Freeports, a sort of maximum-security safety-deposit box with tax benefits, have become the vault of choice for global collectors, allowing them to securely and discreetly warehouse large stashes of art. But greater scrutiny is being paid to these opaque art strongholds, and straight shooters are advised to steer clear of freeports, despite their perceived attractions.
Established in Geneva over a century ago, freeports were originally designed as bonded warehouses to temporarily house commodities and other goods in transit, but have morphed into glitzy, high-tech, maximum-security storehouses, frequently used as a tax haven where the rich park their valuables in a kind of no-man’s land.
Fueled by the $57 billion global art market and the arrival of a new breed of collector who views art as an investment as much as a passion play, a passel of new freeports have sprouted up in Singapore, Luxembourg, and Beijing, with more planned or under construction. These fortresses are open 24/7, and in the case of Geneva, can offer about half a million square feet of storage. Not exactly your standard lockup. Freeports can offer clients sleek galleries and viewing rooms, offices, and amenities such as limousine service—with armed escorts upon request. Costs? According to one report, the Geneva freeport charges from $5,000 to $12,000 a year to fill a small room.
Much like offshore financial hubs, they provide their users confidentiality, security, and a host of tax benefits. Because the goods are technically on the move, any VAT or customs taxes are “temporarily postponed.” And while a work remains inside a freeport’s fortified walls, it can be traded or sold tax-free with impunity.
“At their most basic level, they are storage facilities,” says Karen Boyer, principal at the New York art advisory firm Elements in Play. “However, one of the attractions is that they are tax-free facilities. It’s an easy way to store money and not pay taxes,” she adds, noting that “tax dodging is a big factor in their growth.”
While millions of artworks and other valuables are stashed away in the various freeports, given that they operate with a relative lack of transparency, nobody knows for certain what is being held, who owns the art, or even the value of such holdings. Filippo Guerrini-Maraldi, head of fine art at insurance broker R K Harrison in London, estimates that any single freeport might contain $20 billion to $30 billion worth of goods. But that’s a wild guess. Last year, for example, Switzerland’s Federal Audit Office estimated that goods worth some 100 billion Swiss francs ($103 billion) in total are held in the country’s various freeports and custom-free zones.
The vast amounts of money sloshing around in the largely unregulated art market these days, coupled with the freeports’ secrecy, prompts claims that they’re vulnerable to a host of illegal activities, from tax evasion to money laundering to concealing stolen goods. There are plenty of signs that tax authorities and law-enforcement agencies in Europe and America are expressing more interest in knowing what’s crated up behind those fortified walls. Telling the Economist that freeports are a “very interesting” part of dirty-money activities, the head of one of Europe’s financial intelligence agencies called them “a black hole.”
Last year, Switzerland’s Federal Audit Office called for more customs controls, including limiting the time period goods could be stored at a freeport. This year, Luxembourg began to reinforce its own anti-money-laundering laws with respect to companies operating at its freeport, known as Le Freeport....MOREUpdate: "What's the Scam? Why Did Deloitte Set Up Their Art & Finance Practice In Luxembourg?"
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