“Free”ports: The Role of Autonomous Zones in the Exploitation of the Global Art Market
Freeports, also known as free economic zones or territories, are a governmentally-designated geographic area with little, if any, taxes on businesses. With the increasing awareness of freeports in global media like Christopher Nolan’s Tenet, in particular their use for holding art, more attention needs to be brought towards regulating these not-yet-fully understood autonomous zones. The focus of this article concerns the legality of freeports in the art world. Since the autonomy of freeports creates ideal conditions for fraud and money laundering by obscenely wealthy art collectors to the detriment of artists, legislators around the world need to focus on how to properly regulate freeports.
Just as mysterious as these entities themselves, the history of freeports is fragmented. Scholars at the University of Helsinki studying the history of freeports believe that the first freeports arose in Italy in the 16th to 17th centuries as economic, cultural, political, and fiscal entities with different locations and functions. Over time, free ports became more prevalent across Europe, with 82 freeports located in the European Union alone. Since freeports are numerous and exist all over the world, governments need to regulate their functions to promote consistent, ethical trading. Though the freeport or free zone may lie within a country’s geographical area, it is considered outside the countries’ borders for taxation avoidance purposes. The ideal purpose of freeports is to promote economic activity in the surrounding country. While that intended purpose is arguably occurring, only select wealthy investors possess the means to transport and store valuables in freeports.
Due to financial entry barriers, the art market makes up a miniscule portion of the global market for capital accumulation and distribution. Nonetheless, analysts estimated that the global art trade was worth 67.4 billion dollars in 2019. As a means of maximizing their investments, freeports are very popular among art collectors and buyers. A 2014 art and finance report conducted by Deloitte and ArtTactic revealed that 28 percent of art collectors and professionals maintain a relationship with a freeport. Freeports’ presence in the art world will also only continue to increase in popularity, with 43 percent of art professionals’ clients answering that they would likely use a freeport in the future. Recent revelations, though, brought the shadier aspects of their usage to light.
The secrecy of freeports in the global art market seemed secure until 2016, when someone copied and released 11.5 million documents, known as “The Panama Papers,” from Mossack Fonseca, one of the most prominent law firms for offshore finance. “The Panama Papers” hold significance in the realm of legal contracting due to the revelation that Mossack Fonesca did not verify or know the identities of the owners of thousands of companies it had registered. Lacking documentation for these companies that benefited from registration in low-tax jurisdictions is a major regulatory problem. In relation to the art market, the Panama Papers revealed that enough art was found hidden in private collections around the world to fill a public gallery, highlighting the lack of regulation occurring in the market. Mossack Fonseca facilitated illegal activity by signing off on the transferring of assets, including art, around the world without properly accounting for buyers or the legality of the art’s ownership. If illicit activity in the global art market is so sophisticated, how would one even begin to evaluate and prosecute a case so complex?
Known as the “Freeport King,” Monasque authorities arrested Yves Bouvier in 2015 for charges of fraud and money laundering after he marked up and sold paintings to Russian oligarch Dmitry Rybolovlev. Bouvier helped Rybolovlev acquire a total of 38 paintings over 12 years. Unknown to Rybolovlev, many of the paintings were owned by Bouvier and resold to Rybolovlev at a markup of $1 billion. The lawsuits against Bouvier spanned courts in Monaco, Switzerland, France, the United States, and Hong Kong, highlighting the global nature of freeports and the international corruption they can generate through the art world. Additionally, criminal charges were filed against Bouvier in France, Monaco, and Switzerland. The Geneva public prosecutor’s office, however, dropped the charges in 2021 due to insufficient evidence. While no source has stated that Bouvier’s use of freeports may have led to this lack of evidence, it appears highly plausible due to the privacy of these establishments. Bouvier owns 5 percent of the Geneva freeport and created freeports in Singapore, Luxembourg, and Shanghai. He was consequently able to freely move artworks from one location to another while paying minimal tariffs.
Freeports also serve as private art galleries for wealthy collectors to showcase pieces to private buyers and maintain total control over the transactions. Unfortunately, this process only increases existing criminality in the global art trade. Since private collectors are controlling the sales of artworks in freeports, there is even less disclosure, providing more opportunities for money laundering, theft, and fraud. In 2015, the Swiss Legislature was among the first governments to pass regulations in order to halt criminal activity run through freeports. The Swiss regulations included requirements to reveal the contents of packages entering and leaving freeports, along with a six-month time limit on goods intended for export. Disclosure requirements present a clear assurance that surrounding countries’ governments know exactly which goods are entering and exiting freeports. Enforcing disclosure requirements regarding artworks and art sales would inhibit at least some fraud, money laundering, and theft.
Some critics of freeport regulations state that increased regulation will deter art investors who act in good faith and seek to build their collection. However, art investors acting in good faith should not have any qualms about disclosing what they are importing and exporting into a freeport. Additionally, others believe that the uber-wealthy sheltering notable masterpieces of art from the public only hinders cultural knowledge.
Much like other securities such as stocks and bonds, artwork presents an opportunity to raise capital in the global economy. Art, though, also brings awareness to cultural heritage. Artists and their works from throughout history continue to hold significance while improving our understanding of human development and it would be shameful to prevent people from accessing this knowledge. Legislative bodies must therefore regulate the movement of art through freeports in order to promote the general public welfare despite the agendas of wealthy collectors.
Alexandra Herrera is a junior at Brown University, concentrating in Sociology. She is a staff writer for the Brown University Undergraduate Law Review and can be contacted at alexandra_herrera@brown.edu.