Duty Free: Life and Luxury beyond the Nation-State

CAPITALISM, 2 Dec 2024

Vanessa Ogle | The Nation - TRANSCEND Media Service

A mall in Dubai, United Arab Emirates.  (Beata Zawrzel / Getty)

Dec 2024 Issue – Consider the peculiarities of Svalbard, an archipelago in the Arctic Ocean midway between the North Pole and the northern coast of Norway: Its territory technically belongs to Norway (though “technically” is doing some heavy lifting here). Its laws are written by Norway. The governor of Svalbard is Norwegian. Kids learn Norwegian in Svalbard’s Norwegian schools. You would be forgiven for thinking that these nearly 24,000 square miles of territory are simply a group of islands that form a part of Norway. But a closer look reveals that the archipelago’s islands are not quite under Norway’s sovereignty. Some of the taxes that apply on the Norwegian mainland do not exist in Svalbard. Norway, as well as the 47 other countries that are signatories to the Svalbard Treaty, is also prohibited from using Svalbard for military purposes. After you land at Svalbard’s international airport, you can exit without clearing a visa check or any other immigration control. Svalbard is the only place in the world where anyone, from anywhere, is free to live (as long as they can find a job in the area). In Svalbard, one of the defining features of the state has been suspended: power over the movement of people into its territory.

It is tempting to see Svalbard as an anomaly, a leftover from a bygone era. After all, the treaty that established the archipelago’s unusual status was ratified in 1920, when most of Europe’s old, multiethnic land empires were being cut up into new nation-states. But Svalbard does not resemble the other, more typical forms of sovereignty established in this era: A territory under one state’s control, it is a place where individuals can enter and live as they wish, where not all the laws of the state apply, and where military activities are almost entirely prohibited. If anything, Svalbard illustrates how our familiar world of nation-states has coexisted for a long time with a different kind of world map. Svalbard is not an oddity out of time but represents scores of other such sites that are everywhere around us today, hiding in plain sight.

This is the assertion underlying The Hidden Globe, a new book by Atossa Araxia Abrahamian. Svalbard, Abrahamian argues, is part of a wider world of jurisdictions with unusual sovereignty arrangements. Taking readers on an engrossing journey to some of these sites, from Geneva to Dubai to a former Soviet cruise ship to the special economic zone of Boten on the border of Laos and China, The Hidden Globe examines an “accretion of cracks and concessions, suspensions and abstractions, carve-outs and free zones,” and a range of other places without nationality in the conventional sense. Abrahamian makes clear that while this hidden globe exists primarily for the benefit of the rich, these same cracks between jurisdictions also tend to relegate some of the world’s poorest and most vulnerable populations to legal limbo and extended precarity. The flip side of the rich man dodging his obligations is the poor man deprived of his rights.

Abrahamian is a perfect guide for exploring this hidden globe. She grew up in Geneva, Switzerland, and always felt there was something a bit off about the city on the lake. Sure, some of it could perhaps be chalked up to the countless international organizations and NGOs that call Geneva home, among them many affiliated with the United Nations, with its duty-free shops, international schools, and convenient freedom from paying parking tickets.

But this was not the whole story. It was only when Abrahamian returned years later, now as journalist deeply interested in how sovereignty can be twisted and manipulated, that she realized where her slight sense of unease came from. Just off Geneva’s main shopping arteries in the center of the city sit the offices of some of Switzerland’s oldest private banks: institutions that date back as far as the 18th century and have always catered to wealthy foreigners hoping to evade the laws of their own lands. Geneva and its banks are, of course, governed by Swiss law, but this legal regime—especially the country’s bank secrecy laws—and Switzerland’s tradition of neutrality have created a realm of legal loopholes and tax exceptions for companies, bankers, and foreign multinationals.

Another legal black hole in Geneva is its free port. Free ports, also known as foreign-trade zones or free economic zones, are everywhere around us. There are 193 active foreign-trade zones in the United States. These designated areas are often near airports, seaports, or border crossings and come in the form of warehouses, entire districts, or simply a floor within an office building. Goods can move across a country’s borders and enter a free port without technically being in the country and becoming subject to its tariffs and other taxes for imports and exports. They may leave just as swiftly, without much of a trace. Geneva’s free port not only exempts the goods that move in and out of it from tariffs and other fees; the city of Geneva has also kindly waived local sales taxes for the facility.

