Scotch whisky exports totaled $6.9billion (£5.6billion) in 2023, that is around 26% of all UK food and drink exports, or 2% of all UK good exports. Scotch whisky is a big industry and it is important enough to the UK economy that it was targeted by the US government for additional tariffs in retaliation to the Airbus-Boeing trade disputes between the two countries.
The vast majority of the whisky industry is made up of the 130 distilleries and their parent companies with independent bottlers also providing releases for whisky fans. Since the 1990s a small handful of private individuals have also bought and owned casks as personal investments. Some of these private investors have been incredibly lucky, with the most expensive privately owned cask sold in 2022 for over $1,295,000 (£1,017,000).
Of course, where there is money to be made there are also individuals willing to exploit others for their own benefit. Issues of cask fraud have been documented since the 1990s right up to 2024 but largely the impact has been felt by investors, not the industry itself, and so protection has been slow to come. That is beginning to change and in April 2024 Scottish MP Fergus Ewing addressed the Scottish Parliament on the matter.
Ewing points out that the potential risks are not just to the targeted individuals, but to the reputation of the industry as a whole. Given the importance of the industry to the UK economy it seems like there is a lot to lose.
Modern Cask Fraud
Cask fraud has been around as long as casks have been sold to the public. The irony of the record setting Macallan example above is that many casks of Macallan sold in the 1990s were massively overpriced. Brokers were selling casks worth £600 for around £3,500, and many investors who sold before the big shift in the market actually lost money.
Unfortunately the risks are not not confined to the past. As recently as 2022 the FBI arrested a British man who was charged with defrauding $13,000,000 from elderly investors in the US through various whisky cask investment schemes.
In January 2024 an enforcement notice issued by the UK’s Advertising Standards Agency came into effect to try to regulate cask investment companies. One of the many aims of the notice was to stop cask investment companies from using unrelated returns rates in their marketing materials. Up to that point many cask investment companies had promoted the potential of cask investment by giving the 10 year average return rate as 582%. However this fabled number is actually the ten year average of 100 bottles of very rare and expensive whisky as reported by Knight Frank in their 2019 wealth report. The data is therefore unrelated to the potential of casks. Despite this many modern cask investment companies continued to use this figure to promote their casks until January 2024.
The Serious Problem of Cask Fraud
Fergus Ewing raised the issue in Scottish parliament on 17 April 2024 in order to draw attention to this serious and growing problem.
“Some returns are promised by a lot of companies, notionally based in London, but actually registered in countries where it would be impossible to seek redress,” Ewing explained to parliament. They are “promising returns of 582% over ten years, 95.5% bonds guaranteed per annum. If it’s too good to be true, it isn’t true. These are scam merchants.”
He goes on to explain that there is limited scope for protection at the moment. Advocates within the industry (including myself and fellow Forbes contributor Felipe Schrieberg) have been working hard to help customers to protect themselves as much as possible.
Elsewhere, advocates like Blair Bowman have also been working behind the scenes to persuade the Scotch Whisky Association (SWA), which is the governing body for the scotch whisky industry, to take a stance. But as yet the SWA have felt it falls beyond their remit. A stance shared by the Advertising Standards Authority (beyond what they have already done) and HMRC.
“The initiative of the Scottish government pushing for a solution to this could give it the impetus it needs,” Ewing goes on to say. “The risk is that unless this is dealt with, if there is a serious scandal this could seriously damage the reputation of scotch whisky worldwide.”
Given the financial importance of the scotch whisky industry to the Scottish and UK economies we can only hope that they soon see the importance of protecting the industry’s reputation and take action before another serious scam comes to light.