American Economic Journal: Economic Policy 2014, 6(1): 65–91
http://dx.doi.org/10.1257/pol.6.1.65

The End of Bank Secrecy?
An Evaluation of the G20 Tax Haven Crackdown†
By Niels Johannesen and Gabriel Zucman*
During the financial crisis, G20 countries compelled tax havens tosign bilateral treaties providing for exchange of bank information.
Policymakers have celebrated this global initiative as the end ofbank secrecy. Exploiting a unique panel dataset, our study is thefirst attempt to assess how the treaties affected bank deposits in tax
havens. Rather than repatriating funds, our results suggest that tax
evaders shifted deposits to havens not covered by a treaty with theirhome country. The crackdown thus caused a relocation of deposits
at the benefit of the least compliant havens. We discuss the policy
implications of these findings. (JEL G21, G28, H26, H87, K34)

In August 2009, France and Switzerland amended their tax treaty. The two countries agreed to exchange upon request all information necessary for tax enforcement, including bank information otherwise protected by Swiss bank secrecy laws.
Over the following months, one of France’s richest persons and her wealth manager
were taped discussing what to do with two undeclared Swiss bank accounts, worth$160 million. After a visit to Switzerland, the wealth manager concluded that keeping the funds in Swiss banks or bringing them back to France would be too risky.
He suggested that the funds be transferred to Hong Kong, Singapore, or Uruguay,
three tax havens which had not committed to exchanging information with France.
After the tapes were made public, they received extensive newspaper coverage andeventually the funds were repatriated to France.1
The amendment to the French-Swiss tax treaty was part of a major initiative
to combat tax evasion at the global level. Since the end of the 1990s, the OECD
has encouraged tax havens to exchange information with other countries on the* Johannesen: Department of Economics, University of Copenhagen, Øster Farimagsgade 5, 1353 Copenhagen,Denmark (e-mail: niels.johannesen@econ.ku.dk); Zucman: Univeristy of California, Berkeley, 530 Evans Hall
#3880, Berkeley, CA 94720, and London School of Economics, 32 Lincoln’s Inn Fields, London WC2A 2AE(e-mail: zucman@berkeley.edu). We are grateful to the Bank for International Settlements for giving us access tothe otherwise restricted data on foreign deposits for the purposes of this research and to the Danish Central Bankfor facilitating the contact. We thank two anonymous referees, Nicolas Frémeaux, Lucie Gadenne, Harry Huizinga,
Thomas Piketty, Johannes Voget, audiences at the Danish Central Bank, University of Copenhagen, Paris Schoolof Economics, Max Planck Institute, Norwegian Business School, Oxford, Tilburg, Vienna Institute for Advanced
Studies, IIPF Congress, Days Louis-Andre Gerard-Varet, and Helsinki for valuable comments and suggestions.
Niels Johannesen acknowledges financial support from the Danish Council for Independent Research and Gabriel
Zucman from the French Ministry of Higher Education.
†
Go to http://dx.doi.org/10.1257/pol.6.1.65 to visit the article page for additional materials and author disclosurestatement(s) or to comment in the online discussion forum.
1
For a summary of this evasion case, see “Affaire Bettencourt: ce que disent les enregistrements,” Le Monde,
30 June 2010.
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basis of bilateral tax treaties, but until 2008 most tax havens declined to sign
such treaties. During the financial crisis, the fight against tax evasion became apolitical priority in rich countries and the pressure on tax havens mounted. At thesummit held in April 2009, G20 countries urged each tax haven to sign at least 12
information exchange treaties under the threat of economic sanctions. Between
the summit and the end of 2009, the world’s tax havens signed a total of morethan 300 treaties.
The effectiveness of this crackdown on offshore tax evasion is highly contested. A
positive view asserts that treaties significantly raise the probability of detecting tax
evasion and greatly improve tax collection (Organisation for Economic Co-operation
and Development 2011). According to policy makers, “the era of bank secrecy isover” (G20 2009). A negative view, on the contrary, asserts that the G20 initiative
leaves considerable scope for bank secrecy and brings negligible benefits (Shaxson
and Christensen 2011). Whether the positive or the negative view is closer to reality
is the question we attempt to address in this paper.
This is an important question for two reasons. First, the fight against offshore
tax evasion is a key policy issue. Globalization and the information technology
revolution have made it easier for tax evaders to move funds offshore. Absent
information exchange between countries, personal capital income taxes cannot
be properly enforced, giving rise to substantial revenue losses and constraining
the design of tax systems. Against the backdrop of the large public deficits facedby most countries since the financial crisis, curbing tax evasion is high on thepolicy agenda.
Second, although treaties have prevailed as the main policy instrument in thefight against international tax evasion, surprisingly little is known about theireffectiveness. The G20 crackdown has generated a lot of discussion in policy circles but there is little fact-based evidence of its efficacy and no academic evaluation. The OECD has launched a peer-review evaluation to assess whether treaties
are properly drafted and enforced, but while this legal work is necessary, it is not
sufficient: if the information exchange mechanism advocated by the OECD has
fundamental shortcomings, then even properly drafted and enforced treaties may
be ineffective. Our study is the first attempt to assess from a quantitative perspective the impact of the many treaties signed by tax havens since G20 countries havemade tax evasion a priority.
Providing compelling evidence on tax evasion is notoriously difficult, and evenharder in the complex area of international tax evasion. We break new ground in thisfield by drawing on a particularly rich dataset on cross-border bank deposits. For
the purpose of our study, the Bank for International Settlements (BIS) has given us
access to bilateral bank deposit data for 13 major tax havens, including Switzerland,
Luxembourg, and the Cayman Islands. We thus observe the value of the deposits
held by French residents in Switzerland, by German residents in Luxembourg, by
US residents in the Cayman Islands and so forth, on a quarterly basis from theend of 2003 to the middle of 2011. Using specific country names for the sake ofconcreteness, we ask: Did French holders of Swiss deposits respond to the 2009
French-Swiss treaty by repatriating funds to France? Did they relocate their funds
to other tax havens? Or did they simply leave them in Switzerland? To address theseVol. 6 No. 1

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questions, after providing more details on offshore tax evasion and the data we use
in Section I, we employ graphical analysis in Section II and panel regression analysis in Section III.
We obtain two main results. First, treaties have had a statistically significant but
quite modest impact on bank deposits in tax havens: a treaty between say France
and Switzerland causes an approximately 11 percent decline in the Swiss deposits
held by French residents. Second, and more importantly, the treaties signed by tax
havens have not triggered significant repatriations of funds, but rather a relocationof deposits between tax havens. We observe this pattern in the aggregate data: theglobal value of deposits in havens remains the same two years after the start of thecrackdown, but the havens that have signed many treaties have lost deposits at theexpense of those that have signed few. We also observe this pattern in the bilateral
panel regressions: after say France and Switzerland sign a treaty, French deposits
increase in havens that have no treaty with France.
The finding that tax evaders shift deposits in response to treaties, our key result,illustrates an important pitfall of the current approach to the fight against tax evasion.
Tax havens are whitelisted after signing 12 treaties, leaving considerable scope fortax evaders to ensure that their assets are not covered by a treaty. Our analysis showsthat tax evaders exploit this possibility, which ultimately provides incentives for tax
havens to keep their treaty networks at the minimum. From a normative viewpoint,
our paper thus lends support to the idea developed theoretically by Elsayyad andKonrad (2011) that a “big bang” multilateral agreement should be preferred to thecurrent sequential approach.
The finding that treaties have had a modestly sized impact on bank deposits
has several possible interpretations between which we cannot discriminate conclusively with the data at our disposal. First, most tax evaders may have chosen
not to move deposits because they considered that treaties did not substantially
increase the probability they be detected. This interpretation is consistent withthe fact that treaties only rarely lead to actual exchange of information in practice. Yet another possible interpretation is that the modest size of our estimatesis due to limitations of our deposit dataset. For instance, some tax evaders use
sham corporations with addresses in Panama and the British Virgin Islands asnominal holders of their bank accounts in Switzerland and other havens, which
obscures who ultimately owns part of the funds offshore. We tackle this issue inSection IV, for the first time in this literature, and we show that the funds held
through sham corporations might have responded strongly to the treaties. Lastly,
tax evaders might have declared some of their assets to tax authorities while
keeping them offshore. In Section V we analyze a novel dataset with direct information on income that European owners of Swiss accounts voluntarily declare.
We find no signs that treaties induced Swiss account holders to comply more withtax laws, but we cannot rule out an increase in compliance in other tax havens.
Our paper adds to the literature on tax treaties, where a recurring finding is thattreaties have little real economic effects (e.g., Blonigen and Davies 2005; di Giovanni
2005; Louie and Rousslang 2008). Relative to this literature, our contribution is tofocus on the information sharing provisions included in tax treaties rather than on
those aimed at promoting cross-border investments and limiting double taxation.

