May 2023
Hubs of Illicit Trade
Project Summary
May 2023
Page | 1
Introduction
In February 2021, the Terrorism, Transnational Crime and Corruption Center (TraCCC) at George Mason University
and its Anti-Illicit Trade Institute (AITI) embarked on a two-year research project to examine hubs of illicit trade
around the world. Academic literature and studies have shown that illicit economies facilitate the production, illegal
trade, and trafficking of counterfeit and contraband goods. In particular, such studies have shown that a significant
proportion of the trafficking in illicit goods and contraband can be traced to a small number of hubs which serve as
safe havens that specialize in illegal manufacturing, diversion, transhipments, and cross-border smuggling, while
some of them also serve as centers for money laundering, including trade-based money laundering, and other
supportive crimes.
The Hubs of Illicit Trade project features a series of outputs, including a final report, individual hub reports and a
policy white paper, all of which will be made publicly available on the TraCCC website in 2023. This executive
briefing document provides a summary of the research. During the course of the project, a series of webinars were
hosted by TraCCC to highlight the research and create dialogue to address new challenges related to hubs of illicit
trade. These webinars attracted a diverse set of stakeholders from across the world, with backgrounds in policy, law
enforcement, government, academia, private sector, and civil society. The first major output is a white paper titled
“Internationalizing the Fight against Hubs of Illicit Trade and Criminalized Markets,” which serves as a policy
brief to provide a series of recommendations. It is based on the evidence-based research undertaken throughout the
Hubs of Illicit Trade project, with a focus on Panama, Guatemala, and Belize in Central America, the Argentina-
Brazil-Paraguay Tri-border area in South America, Dubai in the Middle East, and Ukraine in Eastern Europe. The
research evaluated the threats associated with these hubs, their impacts, and common themes. They are covered in
more detail in the final report titled “Smugglers’ Paradises in the Globalized Economy,” which is based on
comprehensive regional reports prepared by international teams of researchers.
The white paper has been written for policy-makers — both within hubs and outside of hubs — with a view to
assisting them in fighting the increasing threats posed by rapidly growing illicit trades. It was launched at the
Institute for Preventing and Combating Money Laundering and Financing of Terrorism Conference that took place
in San Paolo, Brazil, in May 2023. The white paper launch was in conjunction with a presentation on the research
from the Argentina-Brazil-Paraguay Tri-border area in South America. It will be followed by a series of other
regional presentations focusing on specific issues in other hubs of illicit trade, with a view to launching the full
research report at a planned conference organized by the World Customs Organization and TraCCC in Washington,
D.C. in September 2023.
Page | 2
CENTRAL AMERICA
>
Free trade zones
>
High levels of corruption
>
Money laundering & offshore
business registration
>
Transit point between South
& North American markets
>
High levels of violence
UKRAINE / EASTERN EUROPE
>
Geopolitical instability due
to the Russia-Ukraine war
>
Multiple goods linkages
>
State corruption
>
Growing arms & human
trafficking and smuggling
threats
>
UAE - DUBAI
>
Free trade zone production
& transit
>
Sanctions evasion
> Money laundering & offshore
business registration
>
Major gold trade hub
>
Emerging crypto hub
> High global connectivity
TRI-BORDER AREA
>
State supported
manufacturing
>
Control by criminal
groups
>
Ease of money
laundering
>
Drugs & illegal goods
linkages
Defining Hubs of Illicit Trade
Figure 1: Location and key features of hubs of illicit trade
Figure 2: Common characteristics of hubs performing particular functions
Hubs of illicit trade are defined as geographic areas
with a high concentration of illicit flows of
commodities and services and with a strong presence
of criminal actors and a wide range of enablers,
often from the legitimate economy,
who provide supportive activities for illicit transactions.
While hubs have a common set of characteristics, they
also have some distinctive features, as explained in
Figure 1.
Depending on their specialization, hubs participate in
production, transhipments, and consumption of various
illicit goods and services. They can also perform
enabling and supporting functions by providing money
laundering and other
supportive services for smuggling networks located
within these hubs and in other parts of the world.
Hubs that specialize in particular functions have a
common set of characteristics and driving factors,
as shown in Figure 2.
> Production hubs
manufacture illicit goods for
domestic & global markets.
> Lax production regulations
exploited by factories result
in over-supply & easy access
to key production inputs.
