Financial Secrecy Index score used as risk indicator in new OECD anti-corruption handbook

On November 7th, the OECD launched an updated edition of its Bribery and Corruption Awareness Handbook for Tax Examiners and Tax Auditors.

The handbook “considers the various types of corruption that a tax examiner or auditor are most likely to encounter in their work…so that tax officials can better understand how their contribution can assist criminal investigators and law enforcement authorities in countering these crimes.”

It notes that “In order to conceal evidence of bribery and corruption, taxpayers will often use the same techniques that they also use to conceal income when evading taxes or laundering the proceeds of crime”.

The core of the handbook is a set of indicators covering the taxpayer’s external and internal risk environment, as well as indicators on transactions, payments, and money flows, among others.

It is written in simple language, and has multiple references to offshore companies, shell companies, and tax havens.

Starting with the planning phase of a tax examination, for example, officials are recommended to consider “the use of foreign entities and operations, the terms of contractual or pricing arrangements, details of fund transfers, and use of tax haven locations” (pg 17).

Page 34 includes a diagram showing the use of a joint venture via an Offshore Company to set up a corrupt deal, while page 39 provides an example of a commission payment (suspected bribe) routed through an offshore company in a tax haven.

The first two indicators proposed to evaluate the internal risk environment of the taxpayer are:

–  a complex or international legal structure with no apparent commercial, legal or tax benefits.

– [the taxpayer] owns or controls a legal entity with little or no commercial purpose, particularly one located offshore.

Among the external environment indicators, a high score on the Financial Secrecy Index is included as an indicator of a high risk country, together with low scores on the Corruption Perceptions Index and the Bribe Payers Index (see first note on page 25 of the OECD handbook).

Annex A contains a list of useful websites and resources and again mentions the Financial Secrecy Index.

As of December 2012 only Nauru and Niue were listed as tax havens by the OECD.


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