Recently, the Free Private Cities Foundation (now rebranded as Free Cities Foundation) has been mentioned in several articles covering crypto-friendly startup cities and Honduran Zones for Employment and Economic Development (ZEDEs). While we welcome media attention in the Free Cities space, some of these articles contained characterizations of our work and goals that we felt merited a response. Some factual inaccuracies were also included, which we have corrected below.
One of such articles containing a number of inaccuracies was written by Amiah Taylor and published on April 22nd, 2022, by Fortune Magazine. We respect Taylor’s right to approach the topic of Free Cities in a critical manner if she wishes to do so. However, her coverage, unfortunately, includes several factual errors.
Inaccuracies concerning the Foundation
Introducing our Foundation, Taylor says:
“At the forefront of this movement is the Free Private Cities Foundation, a company that promotes the idea of “voluntary, contract based [sic] societies,” and supports the development of private cities all over the globe.”
The Free Private Cities Foundation, as the name suggests, is not a company, but a non-profit entity, a foundation that is focused on raising awareness and popularizing the idea of Free Cities.
“The Free Private Cities Foundation announced on March 15 the ongoing development of their private city, Morazán, which the website described as a ‘blue collar [sic] ZEDE,’ where residents can avoid the structural issues that plague Hondurans in everyday life such as ‘exorbitant violence.’”
Ciudad Morazán is not a Free Private Cities Foundation project. It has been established by an independent businessman who has been active in Central America for decades and who is not related to the Foundation. However, we support the development of Honduran ZEDEs as potential centers of freedom and prosperity within a country gripped by grave societal issues such as violent crime. As such, we are ready to offer entrepreneurs in this space our advice, should they wish to consult us.
Inaccuracies concerning Honduran ZEDEs
In the article, Taylor goes on to claim that ZEDEs “hold complete autonomy in the criminal justice system.” Elsewhere, this assumption seems to lead her to state that “some critics fear that ZEDEs could become private havens for criminal activity.”
Contrary to such claims, ZEDEs do not enjoy autonomy with regard to criminal law. The ZEDE law stipulates explicitly in Article 41 (3) that the Honduran criminal code applies fully within these special zones. However, our Foundation does support the idea that, if possible, criminal law should also be independent within Free Cities and Prosperity Zones. The fears of “some critics” cited by Fortune Magazine do not seem warranted. The Honduran people have long suffered under some of the highest crime rates in the world. This is one of the many reasons we believe ZEDEs provide an immense opportunity for the country. Their improved governance can establish greater rule of law and more effective law enforcement. If they had the ability to adjust their own criminal code too, ZEDEs could be even more effective in tackling crime and bringing peace and prosperity to Honduras.
Taylor further claims that, since ZEDEs “don’t have to pay import or export taxes and are free to set up their own forms of governments, schools, courts, and social security systems,” these zones feature a “complete lack of regulation”. Such a judgement is completely misplaced. By no means do ZEDEs exist in a state of lawlessness. On the contrary—their legal position is fleshed out in great detail in the ZEDE law, which allows for greater regulatory flexibility rather than establishing a regulation-free environment, thereby respecting the Constitution of Honduras and the international treaties Honduras has signed (for example with regard to labor law). Article 3 makes it clear that ZEDEs are public entities within the state of Honduras:
“Zones of Economic Development and Employment (ZEDE) enjoy operational and administrative autonomy that includes the functions, powers and duties that the Constitution and laws confer upon municipalities. They shall have autonomous and independent courts with exclusive competence in the ZEDE, which can follow legal systems or traditions from elsewhere, and which must ensure the constitutional principles of human rights protection…”
In addition, each ZEDE must be headed by a Honduran-born native, the “Technical Secretary”, who is elected every seven years by the residents of the ZEDE (after a certain population density is reached). Finally, all ZEDE regulation is subject to prior approval by a state commission.
There exists nothing like a “complete lack of regulation” within ZEDEs. Their regulation is simply allowed to differ from the rest of Honduras, which is the central purpose behind establishing such zones in the first place. We strongly recommend reading the ZEDE law before making such misleading claims.
