Recommendation of the Council on Countering Illicit Trade: Enhancing Transparency in Free Trade Zones

THE COUNCIL , HAVING REGARD to Article 5 b) of the Convention on the Organisation for Economic Co-operation and Development of 14 December 1960; HAVING REGARD to the Recommendation of the Council to Facilitate Co-operation between Tax and Other Law Enforcement Authorities to Combat Serious Crimes [ OECD/LEGAL/0384 ]; and the Recommendation of the Council on Countering the Illegal Trade of Pesticides [ OECD/LEGAL/0446 ]; HAVING REGARD to the 2012 FATF Recommendations, the 1994 WTO Agreement on Trade-Related Aspects of Intellectual Property Rights, and the 2017 WTO Trade Facilitation Agreement; NOTING the basic principles of Customs procedures and controls laid down in the WCO Revised Kyoto Convention, Specific Annex D, Chapter 2 (Free Zones);  RECOGNISING that illicit trade operates in the shadow of the global economy, with increasingly sophisticated traffickers dealing in a range of prohibited goods and services including counterfeits; RECOGNISING that illicit trade and criminal networks are a growing security concern globally and that they present threats to communities and societies as a whole, enabling lucrative criminal enterprise, terrorism financing, and greater instability and violence around the world; RECOGNISING that various international standards are in place to prohibit or regulate different sectors of illicit trade, including the trafficking of humans, narcotics, counterfeits, endangered and illegally harvested species of fauna and flora, antiquities and conventional arms; and promote the implementation of legal, regulatory and operational measures to combat the proceeds of illicit trade; CONSIDERING the need for additional harmonised guidance that provides governments with efficient tools to detect, deter and reduce illicit trade regardless the commodity, cutting across different illicit markets; RECOGNISING the need to enact proactive measures to reduce the supply and deter the demand for illicit goods and services across a range of illicit markets; RECOGNISING that Free Trade Zones (FTZ), can stimulate legitimate economic growth and play a central role in business for many economies and leading manufacturers; RECOGNISING that standards, oversight and other controls concerning FTZ, while having proliferated, have not in all cases kept up with the growth in number of economic operators and volume of illicit trade in goods and services; RECOGNISING that in some FTZ competent public authorities may not have timely physical access to the premises, and often face difficulty to obtain information on the activities of economic operators established within the FTZ, as well as information pertaining to the ownership of goods that transit through or are produced or assembled within the FTZ, even where other relevant international standards require them to be able to; ACKNOWLEDGING that some economic operators may take advantage of inadequate oversight, control and the lack of transparency in FTZ to commit trade fraud, intellectual property rights (IPR) infringement, smuggle contraband, facilitate the proliferation of weapons and launder the proceeds of crime; NOTING the opportunity to hold to account competent authorities that are complicit with, or negligent in the oversight of, economic operators that conduct or enable illicit trade that is harmful to persons, businesses and the environment; On the proposal of the Public Governance Committee: I.            AGREES that, for the purpose of this Recommendation, the following definitions are used: ‒                 'Free Trade Zone' refers to an area designated by a country or jurisdiction, where goods that enter this area are not subject, or are subject to lower import or export duties than those that would apply if such goods were declared for release for free circulation, at the moment when they enter it. Facilities used for temporary storage or for the customs warehousing procedure are not deemed to be Free Trade Zones. ‒                 'Competent authorities' include, but are not limited to, the following public authorities: police, customs, fiscal, and market surveillance officials with jurisdiction over the relevant persons, places, processes/procedures, or goods. II.           RECOMMENDS that Members and non-Members having adhered to the Recommendation (hereafter the “Adherents”), promote transparency in order to deter the abuse of FTZ as conduits for illicit trade. To this effect, Adherents should, in a manner which is non-discriminatory and does not create undue barriers to trade: 1.            Ensure that the legal framework for FTZ, established in their territory or that are otherwise under their administrative control, a)          Provides for the right of competent authorities to require relevant data, documents, samples and other information related to the production and movement of goods, and to carry out, in accordance with domestic law, ex officio checks at any time on goods stored, manufactured or packaged and services provided or activities conducted in FTZ. b)          Allows for competent authorities to take appropriate actions and measures in accordance with their domestic law. c)          Empowers competent authorities to examine merchandise before or at the time of admission to a FTZ, or at any time thereafter, if the examination is considered necessary to facilitate the proper administration of any law, regulation, or instruction which the competent authority is authorised to enforce. d)          Empowers competent authorities to enforce applicable prohibitions and restrictions on activities carried out within the FTZ, having regard to the nature of the goods in question, the requirements of customs supervision, or security and safety requirements. e)          Empowers competent authorities to prohibit persons who do not provide the necessary assurance of compliance with customs provisions from carrying out activities in a FTZ. f)           Prohibits legal or natural persons convicted of illegal economic or financial activities from operating within FTZ. g)          Ensures that the perimeter and entry and exit points of FTZ are subject to competent authorities’ supervision. h)          Ensures that goods, persons and means of transport entering and leaving FTZ are subject to effective controls. i)            Ensures that the economic operators that are allowed to operate within FTZ are physically located within the FTZ, and that they communicate to the competent authorities the identity of the clients in their operations. Where the client acts as an agent or representative, then the economic operator should also communicate the identity of the principal, that is, the person(s) on whose behalf the agent acts, to the competent authorities. 2.            Ensure competent authorities have access to aggregated statistical data on goods entering and leaving FTZ on the basis of their tariff classification, and information that identifies the owner(s) of goods. 3.            