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The effectiveness of information sharing mechanisms is rarely assessed and ourpaper contributes to filling this gap.2
We also contribute to the literature on how tax policies affect international investments (e.g., Chan, Covrig, and Ng 2005; Desai and Dharmapala 2011). A branchof this literature initiated by Alworth and Andresen (1992) focuses on the determinants of cross-border deposits such as taxes, interest rate differentials and distance. Huizinga and Nicodème (2004) find that information exchange agreements
have no significant effect on cross-border deposits in OECD countries. We focus,
by contrast, on how tax treaties affect deposits in tax havens. This evaluation was
not possible before 2009, the year when most tax havens started signing informationexchange treaties.3
Lastly, our paper sheds new light on the activities taking place in tax havens,
a topic which is attracting increasing interest (Desai, Foley, and Hines 2006;
Dharmapala 2008; Dharmapala and Hines 2009; Palan, Murphy, and Chavagneux
2010). Tax havens provide corporations and individuals with opportunities to avoid
or evade taxes. The bulk of the literature focuses on the use of tax havens by corporations, following Hines and Rice (1994). By contrast, we focus on their use byhouseholds, which is still little studied.
I. Offshore Tax Evasion By Households: Context and Data

A. Policies to Prevent Offshore Tax Evasion
Tax havens such as Switzerland, Singapore, and the Cayman Islands host an
important wealth management industry which provides foreigners with an opportunity to evade taxes. If a French household entrusts assets to a French bank, there is
automatic reporting of capital income to the French tax authorities: evasion of thepersonal income tax is impossible. But if it entrusts assets to a Swiss bank, there is
no automatic reporting: French authorities have to rely on self-reporting and tax evasion is possible.4 Using official Swiss statistics and anomalies in the international
investment data of countries, Zucman (2013) estimates that around 8 percent ofhouseholds’ global financial wealth is held in tax havens. This figure implies substantial tax revenue losses due to outright fraud.
Missing information on income earned through bank accounts in tax havens is
the key problem for enforcing personal capital income taxes. Exchange of information between countries is the obvious solution. There are two main ways countries
can exchange information: automatically or upon request (Keen and Ligthart 2006).
Automatic exchange of information is widely acknowledged to be the most effective solution because it allows tax authorities to obtain comprehensive data about2
A complementary contribution is Blonigen, Oldenski, and Sly (2011) who study whether information exchange
agreements affect foreign direct investments (while we look at bank deposits and tax evasion).
3
Two related papers are Hemmelgarn and Nicodème (2009) and Johannesen (2010), who study the effects of
the Savings Directive, a European policy initiative that imposes a tax on interest income earned by European Union
residents in a number of tax havens. We discuss in the conclusion the relative merits of withholding taxes and treaties in light of our results.
4
Kleven et al. (2011) document the importance of third-party reporting to prevent tax evasion.

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income earned by domestic residents in foreign banks. But information exchange
upon request is more common. It is the standard promoted by the OECD and embedded in the treaties signed by tax havens. Under the amended French-Swiss treaty,
French authorities can request information from Switzerland to enforce tax laws.
Requests must concern specific taxpayers. France cannot ask for a list of all its
residents with funds in Switzerland. Moreover, the requested information must be“foreseeably relevant” (Organisation for Economic Co-operation and Development
2008, 38): information can be obtained by French authorities only if they have awell documented suspicion that a resident is evading taxes. All the treaties signedby tax havens have identical wording: they follow the OECD model tax convention.
The usefulness of the OECD standard of information exchange is the object ofmuch controversy. Critics argue that since placing a request for information requires
prior knowledge, which is extremely hard to come about, little can be obtained
through treaties (Sheppard 2009). And indeed, the US Government Accountability
Office (2011) revealed that during the 2006–2010 period, the United States placed
only 894 requests under its more than 80 tax treaties. Since a single Swiss bankadmitted in 2008 to have more than 19,000 US clients with undeclared bank accounts(US Senate 2008), information exchange upon request is clearly associated with asmall probability of detecting tax evasion. Advocates of the OECD standard, on theother hand, stress that even a small probability of detection may be sufficient to detertax evasion and that information exchange upon request is a major step forwardfrom no exchange at all.
Since the end of the 1990s, the OECD has tried to convince tax havens to sign
information exchange treaties. But, as shown by Figure 1, most havens declined tosign treaties until the financial crisis.5 The turning point occurred in April 2009.
The OECD specified that each tax haven should conclude at least 12 treaties to be
in compliance and drew up a list of 42 noncompliant havens. The G20 threatened
to impose economic sanctions on noncompliant havens. In just five days, all havens
committed to signing 12 treaties and the G20 declared the era of bank secrecy over(G20 2009).
As a result of G20 pressure, treaty signature effectively boomed in 2009 and2010. But the pace slowed down considerably after 2010. Moreover, tax havens
signed many treaties with each other: in 2009, almost one-third of the treaties signedby tax havens were with other havens. Such haven-haven treaties do not help nonhaven countries curb tax evasion in any way. In all likelihood they only reflect thedesire of some tax havens to reach the 12 treaties threshold without giving substantial concessions.
B. Data on Tax Treaties
To study the effects of the G20 tax haven crackdown, we have compiled a complete dataset on the treaties concluded by tax havens. The dataset covers 52 tax

5
All the data on tax treaties and aggregate bank deposits used for this research are available online on theauthors’ websites.

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400
Treaties with other tax havens
Treaties with nonhaven countries

300

200

100

0

2004

2005

2006

2007

2008

2009

2010

2011S1Figure 1. Number of Bank Information Exchange Treaties Signed by Tax Havens,
by Year
Note: The figure charts the number of new treaties or amendments to existing treaties allowing for information exchange signed each year by the world’s 52 tax havens (see list in the
online Appendix).
Source: Global Forum on Transparency and Exchange of Information for Tax Purposes (1998–2011) and authors’ research (see online Appendix)

havens (see the online Appendix), more than 220 potential partner countries, andincludes information until the end of 2011:II.
Tax havens can start exchanging information with partner countries on the basisof two types of legal events: new treaties or amendments to existing treaties on the
one hand (for instance, the amendment to the French-Swiss tax treaty in August2009), and changes in domestic laws allowing for information exchange with existing treaty partners on the other (Cyprus passed such a law in July 2008). The two
types of events are legally equivalent, but new treaties may be more salient thansubtle changes in the banking laws of tax havens. Distinguishing between the twokinds of legal events allows us to investigate whether depositors respond differently
to more salient events.6
The main data source is the Exchange of Tax Information Portal, which represents the best effort of the OECD to gather accurate information on tax treaties.7
In some cases, we have added information from official government websites. The
online Appendix describes step-by-step how we compiled the treaty dataset fromreadily available sources. The final dataset includes 1,025 events: 861 new treaties or amendments to existing treaties, and 164 instances when changes in domestic laws rendered information exchange possible under existing treaties. Note thatsince there are 52 tax havens and around 220 countries and territories in the world,
a full network of treaties would include around 11,000 treaties. Through a peerreview evaluation, the OECD assesses whether the treaties signed by tax havens are
Chetty, Looney, and Kroft (2009) provide evidence of the importance of salience for the response to taxes.
See http://eoi-tax.org/. We have also benefited from discussions with Jeremy Maddison and Sanjeev Sharma
from the OECD.
6
7

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johannesen and zucman: the end of bank secrecy?

