Geneva/Luxembourg — In Prime Minister Boris Johnson’s post-Brexit vision of a dynamic economy unshackled from the EU, depressed British port cities will come roaring back to life as tax-exempt free ports. A concrete bunker on the edge of Luxembourg’s airport provides a useful reality check.

There, on a side road flanked by dirt banks and a highway, a black-and-white sign surrounded by weeds indicates you’ve arrived at “Le Freeport”. First impressions don’t smack of a hive of activity, or even intrigue.

That’s because managing a free port has become more of a bureaucratic headache as these tax-free facilities face growing criticism for being conduits of money laundering and tax evasion.

Philippe Dauvergne, a former French customs official, is trying to change that image. He’s the CEO of the facility, a squat 22,000m2 structure on the grounds of Luxembourg’s cargo terminal.

Le Freeport hosted some 800 visitors last year and held an open house in March to showcase its more elegant, Italian-designed interior and demystify what goes on inside. Comparisons with better-known free ports, such as the one in Geneva, a source of scandals in the past, are misplaced, he says. 

“What we want here especially is security, transparency and services,” Dauvergne said in an interview after giving a tour. “We don’t want what’s easy and vague.”

With Brexit still in the balance, the future outline of any British free port is also hazy. After becoming prime minister last month, Johnson set up a panel to establish up to 10 in Britain, creating what the panel said would be as many as 86,000 jobs.

Opposition politicians have quickly lined up to criticise the plan, echoing concerns about a post-Brexit Britain becoming ‘Singapore-on-Thames’

“The first new free ports will be established after we leave the EU, to boost growth and ensure towns and cities across the UK benefit from post-Brexit trade opportunities,” his government said in a statement.

Dauvergne says there are no EU rules that “prevent the creation of more such zones” and points out that there are others across the bloc more focused on lower-value goods, including a 59ha site at the mouth of the Gironde estuary near the French city of Bordeaux.


When asked about this, a UK treasury spokesperson didn’t cite any current rule that would prevent the UK from creating free ports now. The spokesperson declined to name any of the planned locations or say how they would compare in size with Luxembourg.

Opposition politicians have quickly lined up to criticise the plan, echoing concerns about a post-Brexit Britain becoming “Singapore-on-Thames”.

Barry Gardiner, the UK’s shadow secretary for international trade, slammed the project for encouraging tax evasion, money laundering and the displacement of jobs from other parts of the country. “We’re a step closer to the prospect of the UK becoming a bargain-basement economy,” he wrote.

Back in Luxembourg, Dauvergne says that Johnson’s team should temper their enthusiasm. “It’s not a miracle solution,” he warns.

Dauvergne took over managing the Luxembourg complex in 2015 at a difficult time. The LuxLeaks scandal had just hit, exposing how multinationals had benefited from tax rulings in Luxembourg to slash their tax bills — in some cases possibly in violation of EU state-aid rules.

Free ports do offer a legal way to avoid paying duplicate import duties. For example, a wealthy collector with a $30m Picasso might temporarily park the painting in a free port to avoid paying import duties twice while they decide whether to hang the painting in their Mediterranean villa or London townhouse. But the lack of storage time limits in many facilities and their sheer tax-free status arouses suspicion.

“The moment you start something in Luxembourg that’s linked to money, you are seen as heretics by some neighbours,” explains Dauvergne. Hence the transparency campaign that began in earnest in 2017.

Since 2015, the Luxembourg complex has had to comply with the Grand Duchy’s strict anti-money laundering rules. That means the free port demands the disclosure of the beneficial, or real, ownership of any company that stores goods there. It’s a measure to discourage shell companies that no other free port around the world currently requires.

‘Very generous’

Le Freeport opened in 2014 and is still working to pay off the more-than $65m it cost to build. So even as it generates an operating profit, that money is going towards paying down its debt, Dauvergne explains. Nor is the facility as full as he’d like. His predecessor’s targets of 75% occupancy are “very generous”, he says, with the current rate at just over 50%.

Debts, elusive profits and occupancy issues have all made these projects less of a shoo-in than originally envisioned. The Luxembourg complex is co-owned by Swiss art dealer and logistics operator Yves Bouvier who has tried, so far without success, to sell his Singapore free port.

Bouvier is locked in a dispute with Russian billionaire Dmitry Rybolovlev, who accused the Swiss of secretly inflating the price of artworks he secured for the Russian, overcharging him by about $1bn in the process. Bouvier counters the billionaire was just a repeat customer willing to pay top prices to secure the artworks.

That dispute has not helped, says Dauvergne. “The situation is improving slowly. I would prefer that it improve quickly.” While Bouvier believes in the Luxembourg free port and doesn’t want to sell right now, he’s also a realist, says Dauvergne.

“Yves Bouvier is a businessman. So if tomorrow someone comes and presents him with a good offer at the right price, it’s his money.”