Liberia is ranked 117th out of 133 countries on the 2020 Financial Secrecy Index (FSI), garnering a score of 77.99 and accounting for 0.23 percent of global market in offshore financial services.
The FSI ranks each country based on the intensity of its legal and financial systems with a secrecy score out of 100, where a zero out of 100 is full transparency and a 100 out of 100 is full secrecy.
Liberia’s secrecy score, according to FSI 2020, copied online was based on ownership registration, legal entity transparency, the integrity of tax and financial regulation as well as international standards and cooperation.
Three other African countries such as Nigeria ranked 34 scoring 70, South Africa ranked 58 gathering 56 and Rwanda ranked 99 with 63.
Meanwhile, on the global level Cayman Island leapfrogged over the US and Switzerland in global ranking of secrecy hotbeds to top the Index.
The rest of the 10 biggest enablers of FSI in the world are, Hong Kong, Singapore, Luxembourg, Japan, the Netherlands, British Virgin Island and the United Arab Emirates.
The Tax Justice Network’s FSI 2020 revealed that financial secrecy around the world was decreasing as a result of recent transparency reforms.
It said on the average, countries on the index reduced their contribution to global FSI by seven percent.
Liberia’s secrecy jurisdiction is an example of where state sovereignty has been outsourced almost wholesale to foreign interests. In setting up the registry, the Liberian government has effectively privatized a key function of the state and even, it appears, some parts of Liberian law itself. The result is that Liberia permits the establishment of some of the most powerful secrecy instruments in the world.
Although Liberia’s reputation as a secrecy jurisdiction has threatened to cause substantial damage to the image of the country abroad, very little is known about Liberia’s tax haven role in the country itself. Its offshore corporate registry is located and managed in the United States.
Liberia’s ranking in the 2020 Financial Secrecy Index (111th) has improved significantly from 2018 (38th).2 However, this change is explained only in small part by an improvement in Liberia’s secrecy score3, and is mostly due to a significant reduction in Liberia’s global scale weight score,4 which ‘assesses the size of each jurisdiction’s share of the global market for financial services provided to non-residents’.5 Considered purely on the basis of its secrecy score, Liberia is still the seventh most secretive jurisdiction in the world.
The History of the Liberian Secrecy Jurisdiction
The Liberian corporate registry was developed alongside the Liberian Shipping Registry. The story goes that the US Secretary of State Edward Stettinius visited Liberia on his way back from the Yalta Peace Conference following World War Two, and saw the potential of the country. In 1947 he formed Stettinius Associates and set up a number of development projects in the country, the shipping registry being one of them. The US had an interest in the establishment of a shipping registry in a neutral country, which would allow world trade to carry on unhindered in times of war.
With the help of lawyers from Esso and the State Department, Stettinius Associates drafted Liberia’s first maritime law. To reassure potential clients, it was written into the law that the registry must be located in the United States and managed by a US citizen. Throughout the history of the registry, the company operating the Liberian registry has been staffed by retired US generals and former employees of the US coastguard.6
After its foundation in 1948, Liberia’s shipping registry grew quickly. In 1949 the country had just five ships registered under a Liberian flag. By 1955 it had overtaken Panama, then the leading flag of convenience in terms of tonnage registered. By 1965 it had surpassed the United Kingdom, the historic leading nation in terms of shipping.
The popularity of the Liberian registry was driven by its status as a flag of convenience, which is a kind of tax haven for ships. A flag of convenience is when a ship owner will register their vessel in a country other than their home country in order to take advantage of favorable tax rates or other regulations. Flags of convenience have been controversial for as long as they have existed, particularly due to their impact on labour standards.
Alongside the shipping register, the Liberian Corporate Registry was developed. This allowed ship owners to set up a Liberian company to own their ships, which in turn allowed ship owners to avoid corporation tax on the profits generated from their shipping activities and to keep the ownership of the vessels secret. Since 2000 the contract to operate the Liberian registry has been owned by LISCR LLC,8 the Liberian International Shipping and Corporate Registry,
based in Dulles, Virginia, a suburb of Washington D.C. in the USA. LISCR is registered in the US state of Delaware, itself a tax haven.
The fees collected by LISCR are transferred to the Liberian government through a special account at the US Federal Reserve.