A German member of the European Parliament (MEP), Wolf Klinz, who brought to the European Commission evidence of possible fraudulent activity at the Freeport Luxembourg, says that the commission has met his allegations with “condescension and dismissal.” On February 28, 2019, an investigation by the commission declared that Freeport Luxembourg has been cleared any wrongdoing.
Freeport Luxembourg is a €50-million (~$56.5 million) high-security storage facility adjacent to Luxembourg Findel Airport. In January, Klinz wrote in a letter addressed to European Commission President, Jean-Claude Juncker, that the Freeport Luxembourg (and similar facilities in other cities) could be used as hotbed for “money laundering and tax evasion.” Klinz is currently a member of the EU’s TAX3 committee, which focuses on financial crimes, tax evasion, and tax avoidance. He insisted on a hearing of a committee to bring to light possible irregularities related to the management of Le Freeport Luxembourg.
Construction on the freeport began under Juncker’s tenure as prime minister of Luxembourg, eventually completed in August 2014 after he was elected EC president.
Freeports, the depots for luxury goods, art, wine, and other goods, came to prominence after the release of the Panama Papers in 2016, which shed light on the shadowy world of tax-free warehouses where the rich can store valuable assets like art, cars, wine, and jewelry. Today, there are approximately 3,000 freeports in 135 countries, according to a 2010 report by Financial Action Task Force.
Klinz says that freeports can potentially be used to store works of art free of customs duties, and at the same time remove barriers to track stolen and plundered goods. Similarly, a UNESCO report published in 2016 found that “there is a high risk that the free ports are used by art dealers to store works of art from thefts, lootings or illicit excavations for resale in the black market when things have cooled down, even many years later.”
According to Klinz, “the worrisome allegations brought to light in the TAX3 hearing were unfortunately not met with serious concern by the President nor the Commissioner responsible, but rather with condescension and dismissal,” he said in an email sent to Hyperallergic on March 12.
In response to Klinz’s letter, Juncker delegated the matter to Pierre Moscovici, the European commissioner for economic and financial affairs. Klinz says he received a response from the commissioner on February 28 “that praises the advantages of freeports” as “useful to simplify commercial operations.”
The TAX3 investigation produced a study entitled “Money laundering and tax evasion risks in freeports,” which was prepared using expert testimony and given to the European Parliamentary Research Service last year. The study concluded that “despite the tightening of regulatory oversight […] the tax collection and regulatory authorities in charge of supervising Le Freeport do not have systematic information sharing mechanisms with the licensed freeport operator on assets stored and trade at the facilities.” Le Freeport Luxembourg, the report concludes, “remains out of regular reach of state authorities.”
Warehouses like the freeport are used to store assets in transit, where they are exempt from taxes while waiting to move onto their final destination. According to Freeport Luxembourg, however, it is a misnomer that they are used to evade taxes or traffic in stolen goods. Rather, they are used as a “mere suspension of the local consumption tax (VAT) and of the (possible) customs duties, for as long as the goods are stored at Le Freeport.”
Le Freeport Luxembourg also says they have in place strict transparency measures to ensure that trafficked or stolen goods are not being stored in their warehouses. “All movement of goods is documented (complete description, value, artist, shipper, origin and destination, tax status) and recorded in an inventory,” they say, which complies with EU regulations that customs and tax authorities have access to these inventories.
In July 2015, new anti-money laundering rules passed in Luxembourg “significantly diminished Le Freeport’s operative opacity,” according to Kinz. These new laws stipulated that the warehouse must identify the beneficial owner of stored goods and that proprietors cannot shield assets held in such storage facilities through offshore companies, trusts, lawyers or galleries.
However, Klinz says these rules do not go far enough and that loopholes have already emerged that protect the status quo of asset class management and tax evasion. The “path to adequate regulation […] remains long and fraught with complexities,” he asserts.
Freeport Luxembourg is majority owned by the Swiss businessman and art dealer Yves Bouvier, who also owns majority stakes in the freeports of Singapore and Geneva. In September 2017, news surfaced that Bouvier is under criminal investigation by Swiss authorities for having evaded more than €100 million (~$113 million) in taxes related to his cross-border art dealings. While in February 2018, a prosecutor in Geneva reportedly opened a new criminal investigation into Bouvier relating to fraud charges. Both cases remain before the courts.
The European Commission found no wrongdoing at the Luxembourg freeport after requesting and analyzing information from stakeholders, which the EC said was intended to identify “possible undesired activities” relating to customs procedures, tax evasion, money laundering, and terrorism financing. The EC also visited Le Freeport Luxembourg on an unspecified date, according to Moscovici’s letter.
In his letter, Klinz retorts that a “path to adequate regulation […] remains long and fraught with complexities.” He also says Luxembourg’s financial intelligence unit is “painfully understaffed” with only 16 personnel handling 20,000 suspicious activity reports in 2017.
The TAX3 commission, according to Klinz’s email sent to Hyperallergic this week, concluded that if “any systematic misuse or fraudulent behaviour were detected; the Commission would take the appropriate actions in order to deter such undesired activities.”
“There is no political will to investigate the possibility of possibly fraudulent activities and irregularities related to the management of Le Freeport Luxembourg […] contrary to the evidence brought to TAX3 committee by the expert witnesses,” Klinz concludes.
At the time of publication, neither the European Commission nor Le Freeport Luxembourg has responded to requests for comment.
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