To tell the story of free ports, Abrahamian introduces us to Yves Bouvier, a Geneva-born art dealer. Bouvier expanded his family’s moving company into a business that specialized in transporting and storing expensive pieces of art. During the 1990s, he rented a small space in an unassuming industrial building near the center of Geneva. That warehouse was part of the city’s free port, which was established in 1888 primarily to store grain. Now it stores other forms of wealth held by the superrich: art, gems, jewelry, and even wine collections. In the wake of the 2008 financial crash, Abrahamian explains, many wealthy individuals began diversifying away from stocks and bonds, and Bouvier offered to help them store these new forms of assets.

One of Bouvier’s clients was Dmitry Rybolovlev, a Russian billionaire oligarch and one of the richest men in the world. (His wealth was estimated at $6.7 billion in 2021.) Rybolovlev arrived in Geneva in the 1990s and began to assemble an impressive art collection—always a smart move for someone looking to ingratiate themselves with high society—and sometime around 2002, Bouvier started to help him identify, buy, and store these works, all while netting considerable commission payments. Rybolovlev’s treasures soon included a Modigliani nude, Rothko’s No. 6, and Picasso’s Musketeer With Pipe.

Bouvier arranged the sales of some of Rybolovlev’s art through convoluted chains of shell companies in tax havens like Singapore, the British Virgin Islands, and Hong Kong. In the meantime, he expanded his free-port activities into Singapore, where he invested in a new warehouse facility next to Changi airport. Another such venture followed in Luxembourg. Everything seemed to be going according to plan, until Rybolovlev became convinced that Bouvier was ripping him off by overcharging for the art that Bouvier bought and then sold to the Russian. Numerous lawsuits followed, though in the end, none of Rybolovlev’s charges stuck, and the two men reached a settlement. While Bouvier claims he won, “winning” is relative here: He sold off his stake in the Geneva free port in 2017, and in 2022 he sold the Singapore free port to a Chinese cryptocurrency billionaire for less than half its original value.

Another citizen of the hidden globe that Abrahamian introduces us to is Marc Beer, an Oxford-educated British lawyer who consults for numerous governments and companies. Beer is arguably a specialist in running international court systems in autocracies. While working for Mastercard in Dubai, he became interested in the city-state’s so-called Dubai International Financial Center. Stretching across 110 acres of prime land in the emirate and home to more than 5,500 registered companies, the DIFC was set up in 2004 alongside several other special zones, offering the usual massive tax breaks and lax oversight as incentives. But there was a hitch: The international cast of investors and companies that Dubai hoped to lure into the DIFC would likely not appreciate the prospect of landing before an Arabic-speaking court that was based on civil rather than common law if things went south (common law dominates in the Anglophone world). To address this problem, Dubai explored an interesting solution: What if it could create a free zone for law, a court stitched together from bits and pieces of jurisprudence taken from a variety of traditions and national contexts—a truly international court, with international judges, detached from any one territory?

The court started operating slowly in 2005, and Beer became its chief administrator three years later. Other countries took note, and independent commercial courts soon proliferated. One such offshoot cropped up in Kazakhstan, once again with Beer’s involvement. In 2018, Kazakhstan’s then–autocrat in chief, Nursultan Nazarbayev, opened the Astana International Financial Center, complete with a DIFC-style court. In 2022, the country became engulfed in unprecedented popular unrest. Nazarbayev, his family, and their oligarchic cronies and allies had been embroiled in large-scale corruption for years, while the rest of the population was left behind. When Nazarbayev stepped down, his successor called in Russian troops to violently quell the unrest. Cookie-cutter legal systems like the DIFC and the AIFC can lend legitimacy to authoritarian regimes by offering sanitized business laws without civil and human rights attached. For his part, Beer proclaims that there is no jurisdiction where he wouldn’t work if he felt it was moving things along in the right direction.

