“The Luxury Goods market in the U.S. is estimated at $51.2 billion in the year 2021. China, the world’s second-largest economy, is forecast to reach a projected market size of US $31.6 Billion by the year 2026” according to Global Industry Analysts. Identity verification and Know Your Customer (KYC) procedures need to be implemented on high-transaction items to protect banks and sellers from fraud, money laundering/terrorist financing, and counterfeit goods.
The luxury goods market also faces its share of fraud, counterfeit scams, and money laundering crimes. In fact, two owners of Los Angeles-based import and export textiles company, Pacific Eurotex were recently sentenced and ordered to forfeit $3.1 million in addition to paying a $370,000 fine due to their part in a complex money-laundering scheme.
Major categories of luxury goods include:
- Haute couture clothing
- Rare art/paintings or sculptures
- A high-end automobile, such as a sports car
- A yacht (motor, sailing, catamaran, and gulet)
- Accessories, such as jewelry and high-end watches
- Upscale luggage and personal travel equipment
- Wine (premium, super luxury, icon, and rare vintages)
- Homes and estates ($10M or more in-home valuation)
Illicit activity is growing throughout the luxury goods market especially in fashion, high-end jewelry, rare art, and the upscale real estate market. Fraudulent use of credit cards or identity spoofing are major issues that cause chargebacks and, in the case of identity spoofing, can even lead to complex forms of money laundering.
Identity Theft: Stolen Credit Cards & Identity Spoofing
“Of the 2.2 million fraud reports, 34% incurred a loss, up from 22% in 2019. These losses totaled $3.3 billion, with a median loss of $311. In total, the FTC reported 1,387,615 cases of identity theft.” (CreditCards.com) Identity theft and the use of stolen credit cards are extremely common crimes in different industries within the luxury goods market. Customer identity verification is the first step in protecting a brand. Understanding who your customers are, their past, and how to onboard them while protecting your most vulnerable assets, your products, is one of the most important steps a business owner can take.
Global identity verification solutions build risk profiles from past financial behavior as a method to segment bad actors and eliminate risk to a luxury brand.
The most common products bought with stolen credits card numbers by illicit actors include:
- Mac books
- Rolex watches
- Smartwatches
- Diamond rings
- World of Warcraft gold
- Louis Vuitton handbags
- Cases for electronic devices
- Gift cards for iTunes and Best Buy
Fraud and chargebacks are extremely common in the luxury retail space and can derail an entire brand’s progress as well as its ability to be seen as a going concern. Identity verification services should offer robust fraud protection and transaction monitoring in order to keep bad actors out. Many of these brands do not have strict policies covering customer identity verification.
Fraud in Luxury Retail
According to Shopify, “[t]he global e-commerce market is expected to total $4.89 trillion in 2021. That figure is estimated to grow over the next few years, showing that borderless eCommerce is becoming a profitable option for online retailers.” Identity verification services including Know Your Customer procedures are a mainstay to prevent fraud and stolen or counterfeit goods.
Fraud in luxury retail happens in a few surprising ways.
The common types of retail fraud taking place are:
- Vendor Theft
- Refund Fraud
- Employee Fraud
- Discount Abuse
- Sweethearting (false price adjustments)
- Cash Register Tampering
- Wardrobing (returning after use or “renting”)
“Consumers returned an estimated $428 billion in merchandise to retailers last year, approximately 10.6 percent of total U.S. retail sales in 2020. Of those returns, roughly 5.9 percent were fraudulent, equating to $25.3 billion,” according to a report released by the National Retail Federation (NRF) and Appriss Retail. During the return process, customer identity verification needs to be completed by scanning and verifying identity documents against watch lists and/or fraud databases. This is why customer identity verification is important during the sale of retail goods – whether it be bulk purchases or one-off high-end luxury items.
Cross-channel returns can present problems for a luxury brand. According to Vogue Business, this is “the ability to buy an item online and take it back in store — is the feature that affluent shoppers worldwide look for.”
Synthetic Identity Fraud Hurts Luxury Retailers
Sophisticated fraud attempts against luxury retail brands are becoming more prevalent including the use of synthetic identities in order to access high-end luxury brands where possibly the premium identity verification services carry a lower burden or are nonexistent in order to resell goods even at a fraction of their MSRP price. Usually, in order to access high-end products, a new customer must furnish an ID card and use valid and variable information such as a social security number and credit card account information.
