Right beside the Luxembourg airport, the world’s super-rich store their valuables – fine art, wine, precious metals and jewels – in a giant concrete warehouse.
It’s called a “freeport,” a type of super-high-security treasure chest that hides billions in assets completely free of taxes. Because the goods are technically in transit, they aren’t subject to levies until they are moved.
Freeport business is booming these days from billionaires in Europe, Russia, Asia and the Mideast. But critics say the secret concrete bunkers are nothing more than havens to evade taxes or possibly hide crimes.
Last week, authorities in Monaco arrested one of the biggest names in the business, Yves Bouvier. The Swiss art transporter is now free on bail on charges of defrauding art collectors.
Mr. Bouvier operates the freeport in Luxembourg, in addition to duty-free warehouses in Geneva, Singapore and Monaco. He is also planning a new freeport in Beijing.
Customs and taxes are deferred while with us, but not deferred forever. David Arendt, Managing director, freeport in Luxembourg
Since freeport clients are promised secrecy, the Organization for Economic Cooperation and Development (OECD) says the storage facilities don’t meet international transparency standards. OECD officials assessed the Luxembourg freeport last year, fearing it could be used to smuggle goods or launder money.
Free-trade areas have existed for as long as businesses have existed. But originally they had another meaning – to temporarily store raw materials that had not yet reached their destination. That’s why most are located near seaports or airports.
Recently, the super-rich discovered how the warehouses could be used to safeguard paintings, sculptures and gold bars. They use the concrete bunkers because insurance companies advise them to do so. Or, because interest income of foreign bank clients must now be declared in the European Union, they prefer to invest in objects.
But something else motivates collectors: Taxes only accrue when valuables leave a freeport warehouse.
As an example, let's say a German art collector purchases an expensive picture in China, which he would like to sell later for a much higher price. If he transports it to Germany by airplane, he would have to pay customs duties at the airport – such as for oriental carpets or for cigarettes. But if he brings the picture into a freeport, customs don’t apply as long as the object is stored there.
That is also valid for business transacted within a freeport. A collector can sell his work of art to another art lover within the freeport, without incurring customs duties.
Value-added taxes also don’t apply. They are normally due in each E.U. country when an object changes owners – except in freeports.
David Arendt, managing director of the freeport in Luxembourg, explained it this way: “Customs and taxes are deferred while with us, but not deferred forever."
The concrete Luxembourg freeport is as secure as a prison. To get to the lobby, visitors have to pass six security checkpoints. Hardly visible behind a frosted glass pane, an employee collects their identification cards. All bags are scanned. There are countless heavy iron doors, thick walls swallow footsteps and the glaring light is blinding. Each hallway looks the same.
Objects of value don’t even have to leave airplane containers to land in the duty-free warehouse.
“In case anyone should break in, which is nearly impossible, we have seen to it that it will be as difficult as possible to find something,” Mr. Arendt said.
In addition, the freeport in Luxembourg is directly linked with the airport. Objects of value don’t even have to leave airplane containers to land in the duty-free warehouse. That raises the question of how authorities can make sure they don’t contain weapons or other illegal objects.
“Customs can ask at any time to open the boxes,” Mr. Arendt said. Three customs officers oversee every arrival and peer into containers with a giant x-ray scanner. They can collect fees only when the object leaves the building again.
The warehouse spaces in Luxembourg are rented by freight forwarding companies. Mr. Arendt’s direct customers – logistics companies that specialize in transporting valuable objects – have a special license from Luxembourg customs. The companies have names such as Brandl Fine Art Service, Mana Contemporary and Fine Art Logistics NLC.
Mr. Bouvier owns Fine Art Logistics. Freight forwarding agents can rent a space, a wine cabinet or car garage for at least five years. Art collectors and other wealthy individuals can then book a space for their Picasso in the freeport through the logistics company.
Mr. Bouvier and two private investors have put €50 million ($56 million) into the Luxembourg freeport. Already it is two-thirds booked and should be in the black within three years.
Freeport critics see the recent charges against Mr. Bouvier as confirmation that all the secrecy might be hiding wrongdoing. Mr. Arendt, the manager of the Luxembourg warehouse, would not respond to questions about the accusations.
Ozan Demircan is a reporter with Handelsblatt, covering the insurance sector, among other areas. Diana Fröhlich writes for Handelsblatt's Reports and Names section. To contact the authors: [email protected], [email protected]