The Noir Market

By Nicholas Piccone

Early Christmas morning in 2014, the front door of the iconic Napa Valley restaurant French Laundry was greeted not by Saint Nick, but by an unknown masked man whose intrusion would only be discovered the following day. The burglar, however, was not after the cash in the vault nor the expensive décor of the restaurant.

Owner Thomas Keller and investigators instead found that the wine cellar had been pried open with a simple crowbar, a task made infinitely easier given that the normal ultra-secure state-of-the-art security system was disabled and that the building was in the midst of a large-scale renovation. Moreover, French Laundry does not possess an ordinary wine collection, even for a three Michelin-starred restaurant; in fact, its wine collection is likely to be worth more than most people’s homes. The thief was also no ordinary thief—he meticulously chose 76 of the finest bottles that totaled over $300,000 in value, an average price per bottle of almost $4,000, and left all else untouched.

This burglary represents neither the first nor the last of its kind in the area. On the same day, Prima, a high-end wine shop and restaurant outside of Oakland, experienced a failed robbery attempt that was only foiled due to a new alarm system installed after a February 2013 thief made off with tens of thousands of dollars of Bordeaux and Burgundy wines. Similarly, The Plumed Horse, a Michelin-starred restaurant an hour south, was burglarized in January of 2013, weeks before Prima, and had thousands of dollars in similar wine stolen from its cellar. Redd, another Napa Valley restaurant merely a mile away from French Laundry, had 24 rare and expensive bottles stolen after a burglar simply smashed a window with a hammer to gain entry January 2014. While all these crimes remain unsolved, Thomas Keller remains the lone owner who was lucky enough to recover much of his restaurant’s pilfered wine. However, they were recovered 3,000 miles across the country in Greensborough, North Carolina: how the French Laundry wine got there and who brought it there still remains a mystery.

Interestingly, all of these break-ins have involved both a crude choice of tools such as crowbars, hammers, and ladders, and yet an exquisite selection of specific vineyards and vintages. The combination of everyday tools and extraordinary bottles suggests that these ordinary criminals act either directly for an informed “customer” or know their target audience exceedingly well. A Thanksgiving Day 2013 robbery at a Seattle wine warehouse further reinforced this notion, in which thieves simply disabled motion detectors, spray-painted cameras, and stole $650,000 worth of wine before leaving a gas leak that destroyed the warehouse. Unlike the aforementioned restaurant robberies, the perpetrators were caught, allowing authorities to confirm suspicions that these thieves were everyday burglars, not experienced wine sellers.

While high-end robberies continue to become a growing concern across the wine community, counterfeit wine remains an even larger obstacle to overcome. Take the example of Bill Koch, billionaire and member of the famed Koch Industries family, who in 2005 bought four bottles of wine allegedly from Thomas Jefferson’s personal cellar for an estimated $500,000 only to discover that all were counterfeit. In fact, Koch estimates that he has lost $25 to 30 million in purchases of fake wine over the course of his lifetime. A large bloc of his fraudulent purchases—211 bottles worth $2 million—could be traced back to an Indonesian wine seller named Rudy Kurniawan. When the FBI raided Kurniawan’s operation in March 2012, they found repurposed old corks and over 19,000 fake labels from 27 of the world’s finest producers littering his home, which was cooled to 59 degrees (the temperature of a wine cellar). He was later sentenced to ten years in prison for selling an estimated $130 million in counterfeit wine. In the wake of Kurniawan’s arrest, the auction market for fine wine actually shrunk as much as 20% for a brief period due to hesitance in spending such hefty sums on potentially fake products.

Although the discovery of Kurniawan’s counterfeit operation shocked many and awoke the industry to how great the threat of fake wine could be, the global auction market has continued to grow. While estimates vary for how much counterfeit wine is currently in circulation, lifestyle magazine Wine Spectator estimates it to be around 5%, while French newspaper Sud Oest puts that number as high as 20%. Some of the most commonly faked wines include Bordeaux First Growth chateaux such as Chateau Lafite-Rothschild, Napa Valley estates like Screaming Eagle or Opus One, or Burgundy Grand Crus such as Domaine de la Romanée Conti, which runs as high as $25,000 a bottle for certain vintages. In fact, according to the 2013 documentary “Red Obsession,” there are currently more bottles of 1982 Chateau Lafite circulating auction houses than were ever actually produced by the estate. Although it is impossible to know the exact size of the black market for fine wine, Michael Egan, a counterfeit wine specialist, estimates the total black market for wine to be at least $100 million. This number could prove to be even larger considering that many fake products go unreported; private collectors frequently exchange wines and many collectors refuse to report fake wine out of embarrassment.

