Joint Meeting of the Mid-Atlantic and Northeast Regions

Is Cryptocurrency the New Haven for Tax Evaders? Exposé of Financial Secrecy in Tax Havens and Bitcoin Trading

• In Event: Accounting and Technology

Abstract

The Paradise Papers revealed an enormous number of financial secrets hidden in tax havens. We hypothesize that the exposé of financial secrecy motivated tax evaders to further conceal their offshore assets through the Bitcoin market, which offers greater anonymity. We find that during the six weeks following the release of the Paradise Papers on November 5, 2017, the Bitcoin price increased by more than 12,000 US dollars and reached an all-time high on December 17, 2017. The 8-week trading volume of Bitcoin grew by 106 percent in 44 countries with the largest Bitcoin exchanges after the Paradise Papers. Importantly, Bitcoin exchanges in tax havens experienced significantly higher growth in trading volumes than other exchanges after the Paradise Papers. We find similar results following the release of the Pandora Papers, but we find no such results in the stock or gold market. Together, these findings suggest that the exposure of financial secrecy in tax havens significantly affects and predicts future cryptocurrency trading.

Authors

• Congcong Li, Duquesne University

• Mark Ma, University of Pittsburgh