After a whistleblower leaked the details of secret Swiss accounts at global bank HSBC earlier this year, the strongest reaction came from advanced economies, where governments launched efforts to reclaim tax money hidden abroad.
But a new analysis by the Financial Transparency Coalition and Christian Aid shows that the financial impact of the lost revenue is far larger in developing economies that lack the resources to go after tax evaders.
The FTC organized the Swiss accounts by national origin and compared them to the annual economic production in each country to get a better sense of the scale of the hidden funds.
Advanced economies, by nature of their size, saw relatively small impact—funds hidden abroad by US nationals were equivalent to 0.08% of GDP, for example. While $13 billion is still a lot of money to have hidden from taxes at a single foreign bank, it’s nothing compared to what smaller countries face.
Looking at the list of the top 50 countries with money in HSBC accounts, it can be sliced nicely into two groups: tax havens and developing economies. The bigger list is of alleged tax havens, and reflects the common practice of moving illicit funds through one or more secrecy jurisdictions before reaching their final destination:
So the British Virgin Islands kept the equivalent of more than three years of economic production in secret accounts at HSBC; the Cayman’s, almost two years; and the Bahamas, almost a year—not the first time GDP analysis has revealed something fishy in Caribbean tax havens.
But the bigger problem is the impact these accounts have on developing economies:
Corruption-scarred Liberia had the equivalent 15% of its annual GDP in secret HSBC accounts. The desperately poor West Bank and Gaza had 1.3% of its GDP in HSBC accounts. Five members of this list—Senegal, Burundi, Mali, the DRC, and the Central African Republic—are on the United Nations’ list of the least-developed countries in the world. But they have the equivalent of 1% or more of annual production in just a single bank’s secret accounts. The likely impact is much wider.
Sharp-eyed readers may note that one of the top 50 is missing from the list. That is Greece, which was 47th but doesn’t fit our rubric for a developing economy or for a tax haven, despite its messy tax system. Its nationals stashed the equivalent of 1.07% of GDP in HSBC’s accounts, equal to $2.6 billion.
The FTC is using this evidence to make the case that reciprocity rules around new tax-information-sharing systems should be scrapped. While it’s a nice principle that countries can only access the type of information that they are willing to share, poor governments often don’t have the resources to gather the data required by these agreements, effectively barring them from exchanges. And with far more money moving secretly from low-income countries to tax havens and advanced economies than the other way around, mandating exchanges puts the harm disproportionately on the poorest economies.