Men like Bouvier and Beer don’t appear overly political, and Abrahamian is rightly skeptical about applying a single ideological label to the creators of the hidden globe. Their ranks are too diverse to warrant being grouped together as libertarians or even just as adherents of a free market creed. They seem to be driven by the more mundane goal of creating and subsequently exploiting opportunities to make money—ideally, a lot of it.

Likewise, it is not always clear whether Bouvier’s free ports or Beer’s portable courts really represent a new form of capitalism. A rich literature on free zones and similar legal exceptions has identified them as expressions of the neoliberalism that flourished in the 1980s and ’90s, enclaves where state oversight, regulation, and taxes were deliberately rolled back. But as Abrahamian makes clear, the time lines don’t always match up. Many of the sites that make up her hidden globe originated much earlier.

Historians trace the origins of free ports to 16th-century Europe and the 17th-century Caribbean. The creation of extraterritorial courts for foreigners, with laws different from those of the surrounding country, is understood as a common feature of 19th-century European imperialism. At various points during the 20th century, such precursors were reimagined and refashioned to serve different needs and interests, as Abrahamian lays out. The most recent iterations of creating a world map beyond the familiar one of nation-states by people such as Bouvier and Beer were grafted on to these earlier experiments. The result is a parallel world of jurisdictions that allows the superrich to skirt laws and taxes with the goal of amassing (and eventually passing on to their offspring) ever-greater fortunes even faster. The accumulation of wealth is ostensibly the ideology of the hidden globe. Free ports and extraterritorial courts such as the DIFC’s are sites where the wealthy have managed to hack the laws and bend the rules in their favor, either through direct influence on lawmakers or because governments see it as the only way to attract money and investments.

But as Abrahamian also chronicles, it doesn’t take much to get from money to money laundering. Illicit funds and criminal activities thrive in many such jurisdictions. It is, moreover, a short step from enriching the already rich to further impoverishing the already poor. One of the most innovative contributions of The Hidden Globe is to highlight how these realms outside the governance of nation-states offer unchecked privilege and wealth for a select few while also increasing some of the most extreme forms of vulnerability and precarity that exist today.

The same legal fictions that allow a British millionaire to maintain a fictitious residence in Singapore to avoid taxes, for example, or a shipowner to reflag a vessel to the shipping tax haven of Palau to avoid environmental regulations, enable countries to shirk their obligations to migrants and refugees. The offshoring of migration control is not new, nor is it limited to specific countries. As the sociologist David Scott FitzGerald has shown, US authorities have been pressuring Mexico for decades to act as a buffer state and keep Central American migrants away from the US border. Frontex, the European Union’s border and coast guard agency, cooperates with several West African countries to prevent refugees from reaching Europe. Libya’s notoriously abusive coast guard is financed by the EU. The goal of such operations is to keep migrants from reaching American and European soil, where they can apply for asylum and claim certain rights. Readers might have encountered a sanitized version of such border extraterritoriality when, before boarding a plane to the United States from Canada or Ireland, they had to clear an immigration check at the airport in Toronto or Dublin with agents from US Customs and Border Protection. As if by magic, America’s borders have been moved far away from American soil.

In some instances, more intricate legal acrobatics are needed to make such fictions work. As Abrahamian recounts, in 2013, Abdul Aziz Muhamat, a young man from Sudan, was seeking to escape political persecution in his conflict-ravaged country. Via Indonesia, he hoped to reach New Zealand and claim asylum there. Instead, the ship that was meant to carry him to safety failed at sea and was intercepted by the Australian navy. The Australians brought Aziz and his fellow passengers to Christmas Island, an Australian external territory in the Indian Ocean. From there, Aziz was moved to Manus, an island in Papua New Guinea between Indonesia and Australia.

Aziz lived in a migrant detention center on Manus for most of his 20s, without having committed a crime. Manus was a so-called offshore processing center established by the Australian government in 2001, along with Nauru, another small island in the southwestern Pacific. Back then, Australia had moved to radically restrict migration into the country. Yet here, the trick was not to expand Australia’s borders outward but to move them inward by excising certain islands from Australia’s territory, where international treaties on human rights and other obligations toward migrants applied. Henceforth, Christmas Island, Ashmore and Cartier islands, Cocos Island, and several other small islands and ports were technically no longer part of Australia in the full sense of immigration law. Migrants arriving by boat on one of these islands without a visa could now be moved to offshore processing centers on Nauru or Manus.

