Rachel Etter-Phoya ■ Does transparency really put the rich and famous at risk?


Are the rich and famous at risk of blackmail, extortion or kidnapping if their names are disclosed in public beneficial ownership registries, as they like to argue in tax havens like Jersey?

This was a question put to me last week at a conference tackling tax injustice in Nairobi, Kenya, organised by the Society of the Jesuits.

This sounds familiar. Anonymity is said to protect the rich and famous from the public’s prying eye and worse. Officials in tax havens have made similar arguments about exchanging information with developing countries: information leaks, they say may lead to harassment of people and organisations.

We’ve tackled these arguments before — and a few others that often go alongside them.

It’s worth repeating our earlier article, originally published in July 2009, and republished in 2014.

The non-perils of information exchange

Recently we were chatting with a senior official working on international tax matters, who keeps being hit with an argument from the secrecy jurisdictions. Tax haven operatives, the official said, often claim that if they were to exchange information with developing countries about the holdings of their clients, this information is likely to leak inside domestic tax systems, leading to improper harassment of these people or organisations: if the size of their wealth is known, for example, they might be subject to extortion, confiscation of their wealth, overtaxing, kidnapping, erosion of their civil liberties, and so on.

We immediately had answers to this “leakage” argument, but we also discussed this with friends and colleagues, many with long experience in developing countries. If you look at this argument seriously, its superficial appeal dissolves fast. Here is a selection from the issues that came up.

No confiscation

Secrecy jurisdictions and their lobbyists routinely decry the possibility that there will be “confiscation” of assets by the tax authorities. This argument is bogus.

Nobody is talking about confiscation. Imagine you are a Tanzanian, say, with a million dollars on deposit in a bank in Jersey. If that income earns 5 percent, say, then you have income of $50,000. If Tanzania has a top income tax rate of 40% then (to oversimplify) you should pay $20,000 in tax this year on that asset.

Information exchange simply means that the Tanzanian government can learn that you made $50,000 in income, enabling it to claim the sorely needed $20,000 you owe so that the Tanzanian authorities can pay for teachers, doctors and so on – and help wean itself off foreign aid.

Nobody here is asking for Tanzania’s government to be given the right to “confiscate” your million dollars. The point here is about taxable income, not about wealth per se. Rare countries such as Switzerland (though we’re not sure which developing countries are involved – information on this gratefully received) – do have wealth taxes – but these tend to be of the order of 0.5% or less of the declared wealth – again, nobody is “confiscating” the asset.

(Restitution of stolen funds – the million dollars in this case – is another matter entirely – this is a worthwhile issue to pursue in its own right, but this is nothing to do with what we are asking for here.)

No special treatment for those going offshore

Whose civil liberties are we talking about here? Why should certain people – almost always the wealthiest and most powerful élites in developing countries – be allowed to protect their wealth through secrecy when nobody else has access to this (expensive) option of offshore secrecy?

Certain think tanks have attacked TJN for proposing transparency and tax compliance, with one group of them arguing that we are putting at risk millions of people including “Jews in France, or homosexuals in Saudi Arabia” by threatening their privacy. Really? We are not aware of a single transparency campaigner, street protestor, anti-corruption campaigner, trade union official, investigative journalist, or dissident of any kind who has been protected from oppression by virtue of having a secret bank account or offshore trust. On the contrary, we can name any number of their oppressors – Augusto Pinochet, Obiang Nguema or Sani Abacha come to mind here – who use and have used secrecy jurisdictions extensively to preserve their power and wealth at the expense of their millions of victims.

No special treatment for tax evaders

We don’t hesitate to publish the names of terrorists or suspected terrorists, which of course makes them also subject to extortion. Why should we treat kleptocrats, drug dealers, and tax evaders any differently? Because we think embezzlement, tax evasion or smuggling is benign?

Zero, or negligible, effects

Individuals with large wealth holdings outside their countries of residence typically also have very substantial (and far more conspicuous) assets inside their country of residence. The idea that an offshore bank account will protect a Latin American land-owner or a South-East Asian executive from kidnapping and extortion is fanciful, since this sort of criminal activity takes place without criminals needing to know the exact amount or location of all their wealth.

