Which of the following is identified as a weakness of Free Trade Zones?

• A. Inadequate AML/CFT safeguards
• B. Strong oversight by local authorities
• C. Robust record-keeping systems
• D. High transparency about ownership

Answer: (A)

Free Trade Zones are designed to boost commerce, but they can become weak points for money laundering and terrorist financing if safeguards are not strong enough. The key issue is inadequate AML/CFT safeguards. When due diligence on customers and counterparties isn’t thorough, ongoing transaction monitoring is weak, records aren’t kept in a way that makes it easy to audit, and there’s limited visibility into who ultimately owns entities operating in the zone. These gaps create opportunities to move illicit funds or hide illicit activities behind the zone’s framework.

Think of the other options as describing protective features: strong local oversight helps enforce rules, robust record-keeping supports traceability, and high ownership transparency reduces anonymity. All of these reduce risk, so they’re not weaknesses. In practice, the most material vulnerability in FTZs for AML/CFT purposes is exactly that lack of robust safeguards.