>
States, corrupt officials, &
kleptocracies often support
illicit production.
> Weak intellectual property
laws enable counterfeiting.
>
Manufacturing in free
trade zones is subject to
weaker control compared to
the rest of the country.
> Geographic positioning &
weak regulations allow the
mass transit of illicit goods.
>
Major international ports
play a vital role in illicit
goods transit to multiple
destinations.
>
High volumes of goods
passing through major
ports help smugglers avoid
detection.
>
Corrupt port officials
facilitate illicit transit.
> Free trade zones with lax
regulations are exploited
by smugglers.
> Weak law enforcement &
corruption enable easy
distribution of illicit goods.
>
Social acceptability of illicit
goods among consumers
facilitates their sales.
>
Affordability & price
differences between countries
drives illicit consumption.
>
Retail of products through
markets or street vendors
result in consumers being
unaware of their illicit origin.
>
Dominant criminal
organisations often underpin
illicit consumption.
> Banking, judicial, and
logistics services in hubs
are exploited by illicit
actors.
>
Financial secrecy and lax
financial regulations
enable money laundering
of proceeds of illicit trade
actors.
>
Access to logistics enables
easy transit of illicit goods.
>
A corrupt judiciary and
law enforcement allow
criminals continue to
function without fear of
prosecution.
ILLICIT
PRODUCTION
ILLICIT
TRANSIT
ILLICIT
CONSUMPTION
ILLICIT
TRADE ENABLING
4
3
2
1
Page | 3
Figure 3: Key roles played by hubs of illicit trade in the global and regional supply chains
Key findings
Figure 4: Major illicit trades identified in hubs
HUB OF
ILLICIT
TRADE
COUNTRY
ARMS
From 1 (best) to 10
(worst)
PEOPLE
(average)
From 1 (best) to
10 (worst)
DRUGS
(average)
From 1 (best) to
10 (worst)
NATURAL
RESOURCES
From 1 (best) to
10 (worst)
FLORA & FAUNA
(average)
From 1 (best) to
10 (worst)
CIGARETTES
Billion
sticks
DUBAI
UAE
CENTRAL
AMERICA
Guatemala
Panama
Belize
TRI-
BORDER
AREA
Paraguay
Argentina
Brazil
EASTERN
EUROPE
Ukraine
Illicit trade scale & reach in 2021
Little
Moderate
Significant
Severe
Sources: Global Initiative against Transnational Organized Crime (GI-TOC) & industry estimates.
Hubs of Illicit trade host a wide array of different
illicit trades and supportive activities. They range
from gold smuggling, arms dealing, people trafficking
and smuggling, and trade in contraband and
counterfeit goods, including pharmaceuticals,
cigarettes, alcohol, and textiles, among others.
It is difficult to quantify the exact volume of illicit
trades in each hub. Yet, it is possible to highlight the
scale and reach of illicit markets within hubs by using
the Global Organized Crime Index and its specific
indicators, together with some industry estimates, as
shown in Figure 4.
ILLICIT
PRODUCTION
ILLICIT
TRANSIT
ILLICIT
CONSUMPTION
ILLICIT
TRADE ENABLING
4
3
2
1
Tri-border area
Dubai
Dubai
Ukraine
Central America
HUBS
OF
ILLICIT
TRADE
Central America
Hubs of illicit trade play different roles within the
global and regional supply chains, as depicted in
Figure 3.
Hubs’ distinct sets of functions depend on their
competitive advantages and regional trade patterns
existing in the globalized economy.
6.8
6.0
7.5
6.5
6.5
4.3
7.0
8.0
6.8
5.3
5.4
4.5
5.8
3.5
3.0
8.0
6.5
3.5
8.5
3.0
8.0
6.3
3.3
4.5
8.5
7.1
5.9
4.1
2.5
6.0
3.0
6.8
5.0
6.8
7.0
6.5
4.5
4.0
7.0
5.0
100
20
65
20
Page | 4
KEY FINDINGS: HUBS OF ILLICIT TRADE
Poly-criminality &
crime convergence in
illicit trade hubs
> Illicit trade networks often share the same routes, transportation modes, resources, convergence points,
and enabling networks.
> Illicit trade is supported by document and accounting fraud, asset manipulation, abuses of shell
corporations, cybercrime, corruption, and money-laundering, among other crimes.