When a bad actor attempts to create a synthetic ID, several tasks must be accomplished:
- A modus operandi (motive or goal) must be chosen
- Real personally identifiable information (PII) must be sourced from a worthwhile target
- Pieces of real and fraudulent information must be stitched together to create an identity the criminal can use to commit an act of identity fraud
- The criminal must then knowingly use the identity to apply for some sort of benefit via a bank or organization and be able to fool the identity verification or know your customer solution
Many criminals use brazen techniques to steal PII data or identify data out of dumpsters or even purchase this data on black market exchanges (in-person or online). Once the criminal acquires this information there are normally two routes to using the information after they are approved for services: quickly attaining resources and maxing out a financial instrument or using the fraudulently attained resources to build a credit score up over time and simply disappearing after the entirety of funds are depleted.
So, what can luxury retailers do?
- Implement Eligibility Verification
- Streamline Policies and Procedures
- Upgrade Your Point of Sale System
- Use acquiring banks with low chargeback thresholds
In addition to high-end luxury retail brands, jewelers are a prime target for fraud. Customer identity verification should be a mandatory part of the purchase process.
IDMscan is a robust fraud and compliance solution to help you comply with AML/CFT obligations. Contact one of our Identity Executives to get started.
FineJewelers Face Identity Verification Woes
“Fraud in this industry goes back hundreds of years – before the internet, before credit cards,” Sourabh Kothari, director of Merchant Advocacy at Signifyd said. “People have been stealing jewelry for centuries, even millennia because it carries value and crosses borders.” Global identity verification solutions often aren’t focused on helping luxury jewelry brands protect themselves against fraud or identify repeat offenders.
Examples of high-end jewelry brands that cater to premium customers include:
- Cartier
- De Beers
- Chopard
- Pomellato
- Boucheron
- David Morris
- Tiffany & Co.
One customer-facing identity verification policy listed on the website of trejours states, “In order to make sure that we are creating a safe and reliable marketplace where jewelry lovers and jewelry vendors can have a great experience, we take steps to verify the identity of every Trej member via the most trusted identity verification system used by major financial and banking institutions. We trust, but we verify.” It is this attention to detail and the “extra step” that protects this luxury jewelry marketplace available for customers to rent and purchase fine jewelry.
Picture-Perfect Crimes: Money Laundering & Fraud in the Luxury Art Market
According to a recent report by Transparency International on the art market, this industry is at higher risk due to the traditions of confidentiality and discretion in the art world, and that works of art can be both high-value and easily transportable.” This level of confidentiality and portability lend the industry to be ripe for potential fraud and money laundering.
Customer identity verification during complex transactions involving rare art including sculptures, paintings, and collector’s pieces. The Heritage Foundation, New York MET, and private art dealers and auctions are some of the many organizations in this industry at risk for fraud. Money laundering and proceeds from sales of illicit goods such as arms or counterfeit substances are a huge issue that until recently has gone undetected.
In the United Kingdom, “art market participants” were included in the amended legislation.
Art Dealers will be required to:
- Conduct a risk assessment
- Appoint a Money Laundering Reporting Officer (MLRO)
- Document your AML policies and procedures
Due to this amendment, any art dealers or those engaged in the sale or trade of art valued at over £8,500 (approx. 10,000 Euros) must adhere to the requirements above. As the sale is being carried out, risk profiles need to be established and the level of risk of the parties needs to be determined and appropriate due diligence carried out.
When makes a customer “high risk”?
- “High-risk country” status – one or both parties are from a high-risk country
- Politically Exposed Person (PEP) – a client is susceptible to potential bribery or being engaged in public office and has a high level of trust
- No face-to-face interaction – both sides of the sale are done virtually or through intermediaries
In addition to art dealers, sales of luxury yachts and homes are susceptible to money laundering and identity fraud.
Are you an Art Dealer or Luxury Yacht Broker interested in fraud prevention and customer verification solutions? Contact Us today.
Money Laundering Through Sales of Luxury Yachts
In general, “yacht models can range in price anywhere from $500,000 and upwards of $10,000,000, depending on size, year, and model.”(GalatiYachts) At this high of price point, there are numerous reasons for customer identity verification and, if the exchange is through an intermediary or across international waters, a global identity verification solution should be integrated into the sale.
As we look at the number of yachts sold during 2020, according to SuperYachtTimes, “2020 ended on 295 used yacht sales of vessels over 30 metres, compared with 278 in 2019. The all-important 30-40 meter market bore the brunt of the decline in new-build sales during 2020. 76 new yachts in this category were sold in 2020 compared with 98 in 2019.”
