Financial Secrecy Index lack credibility, says Cayman Finance

The Tax Justice Network’s (TJN) assessment of the Cayman Islands for its  Financial Secrecy Index lacks credibility due to inaccurate data and inappropriate criteria, according to Cayman Finance.

The financial services lobby group has published  an analysis of the index’s scoring for the Cayman Islands that it says shows significant errors.

“In short, the new analysis identified significant flaws in how TJN applied its own original methodology, which resulted in distorted final rankings, creating biased and misleading conclusions,” said a spokesperson.

Published in February 2020, the index ranked Cayman as the most important provider of financial secrecy.

“This came as a surprise to many in Cayman, since the jurisdiction is very well regulated, has stringent procedures to prevent and identify financial crimes, has in place a fully verified beneficial ownership registry for corporations, and meets international standards that address tax evasion, money laundering and terrorism financing,” report author economist Julian Morris writes in the executive summary.

While criticising the TJN index’s methodology, which it says the European Commission Joint Research Centre (EC JRC) has also cast doubt on, the review also shows significant errors in its application. The “global scale weigh” (GSW), one of two main components contributing to the index score, is badly out for Cayman.

“Instead of using data on exports of financial services from the IMF’s Balance of Payments Statistics (BOPS) database, as TJN’s own methodology states that it should, TJN used an alternative measure. As a result, TJN overestimated Cayman’s GSW by 860%,” Morris writes. “This alone had the effect of more than doubling Cayman’s score on the Index.”

According to the report, using a more “statistically sound and intuitive” method suggested by the ECJ RC, Cayman would fall to 16th on the index.

An accompanying  fact sheet is damning: “[T]he FSI combines incorrect data with biased criteria to generate unreliable results. As such, it does not accurately measure the potential of jurisdictions to facilitate illicit financial flows.”

Jude Scott, the CEO of Cayman Finance, said: “The Cayman Islands has demonstrated its commitment to the common fight for effective global transparency and international cooperation standards. However, a report on transparency needs to be transparent itself and Tax Justice Network’s 2020 Financial Secrecy Index’s failure to meet that standard compromises the credibility of its conclusions.”

She added: “Without substantial changes to TJN’s application of their own methodology in future reports, the credibility of those assessments as independent resources used by other organisations will be lost.”

The Tax Justice Network was set up by three Jersey residents, Pat Lucas, Jean Andersson and Frank Norman, in 2003. It believes that tax and financial prioritise the wealthiest by “wiring financial secrecy and tax havens into the core of our global economy”, according to its website.