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

No mention of the second tranche of Anti-Money Laundering Laws being shelved more than 13 years ago ... and then the Morrison Government exempting the Real Estate Gatekeepers (real estate agents, lawyers and accountants) from the second tranche in October 2018 …. Soft!

Why not tell it how it is?

What about real estate, the reports are there, why was it overlooked … seriously? At least its had top billing today, 20 February 2020.

Sam Mooy

One of the Mosman houses owned by the mysterious Bo Zhang.  Sam Mooy

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

By business reporter Nassim Khadem

Updated Thursday 20 February 2020

A Hills Hoist clothesline with hundred dollar bills on it

PHOTO: The Financial Secrecy Index (FSI) examines the legal and financial systems of each country. (ABC News: Alistair Kroie)

RELATED STORY: ‘Enormous scam’: Global plan to tax Amazon, Google, Facebook could fall short, say economists

RELATED STORY: France’s digital tax targeting US tech giants could spark a new disruption in world trade

RELATED STORY: Multinationals caught up in the tax crackdown are disputing their bills, the ATO says

RELATED STORY: Name and shame tax evaders, says journalist behind Panama Papers

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, according to the 2020 Financial Secrecy Index.

Key points:

  • The Tax Justice Network’s index, released every two years, rates countries based on financial transparency
  • Cayman Islands ranked as the world’s biggest contributor to financial secrecy, followed by the US and Switzerland
  • Despite its relatively low ranking at number 48, Australia hosts significant quantities of illicit funds from outside the country

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

The Financial Secrecy Index (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 at 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.

Westpac’s main pain is yet to come

The bank is facing a big financial and reputational risk over allegations it breached money laundering laws more than 23 million times … and things are only likely to get worse, writes Nassim Khadem.

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

  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

Australia was ranked 48th on the 2020 Financial Secrecy Index.
(Source: Tax Justice Network).

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 taskforces 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.

While 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.

VIDEO: Elysse speaks to Nassim Khadem about Google and Facebook’s taxes. (The Business)

*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 United States and United Kingdom among them.

OECD push for a global minimum tax

Well over a hundred countries and territories agree to an OECD proposal to revise global tax rules by 2020.

Google logo outside building in US

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 United Kingdom (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 9th 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.

TJN’s analysis is ‘misleading’

A number of groups have disputed the TJN’s analysis.

*According to the TJN itself, a higher rank on the index “does not necessarily mean a jurisdiction is more secretive”, but rather that the jurisdiction plays a bigger role globally in enabling secretive banking, anonymous shell company ownership, anonymous real estate ownership or other forms of financial secrecy“.

It said a highly secretive jurisdiction that provides little to no financial services to non-residents, such as Samoa (ranked 86th), will rank below a moderately secretive jurisdiction that is a major world player, such as Japan (ranked 7th).

But Cayman Finance, the association representing financial services firms in that country, said the report contained “misleading and inaccurate information”.

“The Cayman Islands would not be highly ranked on any secrecy index that is objective, transparent, and based on standards established by global standard setting bodies,” Cayman Finance said in a statement.

“The Cayman Islands, particularly its financial services industry, has been recognised for decades as a strong international partner in combatting corruption, money laundering, terrorism financing and tax evasion.”

The United Kingdom’s Treasury also disputed the findings, telling The Guardian that it did not recognise the basis of TJN’s assessment and that “we have been, and will continue to be, at the forefront of the greater drive for transparency”.



SEARCH CAAN WEBSITE for more Reports!

The view from Mosman’s Bay Street, where Bo Zhang, an associate of Huang Xiangmo, owns six properties. Sam Mooy