Saturday, September 26, 2015

"Oligarchs and Orchestras: Inside Luxembourg’s Secretive Low-Tax ‘Fortress of Art’ Warehouse"

We'll have more on the art/finance nexus tomorrow or Monday, for now a primer.
See also links below for some stuff on the Geneva and Zurich free ports.
From the Wall Street Journal, Sept. 23:

Fraud allegations against Swiss entrepreneur Yves Bouvier have cast a shadow on Luxembourg’s Le Freeport, a high-security, low-tax warehouse for art
SENNINGERBERG, Luxembourg—Last year, David Arendt stood in a reinforced concrete warehouse at Luxembourg’s airport and welcomed wealthy collectors to his “fortress of art,” complete with high security, minimal taxes and discretion. Mr. Arendt warned that it would fill up quickly.

The 237,000-square-foot building, known as Le Freeport, opened its 10-ton doors, joining a global network of impenetrable warehouses where taxes are suspended and art can be stored and sold away from prying eyes.

As the international art market has boomed, so has demand for such discreet storage, particularly for costly art picked up as an investment and never intended for a living room wall. But a year after Luxembourg’s Le Freeport opened at a cost of nearly $60 million, the Monets and Picassos have been slow to arrive.

The reason: the protracted public-relations disaster of Le Freeport’s biggest investor, Swiss entrepreneur Yves Bouvier. Mr. Bouvier was briefly jailed in Monaco earlier this year, after he was accused of selling paintings to Russian billionaire Dmitry Rybolovlev at inflated prices.
On Sept. 14, Mr. Bouvier faced new charges. He was questioned in France by authorities investigating allegations by Catherine Hutin-Blay, the stepdaughter of Pablo Picasso, that works in her collection were pilfered and sold to Mr. Rybolovlev. Mr. Bouvier was freed after posting a €27 million ($30.5 million) bond.

In a statement, Mr. Bouvier denied the allegations in France and said the pieces in question were properly purchased on behalf of his Russian client. Some were meant for the walls of a chalet owned by Mr. Rybolovlev, while others, including the Picasso painting “Espagnole à l’éventail,” were deposited in a freeport in Geneva, he said. In an interview with The Wall Street Journal in Geneva earlier this year, Mr. Bouvier also denied the allegations of defrauding Mr. Rybolovlev.

Mr. Rybolovlev’s attorney said authorities were free to examine works in his collection believed to have been stolen. Mr. Rybolovlev hasn’t been accused of wrongdoing.

The legal issues have amplified the challenges facing Luxembourg’s Le Freeport, which was already contending with a chorus of critics who say the opaque nature of freeports makes them susceptible to illicit activity such as money laundering or harboring stolen goods. Earlier this year, lawmakers in Luxembourg responded to those concerns by bolstering the country’s anti-money-laundering laws to specifically apply to firms operating at Le Freeport—which now have a heightened legal responsibility to know what they are putting into storage and for whom.

Mr. Arendt, Le Freeport’s managing director, said the facility has safeguards to prevent illegal behavior and that he is confident Le Freeport isn’t used for money laundering. He also said the facility can adapt to the legal change—and perhaps even use it as a selling point for “honest art collectors.”

But Mr. Bouvier’s travails have hurt business. “We’re behind on our objectives, as a result of all of this mess,” Mr. Arendt said in an interview in May, as he sat in an empty showroom at Le Freeport. On Wednesday, Mr. Arendt sounded hopeful that the bad publicity had faded. “We’re more or less on track,” he said, though “we’ve had a lot of explaining to do.” Mr. Arendt said Mr. Bouvier has no role in running the freeport.

In the art market, “reputation is pretty much all you have,” said Harco van den Oever, who runs London-based Overstone Art Services.

About 60% of Le Freeport’s storage space has been rented to the firms that deal directly with collectors and store their art at the building, according to Mr. Arendt. The biggest of those firms, FineArt Logistics Natural Le Coultre SA, which accounts for roughly half of that rented space, is Mr. Bouvier’s company, and has so far only filled about 15% of its available square footage.

Freeports are an outgrowth of bonded warehouses, where commodities like grain in transit across borders could be stored, without incurring taxes. There are dozens of such warehouses around the world.

A few, like Le Freeport, are tailored to the needs of high-end art collectors. At Le Freeport in Luxembourg, artwork that remains inside its walls is exempt from value-added tax, which can be as high as 27% in Europe, and from customs duty. Art sales within the building are also tax-free. Art can remain in a freeport for years, through multiple transfers of ownership. Firms offering art-related services like restoration and financing set up shop on the grounds.

The value of the global art market reached a record €51 billion last year, according to a recent report published by the European Fine Art Foundation, the organizer of a major annual European art fair.
Nearly a third of art collectors and professionals surveyed last year by Deloitte Touche Tohmatsu Ltd. said they had used a freeport. Experts speculate that the freeport in Geneva, which traces its roots back to 1854 and is controlled by local authorities, may house the most valuable art collection in the world—although its holdings are generally secret.

Proponents say freeports allow art to be moved around the world without incurring punitive taxes. Critics say the warehouses can invite fraud. “I can’t see any better way for people to launder money than to go through a freeport,” says James Palmer, founder of Mondex Corp., which specializes in recovering art looted from its rightful owners....MORE 
See also, if interested:
"(Sm)art Investing: Rich Move Assets from Banks to Warehouses" ($4 trillion in 'treasure' assets)
"Secretive Swiss vaults may hold missing link in platinum price equation" or Why Didn't the Price Double During the Miners Strike?

and at Alphaville:
Roubini Vs the so-called “art” industry
Art as the sophisticated man’s Bitcoin 
“If it were a museum, some say that it would probably be the best museum in the world”