How are freeports turning art into an investment?
Freeports have recently become a popular topic in films, series, and novels, often portrayed in a negative light. To understand how these economic zones operate and address the secrecy surrounding them, we need to explore their historical roots. By tracing their origins, we can uncover their long history, dispel common myths, and better understand their impact on the art market.
The Salvator Mundi is said to be stored at a freeport in Switzerland.
Freeports Shaping Global Asset Trade
Freeports are a specialized subset of free economic zone. These are designed to encourage international commerce by offering companies tax and financial incentives. In the banking sector, these places are often referred to as “offshore”. One of the distinctive features of freeports is their ability to store artworks in customs-approved facilities without incurring import taxes.
Freeport warehouses operate under strict regulations, managed by shipping companies in collaboration with local customs officers. Within these trade zones, artworks can be restored, viewed, photographed, and sold. However, pieces are strictly prohibited from leaving the warehouses, even temporarily. This arrangement allows artworks to be stored indefinitely, with associated rental fees for storage and additional services.
There is a significant difference in customs status between imported artworks and those stored in freeports: imported works have the freedom to leave the warehouse at any time, while artwork in freeports must remain within the facility.
Freeport warehouses are limited in number worldwide, with key locations in Switzerland, Luxembourg, Singapore, and Hong Kong. Many major cities also provide similar financial incentives in dedicated areas. Some African nations even use them to produce and export resources like cocoa beans.
Ancient Origins of Freeports
In antiquity, cities, states, and nations provided special privileges to goods passing through their harbors. These privileges often included exemptions from duties and favorable conditions to boost trade. Goods in transit typically benefited from lower tariffs compared to those intended for the domestic market. One of the earliest examples of a freeport was on the Greek island of Delos.
Delos has a rich historical heritage dating back to the third millennium BC. Once a thriving hub for religion, politics, and trade thanks to its strategic location and sheltered port, it has become a legally protected, uninhabited island. Visitors can now explore the ruins of the once mighty Apollonian sanctuary. By the time Homer wrote the Odyssey in the 8th century BC, Delos was celebrated as the birthplace of Apollo and Artemis, attracting pilgrims paying homage to these deities. Despite its religious significance, Delos faced practical difficulties due to limited agricultural productivity and scarce natural resources.
Following the Roman conquest of the island, Delos was officially declared a “freeport” in 167 BC. This attracted Roman traders eager to profit from the booming slave trade. Enslaved sailors captured by pirates during wartime were brought to Delos, turning it into a major slave market and trade hub. During this time, the island was placed under Athenian control and its freeport status attracted wealthy merchants from across the Mediterranean basin. As a result, skilled craftsman and artists were commissioned to build luxurious houses on the island. Delos rapidly rose to prominence, solidified its reputation in what was then the global trade network.
Collapse of the First Freeport
The prosperity of Delos and its close ties with the Romans ultimately led to the island’s downfall. Devastating attacks marked the beginning of its decline. In 88 BC, Mithridates, a Roman enemy, looted the island. A second blow came in 69 BC, when a pirate allied with Mithridates looted the island again. These events caused Delos to decline rapidly with most of its people relocating. By the late first century BC, Delos had been replaced by the Italian city of Puteoli as the main hub for trade with the East.
Although its prominence declined, the island maintained a small population. The island changed hands over time, moving between Byzantine, Venetian, and Ottoman control. Its temples and columns were eventually repurposed, quarried for lime production. By the eighth century, Delos was abandoned, leaving behind the ruins that tell the story of its once-glorious past.
Recent Rebirth of Freeports
The idea of freeports saw a resurgence in 19th-century Europe, particularly in the British, French, and Dutch empires. Established in Geneva in 1888, the largest freeport now holds an estimated 1.2 million pieces and has been nicknamed the “greatest art collection no one can see.” For comparison, the Louvre in Paris holds 380,000 pieces, with only 35,000 on display.
Storing artwork in freeports rather than public museums has raised questions about the true purpose of art. Critics argue that this practice prioritizes art as a financial asset over its cultural and educational value. They believe art should be displayed in museums, inspiring and connecting people, rather than locked away as private investments.
The regulations governing freeports highlights the balance between national sovereignty and the dependence on global commerce. Interestingly, nations themselves have created these zones with financial incentives to encourage trade. In doing so, they have enacted legislation that undermines their own territorial sovereignty.
