Financial Transparency Coalition

The offshore industry is contentious.  There are quite a few passionate accusations and just as many defensive rebuffs.   There’s a lot of chatter about which centers are gaining (apparently Hong Kong is on the rise) and which ones are losing (are depositors pulling out of Switzerland in reaction to the UBS scandal?).  What this dialogue lacks, however, is comprehensive, accurate, and publicly available data.

That’s about to change.

Today Global Financial Integrity published a paper called “Privately Held, Non-Resident Deposits in Secrecy Jurisdictions.”  This paper estimates the amount of money that is held by individuals and corporations in foreign countries, on a country-by-country basis and broken down by quarter.  The countries that are included are all secrecy jurisdictions, which as I have explained in a previous post, is a preferable classification than “offshore financial center” or “tax haven.”

For data, this report uses the Bank for International Settlements (BIS), the International Monetary Fund (IMF), a private firm called Datamonitor, and a set of data compiled directly from central banks of individual countries.  The study then applies a proxy measure (which is a way of measuring something that isn’t directly observable) to disaggregate which portion of total deposits is likely to be held by private individuals or corporations.

This paper then ranks the centers and analyzes the money flowing through them.

So which are the worst offenders?  Well, if you read my post Wicked, you’d suspect that the countries holding the largest shares of the cash may not only be held in the “usual suspects” like Switzerland, Cayman, or Bermuda.  In fact, the data support this hypothesis, showing that although traditionally understood centers like Switzerland and Cayman are certainly complicit, the largest holders also include the United States, the United Kingdom, Germany, and Netherlands.   Below is a table from the paper, which shows the top 10 holders of private offshore deposits, ranked by June 2009, the latest quarter for which data are available.  For a complete ranking, see the paper, which is available here.

These estimates are severely underestimated.  They do not include estimates of trusts, mutual funds, money market funds, or custodial accounts (which are particularly important in Switzerland).  For example, as noted in the paper, the Swiss Bankers Association reported that it had about US$2.7 trillion in assets under management in 2007.

In response to the most prominent discussions of the offshore industry, the paper explores a range of other interesting topics related to this industry.  It assesses how these deposits reacted to the U.S. housing bubble, assesses how these deposits reacted to the 2008 financial crisis, analyzes the deposits in Switzerland in the context of the infamous UBS case, and explores deposits in Asia, a region whose offshore industry has lately received a lot of attention.

So what does the paper conclude about all of these issues?  Well you’ll just have to read it to find out.