ASSESSING CRIMINAL RISKS of FTZs is similar to evaluating the criminal profile of a city neighbourhood. Almost all depends on the neighbourhood. The only characteristic that all FTZs share is that customs duties do not apply in the same way as in the rest of the country’s territory. Beyond this, everything else can differ from zone to zone, including: the non-customs-related business incentives on offer; governance arrangements; geographical location; and the profile of users and activities.
While there are some country-wide factors at play, such as the quality of governance and corruption, context remains vital. In some countries, high volumes of trade and reduced incentives for customs oversight may create a uniquely enabling environment compared to the rest of the national territory. In others, such as Morocco, FTZs pose lesser criminal risks than many of the country’s other border crossings by virtue of being subject to at least some level of control and security arrangements. Yet, in other countries, like Singapore, the country’s tariff regime is so liberal that the distinction between FTZs and the country’s customs territory is all but obliterated, which reduces incentives for smuggling goods from an FTZ into Singapore’s domestic market but does not affect its position as a prime transhipment node for illicit goods.
But, not everything is relative, and some generalisations are possible. The spotlight on FTZs in recent years has disclosed common vulnerabilities, and the research for this paper has added further depth to the understanding of crime-related challenges that beset multiple FTZs around the world. Of these, the following areas are especially problematic:
• The lack of consistent international standards and incentives in relation to the policing of goods that pass through FTZs in transit.
• Inadequate understanding of FTZ-related criminal risks in general and financial crime risks specifically, including at the stage of planning and approving the establishment of an FTZ.
• Insufficient clarity of FTZ-related responsibilities and lacking coordination among various agencies involved, including limited information sharing and failure to involve customs agencies in FTZ-level risks assessment.
• The absence of credible monitoring of FTZ administrators and users, as well as the resulting gap in enforcement.
• The lack of proportionate AML/CTF supervision of FTZ-based businesses that would take account of the risk profile and volume of FTZ activities.
• Limited cooperation with the private sector.
In a positive development, however, the international conversation on FTZs has now moved beyond cataloguing a litany of real or perceived failings. The OECD’s Code of Conduct for Clean Free Trade Zones and the WFZO’s Safe Zone certification programme hold out the promise of both promoting good governance in FTZs and enabling compliant FTZs to distinguish themselves from those that are not.
These are commendable initiatives with the potential to make a difference. However, voluntary certification programmes for the best in class are not sufficient to address a host of FTZ-related vulnerabilities. This requires a concerted effort from governments, FTZ administrators, users and other private sector actors. Voluntary actions are especially unlikely to succeed in preventing criminal misconduct in those FTZs that are neither alive to criminal risks nor face any tangible pressure to raise their game.
With that in mind, this paper offers the recommendations summarised below as a means of advancing the global effort to strengthen FTZ integrity and further advance the useful work already done in this area.
To download the full report, please click here.20201012_ftzs_web_0
Anton Moiseienko is a Research Fellow at RUSI’s Centre for Financial Crime and Security Studies.
Alexandria Reid is a Research Fellow in the Organised Crime and Policing team at RUSI.
Isabella Chase is a Research Fellow at RUSI’s Centre for Financial Crime & Security Studies.
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