30 December 2024
In 2023, sales in the global art market exceeded $65 billion. While a significant percentage of high-end art purchases around the world are made by museums and publicly displayed, a nearly equal amount are acquired by high-net-worth individuals. Rather than purchasing art for personal enjoyment, some of these individuals use the art market as a means to protect their wealth from economic downturns. Oftentimes, buyers store their purchases away because of art’s historical tendency to retain or increase value over time, independent of fluctuations in financial markets. This practice is facilitated by art freeports, which are special storage facilities with customs status that allow art to be stored without incurring taxes. These freeports have been described as the “greatest art collection that nobody gets to see.” According to a report by The New York Times, approximately 1000 Picasso artworks are stored in freeports, alongside pieces from renowned artists like Da Vinci, Klimt, Renoir, Warhol, and Van Gogh [1].
The oldest and largest freeport is the Geneva Freeport in Switzerland, a warehouse complex where approximately 40% of its holdings consist of fine art, estimated to be worth $100 billion [2]. Freeporting allows art buyers to avoid paying import taxes when transporting their newly purchased art to their home country. This tax can be a substantial sum for high-end art valued in the millions. When stored in a freeport, artwork is considered still “in transit,” not yet subject to the regulations of any country. Artworks are legally allowed to stay in the freeport for years, increasingly out of public view and appreciating in value without that value being added to an individual’s net worth. The Geneva Freeport could be regarded as the world’s largest “art museum,” albeit one that remains completely inaccessible to the public.
There are approximately 3,500 freeports around the world. The freeport storage system is characterized by extreme secrecy and confidentiality regarding the artworks stored within and their owners. This opacity allows high-net-worth individuals to avoid formally claiming ownership, which enables them to remain financially detached from their assets while maintaining anonymity in their purchases and sales. In 2016, high-net-worth individuals allocated approximately $1.62 trillion to art and collectibles, with projections indicating that this amount could rise to $2.7 trillion by 2026. Additionally, the European Parliament estimates that tax evasion in the EU, facilitated by freeports, could reach as high as €825 billion ($926.7 billion) annually [3]. The lack of transparency and international regulation in freeports makes them particularly appealing for money laundering activities.
Freeports create significant issues regarding accountability for the wealthy and their obligation to pay taxes. They function as loopholes for regulation and tax avoidance. Furthermore, freeports pose a threat to the art world. When art becomes beholden to the interests of high-net-worth individuals, it risks losing its cultural significance and accessibility to the public. Art should be seen, shared, and appreciated for its intrinsic value and purpose rather than treated as a mere vessel for holding arbitrary monetary value driven by financial interests. The art world, already scrutinized for its high-value transactions and susceptibility to financial misconduct, is continually tarnished by the existence of freeports. In Deloitte’s 2023 Finance and Art Report, it was found that “approximately 63% of surveyed wealth managers have already integrated art into their wealth management offering” [4]. This statistic highlights how art is increasingly viewed through the lens of financial utility rather than cultural enrichment.
Art occupies a unique place in the financial realm because its value tends to either remain stable or appreciate, especially after an artist’s death, since there is no risk of market saturation. This stability makes art an attractive asset for high-net-worth individuals looking to work the system. In this context, names like “Van Gogh” become more than references to creative genius; they function as signifiers that connote high monetary value. Art thus transforms into a strategic commodity, appreciated less for its artistic significance and more for its role as a secure, high-value investment.
For greater security, galleries are often set up in showrooms within the freeports themselves. This setup enables art deals to be made within the walls of the freeport, which allows buyers and sellers to take advantage of foreign trade zone exemptions. Typically, a painting can remain in the freeport while ownership changes hands, with no tax implications or public disclosure regarding the purchase or transfer of ownership. The secrecy surrounding these freeports facilitates unreported transactions and activities without oversight. For those seeking to conceal a transaction, a “private sale” can be conducted by simply changing the nametag on the unit that holds the art, keeping government authorities from investigating the contents.
