By: Caroline Christner
Last month, the former “freeport king” Yves Bouvier declared a “complete victory” in the international legal saga encompassing criminal fraud and money-laundering charges that has spanned six years.[1] Since 2015, Bouvier has been entangled in lawsuits from high-net-worth art investors and dealers, most notably the Russian oligarch Dmitry Rybolovlev, alleging that Bouvier defrauded his clients by misrepresenting the value of artworks (“The Bouvier Affair”).[2] These lawsuits have spanned between courts in Monaco, Switzerland, France, the United States, and Hong Kong. Bouvier later faced criminal charges in France, Monaco, and Switzerland; however, Bouvier recently celebrated the closing of all criminal charges after prosecutors in Switzerland found he had not committed criminal fraud, mismanagement, breach of trust, nor money laundering. [3]
The Bouvier Affair gained much international media attention because it highlights what critics call a recent trend in high-end art being used as a vehicle for the ultra-wealthy to build their wealth, or in many circumstances, conceal criminal activity. [4] A freeport is a type of Free Economic Zone (FEZ) facility common in international business hubs, and freeports specializing in the storage of fine art provide a convenient vehicle to conceal criminal activity.[5] Goods stored in freeports are considered to still be “in transit” for customs purposes, meaning no customs taxes are imposed until the artworks leave the warehouse.[6] Further, no additional sales taxes attach to the artworks sold within the warehouse.[7] The lack of freeport regulation allows art investors to store their artworks anonymously and discreetly until they appreciate enough to be sold to other investors or collectors within the freeport.
Bouvier himself ascended to an elite position in the art market by championing a freeport model that is ideal for art investors and collectors looking to take advantage of such a lack of regulation.[8] After becoming the deputy director of Natural Le Coultre, he went on to own 5% of the Geneva Freeport, a freeport facility with an estimated art collection value of $100 billion, and then went on to create new freeports in Singapore, Luxembourg, and Shanghai.[9] These warehouses are modeled to function as luxury showrooms that exhibit artworks and facilitate auctions for buyers and sellers.[10]
However, what makes freeports ideal for art investors, exacerbates the existing problems in the global art trade. Specifically, the lack of disclosure regarding artworks and art sales contributes to fraud, money laundering, and theft. In 2010, the Organization for Economic Co-operation and Development (OECD) in Paris published a report stating that FTZs, including freeports, posed a threat for money-laundering and fraud due to a lack of oversight and safeguards in FTZs.[11]
However, the following jurisdictions have made some of the more notable attempts to regulate activity in freeports. In 2015, the Swiss Legislature passed regulations attempting to curb criminal activity in freeports. [12] These regulations included requirements to reveal the contents of packages entering and exiting freeports, along with a six-month time limit on storage in the storage of goods intended for export.[13] In 2019, the European Parliament called for “freeports” to be phased out of use in the European Union (EU) due to the high prevalence crime.[14] Since January of 2020, EU authorities must identify and report suspicious activities at freeports related to laundering, tax-evasion, and other criminal activities such as theft.[15]
The art market has differing opinions on the regulation of freeports. Critics argue that tighter regulations will impact traders seeking to collect art and build their investment portfolio in good faith.[16] Such critics argue that when art is prioritized as an investment asset, the art market inevitably becomes a playground for the ultra-wealthy at the expense of hoarding works of significant cultural heritage from the public.[17] Other authors argue that if artworks are traded and sold for financial gain, the art market should have increased regulation that is similar to that of other securities.[18] Regardless of such arguments, freeports remain on the rise in many countries like the United Kingdom.[19] Accordingly, the legal community will continue to watch the freeport debate play out in a social climate that is increasingly wary of the high-end art market.
[1] Eileen Kinsella, Yves Bouvier Declares ‘Complete Victory’ After a Prosecutor Dismissed Russian Billionaire Dmitry Rybolovlev’s Charges Against Him, ArtNet News (Sept. 17, 2021), https://news.artnet.com/art-world/yves-bouvier-declares-total-victory-dmitry-rybolovlev-2010315.
