Introduction
When most people hear “Customer Due Diligence (CDD),” they picture banks collecting IDs, verifying beneficial owners, and screening against sanctions lists. But what if some of the most attractive laundering vehicles sit outside banks altogether?
Enter the world of freeports: high-security warehouses where art, jewelry, wine, and other luxury goods change hands quietly, often with little scrutiny.
These glittering vaults — in Geneva, Luxembourg, Singapore, and Delaware — are marketed as tax-efficient storage and trading hubs. Yet for criminals, they represent something else: a way to move millions undetected, outside traditional financial institutions.
Why Freeports Are the Perfect Laundering Tool
Freeports thrive on three features that also make them attractive to financial criminals:
- Opacity
Transactions in freeports often involve private dealers, shell companies, and intermediaries. Ownership changes are rarely disclosed to regulators. - Portability & Value Density
A single diamond, painting, or watch can carry millions in value — far easier to move than suitcases of cash. - Jurisdictional Arbitrage
Freeports are deliberately structured as “customs-neutral zones,” meaning goods can be bought, sold, and stored indefinitely without triggering customs duties or tax disclosures. - Lack of Financial Intermediaries
Banks face stringent AML rules under FATF’s Recommendations 10 and 12. But freeports and many luxury dealers remain patchily regulated, creating parallel systems with weak CDD obligations.
The Numbers Behind the Loophole
- According to the UNODC, the global trade in illicit art and antiquities is worth USD 6–8 billion annually.
- FATF estimates that trade-based money laundering (TBML), which overlaps with luxury goods and freeports, moves between USD 500 billion and 1.5 trillion per year.
- Geneva’s Freeport reportedly holds over 1.2 million artworks — more than most major museums combined. Yet much of this inventory is shielded from public or regulatory view.
In short: billions sit in these high-security vaults, often beyond the reach of compliance officers.
Real-World Cases
- 1MDB Scandal (Malaysia): Stolen sovereign wealth funds laundered through luxury paintings and jewelry, some routed via private dealers.
- Singapore’s S$3B Luxury Scandal (2023): Arrested suspects laundered billions through high-value cars, watches, and wine — often held in warehouses and traded without transparent ownership.
- Russian Sanctions (Post-2022): Reports emerged of sanctioned oligarchs moving art and collectibles into freeports, shielding them from asset freezes.
Each case underscores the same pattern: when banks close their doors, criminals turn to non-financial channels.
Why CDD Beyond Banks Matters
Traditional AML frameworks place the heaviest burden on financial institutions. But FATF’s Recommendation 22 makes it clear: Designated Non-Financial Businesses and Professions (DNFBPs) — including dealers in precious metals, art, and real estate — also carry CDD obligations.
The reality? Enforcement is patchy.
- Some countries have extended CDD to art dealers (e.g., EU’s 5th AMLD).
- Others still treat freeports and luxury sectors as “low risk,” despite overwhelming evidence to the contrary.
This mismatch creates a regulatory arbitrage problem: criminals simply move activity to the weakest-regulated sector.
Where Banks Still Play a Role
Ironically, while freeports sit “outside banks,” financial institutions are not off the hook. Consider:
- Wealth managers financing art or wine purchases.
- Banks handling wires to freeport operators.
- Private equity or family offices using freeports to collateralize alternative assets.
👉 If these flows aren’t linked to robust CDD, banks can end up facilitating laundering indirectly — even when they never touch the asset itself.
The Way Forward: Closing the Freeport Loophole
1. Extend AML/CFT Standards to Freeports
Regulators should require freeports and luxury dealers to follow CDD, record-keeping, and STR filing standards — not just banks.
2. Create Cross-Sector CDD Registries
Banks, auction houses, freeports, and insurers should share beneficial ownership data via secure utilities. This would stop criminals from exploiting silos.
3. Leverage Technology
- Blockchain registries for art and luxury assets could track provenance and ownership transfers.
- AI-powered trade analytics can detect price manipulation in high-value goods.
4. Target Gatekeepers
Auction houses, dealers, and insurers are the critical “gatekeepers.” Holding them accountable for CDD is key.
5. Global Coordination
Without harmonized rules, criminals will “forum shop” across freeports in different jurisdictions. FATF should push for consistent oversight.
The Human Factor: Analysts Beyond Banking
For compliance professionals, this shift signals opportunity. Careers in Financial Crime Compliance (FCC) will increasingly extend beyond banks into:
- Art and auction houses.
- Insurance firms underwriting collectibles.
- Luxury dealers and freeports.
- Customs and trade authorities.
Certifications like NISM-CALM, IIBF KYC/AML, and CFCA will prepare analysts not just for banking roles but for non-financial sectors now under the AML spotlight.
Conclusion
The freeport loophole reminds us of a core truth: money laundering doesn’t respect sector boundaries.
As banks tighten CDD, criminals migrate to luxury markets, freeports, and alternative assets. Unless regulators and industry actors extend AML standards beyond traditional finance, the system will remain one step behind.
The question is: will policymakers treat freeports as the next frontier of AML, or will they remain the last great safe haven for illicit wealth?
The answer will define whether CDD can truly protect the integrity of the financial system.