Flawed: Cayman Finance calls into question the credibility of the semi-annual financial secrecy index of the tax justice network
GEORGE TOWN, Cayman Islands – (COMMERCIAL THREAD) – Cayman Finance today released a new study that critically assesses the methodology and data used to rate the Cayman Islands in the Tax Justice Network (TJN) Financial Secrecy Index (FSI). Significant flaws in TJN’s choice of data and rating made the 2020 report an unreliable source of accurate information on the Cayman Islands financial services industry. Future TJN reports will also lack credibility without critical changes in the application of their own methodology – and Cayman Finance will continue to review and analyze future editions to ensure continued accountability.
Ahead of the planned release of the remaining TJN reports this fall, Cayman Finance commissioned the review to analyze the calculations of the previous report released in 2020, which incorrectly ranked the Cayman Islands as the world’s number one ranking for secrecy. This analysis, carried out by accomplished economist Julian Morris, identified significant flaws in the way TJN applied its own original methodology, resulting in skewed final rankings, creating biased and misleading conclusions.
âThe Cayman Islands have demonstrated their commitment to the common struggle for effective global transparency and standards of international cooperation. However, a transparency report must itself be transparent and the fact that the Tax Justice Network’s 2020 Financial Secrecy Index does not meet this standard undermines the credibility of its findings â, noted Jude Scott, CEO of Cayman Finance. âTJN used unqualified estimates and assumptions when specific data was available to the public. Without substantial changes to TJN’s application of its own methodology in future reports, the credibility of these evaluations as independent resources used by other organizations will be lost.
Cayman Finance’s analysis found that TJN’s 2020 Financial Secrecy Index had:
Incorrect methodology used – the FSI report did not follow its own methodology when calculating a global weight (GSW) – the main factor in determining a jurisdiction’s score – for Cayman. TJN chose to use portfolio liabilities instead of publicly available data for financial services exports. As a result, GSW’s TJN estimate for Cayman was almost 9 times what it should have been. If TJN had accurately applied its own methodology on this point, Cayman would already fall to 6e on the ISP.
Bias criteria used – The FSI report used biased key financial secrecy indicators, further skewing Cayman’s score. For example, the FSI gives Cayman a 100% secrecy score for lack of public access to civil tax procedures, even though Cayman does not have such procedures because it does not have income tax. companies or individuals. If these biased metrics were removed or scored more accurately with a correct GSW calculation, Cayman would fall even further down the FSI list at 34.e position.
Julian Morris, leading economist and author of the Cayman Finance report, explains further: âWhile the ISF is clearly an ambitious attempt to identify jurisdictions that contribute to illicit financial flows, the inappropriate and statistically questionable use of its measures compromises the integrity of their findings. Unless TJN makes significant changes in future reports, in particular to use accurate data, adjust or remove biased indicators, and aggregate the data using appropriate statistical methods, the FSI should not be taken into account. serious as an assessment of the jurisdictions’ contributions to illicit activities. financial flows. “
Scott concludes: âWe are confident in the leadership shown by the Cayman Islands government and our financial services industry in adopting global standards for transparency and tax information sharing. While fraud is a global problem in which we all have a continuing role to play, the EU and the OECD recently reviewed the Cayman Islands’ tax neutral regime and found it to be transparent, in line with the principles of good tax governance and without tax regimes. These are the types of internationally recognized assessments that should be considered when assessing the Cayman Islands. “
A âReview of TJN Financial Secrecy Indexâ by Julian Morris, as well as analysis of other TJN reports, is available at www.caymanfinance.ky.
About Cayman Finance:
Cayman Finance is the Cayman Islands financial services industry association, a leading global tax-neutral financial center effectively connecting law-abiding users and providers of private equity and finance worldwide. Cayman Finance represents leading service providers in the investment funds and asset management, banking, insurance, reinsurance, capital markets and trust industries, as well as world-class fiduciary, legal and public accounting service providers. In addition, Cayman Finance represents 15 industry associations. Find out more on: www.caymanfinance.ky
About Jude Scott:
Jude Scott is a respected and recognized expert in global financial services and has served as CEO of Cayman Finance since 2014. He retired as an audit partner in 2008 after spending over 23 years at Ernst & Young and previously served as Global CEO of Maples and Calder. Jude has extensive experience in the Cayman Islands financial services industry, having served on various government and private sector committees including: the Cayman Islands Financial Services Council; the Cayman Islands Society of Professional Accountants; the Board of Education; the Insolvency Rules Committee; and the Stock Exchange.
About Julian Morris:
Julian Morris is an economist with over 25 years of experience in think tanks and universities. Senior Fellow at the Reason Foundation, Senior Scholar at the International Center for Law and Economics and member of the Royal Society of Arts, he is the author of dozens of scientific articles and the editor of several books. Julian’s work focuses on the role of political and legal institutions in relation to entrepreneurship, innovation and sustainable development. A graduate of the University of Edinburgh, Julian holds an MA from University College London and the University of Cambridge, and a law degree from the University of Westminster.