The Gray Market: Why Freeports Don’t Deserve Salvation From Stricter Regulations (and Other Insights)

Our columnist refuses to cry for European freeports and ponders the upside of David Zwirner's new alliance with Simon & Schuster.

A visitor takes a photo of the painting 'Salvator Mundi' by Leonardo da Vinci at Christie's New York. (Drew Angerer/Getty Images)
A visitor takes a photo of Leondaro da Vinci's Salvator Mundi, previously sold by freeport mogul Yves Bouvier before selling for over $450 million at Christie's in November 2017. (Drew Angerer/Getty Images)

This week, stories about the downside and upside of a shifting client base….

 

FREEDOM AIN’T FREE

On Thursday, Anny Shaw reported in The Art Newspaper that high-ranking European politicians are circling the prospect of imposing stricter regulations on the continent’s freeports. And although the end result may not amount to much more than political posturing, the conversation at least helps to brighten the ethical and economic boundary lines that should define our perspective on long-term tax-free storehouses.

The interrogation spotlight swung toward the freeports thanks to Wolf Klinz, a German Member of the European Parliament who also serves on the EU’s Tax3 Committee to crack down on tax crimes and other financial skulduggery. According to Shaw:

In a letter dated 8 January… Klinz called on Jean-Claude Juncker, the president of the European Commission, to close loopholes that potentially allow for financial crimes to be committed [at freeports]…. Juncker replied to Klinz’s letter by telling him he had passed on the German MEP’s concerns to Pierre Moscovici, the European commissioner for economic and financial affairs.

Klinz framed his request around Le Freeport Luxembourg, which opened during Juncker’s time as the country’s prime minister. In a Tax3-commissioned report released last October, this particular facility wore the black hat due to concerns about money laundering and tax malfeasance that persist despite Luxembourg’s 2015 decision to fast forward domestic enforcement of EU legislation, set to go into effect more broadly next January, that will require freeports to identify the end client for all stored objects. In short, a review of the situation in Luxembourg suggests that the pending EU-wide laws may not have enough teeth.

The freeports are crying foul nevertheless. According to a licensed operator at Le Freeport Luxembourg last fall, the policy had already pushed 20 to 30 of its “long-standing clients” into the waiting arms of rival facilities in other jurisdictions “with more discretion”—read: fewer regulations—including Beijing and Singapore. The implied argument is that the EU law is already choking out Le Freeport, and the client losses suffered so far only presage a larger exodus that could force all European freeports into the grave.

My response? Sometimes you get what you deserve.

Interior of the Luxembourg Freeport. Image courtesy Atelier d'Architecture.

Interior of Le Freeport Luxembourg. Image courtesy of Atelier d’Architecture.

As Shaw relays, the Tax3 report reminded the world that freeports were never supposed to allow for long-term storage. They were strictly meant to be short-term waystations for goods in transit. The underlying principle was that owners or dealers shouldn’t be charged additional taxes before an object reached its destination country, which seems like fair play to me.

The problem, of course, is that opportunists recognized that freeports offered a loophole that would allow them to keep art and collectibles levy-free indefinitely while they went about flipping them for profit. Even without having seen official data (which would be nearly impossible to secure anyway), the anecdotal evidence suggests that this oversight, not the original business proposition, was the jet fuel that accelerated the construction of lavish international freeports around the world.  

As a result, my tolerance for the freeport owners’ lamentations is zero. I just don’t accept the argument that we should avoid making it harder for people to do certain bad things in one place just because those same things will still be legal elsewhere. It would be like if early 19th century American legislators had said, “Well, since Oregon is still a lawless back country where anything goes, let’s hold off on saying people can’t kidnap each other here in Ohio. Don’t want to hurt the income streams of our homegrown miscreants.”  

Le Freeport in Luxembourg Courtesy: Le Freeport

Le Freeport Luxembourg. Image courtesy of Le Freeport

I’m not naive. Rich, sneaky, and/or ill-intentioned people will almost always find ways to barrel-roll around paying their fair share, just as they always have. For my fellow-wonks, consider this Bloomberg piece on the high-value tax-avoidance schemes that entertainment stars like Bing Crosby and Groucho Marx pioneered in the 1930s, when the top marginal tax rate in the US was 91 percent. Subterfuge ain’t new.

So yes, implementing “know your client” restrictions on Le Freeport and its brethren in the EU won’t prevent art and collectibles traders from shorting their countrymen. Some of those clients will indeed just transfer their objects to another, more permissive freeport. Maybe so many will do it that EU freeports will have to downsize or disband.