71p­ roperly drafted and enforced. Out of the 861 new treaties signed from 2004 to mid2011, 68 percent were deemed compliant, 13 percent were deemed not compliant,and 19 percent were still unreviewed in November 2011.
C. Data on Deposits in Tax Havens
Our second data source is the BIS locational banking statistics, which contain
information on foreign bank deposits in 41 countries. The BIS publishes quarterly
data aggregated at the country level, for instance total deposits held by French
residents in foreign banks and total deposits held by foreign residents in Swissbanks. For our study and on the condition that we do not disclose bilateral information, the BIS has given us access to deposit data at the bilateral level, for instancedeposits held by French residents in Swiss banks. There are 18 tax havens reporting to the BIS. We have access to bilateral deposit data for 13 of them: Austria,
Belgium, the Cayman Islands, Chile, Cyprus, Guernsey, the Isle of Man, Jersey,
Luxembourg, Macao, Malaysia, Panama, and Switzerland. We also have bilateral
data for the aggregate of the remaining five havens: Bahamas, Bahrain, Hong Kong,
the Netherlands Antilles, and Singapore.8 The 13 havens for which we have bilateral
data host about 75 ­percent of the deposits of all BIS-reporting havens, which allows
us to make reasonable inference from this sample of countries.
The BIS locational banking statistics are widely used in international economics
and are a key input to statistics on balance of payments. The most important financial centers (havens and nonhavens) report to the BIS. New financial centers are systematically included in the BIS statistics once they reach a significant size, so thatthe havens not covered are by construction very small. Further, within each covered
center there is almost full coverage of deposits, because all the banks with crossborder positions in excess of a modest threshold (e.g., $10 million in the Bahamas)
are required to report. The Bank for International Settlements (2008) indicates thatcoverage rates systematically exceed 90 percent. The reporting requirements of the
BIS do not violate any bank secrecy provisions, because banks do not report data on
individual customers but only aggregate figures.
The BIS data, however, have three limitations. First, it is not possible to knowwhat fraction of the deposits in tax havens belong to households evading taxes. The
BIS provides a sectoral decomposition between deposits owned by banks and by“nonbanks.” Since interbank deposits do not play a role in personal income tax evasion, we focus on the deposits of “nonbanks.” Part of these deposits, however, belong
to multinational corporations that stash cash offshore and that are not affected bybank information sharing. Ideally we would like to observe the deposits that belong
to households only. Since this is not possible, we cannot directly estimate the behavioral response of tax evaders: all we can do is making inference from the evolutionof the deposits owned by “nonbanks.”

8

The secession of the Netherlands Antilles in October 2010 resulted in two new countries, Curaçao and Sint
Maarten. Curaçao took over the reporting obligation to the BIS. Note also that we do not include Bermuda in ourlist of tax havens, because there are no private wealth management activities there (only four banks are registeredin Bermuda).

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To do so, we need an idea of what fraction of “nonbank” deposits belong tohouseholds. Data made available by a number of BIS-participating central banks
enable us to shed light on this issue. In Switzerland, the second largest offshore center in terms of “nonbank” deposits, 80–90 percent of the deposits seem to belong
to households.9 The Bank of England reports that in 2007 households owned about
70–75 percent of the deposits in the Channel Islands and the Isle of Man, collectively the third largest offshore center. And a previous study (Zucman 2013),
using different data, found that at least 50 percent of haven deposits likely belong
to households.10 On the basis of these elements, our baseline assumption when weinterpret the results will be that tax evaders own about 50 percent of the deposits
in tax havens.
The second limitation of the BIS data is that they are based on immediate rather
than beneficial ownership. If a French individual owns a Swiss deposit through asham corporation with an address in Panama, the BIS assigns the funds to Panama.
Almost 25 percent of all deposits in tax havens are registered as belonging to otherhavens reflecting the widespread use of sham corporations by clients of offshorebanks. Our analysis in Section IV will explicitly address the existence of deposits
held through sham corporations.
Lastly, the BIS data relate to only one form of wealth held by households in tax
havens: bank deposits. They do not provide information on the equity and bondportfolios that savers entrust to tax haven banks. There is little public information
on households’ offshore portfolios, except in Switzerland. The Swiss National Bank
reports that about 25 percent of the funds held by foreigners in Switzerland takethe form of bank deposits, while 75 percent are equities and bonds (Zucman 2013).
With the data at our disposal, we cannot say anything about the response of tax evaders’ portfolio wealth to treaties: we can only analyze the evolution of deposits. It issafe, however, to assume that the response of bank deposits is a good proxy for the
response of the overall stock of offshore wealth, because the information exchange
provisions of treaties affect all assets similarly.
II. Graphical Evidence

A. The Effects of the G20 Initiative on Aggregate Deposits
As a starting point for the empirical analysis, Figure 2 shows the evolution of thebank deposits held on aggregate in the 18 tax havens reporting to the BIS. Despite
the wave of treaties signed in 2009–2010, deposits in tax havens remained stable
9
There are two types of Swiss bank deposits covered by the BIS data: regular deposits (10–20 percent of thetotal) and “fiduciary deposits” (80–90 percent). In all likelihood, fiduciary deposits entirely belong to individuals:
these are investments made by Swiss banks in foreign money markets on behalf of foreign individuals, an arrangement that enables clients of Swiss banks to avoid the 35 percent tax imposed by Switzerland on Swiss-source capitalincome. Multinational corporations do not use fiduciary deposits because they can directly invest in foreign money
markets without having to pay the handsome fees charged by Swiss banks for these operations. For more details on
fiduciary deposits, see e.g., Brown, Döbeli, and Sauré (2011).
10
The figure was obtained as follows. On the basis of official Swiss National Bank statistics and of large
anomalies in the international investment data of countries, Zucman (2013) estimates that individuals owned atleast $6 trillion in financial assets through bank accounts in tax havens in end 2008, of which $1.4 trillion took theform of bank deposits. These $1.4 trillion account for 50 percent of the total deposits in tax havens as per the BIS.

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73

3.5
3

5

2.5

4

2
3
1.5
2
1

Cross-border deposits in tax havens(left-hand scale)

0.5

Cross-border deposits in nonhavencountries (right-hand scale)

0

2004

2005

2006

2007

1

2008

2009

2010

2011

0

Figure 2. Bank Deposits in Haven and Nonhaven Countries, 2004–2011 (trillions US$)
Note: All figures are yearly averages (first semester average for 2011).
Source: Bank for International Settlements (2002–2011, table 3B)

over the 2007–2011 period at around $2.7 trillion. For comparison, the figure showsthe evolution of the deposits held on aggregate in the nonhaven countries reportingto the BIS. This group includes financial centers that have a large treaty network andhave not been affected by the G20 initiative, such as the United States or Germany.
Deposits in havens and nonhavens have followed a similar trend over the 2004–2011
period. The evolution of deposits in nonhavens might be an imperfect counterfactualfor the evolution of deposits in tax havens, but we can at least exclude that the G20
crackdown was followed by a significant drop in aggregate deposits in tax havens.
Next, we compare the deposits that have become covered by a treaty to thedeposits that have not. We consider all country-haven combinations (e.g., FranceSwitzerland) among the 13 havens for which we have bilateral deposit data andthe more than 200 countries holding deposits in these havens. From this universe, we construct two groups: a “treaty” group including all country-havenpairs that signed a compliant treaty between January 1, 2008 and June 30, 2011,
and a ­“no-treaty” group including all other pairs. Figure 3 shows that deposits
decreased moderately in the “treaty” group but remained roughly stable in the“no-treaty” group. Should all deposits have followed the same trend, the deposits
in the “treaty” group would have been around 15 percent larger in 2011. Figure 3
suggests that at least some tax evaders responded to treaty signatures, although it
does not reveal the nature of this response.
B. The Effects of the G20 Initiative on the Deposits in Each Tax Haven
To investigate how tax evaders responded to treaties, we examine the evolution ofdeposits in each tax haven between 2007 and 2011. Figure 4 reveals that the globallystable level of deposits in tax havens conceals significant differences across havens.

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1.2

0.6

1.0

0.5

0.8

0.4

0.6

0.3

0.4

0.2
Country pairs that signed a compliant treaty between
2008:I and 2011:II, left-hand scale

0.2

0.1

Country pairs that did not sign a compliant treaty
between 2008:I and 2011:II, right-hand scale

0

0
2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Figure 3. Bank Deposits in Treaty and No-Treaty Country-Pairs,
2002–2011 (trillions US$)
Notes: The figure charts the evolution of the deposits held by savers of country i in banks oftax haven j for the set of country-haven pairs (i, j) that signed a treaty deemed compliant by
the OECD between January 1, 2008 and June 30, 2011, and the set of country-haven pairs that
did not. Saver countries exclude tax havens. Tax havens include Austria, Belgium, Chile, theCayman Islands, Cyprus, Guernsey, the Isle of Man, Jersey, Luxembourg, Macao, Malaysia,
Panama, and Switzerland. All figures are yearly averages (first semester average for 2011) and
expressed in trillions of US dollars.
Source: Bank for International Settlements (2002–2011), restricted bilateral locational banking statistics

−4%
−5%

Jersey−3%Bahrain

Guernsey−2%

Isle of Man

Luxembourg−1%

Switzerland

0%

Netherlands Antilles

Hong Kong

All tax havens

Belgium

Austria

CyprusPanamaChile

Malaysia

1%

Macao

Bermuda2%

Bahamas3%

Cayman4%Singapore5%

Evolution of bank deposits in tax havens
between 2007 and 2011, as a percentage
of total 2007 deposits in tax havens

