LONDON: A report from Christian Aid claims UK public companies have thousands of subsidiaries in tax havens where information "secrecy is the norm" and therefore a threat to investors, customers and government regulators.
More than 90 per cent of their subsidiaries are based in places defined as "secrecy jurisdictions" by the Financial Secrecy Index (FSI) that estimates U$21trillion to U$32 trillion of private financial wealth is located, untaxed or lightly taxed, in secrecy jurisdictions around the world.
Christian Aid's says its research has found that FTSE100 companies have created 29,891 subsidiaries in such jurisdictions as Switzerland, Luxembourg, Hong Kong, Bermuda and the Cayman Islands.
Of this number, it says only 26 percent provide details of turnover, assets, shareholder funds and number of employees and such information is "impossible to obtain" for a further 21 percent. Data on the remaining 53 percent is available for a fee.
According to the report (below), the sectors with the most secret subsidiaries are investment and finance (37 percent), banks (28 percent), mining companies (19 per cent) and real estate (18 percent).
"We were shocked by how little information is freely available about most companies' subsidiaries," said Katharine Teague, co-author of the report. "What our findings show is that secrecy is not the exception but the norm, even among the largest 100 companies traded on the London Stock Exchange...But the secrecy is so deep and widespread that it is like a blindfold on everyone who has financial dealings with these companies."
Christian Aid says opacity at both country and corporate levels is a fundamental road block to finance sustainable development: In 2013, five years after the OECD started to warn about the size of the problem, the African Union High Level Panel on Illicit Financial Flows concluded that the continent continues to lose US$50 billion a year in illicit financial flows, draining it of much-needed resources.
The FSI claims illicit cross-border financial flows add up to an estimated U$1-1.6 trillion each year: "Since the 1970s African countries alone are estimated to have lost over US$1 trillion in capital flight, dwarfing their current external debts of 'just' US$190 billion and making Africa a major net creditor to the world." FSI says these assets contnue to be protected by offshore secrecy while the debts are paid by Africa's population.
"Yet governments are still failing to address factors key to that deficiency – lack of corporate transparency compounded by the incentives and opportunities offered by secrecy jurisdictions," argues Teague.
Christian Aid says companies should make their statutory accounts and other relevant financial information publicly available at no cost; refrain from establishing subsidiaries in jurisdictions where they don't perform "substantial" business activities; take action to close irrelevant dormant subsidiaries and clearly communicate where they are registered for tax purposes.