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Mapping Financial Secrecy Germany Report on Germany Germany is ranked at ninth position on the 2011 Financial Secrecy Index. This ranking is based on a combination of its secrecy score and a scale weighting based on its share of the global market for offshore financial services. Germany has been assessed with 57 secrecy points out of a potential 100, which places it in the in the lower mid range of the secrecy scale (see chart 1 below). Germany accounts for slightly under 5 per cent of the glo

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  Mapping Financial SecrecyGermany   1   Published on October 4, 2011 - Minor Revision on October 18,2011 © Tax Justice Network Report on Germany Germany is ranked at ninth position on the 2011 Financial Secrecy Index. This ranking isbased on a combination of its secrecy score and a scale weighting based on its share of theglobal market for offshore financial services.Germany has been assessed with 57 secrecy points out of a potential 100, which places it inthe in the lower mid range of the secrecy scale (see chart 1 below).Germany accounts for slightly under 5 per cent of the global market for offshore financialservices, making it a large player compared with other secrecy jurisdictions (see chart 2below), though not on the same scale as huge players such as Luxembourg, UK and the USA. Part 1: Telling the story Germany’s offshore financial centre: history and overview  Overview Although many people will be surprised to see Germany on a list of secrecy jurisdictions, ourresearch reveals a combination of secrecy facilities and tax exemptions for non-residents,with a very large offshore financial centre.With a secrecy score of 57, comparable to the United States, Germany lies towards the ‘cleaner’ end of our secrecy spectrum - though it nevertheless requires major improvements.Its high ranking in our index stems largely from the fact that it has such a large financial ModeratelysecretiveExceptionally secretive 31-4041-5051-6061-7071-8081-9091-100 Chart 1 - How Secretive?Chart 2 - How Big? tinylarge huge small  Mapping Financial SecrecyGermany   2   Published on October 4, 2011 - Minor Revision on October 18,2011 © Tax Justice Networkcentre: Frankfurt is the largest financial centre in continental Europe.Research by Washington-based Global Financial Integrity has identified Germany(p1)as the world’s fifth largest holder of private, non-resident deposits  – a key marker of offshoreactivity. Like other OECD countries, Germany does not exchange tax-related information,automatically or otherwise, with a multitude of other jurisdictions. Many foreign-ownedGerman assets are held secretly through the use of elaborate structures spanning secrecy jurisdictions such as Luxembourg and Switzerland.This combination of medium-level secrecy and a huge financial centre makes Germany animportant player in the secrecy world. It is without doubt the home for large volumes of tax-evading and other illicit flows and assets from around the globe. History Surviving records from the 13th Century show that Frankfurt, Germany’s modern financial powerhouse, was the most economically powerful city in the German Empire. Its pre-eminence waxed and waned over ensuing centuries but received a major boost in the late16th Century when Spanish soldiers plundered Antwerp, prompting many merchants to fleeto Frankfurt, and launching its first real financial boom from 1585(p308). Further inflows of  French Huguenots a century later helped cement the city’s financial role for the future.  Frankfurt suffered in the first half of the 20th Century, and even in the early 1950s it was probably eclipsed by Düsseldorf, which was closer to Germany’s industrial core, the Ruhr. Itonly regained prominence from 1957, when Germany’s central bank was set up with itsheadquarters In Frankfurt. The same year Dresdner Bank and Deutsche Bank also elected to set up their headquarters there, marking the financial centre’s rebirth.  However, faced with quite strong domestic regulations German banks shifted substantialo perations overseas in the 1960s and 1970s, particularly to the offshore ‘Euromarkets’ dominated by the City of London. From their London offices they were heavily involved inthe recycling of Petrodollars, and they built themselves up into global financial powerhouses,growing to spread their activities worldwide and, eventually, return home to lobbypowerfully for financial liberalisation. By the mid 1980s, amid financial liberalisation, 40 of the world’s top 50 banks had a presence in Frankfurt and 80 percent of the foreign banks in Germany had chosen Frankfurtas their base(p178). According to the latest report by the Financial Action Task Force (FATF) in 2010, Germany hosted over US$1.8 trillion in deposits