Figure 4. Evolution of Bank Deposits in Each Tax Haven, 2007–2011.
Notes: The figure charts the evolution of the foreign-owned deposits in each BIS-reporting
tax haven. We compare first semester of 2011 averages with 2007 averages (except for Cyprus
which started reporting in 2008:IV and Malaysia which started in 2007:IV), and express thedifference as a fraction of the deposits held in all tax havens in 2007 ($2.6 trillion).
Source: Bank for International Settlements (2002–2011), restricted bilateral locational banking statistics

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Panama80%
60%

Cyprusb = −0.038(0.014)

Hong Kong
Malaysia

40%

Austria
Macao

20%

Belgium

0%−20%Singapore
Cayman Islands
BahamasBahrain Switzerland−40%

Netherlands Antilles

Guernsey
Luxembourg
Isle of Man

−60%
−80%

75

Jersey

0

5

10

15

20

25

Number of compliant treaties signed with nonhaven countries
between January 2008 and June 2011

Figure 5. Deposit Growth and Treaty Signature Activity of Tax Havens, 2007–2011
Notes: The figure charts the growth rate of the deposits in each BIS-reporting tax haven between
2007 (year average, except for Cyprus which started reporting in 2008:IV and Malaysia whichstarted in 2007:IV) and 2011 (first semester average), as a function of the number of compliant
treaties signed between the beginning of 2008 and the end of the first semester 2011. b is thecoefficient of the slope with standard error in parentheses.
Sources: Deposits: Bank for International Settlements (2002–2011, table 3B). Compliant treaties: Global Forum on Transparency and Exchange of Information for Tax Purposes (1998–2011) and authors’ research, see online Appendix.

Banks in Jersey lost the equivalent of 4 percent of the 2007 total amount of havendeposits (i.e., about 8 percent of tax evaders’ deposits, if tax evaders own about 50
percent of haven deposits), while banks in Hong Kong gained around 2.5 percent(about 5 percent of tax evaders’ deposits).
Crucially, the deposit gains and losses correlate strongly with the number of treaties signed by each haven. Figure 5 plots the percentage change of each haven’s
deposits between 2007 and 2011 against the number of compliant treaties signed
over the same period. Cyprus signed only two compliant treaties and experienced a
60 percent increase in its deposits, whereas Guernsey signed 19 compliant treaties
and experienced a 15 percent decrease. A simple bivariate regression suggests thatan additional treaty signed by a haven is associated with a decrease of 3.8 percent of
the deposits in its banks (with a standard error of 1.4 percent).11
Overall, the graphical evidence suggests that a number of tax evaders responded
to treaties and that their response was mostly to transfer deposits to other tax
havens, leaving roughly unchanged the funds globally held in tax havens. Figure 6
lends additional support to this conjecture. It shows that there is no correlation between the number of treaties signed by OECD countries with tax havens
between 2007 and 2011 and the growth of the deposits held by OECD countries’
11This correlation remains when we consider cumulated exchange rate adjusted net flows in each haven as a percentage of end-2007 stocks rather than the simple growth rate of deposits, or when we consider all treaties signed,
whether complying with the OECD standard, unreviewed, or not complying.

Growth rate of deposits in BIS-reporting havens
between 2007 and 2011 S1

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250%
200%

b = −0.006(0.02)

Greece150%
100%
Denmark
Estonia
Ireland
Slovenia
50%
Slovakia
FranceCzech RepublicJapan
NorwayHungary
Netherlands
New ZealandSouth Korea
Germany
USA
Portugal
0%Australia
MexicoCanadaBelgium
Israel
Spain
Italy
UK
PolandChile

Luxembourg
Austria
Switzerland–50%

TurkeySwedenFinland

Iceland

–100%
0

5

10

15

Number of compliant treaties signed with BIS-reporting havens between
January 2008 and June 2011

Figure 6. Deposit Growth and Treaty Signature Activity of OECD Countries, 2007–2011
Notes: The figure charts the growth rate of the deposits held by each OECD country in BIS-reporting tax havens
between 2007 (year average) and 2011 (first semester average), as a function of the number of compliant treaties
signed between the beginning of 2008 and the end of the first semester 2011. b is the coefficient of the slope withstandard error in parentheses.
Sources: Deposits: Bank for International Settlements (2002–2011), restricted bilateral locational banking statistics. Compliant treaties: Global Forum on Transparency and Exchange of Information for Tax Purposes (1998–2011) and authors’ research, see online Appendix.

residents in tax havens. Signing more treaties does not seem to help OECD countries repatriate funds.
While the graphical evidence suggests a consistent scenario, it aggregates treaties
signed at different dates and does not fully exploit the bilateral nature of our data.
To deal with this, we now turn to panel regression analysis.
III. Regression-Based Evidence

A. The Impact of Treaties on Bilateral Deposits
The first question we want to address is whether treaties have had a statisticallysignificant impact on deposits in tax havens at the bilateral level. We run regressionsof the form(1)

​ ​ + γ​ ​ij​ + ​θq​​ + ​ϵ​ijq​,
log(Deposit​s​ijq​) = α + β Signe​dijq

where Deposit​si​jq​ denotes the deposits held by residents of country i with banks ofhaven j at the end of quarter q, Signe​d​ijq​is a dummy equal to 1 if a treaty allowing
for information exchange between i and j exists in quarter q, γ​ ​ij​denotes country-pair
fixed effects, and ​θ​q​time fixed effects. The coefficient of interest is β : should treaties
have any effect at all, β should be statistically different from zero. The c­ ountry-pairVol. 6 No. 1

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fixed effects γ​ ​ij​control for all time invariant characteristics of country-haven pairs,such as distance or common language. The time fixed effects θ​ ​q​ control for all­common time trends affecting the deposits in tax havens, such as the financial crisis.
Thus, β only captures the deposit changes in the “treaty” country-haven pairs thatcome in addition to the deposit changes in the “no-treaty” pairs. All the regressions
use the sample period 2003:IV–2011:II and have robust standard errors clustered at
the country-pair level.
The first column of Table 1 estimates equation (1) using the complete universe ofcountry-haven pairs for which we have bilateral deposit data. We find that the deposits of the “treaty” pairs are smaller after treaty signature than before relative to thedeposits of the “no treaty” pairs. But the coefficient is only borderline significant.
We then in column 2 restrict the sample to the universe of pairs that include one
haven and one nonhaven country, in order for our coefficient β to exclude the effectof the treaties signed by havens with each other on haven-haven deposits. Treaties
now have a larger effect; β is different from zero at the 5 percent level. Column 3
investigates the effect of haven-haven treaties on haven-haven deposits. We find thata treaty between say the British Virgin Islands (BVI) and Jersey does not affect thedeposits “held by” the BVI in Jersey, consistent with our notion that treaties between
two havens have no economic meaning. We continue the analysis with the sample
that excludes haven-haven pairs. We refer the reader to Section IV for a detailed
analysis of how haven-haven deposits have responded to treaties between haven andnonhaven countries.
In column 4, we investigate whether depositors respond differently to new treaties
and to changes in the domestic laws of tax havens. Since new treaties are more salient
to tax evaders, we conjecture that evaders should respond more to new treaties. We
interact the dummy variable Signed with dummy variables indicating whether thelegal event establishing information exchange is a new treaty or a change in domestic law. The results show that new treaties affect deposits but equivalent changes indomestic laws do not.
The timing of the response to treaty signature is analyzed in column 5. We include
a dummy equal to one in the quarter q of the legal event establishing informationexchange (Contemp), three dummies equal to one in q + 1, q + 2, and q + 3
respectively, and a dummy equal to one in all quarters after q + 3. We find that thebulk of the response occurs two quarters and more after treaty signature. A plausible explanation is that treaties do not enter into force immediately after they are
signed. For instance, the amendment to the French-Swiss treaty signed in August
2009 entered into force in November 2010. Typically, there is a time lag of 3–5
quarters between treaty signature and entry into force.
Table 1 confirms that there is a correlation between treaties and deposits in tax
havens: on average, the deposits in the “treaty” pairs decrease after treaty signature relative to the deposits in the “no treaty” pairs. The difference is statistically­significant. But it is quite modest: about 11 percent according to column 2.12 Howshould we interpret this result?

12exp(−0.1156) − 1 = 0.109.

