Art is considered to be one of the largest unregulated markets in the world. The global art market is not known for its transparency and is quite unregulated. This may be the reason why many people want to invest in this market as the flow of money is unpredictable.
The lack of regulations in this market combined with the fact that art can be easily moved around made this market an attractive opportunity for money launderers. Someone who is looking to launder money through art can easily use trusts to protect the identity of the painting owner and freeports to store away the valuable piece of art without paying taxes. All of this can be done legally. hence, the paper trail can be made difficult to follow making the art market susceptible to high profile frauds.
Freeports are secure storage facilities which exist outside of territorial jurisdiction of a country. The off-shore secure storage facilities are good place to store valuable commodities such as art and wine with utmost discretion. Due to the valuables being invisible to the government, insurers and tax authorities, freeports have become quite significant to many people, we would go as far as to say that the Freeport had surpassed the infamous Swiss bank accounts.
There are few art owners who prefer to display their priced position by hanging it in their own homes, the primary aim of such art owners is to buy an art for its aesthetic appeal and they might not be much interested in speculating the art as well hence they do not feel the need of storing the art away safely in a freeport though they surely get it covered under property insurance along with their other insurances.
Investors and businessmen have tended to operate several freeports to store away their valuables. To hold valuable in freeports which is tax-free means speculation of the valuable item is going on. Such an affair came to light when Bouvier, a Swiss businessman and an art dealer who operated several freeports was accused of cheating by a Russian oligarch, Dmitry Rybolovlev. Dmitry Rybolovlev claimed that his art dealer Bouvier had cheated him in the purchase of the famous Da-Vinci painting Salvator Mundi by double invoicing and charging enormous mark-ups.
On the other hand, auction houses may try to make a good-faith effort by providing complete provenance of an art piece even though they are not obliged to release the names of the distributors or bidders, but the documentation they hold is provided by the owners and buyers will find very few documentation mentioning the provenance and origin of the art piece.
This is the same with freeports as no one can report if the art held there is simply investment speculation expected to give returns in the future or is it stolen. The secrecy of freeports makes it very difficult to connect an art piece with its owner and as no government can regulate or investigate this property, for all we know the art in a freeport is almost invisible.
Adding to the above issue, global trading has made sure that art pieces travel and cross borders constantly. Each country has a different set of regulation and legal paperwork for import and export of the art which includes paying customs duties. But when the work is put in a freeport, legally it is not entering another country hence no duty needs to be paid. Sadly, due to the unregulated freeport issues, the collectors get an opportunity to defer these customs duties while being able to access the painting easily and display it to auctioneers as it is stored in the freeport.
Till the time these kinds of lack of regulation and secrecy exist the investors will find loopholes in international law. The art business needs to establish strong regulations which will work in the interest of both, the system as well as the collectors to make this market transparent hence a step towards eradicating money launderers altogether.
