some doubt about whether arrangements of this sort can properly be considered to be trusts.

A limited liability entity usually formed in a tax haven / secrecy jurisdiction (including the UK and USA) for the purposes of hiding illicit financial flows, tax evasion or regulatory abuse. The entity is highly unlikely to have a real trade, its sole purpose being to hide transactions from view. No one knows how many such corporations there are, but they are commonplace. Other names are sometimes used e.g. ‘brass plate companies’, indicating a legal entity whose only real presence is the plaque on the wall of a lawyer’s office recording the location of its registered office.

Payments made towards a fund maintained by government usually used to pay pension and unemployment benefits. Health benefits are sometimes covered as well. Social security contributions are generally considered to be taxes.

The Society of Trust and Estate Practitioners (STEP) is a professional body which it says “provides members with a local, national and international learning and business network focusing on the responsible stewardship of assets today and across the generations.”STEP has been associated with many offshore trust developments.