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Table 1—Baseline Panel Regressions of Bilateral Bank Deposits on Treaty Signature
Bank: Havens
Variables
SignedSigned × NewTreaty

Saver:
All(1)−0.0849*(0.0893)

Saver:
Nonhavens(2)−0.1156**(0.0349)

Saver:Havens(3)0.0457(0.6926)

Signed × DomLaw
Signed (Contemp)

Saver:
Nonhavens(4)−0.1349**(0.0243)0.0163(0.8825)

Saver:
Nonhavens(5)Constant

3.4685***(0.0000)

3.2187***(0.0000)

4.3499***(0.0000)

3.2171***(0.0000)

0.0223(0.6331)−0.0927(0.1300)−0.1306**(0.0449)−0.1724***(0.0057)−0.1818**(0.0137)
3.2196***(0.0000)

Observations
R2
Number of country pairs
Country pair FE
Time FE

39,7580.0870
1,631
Yes
Yes

30,9600.0796
1,285
Yes
Yes

8,798
0.1167
  346
Yes
Yes

30,9600.0798  1,285
Yes
Yes

30,9600.0803  1,285
Yes
Yes

Signed (+1 quarter)
Signed (+2 quarters)
Signed (+3 quarters)
Signed (>3 quarters)

Notes: p-values in parentheses, based on robust standard errors clustered at the country-pair level. The dependent
variable is the stock of deposits held by savers of country i in banks of tax haven j at the end of quarter q. The unit ofobservation is the country-haven pair (i, j) and the sample period goes from 2003:IV to 2011:II. For a given havenj there are up to 220 saving countries i, and we consider the deposits held in 13 tax havens j. Signed is a dummy
equal to 1 if there exists a treaty providing for information exchange between i and j in quarter q. NewTreaty is adummy equal to 1 if the event establishing information exchange is a new treaty; DomLaw is a dummy equal to 1
if the event establishing information exchange is a change in haven’s j domestic law. Signed (Contemp) is a dummy
equal to 1 in the quarter q when the legal event establishing information exchange between i and j occurs; Signed(+1 quarter) is a dummy equal to 1 in q + 1, and so on.
*** Significant at the 1 percent level.
** Significant at the 5 percent level.
  * Significant at the 10 percent level.
Source: Restricted bilateral locational banking statistics

Because the BIS data include deposits owned by corporations that are not concerned by information sharing agreements, our estimated β only provides a lower
bound for the response of tax evaders. If tax evaders own a fraction s of deposits,
one can show that their response to treaties is approximately β/s.13 To interpret what
13
In a simple difference-in-differences setting in which deposits in the treaty group grow at rate ​g​  t​and deposits
in the no-treaty group grow at rate ​g​  c​, the estimator of the response of bank deposits to treaty signature (in a log
specification) is log[(1 + ​g​  t​  )/(1 + ​g​  c​  )]. If a fraction s of deposits initially belong to tax evaders, then the diff-indiff estimator for the response of tax evaders is: log[(s + ​g​  t​  )/(s + ​g​  c​  )]. At a first-order approximation this is 1/stimes larger than log[(1 + ​g​  t​  )/(1 + ​g​  c​  )].

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a 11 percent drop in deposits means, we need to take a stance on how large s is. If,
as available evidence suggests, s is around 50 percent, then treaties are associatedwith a roughly 22 percent average drop in tax evaders’ deposits. This is probably
much more than expected by those who considered treaties worthless: upon request
information exchange seems enough to substantially affect behavior. But it does notseem strong enough to affect the deposit behavior of the majority of individuals: aslong as s is larger than 20–25 percent, our results imply that only a minority of tax
evaders (weighted by assets) have moved funds in response to treaties.
Another issue in the interpretation of the magnitude of β is that if tax evaders
respond to treaties by shifting deposits, then our comparison group of “no treaty”
country pairs is also affected by treaty signature. We now augment the model totackle this issue.
B. Deposit Shifting
Table 2 explicitly models shifting behavior. To fix ideas, consider the FranceCayman Islands pair. To explain the amount of French deposits held in the Cayman
Islands, we introduce in columns 1–3 a treaty coverage variable that simply counts
the number of treaties signed by France with the world’s 51 tax havens other thanthe Cayman Islands. Column 1 shows that an additional treaty signed by France, saywith Switzerland, increases the deposits held by French residents in the Cayman
Islands by 0.6 percent. More generally, it increases French deposits by an averageof 0.6 percent in each of the 12 havens other than Switzerland for which we havebilateral data. It is natural to assume that deposits are also shifted to the havens forwhich we have no bilateral data, which host around 25 percent of offshore deposits.
If each haven attracts funds in proportion to its initial deposit stock, a treaty signed
by France with Switzerland increases French deposits in each of the world’s havens
other than Switzerland by 0.6 percent.14
As column 2 shows, this shifting only occurs to the benefit of the havens that do
not have a treaty with France (i.e., when Signed = 0). In such havens, an additional
treaty signed by France is associated with 1.2 percent more French-owned deposits.
By contrast, the havens that have a treaty with France (i.e., when Signed = 1) do not
attract deposits. Note also that when we account for shifting, the signature of a treaty
between say France and Switzerland still significantly decreases French deposits in
Switzerland, just as we found previously.15
Since 2005, 18 tax havens have cooperated with EU countries in combatting tax
evasion under the Savings Directive. When a bank in Jersey, for instance, pays interest to a French resident, it withholds 35 percent of the interest payment as a tax andremits 75 percent of the proceeds to France without disclosing the identity of the
14
The fact we do not have bilateral data for all the world’s tax havens does not bias our estimate of the magnitude of shifting. Having more bilateral data would simply make our estimate more precise.
15
In column 2 of Table 2, Signed appears in three places, all of which need to be accounted for when computing
the total effect of an additional treaty on bilateral deposit. Assuming that treaty coverage = 6 (which is the mean
number of compliant treaties signed by OECD countries with tax havens in the 2008–2011 period), the total coefficient on Signed is −0.0498 + 6 × (0.0001 − 0.0120) = −0.12. This coefficient is comparable to the coefficient
found in column 2 of Table 1.

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Table 2—Panel Regressions of Bilateral Bank Deposits Taking into Account Deposit Shifting
Bank: Havens

Saver: Nonhavens
Treaty coverage: Number(1)

SignedSaving tax directive (STD)
Treaty coverage
Treaty coverage × Signed−0.1659***(0.0052)−0.2161***(0.0004)
0.0059**(0.0402)(2)−0.0498(0.4286)

Treaty coverage × STD
× Signed−0.2198*** −0.1553***(0.0003)(0.0077)0.0001(0.9719)

Treaty coverage × (1-STD)
× Signed

Constant(4)−0.1468**(0.0139)-0.2130***(0.0005)
0.1272*(0.0568)(5)−0.0816(0.2444)0.0277(0.7373)

0.1752**(0.0318)−0.0030(0.3202)3.2147***(0.0000)

3.2115***(0.0000)

3.2094***(0.0000)−0.0679(0.4762)−0.0927(0.4975)−0.0071(0.3697)

0.0183***(0.0000)(6)−0.0933(0.1852)−0.2135*** −0.1815***(0.0005)(0.0018)0.0066(0.1937)

Treaty coverage × STD
× (1-Signed)

Treaty coverage × (1-STD)
× (1-Signed)(3)−0.0750(0.2410)0.0120***(0.0033)

Treaty coverage× (1-Signed)

Treaty coverage: Share

0.1913*(0.0962)3.2285***(0.0000)

3.2275***(0.0000)

0.2868***(0.0027)

3.2259***(0.0000)

Observations

30,96030,96030,96030,61030,61030,610R2

0.08290.08410.08670.08350.08380.0855

Number of country pairs

1,285

1,285

1,285

1,264

1,264

1,264

Country pair fixed effects

Yes

Yes

Yes

Yes

Yes

Yes

Time fixed effects

Yes

Yes

Yes

Yes

Yes

Yes

Notes: p-values in parentheses, based on robust standard errors clustered at the country-pair level. The dependent
variable is the stock of deposits held by savers of country i in banks of tax haven j at the end of quarter q. The
unit of observation is the country-haven pair (i, j) and the sample period goes from 2003:IV to 2011:II. Signed isa dummy equal to 1 if there exists a treaty providing for information exchange between i and j in quarter q. STD
is a dummy equal to one if the country-haven pair (i, j) applies the EU Savings Directive. In columns 1–3, Treaty
cov erage counts the number of treaties that i has with tax havens other than j. In columns 4–6, Treaty cov eragemeasures the share of the deposits held in 2004 by residents of country i in BIS-reporting havens that are coveredby a treaty in quarter q.
*** Significant at the 1 percent level.
** Significant at the 5 percent level.
  * Significant at the 10 percent level.
Source: Restricted bilateral locational banking statistics

taxpayer. A number of havens, however, do not participate in the Directive, mostnotably Singapore, Hong Kong, the Bahamas, and Bahrain. Strikingly, we find that
deposit shifting in response to treaties only occurs to the benefit of the havens that
do not participate in the EU Savings Directive. As shown in column 3, an additional treaty signed by France does not affect the deposits in havens that apply the
Directive (i.e., when STD = 1), but it increases deposits by 1.8 percent in havens
that do not apply it and do not have a treaty with France. To put it simply, deposits
go to the least compliant havens. Table 2 also confirms the finding of existing studies
that the Directive itself significantly affected the bank deposits of EU residents inparticipating havens (Johannesen 2010).

