FSI ranks countries according to the internal level of secrecy of financial activities and their share of offshore financial services activities in the global total. The Index is normally published twice a year and permits to identify the countries where the proceeds of illegal activities, including corruption, flow. According to TJN, from 21 to 32 trillion USD is hoarded away in offshore accounts around the world. It is noteworthy that contrary to popular belief, corrupt officials hide their illicit assets using the financial systems of the biggest and richest countries and not in the small paradise islands.
FSI is based on two components:
1. Secrecy indicator scores are calculated on the basis of analysis of laws and other regulations, information on international cooperation and other open data as well as on responses of public bodies of different countries.
The TJN researchers use 20 indicators divided into four groups:
1) Ownership registration, among its indicators:
- banking secrecy;
- trusts and foundations register;
- recorded company ownership, etc.
2) Legal entity transparency, which includes:
- public company ownership
- country-by-country reporting, and other indicators.
3) Integrity of tax and financial regulation, its indicators cover:
- consistent personal income tax;
- tax court secrecy, public statistics, etc.
4) International standards and cooperation, assessed with such indicators as:
- anti-money laundering, i.e. extent of compliance with the recommendations of the Financial Action Task Force;
- automatic information exchange on financial accounts and engagement in a pilot project to assist developing countries, and other indicators.
The total score of a country is calculated on the basis of the scores for each indicator and ranges from 0 to 100, where a 0 score means the highest level of financial transparency, whilst 100 indicates the lowest one.
The jurisdictions with the highest scores are characterized by scarce transparency of financial operations, limited participation in international information exchange and disrespect for international anti-money laundering standards. These countries are the most attractive for illicit financial flows and concealing of criminal and corruption activities.
2. Global scale weights are assessed through a relative share of each jurisdiction of offshore financial services activities in the global total. To this end, the researchers use open qualitative data on the international trade of financial services: the main source in this case is the data on the balance of financial services provided by IMF’s Balance of Payments Statistics (BOPS) 574, which contains information about national exports of financial services. If the data on any jurisdiction lack or are incomplete, the TJI experts use the IMF’s methodology, extrapolating from data on stocks of internationally held financial assets, to obtain an accurate estimate of the redistribution of financial flows. However, the researches highlight that such methodology to assess the share of a country of the offshore financial services activities has several flaws. Notably, a part (perhaps, even most) illicit financial flows are distributed through the purchase and sale of goods rather than through the export of financial services.
After the assessment of jurisdictions under each of the two components, the final ranking of financial secrecy is composed in accordance with a formula worked out by the researchers and reflecting the share of a country of the redistribution of illicit financial flows. The use of this two-component approach towards the ranking permits to give a more objective assessment. For example, a country which has a major share of the offshore activities but a higher level of financial transparency may get the same overall score as a country which is involved into offshore activities to a lesser extent but has a substantial level of financial secrecy.
The 2020 FSI was calculated for 133 countries. According to the results of the ranking, such countries as the Cayman Islands, the United States, Switzerland, Hong Kong, Singapore, Luxemburg, Japan, Netherlands, the British Virgin Islands and the United Arab Emirates are the top ten major intermediary countries participating in the redistribution of illicit financial flows. It is noteworthy that if the United Kingdom and its overseas territories (for instance, the Cayman Islands, the British Virgin Islands, etc.) were taken as a single jurisdiction, it would be ranked at the top of the list, differing by a large margin from other countries.
At the same time, the findings show an upward tendency in financial transparency of jurisdictions. The level of financial secrecy in the reviewed countries has decreased, on average, by 7% compared with the results of the previous 2018 ranking. However, this positive trend was not registered everywhere. For instance, the FSI regarding the United States, the United Kingdom and the Cayman Islands has increased by 3-4 points compared with the 2018 findings.
The Russian Federation is ranked 44th in the 2020 FSI (in 2018 it was 29th). The level of financial secrecy there has declined from 64 to 57 points, meanwhile its share of offshore activities has remained unchanged, amounting to only 0.25%.