Background
The Mapping the Faultlines project has been undertaken by the Tax Justice Network with funding from the Ford Foundation.
Since the 1960s, an integrated global structure has been built and expanded to facilitate the movement of illicit money across borders.
These funds come in three forms:
- the proceeds of bribery,
- the proceeds of criminal activities including drug trading, racketeering and terrorist financing, and
- he proceeds of commercial trade mispricing and tax evasion.
Illicit outflows from developing and transitional economies are the most damaging economic phenomena hurting the poor people of the world. They reduce tax collection, drain hard currency reserves, heighten inflation, worsen income gaps, cancel investment, decrease competition, and undermine free trade, governance and democratic governments.
The magnitudes of these flows and the structures supporting them merit much more careful and comprehensive study.
Project overview
The Mapping the Faultlines project has two broad components.
Firstly, Global Financial Integrity has produced detailed estimates of the magnitudes of illicit financial flows, including where such flows are originating and where they are flowing to.
Secondly, the Tax Justice Network has analysed the global financial structure that facilitates these illicit cross-border financial flows.
In combination the two organisations paint a detailed picture of the global phenomenon of illicit financial flows. The result is the most thorough analysis ever undertaken.
The data on this site represents the output of the first stage of the research conducted by the Tax Justice Network. This first stage of the project has sought to identify the jurisdictions and mechanisms used to facilitate illicit financial flows worldwide, including especially illicit financial flows from developing countries (we prefer this term to "capital flight"). The second stage will recommend policy measures to address the issues identified in this first stage.
Key contention
The Mapping the Faultlines Project is based on a central contention: that the mechanisms that facilitate illicit financial flows result from the synergistic relationship between tax havens, or as we prefer to call them, secrecy jurisdictions and its Offshore Financial Centres (OFCs). These were defined at the project outset as follows:
Secrecy jurisdictions are the legislative and regulatory spaces provided by states and microstates that encourage the relocation of economic transactions to that domain;
An OFC is the commercial response to the legislative and regulatory environment of a secrecy jurisdiction by those such as accountants, lawyers and bankers seeking to profit from the opportunities the secrecy jurisdiction provides.
This distinction between jurisdictions and services providers who exploit the regulation they create is important, and is a consistent theme of the project albeit that much of the terminology we have used has changed and developed as this project has progressed. The Mapping the Faultlines project has been undertaken by the Tax Justice Network with funding from the Ford Foundation.
Key finding
Throughout this project the role of secrecy jurisdictions and OFCs in providing secrecy is emphasised but the predominant contention arising from our work is the following: the movement of illicit funds is primarily facilitated by secrecy, and secrecy is the core selling-point of what have been traditionally (and it turns out, somewhat erroneously) termed "tax havens". Tax considerations are always secondary to the provision of secrecy.
This finding is very significant. As a result of the work undertaken on this project the term ‘tax haven’ is already falling out of use and the term ‘secrecy jurisdiction’ is replacing it, thanks to the active work in promoting the findings of this project by those working within the Mapping the Faultlines project team.
In fact, the project has led to a concrete definition of a secrecy jurisdiction (something never agreed upon for the term tax haven) as “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.”
This project has been dedicated to exposing the secrecy mechanisms embedded into the global financial architecture. By exposing secrecy we map the faultlines of the global financial and economic system.
