Banking hotspots: new research into banks and secrecy jurisdictions

Tax Justice Network has just published new research into the use of secrecy jurisdictions by banks, lawyers and accounting firms. This research builds on data captured during our investigations into how secrecy jurisdictions create fault-lines in the global financial architecture.

Earlier this year the chairman of UK's Financial Services Authority, Lord Adair Turner, a former banker, commented that the City of London has "grown beyond reasonable size" and carries out activities that are "socially useless". London is the world's largest international financial centre, and the UK as a whole has 397 licensed banks, which interestingly appears relatively modest compared to the 870 licensed banks in Austria (see graph 2).

















But if you take a look at how banks, law firms and accounting businesses accumulate in offshore
financial centres a quite startling picture emerges. Rather than looking at the absolute numbers of licensed banks, we've enumerated the numbers of licensed banks for each 100,000 of population in these places. And lo and behold the small island economies emerge as having an excess of banks which takes Lord Turner's comment about 'beyond reasonable size' into an entirely different league.


At the extreme, Cayman has 450 licensed banks, for a population of just short of 48,000. That's 940 banks for each 100,000 population (chart 3). Or take Bahamas: 139 licensed banks serving a population of 307,451 (45 banks per 100,000 people). Since there's not much in the way of productive investment being made in either Cayman or the Bahamas, this smells less like socially useless and more like monkey business. By way of comparison, industrial giant Germany has 3.4 banks per 100,000 population, while France has 2.9.

What does this tell us? Well as Markus Meinzer and Richard Murphy explain in their report:

"Firstly, bankers, lawyers and accountants offer and support financial services and, by interaction and collusion, have the knowledge and means to handle and hide illicit financial flows if they so wish. Secondly, banks, lawyers and accountants active in financial services will have considerable power in any secrecy jurisdiction that is heavily dependent upon financial services."

These considerable powers are likely to be all the greater in smaller islands, which are more vulnerable to capture by economic elites and where the range of checks of balances required for democratic accountability, e.g. opposition parties, competitive and independent media, a strong civil society, are not always present. In these circumstances it is all the more likely that the presence of a large number of banks, employing a significant proportion of the local workforce in clerical positions, will shape a culture of secrecy and non-cooperation with the outside world:

"the overall outcome of a dominant financial services sector in secrecy jurisdictions is likely to be an enhanced criminogenic environment in which financial regulations and transparency are undermined and kept at the lowest level so as to attract the maximum of foreign funds."

Read more here. And for more background on the vulnerability of microstates and small island economies to political capture see here.