In 2015, in the wake of the news on the revised law on freeports, the global art market was shaken by the chronicles of Geneva’s bonded warehouses, a storage facility for the super-rich collectors at the center of tax evasion controversy.
Thierry Ehrmann, the president of art market information specialist Artprice, said that Geneva’s freeport had become a “clearinghouse for international art.” Estimated more than 100 billion Swiss francs worth of fine art including other tangible goods, such as gold, coins, and even fine wines, were stored entirely for tax evasion and money laundering purposes since artwork stored in a free port can be bought tax-free and VAT is only imposed when it is taken out.
Warehouses of Uber Wealth and Secrecy
The world’s richest became attracted to free ports for being a haven of security and confidentiality. But more than anything, it offered them an extensive array of special tax advantages. The ports were no longer being used a means of transit, but as a permanent home for their accumulated wealth that they did not want to declare to the tax authorities.
The walls of these free ports soon housed some of the most exquisite and expensive artwork in the world. And because the intention was to hide them, chances are that they’d never be seen or appreciated again until their value shot up and moving them promised high returns on investment.
Long overdue regulation and a real change for the notoriously opaque and inequitable art dealing practices of the top-end of the art industry pyramid, became the most needed aspects of the art market.
Swiss Regulations Tighten Up
Effective January 1, 2016, the amendment to the Swiss Customs Act granted the Federal Customs Administration (EZV) new power to monitor and control the entry and exit of goods more efficiently and effectively.
Under the latest regulations, a six-month time limit would be imposed on the storage of goods intended for export. The regulations are crucial to the crackdown on smuggling, money-laundering, and other illegal movements.
For enhanced transparency, exporters are required to declare in detail if goods are intended to be exported to a free port in Switzerland. Additionally, the buyer’s identity must be disclosed. And if the buyer does not have a registered office or home abroad, the export to a free port will not be permitted.
The Swiss government said, “With the introduction of the new amendment, the legislature wishes to ensure the required transparency towards domestic and foreign authorities on the stored goods. In addition, Switzerland’s position in the fight against money laundering has been strengthened.”
Hide and Seek: The Game of Art and Money
Evan Beard, client advisor on art and finance at U.S. Trust said that some collectors were treating art as a capital asset in their portfolio, “They are becoming more financially savvy, and free ports have become a pillar of all of this.”
Following the new regulations, the Geneva Free Ports & Warehouses Ltd. included a biometric system to identify and track visitors, combined with stricter customs inspections. With the new controls and systems now in place, high-profile art collectors began removing their property from the Geneva-based free port.
It’s almost certain that tax-evading collectors will not likely suddenly decide to display their prized art collections in their homes or private museums. The question now is, where will they end up?