The ‘Secret Museums’ Hiding Some of the World’s Greatest Art, Tax-Free

(Bloomberg Businessweek) -- The oldest is larger than nine football fields and was used to distribute Red Cross parcels to prisoners of war across Europe during World War II. The newest demands a retina scan for entry. These are free ports: tax-free, high-tech storage facilities where top art collectors and nervous tycoons can park their valuables for decades. Artist Hito Steyerl has called them “secret museums.”

Some free ports are located near Geneva and the other historic playgrounds of monied Europe. Some have sprung up in Singapore and other Asian hubs, to serve more recently minted fortunes. The U.S. is a relative latecomer to the game, but there are now free ports in Manhattan and outside Wilmington, Del. Free ports are essentially miniature tax-free zones offering clients a legal way to avoid paying duplicate import duties. To take a hypothetical example, a wealthy collector who owns a $20 million Magritte might use the free port in Luxembourg to avoid paying hundreds of thousands of dollars in import duties while she decides whether to hang the painting in her chalet in the Swiss Alps or her Manhattan brownstone.

Free ports in Switzerland set a storage limit of 12 months for Swiss citizens, but anyone else can use them to stash valuables indefinitely. Free ports in other countries are similarly generous with time limits. And that’s where problems begin.

Most free ports stipulate that all items entering and exiting be meticulously registered. But at the same time, most allow owners to be identified not by their real name but as a corporate entity, which simply requires them to set up a shell company. And because taxes aren’t typically levied on sales that take place within a free port, owners can potentially partake in the anonymous buying and selling of artworks worth tens of millions of dollars. There’s little ability to trace the transactions.

Geneva Free Ports Ltd. is the biggest of them all, a 559,000-square-foot behemoth that’s been the site of controversy. In 2010 criminals pillaged sites in Libya, Syria, and Yemen and—via Qatar and the United Arab Emirates—smuggled nine artifacts into the facility. It wasn’t until six years later that Swiss prosecutors seized the pieces after customs checks raised suspicions. The antiquities included the head of a stone statue of Aphrodite dating to the heyday of the Greek empire in what is now Libya.

In 2016 a Modigliani painting worth about $25 million, Seated Man With a Cane, allegedly stolen by the Nazis and auctioned off in 1944, was discovered at the facility. Its ownership by New York art dealers was challenged by the heirs of its original owner, Paris-based art dealer Oscar Stettiner. That prompted Geneva prosecutors to briefly order the canvas to be sequestered before returning it to the dealers.

The scandals led Geneva Free Ports to tighten its regulations. A warning on its website now tells prospective customers to seek preapproval for any archaeological object they plan to store there. Even so, Geneva Free Ports executives said the Modigliani case illustrates how a lack of rules requiring the disclosure of beneficial ownership “instills distrust.”

The dispute about the painting came to light only because it was listed in the millions of pages of documents leaked as part of the Panama Papers, which exposed how the rich use—you guessed it—shell companies to hide their wealth.

To contact the editor responsible for this story: Pat Regnier at pregnier3@bloomberg.net, Caroline Alexander

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