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Publication | 19 June 2020

The JRC Statistical Audit of the Financial Secrecy Index 2018

The construction of the Financial Secrecy Index (FSI) from 115 variables to 20 Key Financial Indicators (KFSIs) that are grouped further into a Secrecy Score and aggregated together with a global scale weight across 112 jurisdictions worldwide inevitably entails both conceptual and practical challenges. The statistical audit discussed in this chapter constitutes the first collaboration between the Tax Justice Network and the European Commission’s Joint Research Centre (JRC). The statistical assessment carried out by JRC aims at enhancing the transparency and reliability of the FSI and thus to enable policymakers to derive more accurate and meaningful conclusions. Prior to undertaking this statistical assessment, the Tax Justice Network and JRC engaged in previous discussions during spring 2016 and fall 2017, whereby earlier versions of the FSI were assessed by the JRC. Preliminary JRC suggestions were taken into account by TJN for the final computation of the FSI scores and rankings.
The intentions of the audit are to:
• Investigate the characteristics of the underlying data and check for eventual errors in calculation
• Assess the associations between indicators and see to what extent they agree with the conceptual framework
• Review the methodology used to treat, weight, and aggregate data
• Assess the impact of modelling assumptions (uncertainty and sensitivity analysis) on the FSI ranks
• Eventually recommend modifications based on the conclusions of the above.434
In particular, the JRC analysis complements the reported FSI ranks for the 112 jurisdictions with estimated confidence intervals, in order to better appreciate the robustness of these ranks to some modelling choices (such as choice of the variable to capture the global scale weight, the normalisation the weighting scheme and the aggregation formula).
Importantly, the construction of a composite indicator is a balance between statistical “rigour" and conceptual considerations, which can not infrequently contradict each other. This audit aims to investigate and analyse the statistical side of the equation, but does not aim to offer conceptual suggestions (which are better left to experts in international finance and regulations), or suggest where the balance should be struck between statistics and the concept of financial secrecy.

The JRC Statistical Audit of the Financial Secrecy Index 2018
(2.97 MB - pdf)

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