Use of legitimate
companies to further
means of illicit
traders
> Illicit trade networks operating in hubs rely on a wide range of legally registered entities, including raw
materials suppliers, manufacturers, distributors, transport, postal, logistics, financial, and accounting
companies.
> Unrestricted access to key inputs from legitimate companies operating in countries which are not hubs of
illicit trade have enabled mass production of illicit goods.
> Enablers in financial safe havens include bankers, lawyers, accountants, art dealers, investment advisors,
real estate agents, trust or company providers, gold and diamond traders, and other service-based firms
and professionals who are complicit in abetting criminals, kleptocrats, and terrorist financiers to launder
money to commit their fraud, corrupt practices, and other crimes.
Increasing role of
hubs in sanctions
evasion
> Illicit trade networks operating in hubs utilise complex distribution and accounting arrangements to help
corrupt states and designated actors evade sanctions.
> The Illicit trafficking by Iran, North Korea, Russia, and Venezuela are illustrative modalities on how
Panama, Dubai, and other hubs of illicit trade help evade sanctions, move illicit goods, and support
modern dictatorships.
Negative spill-over
effects on trading &
neighboring countries
> Countries along supply chains face many consequences of illicit trade, often witnessing a drastic increase
in criminal violence, illicit consumption, corruption, poverty, socioeconomic inequality, reduced public
health, environmental degradation, and other negative implications.
Financial secrecy and
deficiencies in
financial regulations
as enablers of illicit
trade
> Illicit trade activities are facilitated by financial secrecy and deficiencies in financial regulations, which
enable trade-based money laundering through gold and other commodities and money laundering through
real estate. Emerging cryptocurrency hubs create further regulatory vulnerabilities abused by illicit actors.
> Illegal currency transfers through smuggling by international carriers and through the secretion of currency
in other items crossing borders enable the circulation of goods and money in illicit trade transactions.
Exploitation of
vulnerable
communities & states
> Illicit trade networks operating in hubs exploit vulnerable segments of society, including the poor,
refugees, displaced persons, and economic migrants.
> Illicit trade networks also exploit geopolitically unstable countries and fragile states.
Free trade zones as
enablers of illicit
production and
transhipments
> Weak regulations in free zones, their limited transparency, insufficient use of technology to enforce or
detect illegal merchandise, and lacking background checks for compliance facilitate illicit trade.
> Presence of legitimate companies in free zones providing financial, real estate, logistics, transportation,
shipping, and other services help illicit traders and criminal organisations to smuggle illicit goods. Suppliers
of raw materials often ship their products to free zones used to manufacture illicit goods.
High levels of
corruption
> Political corruption through bribes across multiple levels of seniority provides immunity from prosecution
and access to key figures in government.
> Weak levels of law enforcement and administrative corruption are endemic in hubs of illicit trade that
often lack political will to change the status quo by adopting stricter regulations and increased penalties
for illicit trade activities.
Connections to
violence & terrorism
> Many hubs of illicit trade are characterized by high levels of violence committed by drug traffickers, gangs,
corrupt police, and security officials, with some of the highest homicide rates in the world registered in
Central America and Brazil.
> Even though some hubs of illicit trade, such as Dubai, have relatively low rates of violence, they might fuel
violence in other countries along the supply chain, particularly in conflict-ridden and fragile states.
> The illicit trade-terror convergence creates additional threats to global security.
All hubs of illicit trade studied have high levels of
arms and human trafficking and smuggling. Trade in
illicit cigarettes is also prevalent in each of the four
hubs, as it generates enormous profits for criminals
which are invested into other criminal activities.
The volume of illicit cigarettes produced and
transited through the four hubs equate to
approximately 50% of global illicit cigarette
consumption.
The huge range of products within each
hub drives the high levels of crime convergence
and criminal activity.
While the hubs are distinct in terms of their
geographical position and specializations, the
project’s key findings indicate the hubs share many
common attributes enabling their use as production,
transit, and consumption points and staging grounds
that support criminal activity.