The United States adopted the same principles with the 1934 Foreign-Trade Zones Act during the Great Depression. This legislation created a framework to help business compete globally and attract foreign investments. Over time, the scope of this act has been expanded to address changing economic conditions and international trade trends.
The Verrazano Narrows Bridge connects Brooklyn in New York City with the borough of Staten Island, the first US foreign trade zone established in 1937.
How Freeports Shape the Art Market
International transfers of art are largely unregulated unless duties are paid. While customs monitor the movement of artworks, they do not provide data on inflows and outflows, as they do for financial transactions. In Freeports and the Hidden Value of Art, John Zarobell cites multiple reports showing that, within the EU, goods can enter free zones without requiring customs presentation or declaration. Moreover, a customs presence in these free zones is not mandatory. The reports also point out that customs warehouses (bonded warehouses) offer similar benefits to freeports, including tax deferral and confidentiality.
In the formal economy, most art market transactions take place privately, often outside of public auction houses. Freeports act as tax havens by separating the individual from the asset.
Art Market Dynamics Post-Auction
When artworks fail to sell at auction, they are considered “bought-in,” meaning the seller retains the piece and can later sell it privately, often at a reduced price. Dealers often use this opportunity to acquire undervalued works for future resale. While the artwork may not have sold for its highest price at the auction, dealers see it as a good investment for the future.
This investment strategy depends not just on the artwork’s potential market value, but also on its ability to appreciate over time while stored, minus maintenance costs. With enough time, today’s auction leftovers could become tomorrow’s highly valued pieces. Storing art in secure environments to avoid tax liabilities has become increasingly popular, especially among the ultra-wealthy. As an increasing amount of finance companies study this shift, it has fueled the growth of freeports. Instead of letting art sit idle, some owners have found creative ways to profit from their pieces while waiting for their value to rise.
Maurizio Cattelan’s Comedian is a series of three similar artworks. The second was sold for $6.2 million in November 2024. It had previously been sold for $120,000 in 2019.
Capitalizing on Artworks in Freeports
One of the most common methods to leverage the value of art is by using it as collateral to acquire more artworks or other valuable assets. In the same paper, Zarobell argues that freeports play a key role in driving art investments and increasing art values by facilitating credit. This strategy allows buyers to acquire more artworks and inflate prices. Initially adopted by dealers, this practice is now widely used. Managing the care and insurance of artworks requires expertise, which is provided by art industry specialists. Freeports streamline this process by offering in-house services that improve convenience and reduce risk for art owners. For instance, many freeport warehouses provide on-site conservation and photography services to ensure artworks stay in a secure environment.
Art Lending Process
- The buyer (individual, trust, corporation, or foundation) acquires art.
- The art is stored in a freeport, where it is preserved and photographed.
- The art is used as collateral for a high-interest loan from a specialized lender.
- The buyer uses the loaned funds to acquire more assets or pay expenses.
The 8th edition of the Art & Finance Report by Deloitte estimates that outstanding loans secured by art reached approximately $30 billion in 2023 and are expected to grow in the coming years. By using their art as collateral, owners can access the liquidity needed to acquire new assets or fund their lifestyle, without incurring the potential tax and transaction costs associated with outright sales. This strategy also helps preserve the value of their collections, allowing owners to wait for more favorable market conditions before selling.
In addition, multiple jurisdictions offer tax and financial incentives for various expenses related to artwork. This includes incentives for insurance premiums, maintenance, and other associated costs. Because receiving loan proceeds is not considered income, it makes it a tax-efficient alternative in high-tax jurisdictions. In the US, heirs receive assets with a stepped-up basis at death. This allows them to avoid capital gains taxes on past appreciation altogether. More complex investment strategies are also available to owners, including reinsurance, hedging, and the use of Blockchain technology for the value of an artwork to be divided and traded digitally in a virtually unregulated market.
One Size Does Not Fit All
The “borrow against your assets” approach is used among those with substantial assets. While this strategy works well for those with diversified portfolios and access to private lending, it carries major risks for the average person. Borrowing to live can backfire if asset values fall, and average investors do not benefit from the same reduced interest rates or financial protections. Despite these risks, the strategy is often glamorized online to create a misleading impression that it is a smart financial move for everyone. It is one of the reasons why outstanding credit card debt is so common in the United States.
While freeports help art owners avoid taxes, financialization art detaches artworks from their public value, turning culture into a network of exchangeable commodities. Together, these forces are redefining art as an investment rather than a public good.
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Cover Image: Detail of The Venus of Urbino by Titian (1538), Commons
Originally published in May 2023
