Smoke on the water
Freeports, Issue 1556 IT DIDN'T take long for chancellor Rishi Sunak's low-tax flagship freeports policy to become a plaything of the usual offshore operators.

The announcement that Brookfield Asset Management, the Canadian asset manager that owns Teesside port operator PD Ports, was selling the company has been seized on by Teesside mayor Ben Houchen, a leading advocate for the special economic zones. His Teesside Development Corporation has teamed up with insurer Legal & General, the bank Credit Suisse and an outfit called the Pensions Insurance Corporation plc to form a consortium which looks a strong favourite to acquire PD Ports.

Interest from the gnomes of Zurich is hardly surprising – though neither is it reassuring given that Credit Suisse was fined $2.6bn a few years ago for running thousands of secret offshore accounts. Anyone looking into the record of freeports might hope for shareholders with more concern about tax dodging.

Smugglers' favourite
The staid-sounding Pensions Insurance Corporation plc was formed 15 years ago by Tory donor Edi Truell (later chair of the London Pensions Fund Authority under Boris Johnson's mayoralty) to capitalise on the growing insecurity of income-related pension schemes. It then passed into the hands of Reinet Investments SA of Luxembourg (itself home to one of the world's shadier freeports). This outfit was the investment arm of luxury goods group Richemont, but it was spun out of the group in 2008 along with its large shareholding in British American Tobacco (BAT) – now worth a couple of billion euros and around a third of Reinet's portfolio.

That a company so invested in tobacco could be behind a major freeport isn't encouraging. One key concern is that reduced customs checks (already largely outsourced to port operators under Sunak's plans) enable the illicit entry of goods, with cigarettes top of the smugglers' product lines. The beneficiaries of this are tobacco companies themselves, most notoriously BAT.

Adding to a long history of complicity in fag smuggling around the world, in 2014 BAT was fined £650,000 by HM Revenue and Customs (reduced on appeal to £100,000) for failing to do enough to prevent its products being smuggled, largely by over-supplying lower tax destinations from where the ciggies were then illegally brought into the UK.

Illicit trade
As the campaigning charity Action on Smoking and Health said at the time: "Tobacco firms have fuelled smuggling on a massive scale by deliberately oversupplying foreign markets, knowing that their products will leak back into Britain." Meanwhile, in evidence to parliament last year, the Royal United Services Institute think tank pointed out that "several studies of the illicit cigarette trade point to transit and manufacturing in freeports".

Teesside was, controversially, one of eight freeport locations chosen by Sunak and communities secretary Robert Jenrick in March after heavy schmoozing by Houchen. This was despite scoring worse on official selection criteria than nearby, unsuccessful Tyneside, as revealed in Eye 1544. The whiff of something not quite right could be about to get stronger.