Cooperate internationally in the exchange of law enforcement information, and consult with competent authorities and affected industries in investigations and other legal or administrative proceedings concerning specific cases of misuse of FTZ related to illicit trade. This includes means such as: a)          Sharing financial and administrative information spontaneously and upon request to support the provision of evidence in judicial proceedings, or to ensure and further the effective supervision and control of FTZ and the prevention of their misuse, in accordance with domestic law. b)          Making better use of and adherence to current arrangements for Customs to Customs cooperation, as required through Customs Mutual Assistance Agreements and other law enforcement information sharing and disclosure gateways and protocols. c)          Cooperating and assisting in the development and implementation of policies and practices to counter illicit trade in FTZ, including technical assistance to share and develop improved systems for record keeping by competent authorities, FTZ and economic operators. 4.            Enhance domestic inter-agency co-operation, including obligations to report suspicions of illegal behaviour to the competent public authorities, information sharing between agencies; and other co-operation mechanisms such as joint investigations and joint intelligence centres. 5.            Promote awareness amongst competent authorities and private sector stakeholders (e.g. major intermediaries including shipping agents, freight forwarders, customs brokers and logistics companies) to understand the roles and responsibilities of operating in an FTZ, as well as risks related to FTZ operations. 6.            Foster partnerships among stakeholders to counter illicit trade emanating from high risk FTZ, such as those that have not implemented the Code of Conduct for Clean Free Trade Zones, which is set out in the Annex to this Recommendation and forms an integral part thereof. This includes efforts to encourage the business community that makes use of FTZ, or that finances operators within FTZ, to conduct business in or engage with FTZ that are compliant with the Code of Conduct for Clean Free Trade Zones. 7.            Monitor the activities of FTZ and publish annual indicators that help contribute to an evaluation of their risk of facilitating illicit trade. 8.            Develop relevant prior non-compliance or enforcement statistics, including customs detentions and seizures of illicit goods originating, or in provenance from FTZ, and enforcement actions already taken regarding that FTZ. 9.            Conduct targeted operations with respect to shipments originating from high risk FTZ, such as those that do not implement the Code of Conduct for Clean Free Trade Zones. 10.          Make greater use of existing or new international agreements that include provisions on mutual legal assistance or other forms of enforcement cooperation, in order to combat illicit trade conducted through FTZ. When administering such agreements, Adherents should designate the competent authorities and their points of contacts in order to facilitate the communication between and among the competent authorities of the parties to such agreements. III.          RECOMMENDS that Adherents take measures to encourage FTZ to implement the Code of Conduct for Clean Free Trade Zones. Such measures include, but are not limited to the conduct of strict control of consignments arriving from, or for which there is evidence of having transited through, FTZ that do not implement the Code of Conduct for Clean Free Trade Zones. IV.          RECOMMENDS that Adherents use trade agreements, as appropriate, to encourage adherence to the principles for combatting illicit trade in FTZ contained in this Recommendation. V.           INVITES the Secretary-General and Adherents to disseminate this Recommendation. VI.          INVITES non-Adherents to take account of and adhere to this Recommendation. VII.         INSTRUCTS the Public Governance Committee through the Task Force on Countering Illicit Trade to: a)          Serve as a forum for the exchange of information and the conduct of voluntary peer reviews with respect to the implementation of this Recommendation; b)          Establish a mechanism for the assessment of the performance and the compliance of FTZ with the Code of Conduct for Clean Free Trade Zones within one year from the adoption of the Recommendation and report to the Council thereon; c)          Develop a toolkit to support Adherents in the implementation of the Recommendation, including promoting and encouraging compliance of FTZ with the Code of Conduct for Clean Free Trade Zones, within one year from the adoption of the Recommendation; and d)          Monitor the implementation of this Recommendation and report thereon to the Council no later than five years following its adoption and at least every ten years thereafter. Annex Code of Conduct for Clean Free Trade Zones Clean Free Trade Zones are those that: 1.            Provide unconditional access to the competent authorities, in accordance with their domestic law, to carry out unobstructed, ex officio enforcement checks of operators in support of investigations of violations of applicable laws and regulations. 2.            Notify the competent authorities in advance of any industrial, commercial or service activity taking place in the FTZ. 3.            Prohibit operators and persons who do not provide the necessary assurance of compliance with the applicable customs provisions from carrying out an activity in the FTZ. 4.            Ensure that economic operators active in the FTZ maintain detailed digital records of all shipments of goods entering and leaving the zone, as well as all goods and services produced within it, sufficient to know what is inside the zone at any given time. The digital records should: ●                Document sales and purchase operations of all goods and services entering and exiting the FTZ, and be provided to the competent authorities upon request. ●                Maintain a complete and accurate record in accordance with domestic law of all commercial transactions to enable full accountability of materials used in production and assembling processes that may be reconciled with the volume and value of their commercial transactions. These records should be: ‒                 Maintained for a period of at least five years. ‒                 Made available in a timely manner to the competent authorities upon request. ‒                 Maintained in a format as required by the competent authorities, such that it can be used for risk profiling by the competent authority. 5.            Transmit in a timely manner to the competent authorities the records and information requested in accordance with domestic law and required to be maintained by recordkeeping requirements.  6.            Ensure that economic operators active in the FTZ are required to grant access to their detailed digital records upon request of the competent authorities in the jurisdiction where the zone is established. 7.            Appoint a dedicated point of contact with the necessary skills and resources to respond effectively to such requests for information from the competent authorities. 8.            Incentivise electronic payment for any commercial or financial transaction of the economic operators active in the FTZ occurring inside or originating from the FTZ, and ensure the traceability of cash transactions. 9.            Participate in peer learning and dialogues with Adherents to resolve compliance challenges.