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More scrutiny and transparency of companies operating in free trade zones is required to combat the spread of counterfeit goods, a conference in Abu Dhabi has heard.
Speaking at The Economist's Global Illicit Trade Summit in Abu Dhabi on Tuesday, Michael Morantz, a policy analyst for the Organisation for Economic Cooperation and Devlopment (OECD) said it is currently "working with our OECD members as well as with the private sector members of the task force in partner countries to consider a code of conduct and guidance for free trade zones".
This new guidance is being developed following a pair of studies by the OECD - one in 2016 which put the global value of the counterfeit trade at $691 billion, and one published in March which looked at the role of free zones worldwide in facilitating this.
"Free trade zones themselves are not a cause of illicit trade, they are not the main problem, but they are found to be an issue," he said.
Morantz said that it was important to highlight that free zones are an important source of both jobs and economic growth, especially in the United Arab Emirates, where 25 percent of all jobs are based in free zones.
However, he added that the OECD's study found that "for every additional free trade zone in an economy, it is associated with a 5.9 percent increase in the total volume, by value, of exports of counterfeits for that country".
Stuart Paterson, a Dubai-based partner with law firm Herbert Smith Freehills, said that the majority of issues relate to the import and export of goods, and to manufacturing activities that take place within free zones.
He said that when investigating fraud cases, the link to the suspected perpetrator of a crime often leads back to a free trade zone.
"Because, inevitably, with the free trade zones, in many, many countries - and certainly this one is no exception - there is simply a lack of accessibility to information about the ownership and management of companies and businesses operating within the free trade zones. That lack of transparency makes them much more susceptible to crime of all sorts," Paterson said.
He added that for the UAE, a forthcoming inspection by the Financial Action Task Force (FATF) - a body set up by the G7 countries to assess various countries' anti-money laundering regimes - could be an incentive to embark on greater scrutiny of activities in free trade zones.
Under the last FATF report on the UAE, which was carried out in 2007 and published in 2008, "various failures were identified" in relation to anti-money laundering (AML) and compliance within free zones.
"It will be interesting to see whether things have significantly changed in the meantime, but the fact that that inspection is coming up is one incentive for government in this country to look at how enforcing anti-money laundering rules in relation to within free zones is a way of improving the report."
The UAE's Ministry of Finance announced on Tuesday that it had passed a new law aimed to combat money laundering and terrorist financing, which it said was in line with the Financial Action Task Force's guidelines.
Responding to a question from the audience about the law, Paterson said it was a "step in the right direction".
"In fact, it doesn't make wholesale change to the existing AML laws in the UAE, which are actually in a good state of repair already," he continued. "The real question... is the actual application and enforcement of those laws, and that's ultimately, I suppose, a question of appetite on behalf of the authorities."
Paterson also said that more understanding of anti-money laundering laws was required, even among professional services firms such as accountants and lawyers who have a duty under AML rules to report transactions that are deemed to be suspicious.
"The level of reporting is incredibly low - in most countries, not just here. And that's, I think, mainly driven through lack of understanding of the laws themselves and what type of activity may be properly seen as suspicious."
(Reporting by Michael Fahy; Editing by Shane McGinley)
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