If an offshore financial center is thought of as a tax haven for illicit finance think of an FTZ as a haven for illicit trade (and associated crimes): Customs authorities have little or no oversight of what actually goes on in an FTZ, goods are rarely ever inspected and companies operating in FTZs tend to benefit from low disclosure and transparency requirements. Illegal transactions can be easily disguised as legal, using trade-based money laundering (TBML) schemes that are notoriously difficult to detect. Criminals see them as perfect places to manufacture and transport illicit goods, as controls and checks by authorities are often irregular or absent. Understandably, governments from emerging markets have tended to support the existence of FTZs as they offer a variety of incentives to attract export businesses, foreign investment and employment.īut FTZs have a darker side, too. Companies operating within FTZs can benefit from deferring the payment of taxes until their products are moved elsewhere, or can avoid them altogether if they bring in goods to store, or manufacture on site before exporting them again. While located geographically within a country, they essentially exist outside its borders for tax purposes. But the risks of FTZs are glaring, with the EU discouraging their existence, labelling FTZs as a “ new emerging threat” in the world of financial crime.įTZs – also referred to as special economic zones, free ports, or free zones – can be broadly defined as special economic areas that benefit from tax and duties exemptions. Even UK Prime Minister Boris Johnson has announced plans to create up to ten free ports in the UK to offset post-Brexit tariffs and attract investment. Further, last year the tiny country of Djibouti launched Africa’s largest FTZ. Governments around the world are increasingly turning to free trade zones (FTZs) as a means of promoting economic growth and investment: Ghana recently signed an agreement with Iran to bolster cooperation between their free zones, while the Dubai Multi Commodities Centre announced 1,868 new companies have registered in its free zone in 2018 – an all-time record.

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