Page | 5
Figure 5: Illicit trade risk levels based on related global indicators
HUB OF
ILLICIT
TRADE
COUNTRY
Global
Organised
Crime Index
From 1 (best)
to 10 (worst)
Illicit Trade
Environment
Index
From 0 (worst)
to 100 (best)
Corruption
Perception
Index
From 0 (worst)
to 100 (best)
Human
Trafficking
Tier
Tiers 1-3, &
special cases
Financial
Secrecy
Index
From 5 (best) to
1,951 (worst)
ILLICIT TRADE
RISK LEVEL
DUBAI
UAE
VERY HIGH
CENTRAL
AMERICA
Guatemala
VERY HIGH
Panama
VERY HIGH
Belize
MEDIUM
TRI-
BORDER
AREA
Paraguay
HIGH
Argentina
MEDIUM
Brazil
HIGH
EASTERN
EUROPE
Ukraine
HIGH
Country scores in 2022 or latest year available
Best
Intermediate
Ctitical
Worst
Sources: GI-TOC; Economist Intelligence Unit; Transparency International; U.S. State Department; Tax Justice Network.
Helping reduce the impact of hubs of illicit
trade – Policy recommendations
Figure 6: Policies to counteract illicit activities in hubs of illicit trade
Global indicators related to organized crime, an
illicit trade environment, corruption, and financial
secrecy can be used to calculate illicit trade risk
levels associated with the four hubs.
Given multiple negative indicator scores,
a large proportion of the countries hosting the
hubs exhibited some of the highest illicit trade risk
levels, as shown in Figure 5.
24
36
28
67
NA
38
38
33
2
2
2
2
2
1
2
2
46
35
68
55
43
64
5.8
6.5
6.7
4.6
6.7
4.4
6.5
648
265
474
76
72
82
51
135
6.2
38
125
Disrupting criminal activities in hubs of illicit trade
requires a holistic strategy that simultaneously
addresses all illicit activities and services performed in
the hubs that host and facilitate illicit trade.
This requires specific policies to counteract illicit
production, transit, consumption, and facilitation, such
as money-laundering, as explained in Figure 6.
ILLICIT
TRADE ENABLING
AND FACILITATION
4
ILLICIT
CONSUMPTION
3
ILLICIT
TRANSIT
2
ILLICIT
PRODUCTION
1
Supply chain management policies
Free Trade Zone regulations
International Cooperation and coordination at the policy and enforcement levels
Capacity building, assistance and training of anti-illicit trade actors
Cross-border public private partnerships and multi-stakeholder cooperation
Awareness raising and
education
Anti-money
laundering policies
Page | 6
There are a range of policy options to disrupt these hubs, which if implemented effectively, could
significantly move the dial towards winning the battle against illicit trade. They are summarized in Figure 7.
Figure 7: Major recommendations to disrupt hubs of illicit trade
POLICY CATEGORY
KEY RECOMMENDATIONS
IMPACT ON HUBS OF ILLICIT TRADE
SUPPLY-CHAIN
MANAGEMENT POLICIES
> Enhance and improve supply chain management
policies, targeting both illicit traders and
legitimate companies facilitating illicit trade: The
majority of activities within hubs of illicit trade are
undertaken by legitimate companies. However,
their operations facilitate illicit traders, by
supplying raw materials or providing services, such
as banking or logistics.
> As a manufacturing and distribution hub, the Tri-
border area is dependent on raw materials. A
restricted access to such raw materials would limit
illicit production capabilities.
> Dubai relies on legitimate companies to manage
finance and logistics in the international legal
supply chain. Stricter policies can reverse this
situation.
FREE TRADE ZONE
REGULATIONS
> Adopt and enforce transparent and accountable
practices for free zones as recommended by the
World Customs Organization (WCO), the World
Trade Organization (WTO), and the OECD: Jebel
Ali in Dubai and Colon in Panama are some of the
largest free zones in the world, characterized by
the lack of transparency and weak regulatory
environments that enable criminals to manufacture
and transit goods and evade detection.
> Free zones and free ports play a critical role in illicit
activities in all hubs of illicit trade. Stricter
regulations can help reverse this situation.
> Further moves towards transparency through
enhanced technology and other control mechanisms
in free trade zones can help prevent illicit
operations.
AWARENESS RAISING
AND EDUCATION
> Improve public awareness on challenges created
by hubs of illicit trade: Many consumers are
unaware of the global impact of hubs of illicit
trade, including their enhanced corruption and
financing of terrorism.
> Launch education campaigns aimed at creating
zero tolerance toward illicit goods and services
and hubs of illicit trade: Many local communities
show high levels of social acceptability of smuggling
of cigarettes, alcohol, and other goods produced or
transhipped through hubs of illicit trade to be sold
in major consumer markets.
