Wednesday, May 12, 2021

Despite Government Enthusiasm Controversy of Freeport Regulation Remains

Doubts Raised Over Potential Crime Sites in New University Study
Shipping News Feature

UK – Whilst both the government and the respective proponents of the eight new Freeports to be established in England by the end of the year enthusiastically support the schemes, a note of caution is advised by a new study.

Opponents say the new facilities offer numerous opportunities for criminal activity and the study, published by the University of Portsmouth in the Journal of Money Laundering Control, claims to raise justifiable concerns over the misuse of Freeports.

The study warns that Freeports can be abused for money-laundering and tax-evasion purposes because of a lack of transparency. It says they can help to obscure the true beneficial owners of assets through secretive corporate practices that thwart efforts by authorities to trace illicit profits and recoup government taxes.

Whilst the paper demonstrates the attractive trading advantages offered by Freeports to enable enterprise and innovation it also warns that stronger regulation is needed to prevent Freeports being abused for such money-laundering and tax-evasion purposes. For those who do not know the principle behind them, report lead author Paul Gilmour, from the University’s Institute of Criminal Justice Studies, explains the role of Freeports thus:

“In their basic form they are warehouses located within free-trade zones that lie within a country’s geographical border but are designated by that country’s government to be outside its normal customs regime.

“The companies based within these zones enjoy several concessions, such as cheaper import duties, suspended custom obligations, and reduced bureaucratic checks intended to streamline cross-border trade. They effectively act as offshore jurisdictions that offer attractive trading advantages which enable enterprise and innovation.”

The research examined existing Freeports around the world and found they are often used as tactical depots, intended as spaces to temporarily house valuable assets, such as artwork, precious metals and gems, wine collections and antiques. However researchers say that many dealers now commonly exploit the beneficial goods-in-transit position of Freeports, to house assets on a more permanent basis.

This means, as long as the dealers’ goods remain within the Freeports storage facility, those dealers are unaccountable for any duties (such as value-added taxes [VAT] or capital gains taxes) which would normally be applied upon export. Gilmour continues:

“The growth in Freeports may have originally evolved from a desire to stimulate global investment by deregulating financial markets. However, there is an argument that permanent storage spaces within Freeports only act to stifle capital mobility. Nonetheless, Freeports do seem to provide innovative trading advantages to enable businesses to thrive in today’s competitive global market.

“There is also evidence that these zones enable trade-based money laundering by the falsifying of trade invoices to deceive authorities. The many international transactions occurring through Freeports, coupled with a lack of regulatory supervision, poses notable challenges for government officials.”

The study goes on to suggest that banks that facilitate numerous international trade transactions need to be more alert to illicit trading and should be responsible for carrying out proper due diligence around Freeport trade. Given the past records of several of the big banks doubts over this are bound to surface. It says that although governments have recognised the threat that Freeports present by ensuring they fall within the scope of anti-money laundering control, there are still opportunities for Freeports to operate without transparency.

Photo: The ports of Felixstowe and Harwich will host the site of Freeport East.