by non-residents, boasting 3,400 financial institutionsof various kinds, mainly commercial banks, savings banks and co-operative banks.Germany provides several tax exemptions for non-residents, notably on bank deposit  Mapping Financial SecrecyGermany   3   Published on October 4, 2011 - Minor Revision on October 18,2011 © Tax Justice Networkinterest, on German government bonds paid via foreign financial intermediaries. Thesefactors  – combined with the fact that there are large numbers of countries that Germany hasnot signed effective tax information-exchange agreements with, have attracted large (andoften illicit) financial inflows, particularly from developing countries.Highlighting its somewhat cynical approach, Germany allowed bribe payments to be tax- deductible, becoming one of the world’s last major economies to outlaw this practice in 1999. Evidence has frequently emerged  – such as the discovery of large-scale and probably illicit Turkmen funds, or news that Germany had frozen  €6 billion  in Libyan assets during theLibyan civil war, highlights its major role (alongside other major financial centres such asLondon and the United States) in hosting questionable assets.Although Germany does not practice banking secrecy like neighbouring Switzerland, criticismby the Financial Action Task Force (FATF) highlights serious concern about the use of entitiessuch as trusts, foundations and Treuhand (a German speciality that can provide strongsecrecy.) Information about beneficial ownership of such structures, the FATF notes, isextremely patchy, and constitutes a major loophole for the preservation of secrecy. The FATF also notes particular concerns with Germany’s rela tively low level of reporting of suspicious transactions: “For an economy the size of Germany‘s, with a highly -developed financial servicessector which provides near-universal access to such services for its residentpopulation, the level of suspicious transaction reporting appears to be unusuallylow .”  The German tax authorities have also been criticised for their fragmented, low-tech and under-resourced approach to collecting tax, especially from wealthy people. Next steps for Germany Germany ’s 57 per cent secrecy score shows that it must still make major progress in offeringsatisfactory financial transparency 1 . If it wishes to play a full part in the modern financialcommunity and to impede and deter illicit financial flows, including flows srcinating fromtax evasion, aggressive tax avoidance practices, corrupt practices and criminal activities, itshould take action on the points noted where it falls short of acceptable internationalstandards. See part 2 below for details of Germany ’s shortcoming s on transparency. See thislink for an overview of how each of these shortcomings can be fixed. Part 2: Secrecy Scores The secrecy score of 57 per cent for Germany has been computed by assessing the  jurisdiction’s performance on the 15 Key Financial Secrecy Indicators, listed below.    Mapping Financial SecrecyGermany   4   Published on October 4, 2011 - Minor Revision on October 18,2011 © Tax Justice NetworkThe numbers on the horizontal axis of the bar chart on the left refer to the Key FinancialSecrecy Indicators (KFSI). The presence of abluebar indicates a positive answer, as doesbluetext in the KFSI list below. The presence of aredbar indicates a negative answer as doesred  text in the KFSI list. Where the jurisdiction’s performance partly, but not fully complies with a Key Financial Secrecy Indicator, the text is colouredvioletin the list below(combination of red and blue).This paper draws on key data collected on Germany. Our data sources include regulatoryreports, legislation, regulation and news available at 31.12.2010 2 . The full data set isavailable here 3 . Our assessment is based on the 15 Key Financial Secrecy Indicators (KFSIs,below), reflecting the legal and financial arrangements of Germany. Details of theseindicators are noted in the following table and all background data can be found on theMapping Financial Secrecy web site 4 . This data is the basis on which theFinancial SecrecyIndex 5 is compiled. The Key Financial Secrecy Indicators and the performance of Germany are:TRANSPARENCY OF BENEFICIAL OWNERSHIP  –  Germany  1. Banking secrecy: Does the jurisdiction have banking secrecy? Germany does not adequately curtail banking secrecy 2. Trust and Foundations Register: Is there a public register of Trusts and Foundations? Germany does not put details of trusts on public record  3.Recorded Company Ownership: Does the relevant authority obtain and keep updateddetails of the beneficial ownership of companies?   123456789101112131415 KFSI Germany - KFSI Assessment 43%57% Germany - Secrecy Score Transparency ScoreSecrecy Score
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