Recounting Nauru’s modern history, Abrahamian shows how the island embodies the ambiguities of sovereignty and the blurred boundaries between private corporate interests and state power that are so characteristic of the hidden globe. For centuries, Nauru was inhabited by Polynesian and Micronesian explorers, until German colonizers annexed it in 1888 and made it part of Germany’s protectorate in the Marshall Islands. Around 1900, British prospectors discovered vast reserves of phosphate, a powerful fertilizer, on Nauru. Mining began there, and private companies, rather than any one state, essentially ran the show. After World War I, Nauru became a League of Nations mandate territory, and Australia, Britain, and New Zealand carried out the day-to-day administration. In practice, Australian phosphate interests again called the shots. After World War II, the United Nations assigned Nauru the status of a trust territory under Australian control, until it achieved independence in 1968. The companies that extracted Nauru’s phosphate riches couldn’t have cared less about environmental degradation or the sustainability of such practices. In 1989, Nauru sued Australia before the International Court of Justice for breaching its trustee responsibilities, destroying Nauru’s natural environment, and failing to rehabilitate the island. Australia ponied up AU$107 million in a settlement. Soon thereafter, Australian authorities arrived with another plan: immigration prisons on the island. Nauruans, hardly to blame for their predicament, obliged. (By the early 2000s, the island’s supply of phosphate had been depleted.)

A lesser-known episode in the history of Nauru illustrates just how closely entwined the escapism of the rich is with the creation of rights-free zones that gobble up the world’s poorest and weakest. For a brief period in the early 1970s, after achieving independence, Nauru looked as though it might choose the bolt-holes for the wealthy version of the hidden globe. In 1972, the island passed the kind of trust, banking, and company legislation that sets up a country as a tax haven, as a means of diversifying its economy away from phosphate. These efforts never really took off, not least because the Nauru officials involved with these plans don’t seem to have fully embraced them (although they would try again in the 1990s, only to end up with tens of billions of dollars in illicit funds flowing through Nauru’s banks). In its efforts to attract Australian trust and company registrations, moreover, Nauru faced stiff competition from the tax haven known today as Vanuatu, which in the 1970s was a Franco-British colonial outpost in the South Pacific called the New Hebrides. And so, for Nauru, it was all phosphate again, all the way to the end. In the 1970s, Australian officials complained bitterly about several tax havens emerging in the island territories in the country’s backyard, including Nauru, chastising those who promoted offshore legal loopholes and created opportunities to avoid Australian law. Thirty years later, it was Australia that created evasion zones where it could avoid its obligations to refugees, including on Nauru.

Yet Nauru is no exception. Indeed, it’s just one of the many examples in Abrahamian’s book that illustrate the same point: While the rich get to pass through the hidden globe liberated and undisturbed, these domains outside the jurisdiction of one state or another can also become zones of unfreedom. Even in Svalbard, with its ostensible freedom of movement and immigration, the inequalities of the hidden globe are present. To get to Svalbard, you need to have the requisite papers (as well as the money to buy a plane ticket) to transit through the Norwegian airports of Oslo and Tromsø and thus be allowed to enter the Schengen Area—which is visa-free for the holders of EU passports but requires visas and processing times for others. Once in Svalbard, you’ll also find the opposite of the welfare largesse that Americans think of when it comes to Scandinavia—minimal social services, the better to keep out the world’s downtrodden. In 2015, a right-wing Norwegian politician proposed sending immigrants north to Svalbard instead of settling them on the mainland. It was not intended as a display of generosity. And yet, in a world in which environmental disasters and climate change will soon displace millions, Abrahamian contends that we need a dramatic rethink of migration and borders, one that views Svalbard and the cracks that open up between jurisdictions as a proposition for creating spaces of refuge. In the meantime, the hidden globe continues to skim off revenue from countries where such funds could be used to fortify protections against the effects of climate change, including for the most vulnerable.

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Vanessa Ogle teaches economic history at Yale University and is finishing a book on the history of offshore capitalism for Viking.

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