The explosion of the wine market is a very recent occurrence that has been driven by high demand and soaring prices. For example, a bottle of Chateau Lafite retailed for a few hundred dollars in the mid-1990s now sells for over $2,000. Wine experts point to one culprit for this massive price inflation: the Bao Fa Hu of China. With a name literally translating to “explosive rich,” they have contributed heavily to the growth of the wine-collecting market from $90 million in 2002 to over $300 million by 2013. Many of these nouveau riche Chinese businessmen have become infatuated with Western cultural status symbols and eye top-quality wine as a means of displaying their wealth and connections to the West. Their presence in the market has also likely increased the incentive for burglars to steal high-end wine—the thieves will receive higher prices from buyers who are desperate to find certain bottles or vintages.

Apart from simply boosting demand, China has contributed to the explosion in the black market wine market through poor record keeping of production and sale for older vintages as well as relaxed copyright laws. The lack of records and security measures such as serial number identification make many stolen bottles hard to track or many counterfeit wines to be passed off as authentic. Furthermore, the relaxed copyright laws enable counterfeiters to operate more freely in the nation and to imitate brands in order to fool inexperienced Chinese buyers. The Comité National des Conseillers du Commerce Extérieur de la France (CNCCEF), a foreign trade group, currently estimates that there is one counterfeit bottle of foreign wine for every real bottle in China. The estimate not only accounts for ultra-expensive fine wines but also everyday table wines.

Luckily, steps are finally being taken to curb this explosion of fraud. In late 2014, the Chinese government shut down a Chinese wine label called Yantai and arrested its owners for counterfeiting many well-known foreign wine labels. The company originally began as a legitimate importer but attempted to capitalize on the boom in the Chinese market for fine wines. Even more importantly, almost every luxury winemaker meticulously tracks every sale of every individual bottle as well as labels each bottle with a unique serial number. Both steps are done to ensure against theft and prevent fraud in the case that duplicated serial numbers or unused numbers should arise at an auction.

A large push from individuals has also been made to prevent the spread of crime within the wine selling industry. Auction houses now routinely hire specialists such as Michael Egan or Maureen Downey—a wine authenticator who commonly works with the FBI in investigations—to ensure that all sales are legitimate products. Furthermore, many wine collectors of significant means, specifically Bill Koch, have made it their mission to stomp out crime and expose fraudulent or black market sellers.

The rich clientele of the wine-collecting world have thus spurred the growth of a new, albeit extremely expensive, industry in wine authentication. Koch is said, for example, to spend $800 to authenticate every bottle he purchases—a sum greater than most people will ever spend on a single bottle. One such method of authentication uses the University of Bordeaux’s particle accelerator, which more frequently is used to examine wastewater from hospitals or fallout from nuclear disasters. Lead physicist Philippe Hubert will often, by request, examine the contents of a wildly expensive wine bottle using the machine, which could determine the chemical make-up of a bottle in question and compare it to a known composition of the bottle from that year. It is so effective that some estates, such as Bordeaux’s legendary Chateau Mouton-Rothschild, have created a database of bottle compositions compiled by testing the vintages in their own cellars.

Not all anti-fraud measures are coming from wine collectors—many are also coming from industry leaders, such as David Pearson of the famed Napa Valley producer Opus One. All bottles made today of Opus One come with a near-field communication (NFC) chip that customers can scan with a smartphone to watch a short video clip from the winemaker ensuring the authenticity of the product. Obviously, the method has a critical flaw in that an empty bottle could be repackaged and faked by a skilled counterfeiter, which is why producers will also include a tamper-proof seal. For example, Opus One hires SICPA, a Swiss company that makes ink for many of the world’s currencies, to create proprietary inks on the seal that show different images under different colored lenses.

The fine wine market has grown alongside an even greater explosion in stolen and counterfeit wine as criminals look to profit from ever-inflating prices. Winemakers face many challenges similar to those dealt with by other luxury goods producers, such electronics or leather goods, and these various industries must work together to combat escalating theft and fraud. The Coalition Against Counterfeiting and Piracy estimates the cost of intellectual property theft worldwide at $650 billion—which is greater than the GDP of all but 19 countries in the world in 2015—and the global market for fake goods at $68 billion. Significant progress in the fight against the black market, however, will not be made without cooperation from major manufacturing nations for counterfeit goods, most notably China, which have turned a blind eye to the illegal manufacturing of fake or knock-off goods. One must hope that in the near future China, along with similar manufacturing nations, succumbs to pressure from other developed nations and major corporations to crack down on illicit production. The expanded enforcement of intellectual property laws coupled with evolving technology used to both track authentic and combat counterfeit items would thus present a promising future in the fight to shrink the global black market for fine wine and other luxury items.