In vino veritas

Formerly considered one of the leading wine collectors in the world, Rudy Kurniawan is now being sentenced to 10 years in prison for the biggest wine fraud in history.

"Wine," Ernest Hemingway said, "is one of the most civilized things in the world."

That may very well be true, but the recent victims of possibly the biggest wine fraud in history might beg to differ.

In August 2014, 37-year-old Rudy Kurniawan, considered one of the leading wine collectors in the world, was sentenced to 10 years in prison by a US District Court in Manhattan for having defrauded wealthy clients out of an estimated US$20 million by selling them falsely labelled wine over more than a decade.

He was also fined US$20 million and ordered to pay US$28 million in compensation to his victims. "Never before had such a severe punishment been meted out for such a crime," The Telegraph noted.

The Indonesian-born businessman (who was living illegally in the US and faces deportation after his sentence has been served) was "famed for his palate and ability to identify fine wines," reported the paper. "But it emerged he had been blending the contents of cheap bottles in the kitchen of the home he shared with his mother," and applying fake labels onto the bottles.

His well-heeled client list — which included American billionaire William Koch (who has a wine cellar of 43,000 bottles); David Doyle, the founder of Quest Software; and Andrew Hobson, the CFO of Univision — believed they were purchasing extremely rare and expensive wines. "Kurniawan was able to make them believe that his bottles were both real and rare because of his reputation for an encyclopedic cellar and a finely tuned palate," said The New York Times.

The man who unmasked the California-based fraudster was not happy with the sentence, despite its harshness. "Twenty years would have been more satisfactory, considering how he has sullied the image and integrity of the wine appellations of Burgundy, Bordeaux and beyond," French wine expert Laurent Ponsot told The Telegraph. "Kurniawan gave the entire planet the impression that falsifying wine can make you a whole lot of money, so the sentence had to be very, very severe."

Ponsot told the newspaper that he began a crusade to expose Kurniawan in April 2008. Ponsot had been told that 97 bottles from his estate, which is one of the most illustrious in Burgundy, were up for auction in New York.

He attended the sale unannounced and, upon seeing the details of the bottles, informed the auction house that some had to be fakes. "The consignment included one bottle of 1929 Ponsot Clos de la Roche, which the domain did not produce under its own label until 1934," The Telegraph said. "Also for sale were 38 bottles of another Ponsot grand cru, Clos Saint-Denis, from the years 1945 through 1971. But the winery had not started making Clos Saint-Denis until 1982."

As soon as Ponsot pointed out these discrepancies, the auction house withdrew all the Ponsot bottles. The next day, Ponsot had lunch with Kurniawan, whom he found to be evasive. "I knew he was a crook from the moment I set eyes on him," Ponsot says. "He was ill at ease, stared at his plate and wouldn’t meet my gaze."

Ponsot was determined to bring Kurniawan to justice, but it would take years and several hundred thousand dollars of his own money, which he spent on private investigators.

His efforts, which he coordinated with the FBI’s art theft unit, resulted in a March 2012 raid at Kurniawan’s home, where they found, among other evidence, about 19,000 fake labels from some of the most sought-after wines from Burgundy and Bordeaux, as well as aged corks.

During the subsequent trial, Kurniawan’s lawyer managed to aggravate Judge Richard M. Berman by arguing that his client, who had used his fraudulently obtained money to live an excessively lavish lifestyle, had ultimately caused negligible harm and deserved a lenient sentence. "Nobody died," his lawyer said. "Nobody lost their job. Nobody lost their savings."

To which Judge Berman asked: "Is the principle that if you’re rich then the person who did the defrauding shouldn’t be punished?"

Federal prosecutor Stanley Okula Jr. reiterated that point, finding it shocking that the defence lawyer would suggest that fraud against rich people should be seen in a different, and less harsh, light. "Fraud is fraud," he said. "There is no distinction in the guidelines, or in logic, for treating it differently."

Kurniawan, however, was by no means the only fraudster reaping huge profits from wine fraud. In December 2013, the Daily Mail reported, a "billionaire businessman unknowingly spent more than £3 million [$5.7 million] on between 500 and 600 bottles of counterfeit Bordeaux wine. Others are believed to have spent similar amounts of money, but are too embarrassed to confess to being the victims of fraud".  

