Luxury watch money laundering is simple enough. The criminal buys an expensive watch with dirty money, then sells it for “clean” cash. Or doesn’t sell it . . . [Note: Except for the above image, pictures do not imply money laundering activity.]
He can take a loan against the watch (deducting interest payments from his taxes) or trade it for drugs from suppliers. Who can smuggle the watch into their country and sell it or keep it as an asset (not an investment).
Here’s a story from Down Under illustrating the scope of the luxury watch money laundering problem.
A police raid on a bikie’s home has uncovered a rare wristwatch worth $1million and a Ferrari F12 coupe – both of which police are now trying to seize. Comanchero Bradley Colin Peters, 38, was arrested in June last year at his Middleton Grange home in Sydney‘s south-west as part of a two-day series of raids by NSW police detectives targeting figures allegedly linked to the city’s underworld.
dailymail.co.uk
Peters, who is now behind bars, is charged with 25 offences including possessing unauthorised firearms and ammunition, supplying a large quantity of drugs, directing activities of a criminal group and dealing in the proceeds of crime.
Mr. Peters didn’t buy an Audemars Piguet Royal Oak Concept GMT (above) because he loves watches. Nor did he buy it to flex. He did it as part of a luxury watch money laundering scheme. But don’t take my word for it.
A police source said bikies’ love of flashy watches and expensive jewellery often has little to do with their fondness for fashion. You can’t put $1million in your bank account but you can fly out of the country wearing it on your wrist and then sell it overseas,’ the insider told the The Daily Telegraph.
The story raises more questions than it answers. From whom did Mr. Peters buy his watch? Was it a private sale? Could be.
In this country, the IRS says “if you’re in a trade or business and receive more than $10,000 in cash in a single transaction or in related transactions, you must file Form 8300.”
For some strange reason, a lot of companies forget to do so, risking up to a $500k fine and three years in jail, plus the prosecution’s costs.
Australia has the same requirement (in Aussie dollars). In both cases, if you’re not “in the trade or business” of selling watches, there’s no obligation to file. So a luxury watch money laundering scheme “between friends” is a distinct possibility.
That said, at the million dollar level, it’s likely Mr. Peters washed his money through a shell corporation (named in the article) first.
Alternatively, perhaps Mr. Peters bought his Audemars Piguet Royal Oak Concept GMT from someone “in the trade” (after channeling the cash through a shell corporation).
To charge an authorized watch dealer with money laundering, the authorities have to prove the dealer knowingly accepted dirty money. If a bad guy pays with a check from a corporate entity or hires a credible proxy, who’s to know?
This much we know for sure: the BIG money watch purchases happen at auction houses.
I’m not saying that the Phillips and Sotheby’s of this world are selling million-dollar-plus watches to criminals. After several “embarrassments,” in-house anti-money laundering (AML) teams are on the case at all the prestige auction houses.
Nevertheless, the art world remains a laundromat for cartel leaders, oligarchs, vicious autocrats and other people you wouldn’t want to meet in a dark alley.
The American art market has a huge loophole: dealers. Watch dealers selling or bidding at big dollar watch auctions don’t have to reveal their client’s identity.
Mr. Peters could have bought his Audemars Piguet from a dealer in the U.S. – or put it in auction through one – and remained anonymous.
How many successful criminals (until they’re not) like Mr. Peters own expensive watches, cars, art, houses, boats and/or real estate? All of them. How many gang bangers wear expensive not-say-gaudy AF watches bought with ill-gotten gains? All of them too.
For obvious reasons, the impact of money laundering on luxury watch prices is impossible to measure.
At the lower end of the market, the number of criminals buying Rolex and the like to clean cash probably represents a small percentage of total buyers. The lower end of the luxury watch market is crashing. The illegal drug market – and related criminal pursuits – is not. No correlation, no causation.
The high-end pre-loved vintage and luxury market, like the high-end art and collectible car market, is where money laundering is rife. In 2018, the U.N. pegged art-related money laundering at $3b per year. While a small percentage of that [conservative] number is watch-related, I suspect it’s enough to inflate prices.
Does that matter? Only in the sense that money laundering enables crime, including human trafficking and terrorism.
What could be done to better limit luxury watch money laundering? Congress could extend the Bank Secrecy Act‘s AML reporting requirements to all watch/art dealers. The art industry opposes the change, citing competition and client security.
Meanwhile, the new South Wales Police have a million dollar Audemars Piguet they want to sell.