1. Sanction-busting through tax havens
- Author:
- Kerim Can Kavakli, Giovanna Marcolongo, and Diego Zambiasi
- Publication Date:
- 04-2023
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Financial sanctions, which aim to economically hurt a target by restricting its access to financial assets and markets, require the ability to identify who owns an asset. Although experts have long claimed that offshore financial centres that offer secrecy (‘tax havens’) undermine sanctions by hiding ownership information, so far data limitations have prevented a rigorous test of this claim. We overcome this constraint using data from the Bank of International Settlements and the Offshore Leaks Database and conduct the first systematic analysis of the role that tax havens play in financial sanction evasion. Our main finding is that sanction targets reduce their funds in sanctioning countries while increasing their funds in tax havens. This displacement effect is stronger when the sanction coalition includes the United States or comprises more FATF or OECD members. Lastly, whether a tax haven is in the sanctioning coalition does not seem to make a difference. These findings confirm that target countries evade sanctions by moving large portions of their funds from sanctioning countries to tax havens. More broadly, our paper highlights a novel and geostrategically important role of tax havens in global finance.
- Topic:
- Sanctions, Financial Markets, Leaks, and Tax Havens
- Political Geography:
- Global Focus