No. 3 - Tax havens: operational features, empirical evidence and financial anomaliesby Mario Gara and Pierpaolo De Franceschis

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August 2015

JEL classification: F36, G15, K33

Key words: offshore financial flows, international money laundering, regulation.

There is a widespread international concern over the threat that tax havens (or offshore financial centres) pose to the proper functioning of financial markets. This study aims to map these countries and provide some tools for analysing the financial flows thereof. It is shown that the so called ‘havens’ differ from one another with respect to (i) the overall level of opacity that each grants and (ii) the type of opacity services that each provides (either in the fiscal, financial or corporate realm). Figures measuring tax havens’ relevance in the context of the international financial system are provided. The developments in wire transfers between Italy and tax havens feature some anomalies, thus suggesting that the determinants of such flows differ from those underlying the flows with the rest of the world. If transfers are broken up by the economic sector they refer to, patterns emerge which are compatible with profit shifting conducts. Moreover, a far from negligible share of transfer vis-à-vis ‘virtuous’ countries refers to individuals or entities residing in tax havens, which may signal that the latter are used to screen financial flows among non-havens. Finally, a massive analysis of suspicious transaction reports related to tax havens provides a basis for identifying the most common anomalous financial conducts.