Various countries around the world handle tax havens and concerns about money laundering in different ways. Recently, the European Union decided to take action, clamping down on the free ports due to fears of money laundering as well as potential connections to terrorism.
A Refresher on Free Ports
As a reminder, free ports, also called free zones, are special economic zones (SEZs) that have different trade and business laws than the other parts of the country. This amounts to the ability to land, store, handle, manufacture, reconfigure, and re-export goods without having to pay customs duty.
Free ports are also very popular for storing assets that are alternatives to cash, such as gold, wine, antiques, precious stones, and art.
In the European Union member countries, there are 82 free ports. One of these is the Isle of Man, which is a British crown dependency but not part of the EU or the UK. The British government hopes to open free ports as part of its post-Brexit strategy, to have the first UK free port open by 2021.
The EU will be taking action to clamp down on 82 of these free zones or free ports. This is the result of identifying the special duty and tariff status has encouraged organized crime, money laundering, and terrorism financing.
Interestingly, the European Commission introduced the new rules only weeks before the UK government was due to consult on creating as many as 10 free ports in Britain following Brexit.
As of January 10, authorities in the European Union have had to take additional steps to report and identify suspicious activities at zones and ports. This is the result of the EU’s notice of a high rate of tax evasion, criminal activity, and corruption.
Free ports are seen as a place with high secrecy. They are similar in many ways to offshore financial centers, providing the discretion and security for high-net-worth individuals who want to hide their assets, as well as criminals who want to conceal their actions.
Previous Hints of the Increased Scrutiny
This extra scrutiny on free ports was no surprise to those who have been following the issue in the European Union. Back in July, the commission had indicated that free ports were an emerging threat.
Those who oppose the free ports argue that they make it easier for counterfeiters to tamper with paperwork and loads, land consignments, and re-export products without any intervention from customers. This makes it harder to identify the original supplier as well as their exact origin and nature.
The commission has also indicated that free ports are commonly used for other criminal purposes. These include money laundering, corruption, VAT fraud, people smuggling, narcotics trafficking, and the illegal ivory trade. According to the report, criminals who own legal businesses use them as part of their money trafficking. They take advantage of the setup of free ports to protect financial dealings and identities of clients.
The report cited the example from December 2016, when Swiss authorities found cultural relics from Yemen, Libya, and Syria in free ports in Geneva.
It Is Not Set in Stone
Despite clamping down on the free ports, the executive branch of the European Union indicated that it would evaluate the issue the following year again. This agreement to review the change comes from the popularity of these ports among criminal organizations and high-net-worth individuals who want to get around the recent clampdown on bank secrecy.
The Other Side
Meanwhile, those in favor of free ports see them as economic opportunities. The British government, for example, has argued that creating its planned free ports would create thousands of jobs and allow for significant investments.
For now, free ports in the European Union are not entirely restricted, but they are facing more scrutiny. This controversy is not likely to end any time soon.
Did you find this article useful?
Subscribe to our newsletter for more!