The art storage facility is high risk for money laundering and tax evasion

The most well-known free ports are in Geneva, Luxembourg, Singapore, Beijing, Monaco and Delaware and these jurisdictions consider them as advantages in their offshore financial centers. However, – according to the report “Money laundering and tax evasion risks in free ports” – free ports make up only a small part of the high-end storage market. Because the number of customs warehouses is much larger offering the same security, indirect tax benefits and privacy, even if with different administrative procedures as often managed by private companies. In most free ports or customs warehouses (Luxembourg is an exception) almost anyone can introduce goods without revealing the last beneficial owner (Ubo, ultimate beneficial owner), ensuring confidentiality by tax authorities or creditors. Then in most cases the recorded value of goods depends only on self-declaration, which leaves ample margins of over- or under-valuation. The demand for these services is fueled by the new association between finance and art, considered an attractive commodity in times of crisis – masterpieces increase their value over time (especially if for ten years closed in a storage) – it is in a bull phase market, fueled by the expansion of private collections, new museums and new billionaires from China, the Middle East and Russia. But the fifth anti-money laundering directive (Amld5 Fifth Anti-Money Laundering Directive) raises the bar: from 10 January 2020 it will explicitly ask the operators of free ports and art market actors, who will become “non-financial obliged entities”, to comply with the same obligations of adequate verification of the clients of real estate agents or notaries. The guardians of the Anti-money laundering (AML) will act as they will have to report suspicious transactions to the Financial Intelligence Units. The analysis of the EPRS also raises a problem on the application to customs warehouses, where the identity remains unknown, of the fifth directive in harmony with the Union Customs Code (Ucc). Then the fifth EU directive on administrative cooperation (DAC5) provides that the tax authorities have access to the Ubo information and other information collected by entities obliged under the framework of the AMLD, starting from 1 January 2018. As free port operators will become obligatory entities by 10 January 2020 under Amld5, the DAC5 will become relevant only then. Only in Luxembourg the Direct Tax Office already has “access on request” to Ubo data held by licensed free port operators such as Le Freeport Luxembourg. But the art market will still have filters: in fact, “fishing” in data held by non-financial entities is not allowed; the tax authorities will have to know who and what they are looking for before to request access to Ubo information, otherwise the Ubo registers with non-financial obliged entities will remain “unknown. And one wonders if the Aml directive will have effects on the art market? The EU risks losing its appeal, leaving the way open to the free port of Geneva, located near the airport, with two deposit schemes for customers: free port or Swiss. The solution is around the corner.