> The Tri-border area serving domestic illicit markets
of Brazil and Argentina would benefit from more
awareness-raising and education campaigns focusing
on the hub’s negative impacts on all actors.
> Consumption of illicit products from Ukraine in the
European Union may inadvertently contribute to the
Russia-Ukraine conflict, while sales of illicit goods
from Central America in North American markets
might fuel regional violence, highlighting the
importance of raising awareness of these threats.
> The UAE role in sanction evasion needs attention.
ANTI-MONEY
LAUNDERING POLICIES
> Enhance anti-money laundering regulations based
on the FATF recommendations: Both Panama and
the UAE are on the FATF grey list, indicating an
environment in which it is easy for illicit trade
actors to launder the proceeds of their crimes.
Some hubs in Central and South America also have
high levels of financial secrecy facilitating money-
laundering.
> Panama and the UAE have made high-level political
commitments to work with the FATF to prevent
criminal ability to launder money through corrupt
practices in the financial and non-financial sectors.
> Major enablers across Central and South America
can also be disrupted through stricter anti-money
laundering regimes.
INTERNATIONAL
COOPERATION AND
COORDINATION AT
POLICY AND
ENFORCEMENT LEVELS
> Utilize international cooperation through
diplomatic channels, specific treaties and
regional agreements to tackle illicit trade: Most
hubs have been able to continue their operations
without significant international pressure to
change. Most hubs have not ratified either the
Protocol to Eliminate Illicit Trade in Tobacco
Products or obtained FATF membership.
> Implement cross-border public-private
partnerships and multi-stakeholder cooperation:
Interjurisdictional issues linked with cross-border
trade can be addressed through international
organizations (e.g., the OECD) that can also put
pressure on hubs of illicit trade through
international financing and trade agreements.
> Coordination with the United States would
significantly help Central American hubs reduce
illicit trade at the country and regional levels.
Regional coordination is also necessary in other
hubs.
> Signing treaties regulating specific trades by those
countries that have not done so would signal their
anti-illicit trade commitments.
> Signing treaties should be accompanied by the
development and implementation of effective
monitoring and evaluation mechanisms. For
example, the Illicit Trade Protocol on tobacco
products signed by Panama, Paraguay, and Brazil
has a very limited impact on preventing illicit trade
due to weak enforcement mechanisms.
CAPACITY BUILDING,
ASSISTANCE AND
TRAINING OF ANTI-
ILLICIT TRADE ACTORS
> Enhance capacity building through training, joint
initiatives, data analysis, and a whole of
government approach: All hubs are characterized
by weak and inefficient law enforcement, low
detection and prosecution rates, corruption, and
limited use of new technology and data analysis.
> All hubs need to reduce corruption through
increased transparency and greater political will to
prevent corrupt practices.
> All hubs would benefit from joint initiatives to
enhance capacity and use of technology and data
analysis.
Page | 7
Concluding remarks
Disrupting criminal activities in hubs of illicit trade is necessary to reduce global illicit trade. Yet, there have been
limited efforts to date to map and analyze areas with a high concentration of illicit trade and illicit finance at the
regional and global levels. The Hubs of Illicit Trade project was launched by the Terrorism, Transnational Crime, and
Corruption Center and its Anti-Illicit Trade Institute to fill out this gap. It contributes to anti-illicit trade efforts by
providing a general framework for analyses of illicit trade hubs and developing a set of actionable evidence-based
policy recommendations for different groups of stakeholders, including governments, private sector companies, non-
profit organizations, and civil society.
As this research identified, hubs of illicit trade provide an ideal criminal ecosystem that supports the convergence
of different illicit trades with other crimes, such as money laundering, corruption, tax evasion, cybercrime, and
terrorism. Moreover, hubs of illicit trade pose multiple threats to sustainable development and global security not
only within countries along the supply chains, but also at the regional and global levels. The White Paper and the
Final Report prepared within this project explore hubs of illicit trade in greater depth, leveraging the wealth of
regional and country-level research conducted by international teams. For more information, see the Hubs of Illicit
Trade Project official webpage at https://traccc.gmu.edu/projects/current/hubs-of-illicit-trade-hit.
Page | 8
Terrorism, Transnational Crime and
Corruption Center (TraCCC)
Schar School of Policy and Government
George Mason University
