Uruguay’s El País reports that authorities have admitted there is illegal activity in some of the country’s ten free trade zones.
The director of Uruguay’s customs authority, Mr Enrique Canon, is quoted saying that “US authorities are paying attention to Uruguay.”
He also says that the authority is awaiting legislative approval of a new customs code which will give it powers to control the free zones as there are “facts occurring in some of them which I am aware of”.
The article contains a strong hint that the illegal activities mentioned are in fact related to trade misinvoicing: the updated code will mean “between six months and six years imprisonment for anyone who carries out fraudulent acts tending to distort, falsify or hide the value, origin or classification of merchandise.”
The Economist in May dedicated a report to the problem of trade-based money laundering, calling trade “the weakest link in the fight against dirty money”:
“The basic technique is misinvoicing. To slip money into a country, undervalue imports or overvalue exports; do the reverse to get it out. A front company for a Mexican cartel might sell $1m-worth of oranges to an American importer while creating paperwork for $3m-worth, giving it cover to send a dirty $2m back home. One group of launderers was reportedly caught exporting plastic buckets that cost $970 each from the Czech Republic to America.”
Global Financial Integrity estimates that hundreds of billions of dollars are drained from developing countries each year using these types of techniques.
The new legislation in Uruguay may not be easy to implement, however. At an event with businessmen covered in the El País article, Mr Canon is cited cautioning about “great resistance from private operators…who think the changes will be a disadvantage to them” and also about resistance “inside the Customs authority” where things “have been done exactly the same for 25 years”.
In 2010 the Financial Action Task Force (FATF) estimated that there are 3000 Free Trade Zones worldwide. Among the systemic money-laundering vulnerabilities identified in its report are inadequate anti-money laundering safeguards and “relaxed oversight by competent domestic authorities”.
FATF also noted that “the misuse of free trade zones [FTZs] impacts all jurisdictions including those without FTZs of their own, because goods can originate from or be transhipped through FTZs not subject to adequate export controls”.
The El País article is here, in Spanish.