Wine Fraud: A Vintage Scheme

The practice of wine fraud goes back at least as far as the Roman era, and the biggest known scheme led by Rudy Kurniawan came to a head in 2012.

By Mark Scott, J.D., CFE
ACFE Research Specialist

Yes, there is such a thing as wine fraud. Its practice goes back at least as far as the Roman era, and it continues to this day.

Between November 24 and December 15, 2015, the U.S. Marshals Service auctioned off approximately 4,700 bottles of high-end wine once owned by Rudy Kurniawan, a one-time wunderkind of the fine wine scene who is now serving a 10-year prison sentence for perpetrating one of the most accomplished wine frauds in history.

The auctioned bottles of wine were confiscated from Kurniawan’s private stash by U.S. federal agents after they arrested him on March 8, 2012. The proceeds of the sales will be used to compensate Kurniawan's victims, who lost more than $28 million in the scheme.

The events surrounding these high-end wine auctions serve as a reminder that fraud does not discriminate. Any industry (even niche ones), business, association, government, organization or individual can fall victim to fraud.

Wine Fraud

Wine fraud is the intentional adulteration, dilution or misrepresentation of wines for economic gain. It is a form of counterfeiting, and it can occur through methods such as mixing juices or different wines with a lesser-valued wine, intentionally mislabeling a wine, or substituting a lesser-valued wine for one considered to be high-end.

Since the early 2000s, the demand and prices for rare wines has increased rapidly, as have the potential earnings from selling fraudulent wines. Rare and vintage wines are especially attractive to purveyors of fraudulent wines because they generally command high prices, and because of their rarity and the process by which they are made, only a limited number of people have tasted the genuine articles.

Rudy Kurniawan

Rudy Kurniawan, an Indonesian national, exploded onto the wine scene in the early 2000s, buying and selling rare wines at a tremendous pace. A charismatic and generous man with a discerning palate and an exceptional ability to identify and recall specific flavor impressions from experience, Kurniawan captivated the fine wine establishment, and in a short time, established himself as one of the world’s most prodigious wine connoisseurs.

Kurniawan bought and sold millions of dollars’ worth of rarities. He spent as much as $1 million per month to procure rare and coveted wines, and in 2006, Kurniawan sold $35 million worth of wine.

Kurniawan’s Scheme

According to court records, Kurniawan used his discerning palate and exceptional memory to mix and blend lower-priced wines to replicate the color, flavors, and character of the world’s rarest and most expensive wines. He would then pour his concoctions into empty bottles of the emulated wines and sell them to unsuspecting collectors.

When U.S. federal agents arrested Kurniawan at his home in March 2012, they discovered an elaborate workshop of equipment, tools and materials for producing counterfeit wines. Among other things, the agents found:

• Dozens of bottles
• Thousands of fake labels for some of the world’s rarest wines
• Glue, stencils, pattern scissors, drawing paper and instructions for fabricating wine labels
• Dozens of rubber stamps with vintages and winery names
• Hundreds of corks
• A mechanical device for inserting corks into bottles
• Bottle-sealing wax

How Kurniawan Made It Happen

Understandably, the Kurniawan case raises the question, “How did Kurniawan fool so many people?” Of course, there is no single answer to explain the success of his scheme, but there are several factors that contributed to its success, including Kurniawan’s reputation, lax due diligence on the part of the auction houses, the fine wine industry’s vulnerabilities to fraud and Kurniawan’s ability to exploit collectors’ desire to obtain the rarest, most expensive wines in the world.

Kurniawan's Reputation

Kurniawan's reputation helped keep him beyond suspicion and provided comfort to his buyers and the auction houses that sold wine from his collection. As a major figure in the world of fine wine, Kurniawan enjoyed a reputation as one of the world’s greatest wine aficionados. He also developed a reputation for being exceptionally generous with his wines, and consequently, many people trusted him.

Lax Due Diligence by Auction Houses

The auction houses were lax when it came to authenticating Kurniawan’s wines that they were selling. Often, auction houses do not want to risk losing consignments by painstakingly examining every bottle of debatable authenticity.

Vulnerabilities in the Fine Wine Industry

Kurniawan also exploited a variety of vulnerabilities in the fine wine industry that make it susceptible to fraud.

For one thing, wine fraud is difficult to detect and prove. Winemaking has evolved over thousands of years, and decades ago, wine packaging was not uniform, labels lacked consistency and recordkeeping practices were insufficient to establish authenticity. Consequently, generating fraudulent copies of old wines does not require a high level of exactitude.

According to Maureen Downey, an expert on counterfeit wines and founder of winefraud.com, wine cannot be authenticated by taste. Natural bottle variation is common, and wine is a living thing that changes with time.

What is more, few individuals who fall prey to wine fraud report their victimization. Such reluctance can be attributed to feelings of embarrassment from falling victim to a wine fraud or doubt that reporting is likely to result in a successful outcome.

Finally, wine fraud is not high on the list of investigative priorities for most governmental agencies, resulting in an environment where wine fraudsters are unlikely to suffer adverse consequences as a result of their schemes.

Collectors’ Desire for Rare Wines

Additionally, Kurniawan’s scheme targeted vulnerable victims — collectors who desire to acquire and experience the best and rarest wines. In the rare-wine world, covetous wine connoisseurs and collectors with deep pockets compete to buy cult wines, rare vintages, and famous labels, and often, such individuals are willing to suspend the credulity that they have acquired wines that are scarce and age worthy.

Kurniawan’s Downfall

Unfortunately for Kurniawan, his scheme began to unravel at a wine auction in 2008. He had consigned 288 bottles of wine for sale at the auction, including a 1929 Ponsot Clos de la Roche, which was produced by Domaine Ponsot. But when Laurent Ponsot, the proprietor of Domaine Ponsot, learned about the sale, he became alarmed and asked the auction house to pull the Ponsot lots. A 1929 Clos de la Roche from the Ponsot domaine did not exist because the first Ponsot Clos de la Roche wasn’t produced until 1934. Further scrutiny revealed inconsistencies in the other bottles that Kurniawan had committed to the auction, such as labels and purported age of the wines.

The auction house withdrew the Domaine Ponsot wines from the auction, and Kurniawan retreated from the wine scene.

Laurent Ponsot and Bill Koch, an American billionaire and wine collector who had spent more than $2 million on Kurniawan’s wines, began pursuing Kurniawan through legal means. Eventually, the U.S. Federal Bureau of Investigation got involved and arrested Kurniawan in 2012.

Conclusion

After a 10-day trial in 2014, Kurniawan was convicted of manufacturing and selling fraudulent wine. He was ordered to pay $24.4 million in restitution to his victims and was sentenced to serve 10 years in prison, making him the first person sentenced to imprisonment for selling fraudulent wine in the U.S. Yet, despite Kurniawan’s pioneering status in wine fraud, the fine wine industry’s counterfeiting problem did not begin with him. For as long as profits can be made from selling the world's finest wines, people will be incentivized to produce fakes.