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The number of treaties signed is a crude measure of treaty coverage. Treaties with
Switzerland and Luxembourg are much more important for France in fighting tax
evasion than treaties with Vanuatu and Saint Lucia. We therefore construct a second
measure of treaty coverage that weighs treaties according to their importance.
For each country i and haven j for which we have bilateral deposit data, we computethe share of i’s deposits in tax havens which were placed in j during the first year of
our sample. In 2004, the location of deposits was unaffected by the European Savings
Directive which was not yet implemented, and largely unaffected by treaties whichwere still few in numbers. The shares, therefore, measure the relative importance of
haven j to tax evaders of country i and are exogenous to recent policy developments.
For each country-haven pair (i, j), we use the shares to weigh each treaty concluded by iwith havens other than j. The resulting measure of treaty coverage takes values between
zero (no treaty) and one (full coverage). By construction, this measure only takes into
account treaty coverage over the 13 havens for which we have bilateral deposit data.
As columns 4 to 6 show, with this measure of treaty coverage the results are similar
to those obtained with the measure that merely counts the number of treaties signed.
Consider a treaty between France and a haven which, in 2004, attracted 10 percent of
the deposits owned by French residents in tax havens. According to column 4, sucha treaty causes a 1.2 percent average increase in French deposits in each other BISreporting tax haven. As columns 5 and 6 suggest, only the havens that have no treaty
with France and that are not covered by the EU Savings Directive attract deposits.
The results in Tables 1 and 2 show that there is a strong correlation between treaty
signature and subsequent deposit growth in tax havens. To conclude that the changes
in deposits we observe are caused by treaties, we need to assume that in a counterfactual world without treaties, the deposits in the “treaty” and “no treaty” pairs would
have grown similarly. This key identifying assumption deserves a careful examination.
C. Tests of Identification Strategy
We have conducted two tests of our identification strategy. A first test examines
the possibility that tax havens might have systematically signed treaties with countries that were placing less and less deposits in their banks relative to the global
trend, which would introduce a spurious relationship between treaty signature anddeposit growth. We investigate this possibility by running probit models of the form(2)

​ ​ + δ ​X​ijq​ + γDistanc​eij​​ + ​ζi​​ + ​θq​​ + ​ϵijq​ ​  ,
Treaty​  ​ijq​ = α + ​β2​​  Growt​hijq

where Treaty​  i​jq​is a dummy equal to 1 if i and j sign an information exchange treaty
in quarter q, Growt​hi​jq​ captures the growth rate of the deposits held by savers ofcountry i in haven j before quarter q, ​X​ijq​includes other bilateral factors, ​ζi​​denotes
saver-country fixed effects and ​θq​​time fixed effects.
We want to know whether the probability to sign a treaty is affected by past
deposit growth rates, i.e., whether ​β​2​is different from zero.16 We consider two
16
The determinants of treaty signature have been studied theoretically by Bacchetta and Espinosa (2000);
Eggert and Kolmar (2002); and Huizinga and Nielsen (2003); and empirically by Ligthart, Vlachaki, and Voget

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Table 3—Probit Models of Treaty Signature
Bank: Havens
Saver: Nonhavens

Variables
Deposit growth rate, −4q to 0q
Deposit growth rate, −8q to −4q
Deposits (in logs)

(1)

(2)

0.0004(0.6916)−0.0017*(0.0849)0.0011(0.4146)−0.0012(0.3985)−0.0010(0.6283)−0.0019(0.2841)0.0010**(0.0398)−0.0041***(0.0000)
0.0041***(0.0000)−0.0013(0.7340)−0.0037(0.2745)0.0034***(0.0002)−0.0039*(0.0513)
0.0991***(0.0041)

56,069NoNo

37,053
Yes
No

11,844
Yes
No

4,743
Yes
Yes

Distance (in logs)
GDP (in logs)
Observations
Time fixed effect
Saver-country fixed effect

(3)

(4)

Notes: p-values in parentheses, based on robust standard errors. This table investigates what determines the signature of a treaty between a country i and a tax haven j. The dependent variable is a dummy equal to 1 if a country i andhaven j sign an information exchange treaty in quarter q. The unit of observation is the country-haven pair (i, j) andthe sample period goes from 2003:IV to 2011:II. The estimates are marginal effects. Deposit growth rate captures
the growth rate of the deposits held by savers of country i in haven j before quarter q. We consider two measures of
the growth rate of deposits: the percentage growth over the four quarters before q and the percentage growth fromeight quarters to four quarters before q. Deposits is the log of the stocks of deposits held by country i in haven j inquarter q, GDP the log of country i’s GDP (from the World Bank’s World Development Indicator), Distan ce thegeodesic distance between i and j (from the CEPII database, http://www.cepii.fr/anglaisgraph/bdd/distances.htm).
*** Significant at the 1 percent level.
** Significant at the 5 percent level.
  * Significant at the 10 percent level.
Source: Restricted bilateral locational banking statistics

measures of deposit growth: the percentage growth over the four quarters before
q, and the percentage growth from eight quarters to four quarters before q. The
results are in Table 3. As column 1 shows, the probability to sign a treaty is
not affected by the growth rate of deposits during the year preceding treaty signature. It is marginally affected by deposit growth from eight quarters to four
quarters before treaty signature, but this barely significant correlation disappears when we control for time fixed effects (column 2): it reflects the factthat most treaties were signed during the financial crisis, when deposits werefalling worldwide.
Columns 3 and 4 show that the level of deposits, distance, and GDP are significant determinants of the probability to sign a treaty. But when we control for thosefactors, the probability to sign a treaty remains unaffected by past growth rates ofdeposits. On average, treaties were not concluded by country-haven pairs where
deposits were growing more slowly than the global trend.

(2011); Bilicka and Fuest (forthcoming); and Elsayyad (2012).

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Our second test examines whether the country-haven pairs that signed a treaty
and those that did not experienced an otherwise similar evolution over the periodof study. The goal of this test is to make sure that the correlation we observe
between treaty signature and subsequent deposit growth is not driven by an­unobserved third factor such as a slowdown in the financial activity of relatively
compliant havens.
The idea of the test is simple: if a confounding trend were driving our results,then treaty signature should be associated with a subsequent lower growth of
the haven activities that are unrelated to treaties. So we study how those unrelated activities evolve in the “treaty” and “no treaty” groups. We focus on theinter-bank activities of tax havens. Haven-based banks receive large amounts ofdeposits from foreign banks, which they use in turn to grant loans. Interbank
deposits received by tax havens are unrelated to personal tax evasion, so theyshould not be affected by information exchange agreements. But they are sensitive to the international business cycle, to domestic conditions in the havens, andmore generally to any trend that could potentially confound our analysis of treaties. In columns 1–2 of Table 4, we run the same regression for interbank deposits as we did for the deposits owned by “nonbanks” in column 2 of Table 1 andcolumn 2 of Table 2, our core specifications. The results show that treaties havezero effect on interbank deposits. In other words, interbank deposits have evolved
similarly in the “treaty” and “no-treaty” pairs. The statistically significant effectof treaties on “nonbank” deposits is thus unlikely to be driven by an omitteddifferential time trend.
Our two tests establish that we have a reasonably valid natural experiment: thecountry-haven pairs in our sample have similar ex ante and ex post observable characteristics, the sole relevant difference being that some pairs signed an informationexchange agreements while others did not. The correlations we document between
treaty signature and subsequent deposit growth can thus be considered causal. We
present below further robustness checks.
D. Robustness Tests
OECD countries have concluded many more treaties than developing countries.
Our results, one could fear, might be driven by asymmetric shocks reducing thedeposits of developed countries relative to those of developing countries, such as the
2008–2009 financial crisis. To address this concern, we restrict the sample to OECD
countries only. Columns 3–4 of Table 4 show that the response to treaties is slightly
larger in the OECD sample than in the full sample, though qualitatively similar.
Second, we run the regressions with exchange rate adjusted deposit stocks. So
far, we have used data that convert deposits in pounds, euros or Swiss francs into
US dollars using end of quarter exchange rates. If a large share of bank deposits in
Switzerland are denominated in Swiss francs and if Switzerland signed most of its
treaties during a period when the Swiss franc depreciated, there is a risk that we capture a spurious effect of treaties on deposits. To address this issue, we construct an
exchange rate adjusted measure of deposit stocks. For each country-pair, we knowwhat fraction of deposits are denominated in US dollars, euros, British pounds,

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Table 4—Tests of Identification Strategy and of Robustness
Bank: Havens
Variables

