USGI Investigation of “Clone” Watches

Part 1: They are a major source of fraud to insurance companies, jewelers, and appraisers

They are called “Replica,” “Clone,” “Super Clone,” and a myriad of other names by the Chinese manufacturers who are blatantly violating a plethora of U.S. Statutes relating to fraud. They may seem just like a fun imitation to some, but when we examine the potential for fraud they pose to insurance companies, jewelers, and appraisers, the fun wears off quickly.

What is a “Clone” Watch?

A clone watch is a watch that is purposefully and cheaply manufactured, most often in China, to 100% emulate a far more expensive brand name watch. The level of accuracy at which these watches are produced is quite astounding when comparing the “clone” to the authentic watch side by side. Right down to the box, trademarked bag, and even Certificate of Authenticity, these “clone” watches accurately emulate the finest, most expensive watch names on the market.

The Damage of Clone Watches

Insurance Fraud

Before anyone says, “No one would ever believe a US$300.00 Rolex Submariner watch was real, so what’s the fuss?” Consider this. The $300 “Clone” Rolex Submariner I purchased from a Chinese dealer came with a paid sales receipt saying I paid HK$88,000.00, US$11,230.00 at current exchange rate. I could easily take this receipt to my insurance agent and get a Personal Article Floater policy to insure it for $11,230.00, then conveniently lose it, and collect a hefty profit (from committing insurance fraud)…and nobody would ever know it happened. I hesitate to publish this but the insurance industry needs to be aware of what is going on and the potential for insurance fraud.

Appraiser Liability

To the unaware jewelry appraiser, this example could spell costly disaster. I already have a real case on my desk of an appraiser who appraised one of these very impressive clone watches as authentic. A sale of the watch was completed based on this appraiser’s evaluation. When the truth was discovered, the liability and blame shifted from the seller to the appraiser, although there are legal issues that would come into play that make the seller also liable.

Jeweler’s Liability

An unsuspecting over-the-counter (OTC) buyer who buys one of these clone watches and resells it without knowledge of the true status of the watch, is not only liable for selling fake watches but has also violated 18 U.S.C. § 2320: Trafficking in Counterfeit Goods. They are also most likely violating state level consumer protection laws. And remember: “I didn’t know” is no defense in these cases.

The Problem is Inside Also

The problem is compounded by the fact that many times the only way to identify these clones is to open the case and inspect the movement. But even then, many of the Chinese manufacturers have completely duplicated the movement parts to the point that only a trained horologist can make the identification.

So, what can jewelers, appraisers, and insurers do to protect yourself and your clients?

The USGI Found A Promising Solution

I was blessed to receive training in insurance fraud investigations by former FBI and Secret Service agents when I worked at USAA with their Special Investigations Unit (SIU). One thing I learned was there is no perfect crime, no perfect fraud.

I am also blessed to have a son who is a computer genius on staff with us here at USGI. Beyond his USGI and GIA credentials, he has earned several certifications with Cisco and IBM in computer network administration and is about to finish a college degree in computer science.

By applying the above knowledge, we developed a protocol that every jeweler and appraiser can use to identify these clone watches using Artificial Intelligence (AI) that has so far proven to be 100% accurate. But not just any AI program. Some have proven unable to make the identifications. But we found one AI program and procedure that, having tested Rolex, Breitling, Patek Philippe and others, has yet to make an error.

Since this newsletter is getting sort of long and we want to double-check our findings with more confirmation testing, we will continue this in Part 2. Next week we will provide you with the test results and a procedure with the potential to help you avoid the pitfalls that clone watches present to everyone.

Coming in Part 2.

Because at the USGI we care about your success…and protection.