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Sanction Evasion Through Tax Havens

Author

Listed:
  • Kerim Can Kavakli
  • Giovanna Marcolongo
  • Diego Zambiasi

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.

Suggested Citation

  • Kerim Can Kavakli & Giovanna Marcolongo & Diego Zambiasi, 2023. "Sanction Evasion Through Tax Havens," BAFFI CAREFIN Working Papers 23212, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    • Handle: RePEc:baf:cbafwp:cbafwp23212
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    References listed on IDEAS

    as
    1. Balakina, Olga & D’Andrea, Angelo & Masciandaro, Donato, 2017. "Bank secrecy in offshore centres and capital flows: Does blacklisting matter?," Review of Financial Economics, Elsevier, vol. 32(C), pages 30-57.
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    5. Jørgen Juel Andersen & Niels Johannesen & David Dreyer Lassen & Elena Paltseva, 2017. "Petro Rents, Political Institutions, and Hidden Wealth: Evidence from Offshore Bank Accounts," Journal of the European Economic Association, European Economic Association, vol. 15(4), pages 818-860.
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