Finance Finance News Australia a safe haven for illicit funds, but Cayman Islands the world’s worst
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Australia a safe haven for illicit funds, but Cayman Islands the world’s worst

The Financial Secrecy Index (FSI) examines the legal and financial systems of each country. Photo: ABC News/Alistair Kroie
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Australia continues to host significant quantities of illicit funds from outside the country and is not doing enough to counter money laundering and tax avoidance, the 2020 Financial Secrecy Index reports.

The Tax Justice Network’s index, released every two years, rates countries based on financial transparency.

The FSI ranks each country based on how intensely the country’s legal and financial system allows wealthy individuals and criminals to hide and launder money extracted from around the world.

The Cayman Islands ranked as the world’s biggest contributor to financial secrecy, as a result of the once-notorious tax haven increasing the volume of financial services it provides to non-residents.

The report also noted major risks emanating from Cayman’s hedge fund industry, which uses companies, trusts and limited partnerships that are “cloaked in secrecy”.

In second place was the United States, overtaking Switzerland (now ranked third).

Australia is ranked 48th position in this year’s index, four places down from its 2018 position.

Despite its relatively low ranking, the report said, “Australia undoubtedly hosts significant quantities of illicit funds from outside the country”.

Australian banks under scrutiny for money laundering

Australia’s big banks have come under scrutiny for failing to detect money laundering and other crimes.

In November, government financial intelligence agency AUSTRAC made allegations that Westpac facilitated transactions enabling child exploitation in the Philippines.

More than 23 million transactions are alleged to have breached anti-money laundering and counter-terrorism finance laws, and the bank is facing the prospect of fines that may total more than $1 billion.

Post the Panama Papers, in 2017, Treasury undertook consultation on setting up a beneficial ownership register that would out the people behind secret shell companies.

“There has been no public movement on the register, with the government continuing to say it is under consideration,” the report said, urging swift action.

TJN also called on the federal government to extend anti-money laundering provisions to real estate agents, dealers, lawyers, accountants and others.

The government drafted laws in 2007 that would have done so, but those laws were never implemented.

Top 10 worst offenders (Source: Tax Justice Network)

  1. Cayman Islands
  2. United States
  3. Switzerland
  4. Hong Kong
  5. Singapore
  6. Luxembourg
  7. Japan
  8. Netherlands
  9. British Virgin Islands
  10. United Arab Emirates.

Calls for government to do more to fight tax avoidance

To better counter tax avoidance, the report called on the federal government to make public country-by-country reports provided to tax authorities.

These reports, which detail taxes a company pays in each jurisdiction it operates, have been kept secret since they were introduced some years ago as part of the OECD and G20’s base erosion and profit shifting (BEPS) project that aims to stamp out tax evasion.

“None of the information is made publicly available, which is a major shortcoming given that civil society plays an important part in scrutinising corporate tax behaviour,” the report said.

The report did note Australian authorities had some success in fighting tax avoidance, through various task forces and stronger laws such as the Multinational Anti-Avoidance Law (MAAL) and Diverted Profits Tax (DPT).

The ATO has previously said MAAL has resulted in companies booking an additional $7 billion in sales in Australia every year, thus resulting in a higher tax take.

Although companies such as Facebook and Google have already restructured their operations due to MAAL, and pay more tax here, the law only applies to sale contracts managed by sales teams in Australia.

The ATO does not require tech giants to disclose the revenue they book overseas from local clients, meaning authorities have not been able to stop the legal practice of collectively billions of dollars in advertising revenue being channelled via low-tax countries like Singapore.

Also, despite Google settling with the ATO and paying $481.5 million on top of its previous tax payments for the period from 2008 to 2018, Australian companies across the mining, oil and gas, e-commerce and pharmaceutical industries are disputing billions of dollars in tax bills raised under the tougher laws.

The government has also had some success in clawing back revenue through its Serious Financial Crime Taskforce.

As of June 30, 2019, the work of the taskforce had seen five people convicted, $836 million in liabilities raised and $306 million recovered.

US and UK have major problems with secrecy

The report said OECD countries were responsible for 49 per cent of all financial secrecy in the world, with the US and UK among them.

Clark Gascoigne, the interim executive director of the US-based Financial Accountability and Corporate Transparency (FACT) Coalition, said financial secrecy remains a major problem.

“Financial secrecy enables crimes like human trafficking, tax evasion, and corruption both at home and abroad,” Mr Gascoigne said.

TJN’s report said the UK (ranked 12th on the index) increased its secrecy score more than any other country by extending its network of satellite jurisdictions to which the country outsources some of its secrecy activity.

It is often referred to as the “UK spider’s web” – a network 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.

“The UK’s spider’s web included some of the highest-ranking jurisdictions on the Financial Secrecy Index, including Cayman (ranked 1st), the British Virgin Islands, which ranked ninth and Guernsey, which ranked 11th,” the report said.

A director and founder of the Tax Justice Network, John Christensen, said UK’s surge up the index raised “serious concerns about the UK’s post-Brexit strategy to turn the City of London into a ‘Singapore-on-Thames'”.

TJN’s report did have some good news. It said financial secrecy around the world is decreasing as a result of some recent transparency reforms.

On average, countries on the index reduced their contribution to global financial secrecy by 7 per cent.

Liz Nelson, a director at the Tax Justice Network, said despite some positive reforms by countries, progress on country-by-country reporting remains slow.

This, she said, had left unchecked the “rampant tax abuse that disproportionally undercuts the people who start out with [fewer] opportunities in life to begin with”.

“The OECD currently has a once-in-a-century opportunity to reform an international tax system that has allowed financial secrecy to flourish,” Ms Nelson added.

-ABC

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