Wednesday, November 11, 2009

Mapping companies in secrecy jurisdictions

Our Mapping the Faultlines project, a foundation for our Financial Secrecy Index, is continuing to generate analytical reports. One latest report, produced by Markus Meinzer, looks at the data involving the number of companies in various secrecy jurisdictions.

One graph shows, strikingly, that the British Virgin Islands appears to have nearly as many companies registered as the United States, with Hong Kong not far behind - but both jurisdictions are dwarfed by the United Kingdom.

The number of companies will generally indicate two main things: first, how easy it is to incorporate, and second, how useful the jurisdiction is in terms of providing facilities for residents elsewhere to evade or avoid home rules, laws and regulations. Of course, these are just indicators: many companies do carry out genunine economic activity (obviously, the U.S. will have a far higher share of real companies doing real things than the British Virgin Islands. And, as the report indicates:

"Because of the secrecy that surrounds companies in most of the jurisdictions surveyed it is almost impossible to tell where these companies do actually trade, and where they should have tax liability or be subject to regulation. This is the danger that arises from the use of these entities. These so-called “shell companies”, “letter-box companies”, or “brass-plate companies” usually serve just one purpose, which is to conceal the identity of the real beneficiaries of a
transaction behind a corporate structure.

The companies are often complemented by other secrecy structures (e.g. trusts, which are often recorded s the owners of secrecy jurisdiction companies with the deliberate intention of creating layers of impregnability) and so make it difficult or even impossible for tax and other law enforcement authorities to connect a particular financial flow (e.g. a suspicious payment) with a real human being who might be held accountable for it as a result."


Again, you can find the full report here.

13 Comments:

Blogger European Bear said...

The data source is clearly flawed, as there are some glaring errors in this report. How you can claim on the one hand that Luxembourg is second in your list of secrecy jurisdictions and barely figures in the # companies report on the other hand, escapes me.

In reality the number of companies in Lux is 100,000+.

9:29 am  
Blogger Markus Meinzer said...

Dear Bear,

would be interested to know your source for 100,000 companies! Can you point us to it please? As a rule of thumb (and as you can read in the report), we usually tried to use secondary data sources on the number of companies (INCSR, IMF, FATF, etc.) in order to mitigate discrepancies between different national regulators. This is not creating a perfect data set, but - in our understanding - the most consistent dataset currently available.
Apart from that I am not sure if you familiarized yourself with the methodology of the financial secrecy index? You can easily find out that the number of companies was not used to determine a jurisdiction's opacity or market share in the provision of international financial services. To have done so would have clearly created more methodological problems than it would have solved. You can find a concise explanation of our methodology here: http://www.financialsecrecyindex.com/documents/FSI%20-%20Methodology.pdf

1:26 am  
Blogger European Bear said...

Markus,

The 15,000 number for Luxembourg you appear to have taken straight from the INCSR report, which mentions "15,000 holding companies". I have looked through that report but cannot find what that number is based on. Also, by limiting the number here to "holding companies" whilst not making that distinction in other jurisdictions, you are skewing your comparisons.

My number comes from being involved in the Luxembourg market and knowing the companies register fairly well. For some reason you appear not to want to base your report on data from different companies' registers in various jurisdictions, could you explain why?

It seems somewhat strange that you state that you have no data for NL, CH, B, A and others, whereas these countires have transparent and well-run registers.

Also, the BVI number seems very, very high, and is more likely to be around the 450k mark.

As to your comment on how the opacity index was compiled: I know the number of companies was not a criterion for that index. However, it would seem strange that the number 2 on that list, Luxembourg, would not figure prominently in the number of companies report. There must be a fairly high correlation between the two. Do you honestly think that a Global Scale Weight of 0.15 as per your secrecy index for Luxembourg is achieved with just 15,000 companies and some 4,000 investment funds?

3:19 am  
Blogger Markus Meinzer said...

Dear Bear,

First of all we did try to take the numbers straight from registries. The reality however is that the total number of companies on record is reported only in few cases.
Where there was no secondary source available, we continued to try to retrieve the total number of companies from the national registries within reasonable effort. We cannot count item by item every single page of registries displaying companies, up to tens- and hundreds-of-thousands. You cannot seriously recommend that.
Some registers do provide a monthly, quarterly or annual figure in some of their documentation. I did not find anything similar for Luxembourg. If you can direct me to such a source we would be considering to include such data. If not, I take it as an additional sign of opacity, which answers a great deal of your further remarks.
If you have privileged access to company registries data, then please do not assume that everybody else, researchers, and all kinds of interested parties, do have the same access. This is absurd. We are asking for increased transparency, hardly only for insiders!
If INCSR had given another number for companies but the number of holding companies, believe me we would have considered to include this number.
Please point me to documents for NL, CH, B, A that indicate the total number of companies split in usual categories.
Anonymous insider estimates are fine for individual case studies. Hardly for an objective database.

4:12 am  
Blogger European Bear said...

Markus,

I may be an insider, and therefore in a somewhat privileged situation when it comes to obtaining certain data.

However, you present a study, which you claim is based on serious and thorough research. You therefore have a duty to actually do that serious and thorouh research, in particular because you use your findings to make some insinuations about the high-scoring jurisdictions. If I then find that you have merely taken an unsourced number from another report, I have to ask myself what the worth of this report is.

I agree that companies-per-head is a fairly good indicator of the number of shell companies, or whatever you want to call them. High number of shell companies equals opcaity, so therefore the absence of Luxembourg in this report, whilst it scored second in the opacity index should have told you something was not quite right.

I accept that different definitions make this a far from easy exercise.

Below are some links that give official numbers for various jurisdictions. I found them with some hours of hard googling.

CH: http://www.zefix.ch/zfx-cgi/hrform.cgi/hraPage?alle_eintr=on&pers_sort=original&pers_num=0&language=2&col_width=366&amt=007

B: http://kbopub.economie.fgov.be/kbopub/zoekwoordenform.html?lang=fr
(although the number of 1.4 million seems too high to me);

BVI: http://www.bvifsc.vg/Default.aspx?tabid=200

NL: http://statline.cbs.nl/StatWeb/selection/?DM=SLEN&PA=07223ENG&LA=EN&VW=T; (although the definition by the Dutch Statistical Agency of 'company', makes this number probably too low, I would expect the true number to be around 1.2 million);

A: the number can surely be found through http://www.handelsregister.at/, however you have to subscribe /pay to get access to the statistics section.

L: indeed there is no readily accessible source on the web. However, through www.statec.lu, you can find the number of companies subject to VAT, around 26,000. Also note that registration numbers at the companies register are now up to 150,000, which gives a pretty good indication of how many companies there must be.

6:50 am  
Blogger Richard Murphy said...

European Bear

We were researching opacity.

It seems you have proven that opacity exists - you have been unable to prove numbers and doubt those you have found

Doesn't that suggest we were right to use the sources we did, that our estimate was cautious and therefore wise, and that the conclusion that Luxembourg is a serious problem - but maybe more than we suggest - is absolutely true?

I'm not sure what else I can conclude from your comments, which I do however appreciate.

Richard Murphy

Mapping the Faultlines Research Director

2:32 am  
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2:55 am  

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