Freeports: Innovative trading hubs or centres for money laundering and tax evasion?
| DOI | https://doi.org/10.1108/JMLC-01-2021-0002 |
| Published date | 23 April 2021 |
| Date | 23 April 2021 |
| Pages | 63-71 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Paul Michael Gilmour |
Freeports: Innovative trading
hubs or centres for money
laundering and tax evasion?
Paul Michael Gilmour
Institute of Criminal Justice Studies, University of Portsmouth, Portsmouth, UK
Abstract
Purpose –This study aims to provide a critical overview of freeports’trading operations and consider to
what extentthey may present a money-laundering and tax-evasion risk.
Design/methodology/approach –This study reviewsthe literature surrounding freeportsand offers an
up-to-date narrative of their potential money-laundering and tax-evasion activities. The paper relies on
secondary data from published sources referencing peer-reviewed papers and “grey-literature”material
relatingto freeports, offshore finance and anti-money launderingcontrol.
Findings –This study demonstrates the attractive trading advantages offered by freeports to enable
enterprise and innovation. However, the study reveals that the secretive offshore space in which freeports
operate also helps to obscure beneficial ownershipand illicit trade-based practices that frustrate authorities’
efforts to trace laundered monies and recover government taxes. Despite freeports’trade offerings, stronger
regulationis needed to prevent them from being abusedfor money-laundering and tax-evasion purposes.
Originality/value –This study provides an importantinsight into the money-laundering and tax-evasion
risks presented by freeportsand, in doing so, advances the contemporary debate on illicit activitiesoccurring
through offshorejurisdictions.
Keywords Money laundering, Beneficial ownership, Offshore, Tax haven, Free-trade zone, Freeport
Paper type Research paper
1. Introduction
For many years, there has been an increasingtrend for nations to introduce specialised trade
zones within its territoryfree from economic and commercial restraint to invigoratethe local
economy and maintain fiscal dominance (Hakimian, 2011). This strategy has included
establishing onshore zones, known as “freeports”. Freeports are warehouses located within
free-trade zones that lie within a country’s geographical border but are designated by that
country’s government to be outside its normal customs regime (Webb, 2020). Freeports are
typically located atnationally strategic hubs, such as air, rail and seaports,to facilitate trade
through the country. Freeports and the companies based within these zones enjoy several
concessions, such as cheaper import duties, suspended custom obligations and reduced
bureaucratic checks intended to streamline cross-border trade (Moiseienko et al.,2020;
Webb, 2020). Therefore,freeports seem to provide innovative trading advantagesover other
jurisdictions bound by stricter customs obligations and, thus, offer a more attractive
environment throughwhich to conduct business.
However, there is concern that economic concessions and reduced regulatory oversight
enjoyed by freeports allow criminals to misuse them for illicit purposes. According to
Korver (2018), the art market, which relies on freeports for warehousing its goods, can be
obscured through nondisclosure of beneficial ownership of assets transiting through
international borders. Such secrecy can hinder authorities’attempts to trace and recover
Money
laundering and
tax evasion
63
Journalof Money Laundering
Control
Vol.25 No. 1, 2022
pp. 63-71
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-01-2021-0002
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