Saver: Nonhavens
Interbank deposits(1)

Signed
STD−0.0248(0.7963)

Treaty coverage× Signed

Treaty coverage× (1-Signed)
Constant(2)

Saver: OECD

OECD countries only
(3)

(4)

−0.0425(0.7083)−0.1905*** −0.1230(0.0094)(0.1321)0.0004(0.9449)

0.0052(0.1956)−0.0224(0.8235)−0.0034(0.6904)

3.7524*** 3.7532***(0.0000)(0.0000)−0.5302***(0.0000)
0.0128**(0.0210)4.8144*** 4.7834***(0.0000)(0.0000)

Saver: Nonhavens
Exchange-rate adjusted(5)−0.0890*(0.0954)(6)

Saver: OECDCountry-year fixed effects
(7)

(8)

−0.0431(0.4898)−0.2962*** −0.1407*(0.0001)(0.0862)0.0015(0.5938)

0.0022(0.6543)−0.2279***(0.0002)0.0125***(0.0023)

3.2197*** 3.2197***(0.0000)(0.0000)−0.6431***(0.0005)
0.0115**(0.0151)

3.2197*** 3.2197***(0.0000)(0.0000)

Observations

20,48920,489

8,049

8,049

30,69330,693

8,049

8,049

R2

0.03940.03950.08520.11290.06440.06930.17440.1903

Number of country
pairs

1,004

1,004

307

307

1,270

1,270

307

307

Country pair fixed
effects

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Time fixed effects

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Saver-year dummies

No

No

No

No

No

No

Yes

Yes

Bank-year dummies

No

No

No

No

No

No

No

No

Notes: p-values in parentheses, based on robust standard errors clustered at the country-pair level. The dependent
variable is the stock of deposits held by savers of country i in banks of tax haven j at the end of quarter q. The unit ofobservation is the country-haven pair (i, j) and the sample period goes from 2003:IV to 2011:II. Signed is a dummy
equal to 1 if there exists a treaty providing for information exchange between i and j in quarter q. STD is a dummy
equal to one if the country-haven pair (i, j) applies the EU Savings Directive. Treaty cov erage counts the numberof treaties that i has with tax havens other than j. Columns 3–10 consider the deposits held by nonbank agents; columns 1–2 the deposits held by banks.
*** Significant at the 1 percent level.
** Significant at the 5 percent level.
  * Significant at the 10 percent level.
Source: Restricted bilateral locational banking statistics

Swiss francs, and yen. We use this currency decomposition to hold exchange rates
fixed at their end-of-2003 level. The results are reported in columns 5–6 of Table 4.
The estimated effects of treaties are slightly smaller but qualitatively identical to thecore specifications.
This result may come as a surprise given the large exchange rate movements
during the financial crisis. But it can easily be explained. The online Appendix
shows that the currency composition of deposits is strikingly similar in the group of“treaty” and “no treaty” country pairs: it is not correlated with treaty signature. For
this reason, exchange rate changes are absorbed by our time fixed-effects and do notinterfere with the identification of the impact of treaties.
In a final robustness check, we sequentially add country-year dummies andhaven-year dummies to the core specifications. Country-year dummies control for
all time-varying factors at the country level, such as changes in compliance efforts,
capital tax rates or the incomes of top earners who are most likely to hold assets in
tax havens. Haven-year dummies control for all time-varying factors at the havenlevel, such as bank crises or changes in political environment. The estimated effects

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are robust to the inclusion of country-year dummies, as shown by columns 7–8 ofTable 4. When we include both country-year dummies and haven-year dummies, we
still find a modest effect of treaties on deposits but are unable to identify a deposit
shifting effect (results not reported).
IV. Deposits Held through Sham Corporations

There is a great deal of anecdotal evidence suggesting that clients of offshorebanks routinely use sham corporations with addresses in tax havens such as Panama
as nominal owners of their bank accounts in Switzerland and other havens. The
IRS, for instance, provides case studies of tax evasion by US individuals througha big Swiss bank revealing a quasi-systematic use of shell companies.17 This section focuses on how deposits held through sham corporations have responded to thewave of tax treaties.
Remember that when a French saver holds assets in Switzerland through asham Panamanian company, the BIS assigns the funds to Panama. This convention
explains why haven-haven deposits are so important in the BIS statistics: in the firsthalf of 2011, they accounted for around $550 billion, almost 25 percent of all thedeposits in tax havens. Deposits from the British Virgin Islands and Panama wereparticularly important. Both jurisdictions have flexible corporate laws that make it
simple to create companies in a few minutes.
Using a sham corporation as nominal account holder adds a layer of secrecy
between an account and its beneficial owner: essentially, accounts held throughsham corporations are equivalent to numbered accounts, which are today prohibitedby anti-money laundering regulations. Sham corporations also help avoiding taxes:
the EU Savings Directive does not apply to the deposits held by European residents through sham companies. But they do not protect from information exchange
treaties. If France and Switzerland have a treaty and French authorities suspect a
taxpayer of hiding funds in Switzerland, they can ask Switzerland to provide therelevant information, even if the funds are held through a shell company. Banks
are required by anti-money laundering regulations to know at all times who are theultimate owners of the assets they manage. They must provide this information toforeign authorities that file information requests under a treaty.
The implication is that if tax evaders respond to treaty signature, then treaties concluded between havens like Switzerland and countries like France should
affect the Swiss deposits held by French residents through sham corporations, i.e.,
the Swiss deposits that the BIS assigns to the British Virgin Islands, Panama, andother havens.
Table 5 investigates whether this is the case by analyzing the evolution of havenhaven deposits. In column 1, we regress haven-haven deposits (e.g., Swiss deposits
assigned to Panama) on the number of treaties concluded by banking havens (e.g.,
Switzerland) with nonhaven countries (e.g., France). A treaty between France and17
See http://www.irs.gov/uac/Offshore-Tax-Avoidance-and-IRS-Compliance-Efforts. See also Zaki (2010) for
anecdotal evidence on the use of sham corporations by Europeans, and Hanlon, Maydew, and Thornock (forthcoming) for evidence on the use of sham offshore corporations by US tax evaders for their US investments.

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Table 5—Panel Regressions of Bank Deposits Held through Sham Corporations
Bank: Havens
Saver: Havens
Treaty coverage: Number(1)

Treaty coverage, banking havenwith nonhaven countries
Treaty coverage, banking havenwith other tax havens
Signed−0.0067**(0.0188)

Constant
Observations
R2
Number of country pairs
Country pair fixed effectTime fixed effect(2)Treaty coverage: Share
(3)

(4)

−0.5900***(0.0000)

4.3572***(0.0000)−0.0095***(0.0015)
0.0087(0.3362)
0.0536(0.6726)
4.3604***(0.0000)

4.4043***(0.0000)−0.6045***(0.0000)
0.0224(0.9103)0.1005(0.4022)4.4057***(0.0000)

8,798
0.1188
346
Yes
Yes

8,798
0.1199
346
Yes
Yes

8,798
0.1359
346
Yes
Yes

8,798
0.1365346
Yes
Yes

Notes: p-values in parentheses, based on robust standard errors clustered at the country-pair level. The table investigates how the signature of a treaty between a tax haven (e.g., Switzerland) and a nonhaven country (e.g., France)
affects the deposits recorded by the BIS as belonging to tax havens (e.g., the deposits in Swiss banks recorded
as belonging to Panama). The dependent variable is the stock of deposits recorded as belonging to haven i (e.g.,
Panama) in the banks of haven j (e.g., Switzerland) at the end of quarter q. The unit of observation is the havenhaven pair (i, j) and the sample period goes from 2003:IV to 2011:II. For a given banking haven j, there are up to 41“saving” havens i. We consider the deposits held in 13 banking havens j. In columns 1–2, Treaty coverage, banking
haven with nonhavens counts the number of treaties that j has with nonhaven countries (and Treaty coverage, banking haven with other tax havens the number of treaties that j has with other havens). In columns 3–4, the Treaty coverage, variables measure the share of the deposits held by nonhaven (resp. haven) countries in haven j in 2004 thatare covered by a treaty in quarter q. Signed is a dummy equal to 1 if there exists a treaty providing for informationexchange between haven i and haven j in quarter q.
*** Significant at the 1 percent level.
** Significant at the 5 percent level.
  * Significant at the 10 percent level.
Source: Restricted bilateral locational banking statistics