Taylor continues by citing a consultant named Jamilia Grier, who expresses the following reservations regarding ZEDEs:
“‘If you were to create one of these cities within a country, what is the agreement that you have with the country that this particular area is not subject to tax?’ Grier questioned. ‘There would have to be a relinquishing of rights from the sovereign nation to be able to create this particular tax-free zone that they’re proposing.’”
It is surprising to see such statements. They imply that, by providing localized tax relief, Honduras is doing something radical and unprecedented. However, there exist literally thousands of Special Economic Zones worldwide that already offer tax incentives. It is unclear, therefore, why Grier speaks in such hypothetical language. Furthermore, Special Economic Zones are always unambiguously part of their host countries and make no claims on sovereignty. This is the case with the Honduran ZEDEs too—they recognize the authority of the Honduran government and do not aim or attempt to deny its sovereignty.
In addition, ZEDEs are not tax-free. The ZEDE law itself stipulates that taxes must be levied. Próspera, for example, has a 10-percent income tax. Not only that—from all tax income, ZEDEs must pay 12% to the Honduran government institutions. In our view, such an arrangement hardly constitutes a “relinquishing of rights from the sovereign nation”.
One of the central points in Taylor’s article is that ZEDEs are supposedly a threat to locals and that ZEDEs are somehow involved in their displacement. It is perhaps understandable that some locals would be worried about any political changes, as they might have painful experiences with the Honduran government’s own grim history of expropriation and displacement. ZEDEs, however, have and want no part in such practices. Like all states, the state of Honduras has the right to expropriate people and then give their land to a ZEDE. But ZEDEs—and especially Próspera—have made it clear that they would never seek expropriation nor accept expropriated land in their jurisdiction. Both the Próspera ZEDE’s charter and the resolution explicitly preventing expropriation are publicly accessible and easily verifiable here and here. The only way ZEDEs can grow is by the legitimate (voluntary) acquisition of land. This is not a mere claim, it is a fact.
Taylor’s article, however, continues to make conjectures implicating ZEDEs in something they do not engage in:
“As the government accepts foreign investments for the creation of ZEDEs, locals watch as corporations encroach upon their lands. Critics have pointed out that the areas mapped out for ZEDE construction are ancestral lands in the Garifuna region which has been inhabited by the indigenous people for thousands of years. As a result, the construction of ZEDEs would lead to the mass displacement of the native population.“
Such claims have no connection to reality. All three existing ZEDEs have acquired uninhabited land from private owners. There is no legal possibility for ZEDEs to cause “mass displacement”, there are no such intentions, and there would be nothing in it for ZEDEs to gain by doing so.
The source Taylor cites for these outrageous claims is an older article by Vice that attempts to defame ZEDEs by recalling them alongside examples of violent crime, leaving the unassuming reader with the impression that ZEDE representatives are organized criminals working with the government to oppress the locals. The Vice article features a local man who is afraid of ZEDEs despite them not having done anything to threaten or harm him. In an instance of supposed displacement that is portrayed by Vice in the worst way possible, no land is actually expropriated. Vice’s aimseems to be to implicate ZEDEs in something that they have not done, have no intentions of doing, and that the Honduran government—not ZEDEs—actually has a history of doing.
It appears that Vice is not approaching ZEDEs from a neutral perspective, and, consequently, their coverage on this topic cannot be relied upon as a legitimate source for further reporting by Fortune Magazine or any other outlet.
Final remarks: Free Cities are not just about tax
Most articles covering the topics of Free Cities, Prosperity Zones and related projects share a common theme: they characterize these projects primarily as tax havens for the rich to hide their wealth. However, this is not the Foundation’s aim. The goal of the projects we promote is to create the best living standard for all.
Freedom is the central value behind what we do and it is one of the main promises and prospects of the cities we support. In a world where oppressive systems and unfree countries are abundant, Free Cities are designed to be oases of liberty, where people can live their lives in harmony and peace as they see fit.
Taxation is indeed an impediment to freedom, but it is far from the only one. There are already plenty of existing attractive places that cater specifically to the rich, and the Free City does not seek to be just another such jurisdiction. In contrast, the wide-ranging freedoms these cities aim to offer can make the biggest difference to capable low- and middle-income earners who are looking for a way to make their lives better, happier, and more prosperous.