The United Kingdom government’s plan to set up eight freeports have prompted concerns of potential increased money laundering risks.
The UK government in its Budget this week confirmed plans to establish the freeports - special economic zones with reduced regulation in order to encourage trade and business. The ports will be subject to cheaper customs, with “favourable” tariffs, VATs and duties, simpler planning and lower taxes to “encourage construction, private investment and job creation.”
However, financial crime experts and international bodies have warned about the potential for the freedoms offered by freeports to be abused by money launderers.
Michael Harris, a financial crime consultant, responding to the announcement, said: “It is crucial that this does not become an opportunity for criminal activity to enter the UK via the back door.
“In recent years, there has been numerous examples of vulnerabilities in free trade zones, with trade in high valuable goods being funded by illicit money. It is imperative that lessons are learned from this to ensure that firms taking advantage of the tax breaks and other benefits are held to account” said Harris, speaking to Business Live.
“Authorities granting access to firms, need to take a risk-based approach and conduct adequate levels of checks and due diligence on both the company, its beneficial owner and key executives to ensure there are no known financial crime or reputational risks.”
In 2019, the European Parliament published a report raising concerns about free ports, with a particular emphasis on laundering relating to the trade of art works. The European Parliament has gone as far as calling for free parts to be phased out in the EU.
The report said: ““In most free ports or customs warehouses…almost anyone can bring in goods on behalf of someone else without disclosing the ultimate beneficial owner (UBO), which adds just another layer of secrecy for people who want to hide from (tax) authorities or creditors.
“Moreover, in most cases the registered value of the goods depends solely on self-declaration, which leaves significant room for over- or under valuing.” However, the Fifth Anti Money Laundering Directive includes free port as ‘non-financial obliged entities’ meaning operators are subject to enhanced customer due diligence requirements.
The Royal United Services Institute last year published a report called Free ports, not safe havens making a raft of recommendations to the UK government on freeports. These include assessments of trade and security risks when each freeport is being established, the publication of statistics relating to law enforcement and seizures, analysis of trade patterns, and measures to ensure due diligence conducted on businesses operating in freeports enable robust assessment of the risks they pose.
The report said: “If new freeports are as successful as the government hopes, they will appeal to legitimate businesses and criminals alike, and the UK’s reputation will depend upon the strength of its response.”
Rishi Sunak, Chancellor of the Exchequer in the UK, this week confrimed the locations for the eight freeports as East Midlands Airport, Felixstowe and Harwich, the Humber region, the Liverpool City Region, Plymouth, Solent, Thames and Teesside.
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