If so, I won’t feel the least bit bad about it, and neither should European legislators. Personally, I think that if a business is only sustainable through a common-sense definition of white-collar crime, lawmakers should, you know, be okay with making that business fail. Call me old-fashioned, but in the words of Omar Little, a man got to have a code. And if freeports can’t live by this one, good riddance.

[The Art Newspaper]

Some of David Zwirner Books’s recent publications. Photo: courtesy of David Zwirner Books.

SIMON SAYS

On Tuesday, Alex Greenberger of ARTnews reported that David Zwirner Books had inked a distribution deal with publishing powerhouse Simon & Schuster, which will supply the gallery’s titles to bookstores and major retailers throughout North America. To help flesh out the implications of the pact, here’s Greenberger:

[Editorial director Lucas] Zwirner explained that, through Simon & Schuster, David Zwirner Books could potentially have its books placed in airports and Target stores across America. It will also allow the publishing house to have its tomes categorized on Amazon in areas with greater visibility, which could lead to more sales.

In a chat with Greenberger, Lucas Zwirner even alluded to potentially using this newfound sales reach to move David Zwirner Books beyond monographs, exhibition catalogues, and art criticism into publishing novels. For context, he introduced this hypothetical by saying that “everything we do is still tethered to visual art.” But it still led him to ponder this existential question about the business:

“At one point, galleries were just a place where you sold art, and now it’s a place where you publish books, it’s a place where you publish podcasts, it’s a place where you produce video content, it’s a place where you have an online presence…. We’re really thinking about: What kind of gallery do we want to be in the future?”

One answer would be “the type of gallery that potentially enables one of its key decision-makers to frolic through a vibrantly colored holiday TV spot with Sienna Miller flogging books to people watching the Dallas Cowboys game on Thanksgiving day,” but that would be too glib. The Simon & Schuster pact certainly represents the next foothold in the gallery’s climb toward a hoped-for mass market audiencea goal it has already been pursuing through its online salesroom, its aforementioned podcast, and other initiatives.

For that reason, it is relevant to all kinds of conversations urgent to the art world in this era of upheaval, and perhaps none more than the industry-wide bloodhound search for new clients. Galleries have always wanted more collectors. It’s just that the winner-take-all economics of the 21st century have shifted this eternal desire from a nicety to a necessity.

Jeff Koons, Lucas Zwirner, and Luke Syson (left to right) recording the first episode of David Zwirner's podcast, Dialogues. Image courtesy of David Zwirner.

Jeff Koons, Lucas Zwirner, and Luke Syson (left to right) recording the first episode of David Zwirner’s podcast, Dialogues. Image courtesy of David Zwirner.

The central question, though, is how much upside Simon & Schuster’s distribution really holds for either the gallery or the wider industry. Say what you will about Zwirner’s gallery program, but I prefer a world in which North American shoppers are just as likely to encounter a lushly produced Roy DeCarava monograph as the newest cinder-block-sized Tom Clancy novel. At the same time, I tend to think that the Simon & Schuster deal does more to bolster the bottom line of David Zwirner’s publishing arm than it does to bolster the size of the gallery’s collector base.

Art books are great. All kinds of people like them, and many, many of those people are willing to actually buy them. This is why nearly every magazine and newspaper compiles a list of the year’s best coffee table books during the holiday season, as well as why Lucas Zwirner told Greenberger, “Simon & Schuster sees the illustrated-book niche as something that could become a much larger part of the [publishing] market.”

However, there’s a gigantic difference between paying $60 for an art book and $6,000 for a work on paper in Zwirner’s online viewing room, let alone $60,000 or $600,000 for a unique work on view in the gallery. I doubt that very many people will transform into collectors, or even one-time art buyers, after falling in love with a title from David Zwirner Books in Target or Hudson News. The price points, the value propositions of the goods in question, and the audiences deciding between them are too different.

Practically everyone has a coffee table and a shared expectation of how to adorn it. I don’t think the same can be said about how we adorn our walls. And to the extent that it can, I tend to think that most people’s price ceilings for art (by the broadest possible definition) are actually pretty similar to their price ceilings for coffee-table books.

I’m not suggesting that Team Zwirner anticipates Simon & Schuster’s North American distribution will supercharge their collecting base, or even that the deal is unimportant to the gallery as a whole. I just think it’s much more likely to be meaningful as a source of more book revenue than as a source of more art buyers. But either way, the high end of the art industry now has a new test case for its increasingly mass-market ambitions. Let’s see what the next chapter holds.

[ARTnews]

 

That’s all for this edition. ‘Til next time, remember: It’s important to know yourself, but sometimes it’s just as important to know your audience.


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