What is more, in developing countries the rough size of wealth-holdings of elites in is almost always widely known already. Inequalities tend to be so large, and wealth so concentrated in so few hands, that in places such as Central America, or in Africa, where this “leakage” argument is deployed it is usually pretty easy to name the 10 richest families and map their ownership throughout the economy – something which anyone who lives in these countries will acknowledge is a bit of a national sport. The worse a country’s governance (and therefore the supposed risk of information “leakage”) the more this seems to be the case.

Rich families potentially open to extortion and kidnapping usually have very conspicuous (and expensive) security arrangements in place to protect them and their families, to complement their (expensive) offshore secrecy arrangements – or they will live in guarded compounds or in Miami, Geneva or London anyway. If the threat is serious enough, they move, and they are usually quite happy to do so. So kidnappings of the very wealthy are, in fact, relatively rare; the real growth in ‘kidnapping for money’ in Latin America, for example, mostly affects the lower and middle classes. Gangs know they can make much easier and quicker money this way and the trends are in this direction.

Tax promotes good governance: the “leakage” argument is circular

As is increasingly becoming understood, good domestic tax systems promote better governance. Allowing élites access to secrecy (and the consequent assistance in looting their countries) helps cause all the problems the secrecy jurisdiction promoters claim to be worried about. The “leakage” argument is therefore a circular one: they don’t pay tax, so good governance withers, so the risk of leakage rises.

Taxing élites properly could be the fastest route to better governance 

Were the élites to be subjected to the same constraints and laws that ordinary people are under, you could be sure that the élites would soon be pressing for better governance – and because they are the influential players in any developing country, this could be the most powerful pressure of all.

And if élites were subjected to information exchange, they would press influentially for mechanisms to stop information leakage, as part of pressure for better governance overall.

What happens instead, however, is that the services provided by secrecy jurisdictions offer the élites an escape route, curbing any pressure for better governance. Meanwhile ordinary people know all too well what games are being played and they lose confidence in the fairness of the tax system and the rule of law, triggering a vicious circle of decline in the institutions of democracy.

Why should the rich countries tolerate this?

The dangers or kidnapping and extortion, while real, also raise the question: why should the rich countries of Europe, North America, and Asia, protect the developing countries’ élites from their own societies? Perhaps our willingness to protect their wealth is at least partly responsible for the appalling conditions in their home countries.

Where is the evidence that leaks occur?

The risk of “leakage” argument assumes that the situation of the tax authorities in the country of residence is beyond redemption. That is overly pessimistic; even fatalistic.

Every country that has offered an amnesty period for returning assets is creating conditions that can place citizens returning their money to the same risk. Yet where is the evidence that tax amnesties lead to murder or kidnapping? We’re not aware of any.

There is no way to assess the risk of “leakage” with any accuracy. So people wield the “leakage” argument because there is no way to effectively demonstrate how small the problem is. One could turn this argument on its head: it is up to the secrecy jurisdictions to demonstrate that there is a system-wide risk of this so large that it overwhelms all the enormous benefits of allowing developing countries to collect the tax that is due to them from their élites.

As we know from our own and colleagues’ detailed research, there is seldom any information on tax in the public domain in most developing countries, and information is very hard to get hold of. Tax evasion issues that are discussed in the press usually emerge from ongoing legal cases, where information is available anyway. Even then the standard of reporting in the media is often poor and the understanding of how tax evasion is happening is pretty weak.

Who is talking about overtaxing?

We are so far away from overtaxing the rich in developing countries that “overtaxing” would require a major, unprecedented revolution. Tax systems in most developing countries are regressive; personal income taxes in Latin America, for example, contribute just 4 per cent of overall tax collection, compared to 27 per cent in OECD countries. In Guatemala this falls to 1.75% of tax revenue. Properly taxing the wealthy, let alone “overtaxing”, is a distant dream, as the World Bank noted in its 2006 report on persistent poverty in Latin America.

Secrecy jurisdiction promoters wielding this “leakage” and “overtaxing” argument seem to have no idea, or perhaps no wish to know, how developing countries’ tax systems evolve. Tax reform in developing countries is complicated, and equitable reform is an uphill struggle, with élites resisting it at every step. Having more transparent information would help the tax authorities do their job but it is unlikely to lead us anywhere near an over-taxation situation any time soon, whatever “overtaxation” might mean.

Being a good citizen creates safety

If I have a billion dollars of ill-gotten gains abroad and am concerned about my safety, then I announce that I’ve been very fortunate in my career and now want to do good for my country: I’m bringing resources home for local investment and charitable activities. Our experience is that every developing country contains wellsprings of forgiveness for those who stole provided they do good with the money. Being transparent and charitable, and a good citizen, buys protection.