According to a report from the EU, “there is not one country that obliges freeport operators to carry out the type of customer due diligence that binds financial institutions under anti-money laundering laws. Therefore, it is relatively simple to hide the UBO’s (Ultimate Beneficial Owner) identity behind another layer, which can be an offshore firm, a trust or foundation, a lawyer, a gallery, or a combination of these [3].”
As freeports have garnered more global attention from international agencies, some efforts have been made to address their role in facilitating financial misconduct. In the United States, the Money Laundering Control Act (MLCA) serves as the primary federal statute criminalizing money laundering, including transactions involving art to obscure the illicit origins of funds [5]. However, due to the anonymity, high security, and minimal government oversight associated with freeports, the MLCA alone has proven insufficient to curtail such practices effectively. Currently, the United States lacks disclosure requirements for domestic freeport operators, which has limited investigations into money laundering within the warehouses.
Imposing time limits on the storage of artworks in freeports could drive more active management of collections by requiring owners to either display, move, or sell their pieces within a set timeframe. Beyond this limit, artworks would become subject to taxation, encouraging reentry into the public or commercial art markets. This approach has already been adopted in Switzerland, where an amendment to the Swiss Customs Act imposes a six-month cap on freeport storage [6]. However, other countries, including the United States, have yet to implement similar measures. Additionally, taxing the art deals that go on within freeports would help ensure transparency by recording and taxing ownership transfers, addressing concerns about tax evasion and shedding light on undisclosed dealings. Another potential step is the introduction of tax incentives to private art collectors if they make their collections more accessible by publicly displaying their artworks in galleries or museums. This measure could promote cultural engagement and visibility of art while maintaining financial feasibility for collectors.
An additional step to increase government oversight would be to mandate regular audits and reporting requirements for freeport operators. Introducing public registries to document the ownership and provenance of stored artworks would provide a traceable history for each piece. An article from The Vanderbilt Journal of Entertainment and Technology Law highlights recent efforts to regulate the art industry [7]. The law review recommends that the United States require luxury freeport operators to maintain detailed records of stored items, including owner contact information, and to grant law enforcement agencies access during domestic investigations.
Due to the globalized nature of art transactions, where artworks often change hands across international borders and frequently end up lost in secretive freeports around the world, there is a critical need for an internationally coordinated approach. Intergovernmental organizations such as UNESCO or the OECD could and should take the lead in establishing consistent and integrated global standards for freeport operations.
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Works Cited
[1] Bowley, Graham “One of the World’s Greatest Art Collections Hides Behind This Fence.” New York Times. May 28, 2016. Accessed October 19, 2024
[2] Renauld, Marie-Madeleine, “Geneva Free Port: The World’s Most Secretive Art Warehouse.” The Collector. May 1, 2016 Accessed October 12, 2024. https://www.thecollector.com/geneva-free-port-the-worlds-most-secretive-art-warehouse/
[3] Korver, Ron, “Money laundering and tax evasion risks in free ports.” European Parliamentary Research Service. October, 2018. Accessed October 12, 2024
[4] Picinati di Torcello, Adriano. “8th Deloitte Private and ArtTactic Art & Finance Report” Deloitte. Accessed November 12, 2024. https://www.deloitte.com/lu/en/services/financial-advisory/research/art-finance-report.html
[5] “Money Laundering Control Act (MLCA) Overview.” Willkie Compliance. Accessed November 21, 2024.
[6] Steiner, Katie. “Dealing with Laundering in the Swiss Art Market: New Legislation and its Threat to Honest Traders.” Case Western Reserve Journal of International Law.” 2017 Accessed November 21, 2024. https://scholarlycommons.law.case.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=2515&context=jil
[7] Saleeby, Cates Grier. “How Free Should a Freeport Be?: Reducing Money Laundering in the Art Market through Freeport Regulation.” Vanderbilt Journal of Entertainment and Technology Law. 2023. Accessed November 9, 2024. https://www.vanderbilt.edu/jetlaw/wp-content/uploads/sites/356/2023/03/6.Saleeby_FINAL_Master.pdf?form=MG0AV3
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