Freeports: Customs Logic and the Provenance Gap

What a free zone is in customs law, and what it is not

Under the Union Customs Code, placing goods in a customs warehouse or a free zone is a special storage procedure. The goods are physically present but not in free circulation: import duty and import VAT are suspended until the goods are released. Member states may designate part of the customs territory as a free zone and must notify the Commission. As at November 2017, 82 free zones had been notified. Croatia had the most with eleven, followed by Lithuania with ten, the Czech Republic with eight, Spain and Poland with seven. Nine countries had one each, including Luxembourg and the United Kingdom. Austria, Belgium, the Netherlands, Slovakia and Sweden had none.

The European Parliamentary Research Service, in its 2018 study for the TAX3 committee, draws the distinction that matters. A free port is a warehouse in a free zone, originally intended for merchandise in transit and latterly popular for the permanent storage of art, precious stones, gold, antiques and wine. A customs or bonded warehouse need not be in a free zone at all: it can be anywhere and can be run by a private company, offering the same advantages with less on-site customs presence.

That second instrument is the working one in Switzerland. Open customs warehouses have been established there since 1995, following Swiss accession to the World Trade Organization, and allow customs declarations to be made remotely. The study records 245 in operation in 2012 and at least 25 specialising in art, while the traditional Swiss free ports declined from eighteen in 2008 to ten in 2013 with the notable exception of Geneva. Globally, the Financial Action Task Force counted free trade zones rising from fewer than a hundred in 1975 to around three thousand across 135 countries by 2008.

What is actually held, and how little of it is known

Geneva's first free port was set up in 1854. Geneva Free Ports and Warehouses is a limited company whose principal shareholder is the State of Geneva; it lets space to some 230 tenants, mostly logistics firms. One company, Natural Le Coultre, rented almost a quarter of the space and is among the world's largest specialists in art storage and shipping. Its former owner, Yves Bouvier, was the biggest private shareholder in Geneva, owned the Singapore facility through his company EurAsia SA, was majority shareholder of the Luxembourg freeport, consulted on the Beijing facility, and dealt in art.

The new generation of purpose-built facilities followed in a short sequence: Singapore in 2010, Monaco in 2013, Beijing and Luxembourg in 2014, Delaware in 2015. They are equipped with climate and humidity control, strong rooms, private viewing rooms and offices for galleries and art lenders, with restoration, framing and financing businesses on the premises. The clients divide into those who want secure and discreet storage and those holding art purely as an investment.

How much is there is genuinely unknown. An audit by the Swiss Federal Audit Office found a large increase in the value of goods stored in Swiss customs warehouses and free ports since 2007, led by high-value goods including art, and estimated more than 1.2 million pieces of art in the Geneva Free Ports alone, some of which had not left the buildings in decades. The figure of CHF 100bn for the value of goods warehoused in Geneva, which is quoted everywhere, is attributed by the EPRS study to newspaper reporting rather than to an audit, and should be repeated only with that qualification. The study's own conclusion is blunter than any number: no one really knows exactly what is stored in Geneva, because the inventory is not consistently tracked and the beneficial owners of many of the goods are unknown.

The customs logic, stated plainly

Four features of the regime, taken together, produce everything else. First, a value must be declared in order to store goods, but it is generally declared by the owner or a representative and in most cases is not checked. Second, the goods are technically in transit, and in most free ports of this kind there is no time limit, so an object can enter and remain indefinitely. Third, goods entering are not subject to customs duties and goods sold inside are not subject to value added tax. Fourth, no withholding tax is collected on capital gains, though a seller may still have reporting obligations where they are tax resident.

The EPRS study draws the consequence in a single sentence: goods can enter a free port, stay there indefinitely and trade an unlimited number of times without ever having been taxed. That is the mechanism, and it is entirely lawful. The tax is not forgiven, it is deferred until the object is released into free circulation, and if it never is released the deferral is permanent in practice.

For the object itself, the effect is that title can move while the crate does not. A painting may pass between three owners in five years without leaving its rack, without an export licence, without an import entry, without a customs valuation being tested and without a shipping record beyond a change in the storage account. The physical stability that makes freeport storage attractive to a conservator is precisely what makes it opaque to a historian.