1MDB Yacht Seized in Landmark Money Laundering Case
A $250 million superyacht is at the center of a money-laundering story that is larger than the boat itself. “The quarter-of-a-billion-dollar boat is believed to be the property of Jho Low, a Malaysian financier with close ties to disgraced and defeated former Prime Minister Najib Razak.”(AMLPartners) Jim Low was part of 1MDB, an organization purportedly connected to officials high up in the Malaysian government including then-Prime Minister Najib Razak. Razak was accused of channeling over RM 2.67 billion (approximately US$700 million) from 1Malaysia Development Berhad (1MDB) for personal gain through his bank accounts.
Three additional money laundering or drug cases resulting in the seizure or forfeiture of luxury yachts include:
- 13 June 2021 – vessel ‘SY Windwhisper’ seized as 3 arrested after a tonne of cocaine was found onboard
- 8 July 2020 – ‘Sunrays’, seized by Royal Gibraltar Police (RGB) following ongoing operation into money laundering & cross border Transnational drug trafficking
- June 20, 2020 – US Department of Justice links $957m luxury yacht Topaz with 1MDB scandal
Customer identity verification is one of the most important aspects when discussing the sale or rental of high-end yachts or real estate. Yachts and high-end real estate sales are, again, prime targets for money launderers or fraudsters as the level of anonymity is usually kept quite high and can be done on a handshake or based on one’s reputation. Without careful risk assessment and customer due diligence throughout the sale, one or more parties can be easily swindled out of hundreds of thousands or millions of dollars.
The yacht purchase and sales process can be quite daunting and involved especially with industry jargon and the high expectations of upscale, discerning clientele.
The maritime and yachting world is rife with jargon (flag state, charter certificates, port state control, etc.), and the sales process adds to that with “listing broker” and “selling broker.” (Denison Yacht Sales) There can be many moving parts, parties, and problems that occur during the sale of a superyacht or luxury yacht.
One overarching necessity is to have a robust global identity verification solution available to brokers, buyers, or sellers during these complex situations.
Identity Verification in the Luxury Goods Market
During a sale or transfer of funds between parties, several forms of fraud protection should be implemented. Notwithstanding current anti-money laundering regulations imposed by local regulators and legislative bodies, enhanced identity verification can save a brand time and protect rare assets from falling into the wrong hands.
Identity checks are particularly important for banks and financial institutions to screen for money laundering, fraud, and past illicit financial activities. KYC, or Know Your Customer, is the process of verifying a customer’s identity to ensure they are providing accurate personally identifiable information (PII) as well as in order to understand their past financial behavior with previous institutions or money service providers.
The Know Your Customer (KYC) process helps to ensure that the financial institution’s services are not misused for identity theft, money laundering, and the funding of criminal organizations. KYC ensures that organizations are both compliant and that customers with a suspicious financial background are not approved for an account at the bank or financial institution.
Several forms of identity verification exist include:
- Biometric verification (facial recognition, iris identification, fingerprint match, voice comparison)
- Two-factor authentication
- Knowledge-based authentication
- Credit bureau-based authentication
- Online verification (remote or eKYC)
- Database methods (government pr LEO database records search)
IDMscan: Fast, Secure, & Global Identity Verification Solution
IDMscan can authenticate and verify government-issued identity documents in online and offline conditions. It is a part of several identity fraud solutions that IDMERIT has created which offer fraud detection before it happens.
Our document verification solution provides powerful security in the airline industry, at home and abroad.
- Multi-Language support
- Integrate seamlessly with IDMaml and IDMdevice
- Easily integrate into your system with a simple API
- Biometric facial recognition & face liveliness technologies are used to produce a live match
- Validate your customers in less than 6 seconds
- We can validate Passports, Drivers Licenses and National ID’s from 175+ countries
- Indigenously built Deepfake recognition and liveness recognition models with the highest degree of accuracy in the world
Contact one of our identity specialists to Schedule a Demo of IDMscan today.
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About IDMERIT
Headquartered in San Diego, California, IDMERIT provides an ecosystem of identity verification solutions designed to help its customers prevent fraud, meet regulatory compliance and deliver frictionless user experiences. The company is committed to the ongoing development and delivery of offerings that are more cost-effective and comprehensive than other solution providers. IDMERIT was funded by experts who have been sourcing data on personal and business identities across the globe for over a decade. This access to official and trusted data throughout the world has become increasingly important as companies find themselves completing transactions across borders as a standard course of business. www.idmerit.com
