They were designed to promote international trade and economic development. But free trade zones (FTZs) are ripe for abuse by criminal players.
They can facilitate everything from money laundering to sanctions evasion and everything in between.
FTZs were created to allow goods to be imported, handled, modified and re-exported without the involvement of customs authorities or requiring customs duties to be paid. They’re usually based around seaports, major airports and national borders.
But they’re also open to abuse. In fact, the Colón Free Trade Zone in Panama, the western hemisphere’s largest FTZ, has been accused by the US government of being a hub for money laundering for international crime organizations. Another FTZ along the border of Argentina, Brazil and Paraguay is believed to facilitate illegal cigarette smuggling in the billions per year.
Unfortunately, the abuse and misuse of FTZs allow goods to be shipped to and from the zones without proper export controls. This can result in little oversight when it comes to the shipping of illicit items, and it can also create opportunities to launder money through legal entities created in FTZs.
Some businesses based in FTZs fall outside the typical anti-money laundering framework, and due to confusion created by the different rules across FTZ jurisdictions, avenues open up for exploitation.
As a result of these abuses, organized crime has been allowed to fester. Government agencies have issued warnings about certain FTZs in Latin America that serve as transit points for counterfeit, illicit goods and contraband entering the US, often from China.
In 2019, it was found that 37 ports across Latin America were controlled to some degree by Chinese entities. Even worse, several Mexican seaports are vulnerable to the influence of cartels enabling the trade of drugs and precursor chemicals.
If you’re doing business with companies that use FTZs, you’re risking a lack of transparency in your supply chain and that can be a problem for you and your business.
Luckily, you can mitigate the risk. But it does require rigorous due diligence checks on all businesses that operate in FTZs if you’re considering partnering with them.
Even when you carry out Know Your Customer procedures, you can end up caught up in illicit activities. If something doesn’t seem right, you need to carry out a specialized investigation.
Recently, it took us talking to locals and driving by the premises of a business within an FTZ to uncover links to the sanctioned Iranian regime. All other surface-level checks had seemed above board.
Our Owls are highly experienced in rooting out the truth from those dark corners of FTZs. They dive deep into special investigations to make sure your supply chain is trustworthy, transparent and free from entanglements that could affect the reputation of your business.
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