Why this breaks provenance rather than merely obscuring it

Ordinary provenance research works by reconstructing events from the documents each event generated: a bill of sale, a customs entry, an insurance schedule, an export licence, a loan form, an auction record. The free zone does not hide those documents. It prevents them from coming into existence. There is no import entry because there was no import. There is no export licence because the object never entered the customs territory it would have needed to leave. A transfer inside the zone generates a private invoice and a change in a storage account, and nothing else.

The identity problem sits on top of that. The EPRS study records that with the exception of Luxembourg, not one country obliged free port operators to carry out the kind of customer due diligence that binds financial institutions, so it is relatively simple to place the ultimate beneficial owner behind another layer: an offshore company, a trust or foundation, a lawyer, a gallery, or some combination. Operators commonly register who brought the goods in, which is often a museum or a dealer, not who owns them.

Geneva's record shows what accumulates in that space. In 1995 the free port was found to have been a haven for an international network of looted antiquities linked to the Getty Museum in Los Angeles. In 2003 Swiss customs discovered two hundred stolen ancient Egyptian objects, including two mummies. In 2016 an Italian police investigation led to Geneva, where looted Roman and Etruscan material was stored by a bankrupt English dealer. The Swiss Federal Audit Office itself concluded that several warehouses experience very little movement of merchandise, that the function of this type of customs warehouse had become the management of private or institutional assets and tax optimisation for extremely valuable goods, that this was not in line with the main function of customs warehouses or the spirit of the law, and that licences should be granted only for warehouses with regular movement.

The regulatory turn, and the limits of it

The Fifth Anti-Money Laundering Directive, in force from 10 January 2020, brought the trade into scope explicitly. It added to the list of obliged entities persons trading or acting as intermediaries in the trade of works of art, including where carried out by art galleries and auction houses, as well as persons storing, trading or acting as intermediaries in the trade of works of art when this is carried out by free ports, where the value of the transaction exceeds EUR 10,000. Those entities became subject to customer due diligence and to suspicious transaction reporting to national financial intelligence units.

The framework has since been recast. Regulation (EU) 2024/1624, adopted on 31 May 2024, replaces the directive-based regime with a directly applicable regulation from 10 July 2027, retaining the EUR 10,000 trigger for occasional transactions and adding a Union-wide limit on large cash payments above EUR 10,000. A regulation removes the transposition variation that made the directive uneven across member states, which is the more consequential change.

Two limits are worth stating precisely. Switzerland, which holds the largest concentration, has made changes to its law but, as the EPRS study records, they do not extend to a mandatory due diligence procedure identifying each ultimate beneficial owner of goods held on the premises. And the EU is not where most of the trade is. On the Art Basel and UBS estimates for 2025, the United States held 44 per cent of global value, the United Kingdom 18 per cent and mainland China 14 per cent, which is 76 per cent of the market sitting outside the EU regime. Regulating European free zones addresses a European storage problem in a market whose transactions are mostly elsewhere.

What this changes for a buyer and for a catalogue

Three practical consequences follow, and none of them requires a view about the legitimacy of freeport storage. The first is diligence. Where a work has been in a free zone for a period, that period should be treated as unevidenced rather than as uneventful. Ask where the work has been held, under what customs status, in whose storage account, and whether the account holder is the owner. The absence of a transfer record is not evidence that no transfer occurred.

The second is the import event. A work released from a free zone into free circulation triggers the duty and import VAT that were suspended, in the jurisdiction of release and at the valuation then declared. That liability is the buyer's, and the auction houses disclaim any part in it. Sotheby's conditions state that neither the house nor the seller makes any representation as to whether a lot is subject to export or import restriction, and that the denial of a permit or licence will not justify cancellation or rescission of the sale nor excuse delay in payment. A work bought in a free zone and moved home is a work whose tax history begins on the day it is moved.

The third is what a catalogue should say. A provenance that runs from a 1998 sale to a 2019 sale with nothing between should not be written as though the work were with a private collector throughout, when the honest statement is that its whereabouts and ownership between those dates are not documented and the work may have been in storage under a suspensive customs regime. That sentence is longer and less elegant. It is also the only one that a later researcher can act on.