TBML concerns over FTZs if the UK leaves the EU without a deal

Concerns are emerging about the British government’s plans to reintroduce free trade zones (FTZs) if the UK leaves the European Union (EU) without a deal.

A ‘no-deal Brexit’ would leave the UK with the task of negotiating a raft of new customs agreements and FTZs have been touted as a way to sustain Britain’s role in the global economy because goods can enter and exit these zones with hardly any tax or customs duties.

But FTZs elsewhere in the world have often been firmly connected with trade-based financial crime.

FATF findings

Case studies presented in 2010 by the Financial Action Task Force (FATF) point firmly towards money laundering and terrorist financing risk indicators related to financial transactions, unusual business activity, and trade-based money laundering (TBML) which take place within FTZs.

FATF expressed serious concerns about how a combination of tax incentives and relaxed monitoring and supervision has resulted in a reduction in finance and trade controls and enforcement in countries with FTZs.

The same characteristics that make FTZs attractive to legitimate businesses also attract abuse by illicit actors according to FATF, which also says the zones have been used in the transport and production of weapons of mass destruction.

More criticism

A 2011 review by the World Bank labelled many of the zones white elephants where the cost of lost tax and duty revenue outweighed the benefits. 

The Economistmagazine in 2015said that FTZs create distortions in economies and create environments in which investors enjoy tax breaks without producing substantial employment or export earnings.

Conservative disagreement

The UK’s new Conservative prime minister, Boris Johnson, has said he is considering establishing FTZs in the UK, a policy that is backed by several of his cabinet members and key supporters.

David Cameron’s Conservative government in 2012 discontinued FTZs on the grounds that “the UK’s current customs facilitations offer broadly the same benefits that attract businesses to free zones in other developed countries, such as the United States.”

Categories: Trade Based Financial crimes News

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