Switzerland reduces the Swiss deposits registered as belonging to each tax haven by
0.7 percent on average.
In column 2, we investigate whether haven-haven treaties matter for the pattern of haven-haven deposits. Neither a treaty between Switzerland and Panama(Signed = 1) nor treaties between Switzerland and havens other than Panama affectthe value of the Swiss deposits assigned to Panama in the BIS statistics, which is fully
consistent with our interpretation of what haven-haven deposits represent. Indeed,
there is no reason why information exchange between Panama and Switzerland
should affect the French residents who use sham corporations in Panama as nominal
owners of their Swiss accounts.
In columns 3 and 4, we run the same regressions as in columns 1 and 2 but withthe measure of treaty coverage that weighs treaties by the importance of the deposits covered. The estimated effects are statistically and economically significant.
Consider a treaty between France and Switzerland. Assume that French residents
hold 10 percent of all Swiss deposits belonging to nonhaven countries. Column 3

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suggests that such a treaty reduces the bank deposits in Switzerland registered as
belonging to tax havens (e.g., Panama) by 4.5 percent.18 Now assume that French
residents are also the ultimate owners of 10 percent of the Swiss deposits registered as belonging to tax havens. Under this assumption, a treaty between France
and Switzerland causes a 45 percent reduction of the deposits held in Switzerland
by French savers through sham corporations. Under plausible assumptions, thetax evaders who use sham corporations may have responded strongly to theG20 crackdown.
There is one caveat, however: since we cannot identify the ultimate owners of thedeposits held through sham corporations, the results in Table 5 rely on variation at
the haven level rather than variation at the country-haven-pair level. It is an unfortunate feature of cross-border bank deposits statistics that they are based on immediate rather than beneficial ownership. If deposit data were established on a beneficial
ownership basis, almost no deposits would be assigned to the British Virgin Islands
or Panama; more deposits would be assigned to the US, Italy, or France; and it
would be easier to track the progress made in the fight against tax evasion.
V. The Compliance Effect of Treaties

Our results so far indicate that the G20 initiative has caused a relocation of deposits between tax havens leaving the funds globally held offshore roughly unchanged.
But depositors may have responded to the crackdown by complying more with tax
laws while keeping their funds in tax havens. In this section we analyze the available
evidence on the compliance effect of treaties.
There are two types of data at hand. First, we have direct information on tax compliance in Switzerland, probably the most important tax haven as far as personal
wealth management is concerned.19 Since mid-2005, in the context of the EU Savings
Directive, Swiss banks must withhold a tax on interest income paid to European
households who own Swiss accounts. Savers can escape the withholding tax if they
voluntarily declare their income to their home country tax authority. Swiss authorities
have published on a yearly basis the amount of interest earned by residents of each
EU country, as well as what fraction of this income savers have chosen to voluntarily
disclose. We know for instance that in 2011, French residents earned CHF 324 million
in interest, and chose to declare 33 million, or about 10 percent. To our knowledge,
this unique dataset has never been used before in the literature.20
It enables us, for one key haven and 27 counterpart countries, to conduct a
direct test of the compliance effect of treaties. We analyze how the share of interest declared has evolved over 2006–2011 for the 15 EU countries that have signed
a treaty with Switzerland since 2008 (e.g., France, Spain, Austria), and for the 12
countries that have not (e.g., Belgium, Portugal, Hungary). As shown by Figure 7,
there has been a general increase in compliance over the 2006–2011 period. But(exp(−0.59) − 1) × 10 = 4.5 percent.
Switzerland comes second to the Cayman Islands in terms of deposits, but an exceptionally high fraction ofdeposits in Swiss banks seem to belong to individuals (80–90 percent, whereas our informed guess for the average
across all havens is about 50 percent).
20
The data are available on the authors’ websites.
18
19

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Share of interest income earned in Switzerland
declared to home country tax authorities

88

february 2014

25%

21%

20%

16%

15%

11%

6%

10%
Residents of EU countries that signed atreaty with Switzerland (left-hand scale)
Residents of EU countries that didn't sign atreaty with Switzerland (right-hand scale)

5%

0%

2006

2007

2008

2009

2010

2011

1%

-4%

Figure 7. Fraction of Interest Income Earned by EU Residents in Swiss Banks
Declared to Home Country Tax Authorities
Source: Administration fédérale des contributions

there is no ­indication that this trend has been any stronger for the countries that havesigned a treaty with Switzerland. And indeed, when we use the same regression
framework as in Section III, we find that treaty signature has no statistically significant effect on the fraction of interest that taxpayers chose to declare.21 Despite theG20 initiative, the general level of compliance of EU Swiss bank account holders
remains low, around 10–20 percent.22
The second type of evidence on tax enforcement comes from the OECD (2011),
which has gathered data on the amount of taxes recovered due to increased compliance on the part of offshore account holders. Over the 2009–2011 period, the OECD
(2011) reports an increase of almost EUR 14 billion in taxes paid in rich countries.
This is certainly far from negligible. However, assuming that evaders paid in taxes
and penalties an amount equivalent to 5 percent of their assets (which is what theOECD reports for Italy, Mexico, and the United Kingdom), then the OECD figures
imply that about $350 billion in offshore assets may have been disclosed to tax
authorities. This figure falls short of the $6 trillion or so likely held by households
in tax havens.23 Taken at face value, the OECD’s findings do not lend support to theview that compliance has considerably improved.
The evidence we have just described is far from systematic. There is no crosscountry database on tax compliance comparable to the BIS’ bank deposit ­statistics.
So we cannot fully exclude a large increase in compliance in havens other than21

See online Appendix.
The compliance figures reported on Figure 7 are upper bounds, for one simple reason. They are obtained by
dividing interest declared by interest earned, but the denominator excludes interest earned by EU residents throughsham corporations, and a very large fraction of Swiss bank fiduciary deposits are held through sham corporations.
23
Based on interviews with wealth managers, Damish et al. (2010) puts the amount of offshore wealth at$7.4 trillion in 2009. This figure is close to the one found by Zucman (2013), who reckons that 8 percent of households’ financial wealth is held in tax havens, which is around $6 trillion in 2008.
22

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Switzerland. Better measuring compliance and its determinants is an important
challenge for future research.
VI. Concluding Remarks

Conventional wisdom among policymakers is that the G20 tax haven crackdown
is a success. The evidence presented in this paper challenges this view. It suggests
that, so far, treaties have led to a relocation of bank deposits between tax havens
but have not triggered significant repatriations of funds. The least compliant havens
have attracted new clients, while the most compliant ones have lost some, leaving
roughly unchanged the total amount of wealth managed offshore.
Although this is disappointing, we emphasize that the G20 initiative is not useless. We find evidence that some tax evaders have responded to the wave of tax
treaties. Many experts were skeptical that upon request information sharing could
achieve anything at all. Our results belie the most pessimistic views on the efficacyof treaties: even a weak threat of enforcement is sometimes enough to affect behavior. Further, uncertainties remain on the extent to which treaties have induced tax
evaders to comply more with tax laws while keeping their funds offshore.
Yet our results suggest that there is room to improve the fight against offshore tax
evasion. First, the G20 could urge tax havens to sign treaties with all countries: acomprehensive multilateral agreement would prevent tax evaders from transferring
their funds from haven to haven. Second, our results suggest that even in the presence of a complete network of upon request information exchange treaties, there
may remain a scope for improved tax collection by making treaties more demanding.
The G20 tax haven crackdown is a major coordinated initiative against tax evasion
at the global level. Another important initiative, at the regional level, is the European
Union Savings Directive. The G20 initiative relies on information exchange treaties; the EU Savings Directive imposes a withholding tax on interest income earned
by European residents in a number of cooperating tax havens. So far, both policies have pitfalls: treaties are not comprehensive enough; the EU withholding tax
exempts equities and derivatives, and does not look through sham corporations thattax evaders routinely use (Johannesen 2010; Zucman 2013). Therefore, what is thebest tool—treaty or tax—to combat offshore tax evasion remains an open question.
A comprehensive network of treaties providing for automatic exchange of information would put an end to bank secrecy and could make tax evasion impossible.
Taxes withheld on all incomes earned by foreign residents in all tax havens could
also make tax evasion impossible, while maintaining some form of bank secrecy.
Which of the two instruments would maximize tax revenues while minimizing
administrative costs, including the costs of negotiating with tax havens? There isneed for more research on this question. Policymakers have diverging views: onthe one hand, the European Union Commission pushes for automatic exchange of
information, just like the United States with the Foreign Account Tax ComplianceAct (FATCA), but on the other hand countries such as Germany and the United
Kingdom are negotiating a comprehensive withholding tax with Switzerland.
Another question raised by our study is why some havens cooperate more thanothers. Tax havens have a strong economic interest in bank secrecy. But maybe

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abandoning bank secrecy has a positive effect on a haven’s reputation, which may
help it attract other financial activity, such as the incorporation of investment funds.
This issue would deserve to be further analyzed.
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