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Growth of Free Trade Zones Presents Serious Financial Crime Risks, Report Finds

Goods passing through free trade zones are a growing risk in terms of organised criminal activity, including the trafficking of banned goods, money laundering and sanctions evasion, researchers warn.

The development of free trade zones has accelerated rapidly as countries look to boost commerce and economic development. Of the 3,500 areas in operation today, including free ports and special economic zones, nearly a third were established in the last five years.

These schemes often attempt to boost trade, investment and employment by reducing costs or friction associated with moving goods through ports. Their direct trade-related value has been estimated at over US$500bn by the International Chamber of Commerce.

However, according to a report by the International Coalition Against Illicit Economies (ICAIE), a non-government organisation headquartered in Washington, DC, the regulation and supervision of free trade zones has “not kept pace with the rapidly changing global supply chains and ‘just-in-time’ delivery strategies”.

As a result, criminals are able to exploit them as a means of abusing containerised shipping to move illicit goods or funds across international borders, it says.

“Kleptocrats, criminal organisations, terrorist groups, and their enablers exploit networked hubs of illicit trade centred on free trade zones, ports, and other logistical channels of transportation, communications, and trade,” says ICAIE executive director David Luna.

“This allows illicit networks – such as the Chinese triads, Mexican cartels, Primeiro Comando da Capital and Hezbollah – to profit from an array of criminal activities and corrupt institutions, drain resources for economic development, and compromise the integrity of supply chains.”

One issue is that goods passing through free trade zones are often subject to “mutations”, such as assembly, manufacturing, processing, warehousing, repackaging and re-labelling. Those goods can then be imported into the free trade zone’s host country, or re-exported elsewhere.

Groups involved in counterfeit and pirated goods use this process to “conceal the illicit provenance of their products”, ICAIE says. It adds that as much as 3.3% of international trade involves such goods.

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