What has corruption to do with cross-border secrecy?

Financial secrecy is a key facilitator of corruption. Without financial secrecy, many corrupt deals simply would not be able to happen.  

In the field of international governance and transparency, the most famous ranking of corruption is Transparency International’s Corruption Perceptions Index (CPI). While indexes such as these can be useful, they only tell part of a bigger story. The CPI, for instance, ranks poor countries in Africa and elsewhere – predominantly the victims of an estimated US$1 trillion-odd in annual illicit financial outflows – as the ‘most corrupt’. But all these outflows must be received somewhere. So the FSI examines the other side of the coin: those jurisdictions that encourage and facilitate illicit financial flows, by providing an environment of secrecy that allows these outflows - from rich and poor countries alike - to remain hidden, and largely untaxed.

Read our one-pager on the CPI vs. FSI here.

Businesses looking to invest overseas find it useful to know that the CPI ranks Libya, say, as among the world’s most corrupt nations from the perspective of officials demanding bribes. But this is of little help to ordinary Libyans, who want to know more: where their country’s wealth has gone, how it left, and who helped it leave. This is where the FSI comes in. We consider the former Libyan leadership to represent the demand side of corruption, while Zurich, London and other secrecy jurisdictions that received illicit Libyan loot to be the suppliers of corruption services: the supply side.

The FSI ranking therefore complements the CPI. It exposes the hypocrisy that lies behind some of the finger-pointing at “highly corrupt” developing countries, and provides a basis for a new wave of understandings about corruption in a global context.

Read more about corruption, financial secrecy and tax justice here.