The newspaper’s story said the bottles, most of which "were picked up in China," were exposed as frauds "at a specialist lab in Bordeaux, run by the French Finance Ministry."

With the price for genuine rare wines ever increasing, especially in Asia, fraudsters have found they can make staggering profits by producing fakes.

"Many purchase old, empty bottles from the most prestigious French vineyards, so that the wine passes tests that sample the bottle’s glass or inspect the label," the newspaper reported. "A recent search on eBay revealed several old, empty bottles were for sale, including a 1958 Château Lafite Rothschild, a 1928 Château Margaux and a 1971 Romanée-Conti — all of which are some of the most counterfeited wines."

To counteract fraud, some wineries are now laser-engraving their bottles with unique serial numbers, or using holograms or bar-code stickers. "The Bordeaux winegrowers’ professional association has even created an app — called Smart Bordeaux, which provides information on individual wines and wineries," the paper said.

For the average wine consumer, however, distinguishing a fake from a genuine bottle can be difficult, the BBC reported, noting that wine fraud goes back to at least the days of classical Rome. The network estimated that "over 5% of wine consigned and sold at auction is fake."

Ponsot testified at Kurniawan’s trial that, in his estimation, about 80% of pre-1980 bottles available at auctions from Burgundy’s top-four domains, including his own, are likely fakes.

An untrained palate could easily be fooled into thinking a young, inexpensive wine was actually much older and more valuable. "By blending the fruitiness of a new wine with the aged character of the old wine [Kurniawan] would approximate in some manner a very, very good aged Burgundy," wine chemist Andrew Waterhouse told the BBC.

A sophisticated wine drinker, however, should be able to spot the charade, he said. "There is a distinctive taste in aged wine — [that of] canned asparagus." Old wines, especially from regions such as Burgundy and Bordeaux, "have lost the majority of their tannins, giving them a softer taste reminiscent of the vegetable," the BBC explained.

To help those concerned about becoming victims of wine fraud, Maureen Downey, often billed as the world’s top wine fraud investigator, launched a subscription website in late spring to assist vendors and buyers of rare wines with information about wine counterfeiting and authentication.

Downey, who had been suspicious of Kurniawan from the day she met him while she worked at an auction house in the early 2000s, calls her website winefraud.com. In an April 2014 interview with decanter.com, she told of a recent client who asked her to examine potentially problematic bottles.

"Downey had them professionally photographed before forensically inspecting the glass, label, cork and capsule of each," decanter.com said. "The tools of her trade are surprisingly basic: a magnifying glass, jeweller’s loupe, torch, box cutters and Kleenex. ‘It’s slow, labour-intensive work. I can only really process about 30 bottles a day,’ she says. In the end, Downey concluded that only three wines were genuine. The other 37 had cost US$2.4 million from a London retailer, which shortly received Downey’s discreet and comprehensive report. ‘That’s how my client gets his money back. Every vendor we’ve sent a report to, saying our client was robbed, has paid up.’"

Koch agrees that few victims want to admit they’ve been duped. "He said many businessmen opt to swallow their losses, instead of admitting their own ignorance, adding: ‘There’s a code of silence in the entire industry,’" the Daily Mail said. "Fabien Teitgen, who is in charge of winemaking at Château Smith Haut Lafitte in Bordeaux [said]: ‘I think the ostrich strategy — hiding yourself and saying we’ll figure it out later — is not satisfying. It is best to speak about it openly and let consumers know what means there are to verify that they have the right product.’"

Perhaps the snobbery sometimes associated with amateur wine enthusiasts, who pretend to know more than they actually do, also makes some victims reluctant to admit they’ve been taken. Perhaps they should take advice from former US secretary of state Colin Powell, who once said: "Bad news isn’t wine. It doesn’t improve with age." Let’s drink to that.

About the Author

David Malamed


David Malamed, CPA, CA•IFA, CPA (Ill.), CCF, CFE, CFI, is a partner in forensic accounting at Grant Thornton LLP in Toronto.

comments powered by Disqus

Highlights

Our Firm Directory allows you to search for Canadian CPA firms using our interactive map as well as other criteria.

Jointly presented by CPA Canada and CPA Ontario, The ONE is the must-attend, multi-track event of the year, designed for all CPAs who want to be at the top of their game.