Free Ports and the Possibility of Money Laundering Post-Brexi
New Prime Minister Boris Johnson's “do or die'' method of taking Britain from the Eu by October 31 continues to be much discussed. But there's one detail of his post-Brexit approach that requires as much, or even more, scrutiny when the UK isn't to become magnet for more economic crime.
The PM continues to be quoted as saying that he favours creating about six tax-free zones in ports. This attempt to create free ports – which are government-designated regions of little if any tax – are arguably a logical idea at a time when the UK looks to boost trade with other countries. Free ports can spark business activities as the advantages of reduced, deferred or even no tax are clear to companies.
Yet free ports happen to be recognized as a money laundering risk. And, ironically, it's the European Commission that has been most vocal on this subject. Inside a report, the Commission states that it's looking to tackle the financial perils of free port zones, so it sees like a developing threat to its attempts to combat money laundering.
According to the Commission, free ports help with the movement of counterfeit goods. This is because a ship's load could be landed and also the goods and associated paperwork can then be tampered with with no usual stringent checks. The products can then be re-exported with little or no safeguards concerning the legitimacy of the cargo. Generally the registered value of the products depends solely on self-declaration, which leaves significant room for more than or under valuing.
The Commission's report states that for the most part free ports “precise information on the beneficial owners is not available.” This can only make sure they are more attractive to those looking to facilitate money laundering – a point not lost around the Commission, whose report talks from the EU using a structural problem with regards to preventing the economic climate being abused. Free ports give those who are seeking to commit wrongdoing the secrecy that they are seeking.
While the UK hasn't had any free ports since 2012, you will find around 80 in European Union countries as well as their dependencies. The Commission has called on countries to conduct regular independent audits from the zones. Precisely how that request falls remains to be seen.
The Commission's concerns over free ports come after it has blamed banks for not adhering to basic EU anti-money laundering rules and has lambasted national regulators for not intervening until rules happen to be repeatedly broken or even the troubles are glaringly obvious. Its take on free ports is equally damning, which is not encouraging for UK PLC.
Such an approach from the Commission to free ports and also the banks can hardly be called alarmist. The EU has faced numerous major money laundering scandals recently. Previously 12 months, Denmark's largest bank Danske Bank has been the topic of revelations that it is Estonian branch was at the heart of Europe's largest money laundering scandal; with 15,000 customers involved in suspicious transactions totalling 200 billion euros. Sweden's Swedbank has also needed to manage the fall-out from allegations of money laundering on a massive scale at its Estonian banking operation. And Germany's Deutsche Bank is bracing itself for possible fines, legal action and even the prosecution of senior management over its role inside a $20 billion Russian money-laundering scheme dubbed the “Global Laundromat''.
The Fifth Anti-Money Laundering Directive will broaden the scope of their predecessor. And it explicitly includes free port operators; which makes them susceptible to the same customer due diligence requirements as, for instance, realtors or notaries. This might go a way to removing the Commission's concerns about free ports. It may also possess a significant effect around the success of current or future free ports.
But for the time being there are lots of who do not share the PM's enthusiasm for free ports. Which is hard to argue with their criticisms.