Don’t break the law

People who have stolen money from their countries have a simple solution — bring it back and invest it wisely and transparently. The notion of sympathy for the crook or the tax evader is repugnant.

These people already need to submit domestic tax returns, so what right do they have to assert that they are at risk from “leakage” if they are submitting false domestic tax returns?

International rules don’t support this argument

It is wholly inappropriate to combat unlawful activity in one country (the developing country in this case, where kidnapping or extortion happens) through promoting unlawful conduct elsewhere (providing secrecy; not fulfilling the standards of Information Exchange). Problems in that country need to be dealt with locally, perhaps with international support.

Information leaks in rich countries, too

Tax information leaks inside rich countries too. In 2008, for example, Revenue and Customs had to apologise after the person details of 25 million British citizens got “lost in the post.” Italy also in 2008 temporarily published the tax data of all Italian citizens online. Finland publishes tax return data of all its citizens every year. Nobody is using these examples as arguments that rich countries should therefore prevent their own tax authorities from getting data on the holdings of their own citizens. The solutions are to improve procedures and institute the right mix of checks and balances.

Arguments about morality and sovereignty

The moral arguments are pretty clear and don’t need spelling out further. Secrecy and the consequent illegal tax evasion (among other crimes) threatens the very independence and sovereignty of the nation state when a resident of that state seeks to continue to withhold information from it. Secrecy and what flows from it is morally repugnant.

Which countries are we talking about?

The countries where the problem exists are very much the exception, rather than the rule. The countries which stand to benefit most from information exchange are large countries such as Brazil, India, Mexico, Argentina – these are countries which are sophisticated and able to handle information with confidence.

There are some countries which are very problematic; Zimbabwe and much of West Africa might fit in this category. It may be that the issue of safeguards (see below) could be looked at on a country by country, case by case basis.


A number of safeguards are possible at various levels. For example: many Double Taxation Agreements or Tax Information Exchange Agreements (TIEAs) contain articles underlining protection and security of the information that is delivered, such as not to use this information for the wrong purposes. Violation of these articles may be followed by sanctions including “name and shame” or blacklisting of violators; that the bank’s client should have access to legal remedies, and so on.

One might think about rare exceptions when certain people are able to demonstrate clearly, on a case by case basis, that release of information will put them at serious risk, meaning that they would instead be subjected to a more anonymous withholding tax equivalent to their home country’s top income tax rate.

One component of any safeguard might involve the financial intermediary pursuing enhanced due diligence, which would be automatically strengthened when a deposit exceeding $10,000, say, was made.

Some impartial independent international body should be involved in examining individual cases before permission is granted.

Extradition treaties all have a “political exception” escape clause. Something similar might be used when there is a genuine threat – but properly assessed by dispassionate adults.

But extra-strength safeguards would have to be built into the “safeguards” too – long experience shows that the tiniest loopholes or concessions or openings are often quickly exploited by wealthy and powerful élites and their pinstripe armies of lawyers, accountants and bankers to enable them to slip through nets such as these.

In conclusion, the excuse, and especially the blanket use of it, is pure nonsense.

For the record, we strongly support automatic exchange of information between jurisdictions, on a multilateral basis, in contrast to, say, feeble OECD standards of mostly bilateral information exchange “on request” (see more here.)


PS there are some further arguments here, in an article about trusts, which pose interesting additional questions.

For instance:

Privacy is an important human right. But as with any right, it is not absolute. Its exercise has to be balanced against the exercise of other rights (and obligations) as well as against others’ rights. In principle, issues that only concern oneself (religion, political ideology, sexual orientation, etc.) should arguably remain private. It’s really no one else’s business because it doesn’t affect them.

But there are many cases where one’s personal affairs impinge upon the rights of others, as this article explores. And it explores a second argument: one of proportionality.

In light of the major tax evasion and grand corruption cases related to trusts (and the many more that may never come to light because of trusts’ effective secrecy), it feels that disclosure of trust’s beneficial owners is not disproportionate to the goal of tackling tax evasion, money laundering and corruption but rather the other way around.

Transparency may impinge on rights of a small group of (wealthy) people — but not having transparency impinges on the rights of much larger numbers of people. The societal and economic damage from financial secrecy is orders of magnitude greater than the damage to those wealthy folk whose wealth is made more transparent.


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