Sanction Evasion Through Tax Havens

Kerim Can Kavakli, Giovanna Marcolongo and Diego Zambiasi

No 23212, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: We analyze the enforcement of financial sanctions and the role of offshore secrecy jurisdictions (‘tax havens’) in it. Tax havens can undermine sanctions and provide a safe refuge for targeted actors by hiding information on asset ownership. Consequently, we hypothesize that targets of financial sanctions will increase their funds in tax havens. We test this hypothesis using data from the Bank of International Settlements and the Offshore Leaks Database and find strong support for it. Additionally, neither participation in sanctioning coalitions nor membership in relevant intergovernmental organizations prevent tax havens from attracting target state funds. However, when the US leads (not only joins) a sanction coalition, then this effect disappears. Our findings suggest that targeted actors use tax havens to evade sanctions, but such evasion can be prevented when the US prioritizes enforcement. More broadly, our paper highlights a novel and geostrategically important role of tax havens in global finance.

Pages: 47
Date: 2023
New Economics Papers: this item is included in nep-pbe, nep-pub and nep-tra
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