Terminology is essential to any serious action against secrecy jurisdictions. The term of secrecy jurisdiction is relatively recent and we owe it to Tax Justice Network and others, which have demonstrated the important secrecy component of a certain number of jurisdictions. The term tends to replace “offshore centres”, a more descriptive and a bit misleading expression which does not refer to offshore islands but tries to depict the role of the centre as a financial intermediary in a trade conducted elsewhere, with most assets and most liabilities being invested or held abroad. The advocacy value of the term “secrecy jurisdiction” is clear, since it points out the use and abuse of secrecy by several financial centres, which hurts the transparency agenda.

It is true that several financial centres sell secrecy to their clients, but their offering is more diverse, and this needs to be understood in order to tackle them efficiently. International corporations which elect to register a subsidiary in the British Virgin Islands do so for tax optimization and administrative simplicity purposes. If those corporations are listed in a major stock exchange, which is most often the case, they are transparent on their use of offshore centres in their annual reports to the stock exchange supervisory body, as illustrated, among many other examples, in the oil and gas sector by Conoco Phillips, 2009 Form 10-K, Exhibit 21 or in the banking sector by Societe Generale Group, 2010 registration document, note 45, pp. 315-326. Corporate practice seems uneven with that respect and some corporations may have a policy to limit, or reject, use of offshore centres, as suggested by Statoil 2009 statutory report, note 13, pp. 126-127.

It would not be true, and not efficient from an advocacy standpoint, to state that all corporations using offshore centres are using them for secrecy purposes. They are using them for paying less taxes, therefore as tax havens, or to avoid administrative complexity. Aggressive tax optimization is already a major obstacle to development, since it allows corporations not to share with local governments and populations the value they are creating locally. A test we conducted on several industrial corporations suggests a tendency to use offshore centres more for operations in developing countries. In addition to the development issue, tax optimization provides the financial centres concerned with their main political justification, and the corporations using those jurisdictions may enter into a risky area. Going back to the terminology debates, their use of offshore centres as tax havens allows those jurisdictions to grow their secrecy business and behave as secrecy jurisdictions.

Those centres have a diverse offering which ultimately makes them secrecy jurisdictions. Not only do they offer low-or-no taxation regimes, but they also have a very simple regulatory framework wich is appealing to many corporations. When it comes to regulatory framework however, simplicity may also mean weakness. Absence of strong regulation is exploited by all those who want to hide assets and flows, and the no-tax offering of the centre expands into a no-regulation offering which is a secrecy offering.

Corporations using offshore centres as tax havens may, in some circumstances unwillingly, allow others to use them as secrecy jurisdictions. Those others may be their equity partners in non-100% controlled subsidiaries. Whereas an international corporation optimizes tax regime and avoids administrative costs, equity partners may recycle illegal funds or disguise an equity stake of an operation based in a country where they have political responsibilities. Dealing with offshore centres also creates opportunities for corporate employees who may use the centres or the legal entities that they help create for their own needs. The Enron scandal, ten years ago, exemplified how tax optimization could quickly lead to individual crime, and it is remarkable that no serious action has been taken since then against those centres whose role had been fully exposed by the Enron wrongdoings. Civil society definitely has to engage with big corporations on tax havens, in order to increase corporate awareness of secrecy jurisdictions.

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