Switzerland is the world’s most secret jurisdiction in terms of tax and finance, with the Cayman Islands, Luxembourg, Hong Kong and the US in second, third, fourth and fifth places, according to a report by the campaign group Tax Justice Network.

Using a secrecy score with a maximum of 100, the 2011 Financial Secrecy Index ranks Switzerland at 78, the Cayman Islands at 77, Luxembourg at 68, Hong Kong at 73 and the US at 58, in fifth place. Rankings also take into account Financial Secrecy Index values and scale weights.

The TJN, a campaigning organisation that claims offshore tax jurisdictions contribute to world poverty by allowing wealthy people to evade and avoid tax, says about $250 billion is lost in taxes each year by governments worldwide, “solely as a result of wealthy individuals holding their assets offshore” and that there are greater losses from companies using offshore locations.

TJN is controversial. While it has been described in a report this week by Reuters as a “non-profit, non-partisan” organisation, this objective status is sometimes contested. The TJN has come under fire for promoting a left-wing, high-tax agenda that seeks to demonise offshore, low-tax regimes and that it supports a form of tax protectionism. (The CATO Institute, a Washington DC-based think tank, has argued that so-called tax havens encourage other countries to keep taxes lower than otherwise would be the case). TJN has denied the charge of being biased, saying it seeks to create a level playing field in tax around the world. 

In comments last week at a London-based event hosted by the Cayman Islands financial industry, delegates claimed the TJN and other critics grossly exaggerate the revenues allegedly “lost” by some countries, and also denied that havens add to world poverty, saying they act are often more transparent than some onshore jurisdictions and act as conduits for investment into London and other major financial centres. It was also argued that offshore locations are often used by people in unstable, corrupt regimes to keep their wealth safe, rather than for tax evasion.

It is ironic that the US, for example, comes fifth in the TJN’s secrecy rankings, as that country has put considerable pressure on jurisdictions such as Switzerland and the Cayman Islands, recently passing legislation such as the FATCA Act to clamp down on alleged tax evaders. Critics have pointed out that some states of the Union, such as Delaware, are tax havens by certain definitions of the term.

In the case of Switzerland, which is ranked the most secretive country by TJN, the Alpine state's famed bank secrecy laws date in their modern form to 1934, although their origins go back centuries. The TJN has dismissed the argument that is sometimes made that the secrecy rule helped Jewish families fleeing Nazi persecution in the 1930s. The secrecy issue is a double-sided one as some Swiss bank accounts were also used by Nazi Germany to hide wealth that had been stolen from such groups. The TJN argues that modern, liberal democracies should have no need for secrecy laws provided legitimate client confidentiality is protected.