Money Laundering and Role of Tax Havens

 

The Financial Secrecy Index (FSI) reveals the extent to which countries allow money to be hidden and laundered. The secrecy guaranteed by tax havens attracts vast financial flows. Financial secrecy is the very mechanism that undermines the anti-money laundering framework. Around $21 to $32 trillion US Dollar wealth is stored in tax havens worldwide. It reflects that the owners of those trillions of dollars are not paying tax and most of this money is illegally earned through kick-back from big development projects or bribe.

The ranking focuses on a jurisdiction’s global role in facilitating financial crime, such as money laundering and tax evasion, by providing the infrastructure and services to enable such activity through secretive arrangements, including anonymous real estate and company ownership and banking secrecy practices.

Tax heaven is a jurisdiction that deliberately designs its laws to attract foreign businesses and investors, often combining little or no corporate tax with simplified regulations, investment incentives, and, in some cases, financial privacy of illegally earned money. Illegal money flows to tax heaven for non-taxed money and hiding places for illicit money. The best tax haven in 2025 is Hong Kong, Switzerland, Luxembourg, the Netherlands, Singapore, the Cayman Islands, the British Virgin Islands, UAE, Jersey, and Bermuda. USA is increasingly became an infamous tax haven. Some of the countries charge very high taxes or high interest to keep the deposits in the financial system.

The much-talked ‘Begum Para’ in Canada is unique example a township and second home in Malaysia symbolizes the crimes and corruption such as fraud, tax cheating, embezzlement, insider dealing, bribery, and money laundering run rampant. Such acts are common in the poorer countries around the world. These untaxed and illegally earned money flow from poorer countries to rich countries. Oligarch and criminals take away their black money for investment in those rich countries to get citizenship under investment category. These rich countries have immigration laws not to investigate sources of money taken to their country from poorer countries. As for example, the US does require, under the Foreign Account Tax Compliance Act (FATCA) and its related inter-governmental agreements (IGAs), all countries to share information with it about US taxpayers’ financial accounts abroad, but the US shares little to no information in return with countries about their residents

FCI of Tax Justice Network (TJN) revealed that the wealthy oligarchs, corrupt officials, criminals, looters appoint immigration and investment consultants such as lawyers, accountants, and bankers to set trusts, foundations, and shell companies to prepare legal documents to cover the laundered money. The beneficial owners of shell companies are usually corrupt people of developing countries. The TJN uses 20 indicators to assess to what extent a country facilitates financial secrecy. The indicators include laws on banking secrets, registers of company ownership and cooperation on sharing tax information internationally. Many tax heaven countries is competing against each other to provide secrecy facilities to attract black money to bring from corrupt countries.

The FSI bases its rankings on how large a role the country’s financial system plays in enabling secretive banking. The top rankings are reserved for the countries that have legal and financial systems that most allow criminals and wealthy individuals to hide and launder money from around the world. Many countries have different strategies of financial secrecy but there are common patterns. Transactions made by companies, which do not disclose their owners, help mafia gangs or corrupt politicians and bureaucrats to launder black money. Real estate investments are a way to store hidden wealth, especially when shell companies make the payments.

Apart from shell companies, corrupt people of Bangladesh enjoy another option of laundering money with the help of expatriates working mostly in middle east countries. The Huniwalas having network in middle east and Bangladesh. They collect foreign currency from expatriates working in other countries. Bangladesh partner of hundiawala collect money from corrupt transferer and pay in local currencies to their near and dear in Bangladesh. This is the easy methods of money laundering in Bangladesh. The agents in other counties transfer to the overseas account of corruption person say, from Dubai to USA. The corrupts persons take the service from hundiwalas.

According to Financial Secrecy Index (FSI), 2022, the top twelve recipient countries are: The USA, Switzerland, Singapore, Hong Kong, Luxembourg, Japan, Germany, United Arab Emirates, The British Virgin Islands, Guernsey, China, The Netherlands.

Switzerland remains near the top of the list, despite improving its score somewhat. Switzerland was famous for many years for its unbreakable banking secrecy, takes second place in the 2022 report. In third place is Singapore. Hong Kong is in fourth place, followed by Luxembourg, one of the founding members of the European Union.  The UK is ranked 13th, but if its overseas territories included separately on the list (Jersey, Cayman Islands, British Virgin Islands) were taken into account, it would outrank the US to take first spot for enabling financial secrecy.

Bangladesh is one of the highly secret countries among the developing countries. According to the TJS’s biennial Financial Secrecy Index 2022, Bangladesh’s position is 52nd out of 141 countries. It has no history of inflow but outflow of illicit money. Excessive financial secrecy facilitates illicit financial flows, which constitute a major developmental challenge for low-income economies and cause significant tax revenue losses for governments around the world.

The 2020 Index notes that the Organization for Economic Co-operation and Development (OECD) countries account for 49% of all financial secrecy in the world, largely by outsourcing financial secrecy to their dependencies, such as the U.S. A and British Virgin Islands.

Based on its findings and the measures leading to global reduction of financial secrecy, the Tax Justice Network issued recommendations for countermeasures against noncooperating jurisdictions and actors, corporate tax transparency by converging toward the new Global Reporting Initiative (GRI) tax standards, and the addition of public registration of beneficial owners and legal owners of all legal vehicles to the Financial Task Force’s binding recommendations.

Financial secrecy is an international issue because it helps super rich actors to escape regulations. The TJN is in favour of establishing a global asset register. Such an institution could cover all individuals internationally who own assets worth more than € 10 million.

Black-money holders are happy that Bangladesh also a less transparent country, even than they love to invest their money in other countries particularly in western countries. Recently they were investing in Singapore, UAE and UK etc. Bangladesh is one of the worse affected countries due to secrecy in developed countries. Interestingly, these countries suggest we eliminate corruption from our country, while they shelter out corrupt people by way of citizenship.


M. S. Siddiqui is CEO, Bangla Chemical. He
can be reached at [email protected]