[2] Vince Noce, Genevan court dismisses Dimitry Rybolovev’s case against art dealer Yves Bouvier—but feud between the two billionaires is not over yet, The Art Newspaper (Sept. 17, 2021), https://www.theartnewspaper.com/2021/09/17/genevan-court-dismisses-dimitry-rybolovevs-case-against-art-dealer-yves-bouvierbut-feud-between-the-two-billionaires-is-not-over-yet; Sam Knight, The Bouvier Affair, The New Yorker (Jan. 31, 2016), https://www.newyorker.com/magazine/2016/02/08/the-bouvier-affair.
[3] Eileen Kinsella, Yves Bouvier Declares ‘Complete Victory’ After a Prosecutor Dismissed Russian Billionaire Dmitry Rybolovlev’s Charges Against Him, ArtNet News (Sept. 17, 2021), https://news.artnet.com/art-world/yves-bouvier-declares-total-victory-dmitry-rybolovlev-2010315.
[4] Rachel Wetzler, How Modern Art Serves the Rich, The New Republic (Feb. 26, 2018), https://newrepublic.com/article/147192/modern-art-serves-rich.
[5] Talia Berniker, Behind Closed Doors: A Look at Freeports, Center for Art Law (Nov. 3, 2020) https://itsartlaw.org/2020/11/03/behind-closed-doors-a-look-at-freeports/
[6] Talia Berniker, Behind Closed Doors: A Look at Freeports, Center for Art Law (Nov. 3, 2020) https://itsartlaw.org/2020/11/03/behind-closed-doors-a-look-at-freeports/
[7] Katie Steiner, Dealing with Laundering in the Swiss Art Market: New Legislation and its Threats to Honest Traders, 49 Case W. Rsrv. J. Int’l L. 351, 356 (2017).
[8] The King of the Free Ports: Yves Bouvier, Art Rights (Apr. 9, 2021) https://www.artrights.me/en/the-king-of-the-free-ports-yves-bouvier/.
[9] The King of the Free Ports: Yves Bouvier, Art Rights (Apr. 9, 2021) https://www.artrights.me/en/the-king-of-the-free-ports-yves-bouvier/.
[10] Id.
[11]Ron Korver, Money Laundering and Tax Evasion Risks in Free Ports, Euro. Parliamentary Rsch. Serv. (October 2018), https://www.europarl.europa.eu/cmsdata/155721/EPRS_STUD_627114_Money%20laundering-FINAL.pdf
[12]Berniker, supra note 5.
[13]Henri Neuendorf, Switzerland’s Tough New Stance on Freports Will Shake the Art World, artnet news (add date and time stamp), https://news.artnet.com/market/switzerland-freeport-regulations-367361.
[14] Anny Shaw, European Parliament puts ‘urgent’ phasing out of freeports top of agenda, The Art Newspaper (Apr. 2, 2019) https://www.theartnewspaper.com/2019/04/02/european-parliament-puts-urgent-phasing-out-of-freeports-top-of-agenda (citing a February 2019 report from the Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3)).
[15] Daniel Boffey, EU clamps down on free ports over crime and terrorism links, The Guardian (Feb. 10, 2020, 6:59 AM) https://www.theguardian.com/world/2020/feb/10/eu-clamps-down-free-ports-zones-crime-terror-links.
[16] Katie Steiner, Dealing with Laundering in the Swiss Art Market: New Legislation and its Threats to Honest Traders, 49 Case W. Res. J. Int’l L. 351 (2017).
[17] Hugo Miller, Tax-Free ‘Secret Museums’ Hide Some of the World’s Greatest Art, Bloomberg Tax (May 24, 2019, 4:46 AM) https://www.bloomberg.com/news/articles/2019-05-24/tax-free-secret-museums-hide-some-of-the-world-s-greatest-art
[18] Emma Snover, Casting Light on The Shade: Using Securities Laws to Draw New Contours in Art Investment Regulation, 88 Fordham L. Rev. 1509,1535 (March 2020)( “To the extent art investors in a growing market reap the same benefits of preferential capital gains tax rates and other tax deferral opportunities … as investors in traditional securities, consideration should be given to broadening the scope of insider trading regulations to include the secondary art market, albeit in modified form.”)
[19] Gyn Topham, Eight freeports with low-tax zones to be crated in England, The Guardian (Mar. 3 2021, 1:25 PM), https://www.theguardian.com/uk-news/2021/mar/03/eight-free-ports-low-tax-zones-created-england.
