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July 29 2023

The Laws Governing Cask Ownership

Because cask investment is an unregulated market, here is an outline of the relevant sections of the main laws that govern buying, selling and storing casks. Understanding the law helps consumers make the right choices when purchasing a cask.

These laws provide the legal framework specific to the sale and purchase of casks of whisky held in duty suspense.

WOWGR or The Warehousekeepers and Owners of Warehoused Goods Regulations 1999

WOWGR is an acronym for the Warehousekeepers and Owners of Warehoused Goods Regulations 1999, the law governing the regulations that must be followed by warehouses, warehousekeepers and owners of goods kept in UK warehouses.

The legislation is sometimes misinterpreted as a license that needs to be obtained. But WOWGR is actually a registry governing a variety of different entities:

“These Regulations provide for the approval and registration of (i) excise warehousekeepers, (ii) owners of goods held in excise warehouses and (iii) duty representatives of owners of goods held in excise warehouses”.

The registration and approval methods differs for each of the mentioned warehousekeepers, owners of goods held in excise warehouses and duty representatives. Regulations 3 and 5 are particularly relevant for buying buying casks of Scotch whisky. Read more about WOWGR here.

Regulation 3: Duty representatives

Duty representatives are defined in Regulation 3:

“6.—(1) […] the Commissioners may approve revenue traders who wish to act as the agent of revenue traders who deposit relevant goods that they own in an excise warehouse and register them as registered excise dealers and shippers in accordance with section 100G(2) of the Act. (2) […] A revenue trader who has been so approved and registered shall be known as a duty representative”.

A duty representative is a UK-based business authorised to act as an agent for overseas businesses that want to buy, sell and store duty suspended goods in UK excise warehouses. Only overseas businesses, and no one else, can have a duty representative act on their behalf.
So neither UK-based businesses nor private individuals can have a duty representative act on their behalf.

Duty representatives must be approved and overseas businesses or revenue traders needing one should ask to see their certificate before hiring them. Read more advice for overseas buyers here.

Regulation 5: Warehousing

Regulation 5 requires:

“revenue traders who wish to hold goods (other than hydrocarbon oil) in an excise warehouse to be approved and registered by the Commissioners of Customs and Excise or to use the services of a duty representative”. (Bold emphasis added).

Also important is Part V – Warehousing – Section 9(3):

“Relevant goods shall not be sold whilst they are being kept in an excise warehouse unless the seller, or if the seller has a duty representative that representative, gives notice of the sale to the authorised warehousekeeper”.

The regulation clarifies that only revenue traders need to be approved and registered in order to hold goods in an excise warehouse. Therefore, private individuals do not need to be registered under WOWGR to own a cask in a warehouse.

It also reinforces Excise Notice 197 section 8 (see below), that the warehousekeeper must be notified of any sale of goods within the warehouse.

Therefore, when a buyer has not had contact with the warehouse where the sold cask is stored there is a possibility that ownership of the cask has not actually been transferred at the warehouse level, increasing the risk of fraud.

The penalties warehousekeepers face for not complying with WOWGR are severe, and they keep careful records of ownership. So if a warehouse doesn’t have the buyer on record as the owner of a cask, it likely means the buyer is not the legal owner.

Excise Notice 196

As detailed in the Notice itself, Excise Notice 196 “explains the UK’s requirements for the warehousing of excise goods held in duty-suspension within the UK”.

It is a legal document that explains everything – from what a warehouse can do with stock to what they must do when stock in their warehouse belonging to someone else is sold.

Three parts in Section 5 of the Notice, which covers “Registration of owners of excise goods in warehouse (including duty representatives)”, are the most relevant when buying casks of Scotch whisky:

Section 5.1 General

“All owners of duty-suspended excise goods must get approval and registration, unless: […] the owner of the excise goods is not a revenue trader”.

Therefore, section 5.1 clarifies that as long as the purchaser is not a revenue trader (see below for more information) they do not need to be registered or approved under WOWGR.

Private individuals, then, do not need to be registered with WOWGR to own a cask in their name at a warehouse, nor is WOWGR registration required to receive a delivery order.

Section 5.3 Duty representatives

“Duty representatives must have a business or other fixed establishment in the UK and may only represent non-UK based owners”.

If a cask purchaser requires a duty representative a copy of their certificate should be requested. And if the company offering duty representative services is not based in the UK, it is not legally permitted to be a duty representative.

The Notice repeats what is already stated in WOWGR: only foreign overseas businesses require a duty representative, and they can’t be used by anyone else.

Section 5.8 Changes of Ownership in a Warehouse

“The owner or duty representative of excise goods stored in an excise warehouse must inform the excise warehousekeeper in advance when any duty-suspended goods are sold in warehouse”.

It is a legal requirement for a seller to inform the warehouse of a sale. If the warehouse is not aware of the sale of a cask, then either the cask has not legally changed hands or the warehouse is in breach of the conditions governing its licences.

The latter is highly unlikely as the registration process for operating a warehouse is very stringent and owning a warehouse involves monthly audits.

Therefore, if the warehouse where a cask is sold is unaware of the sale it is likely the cask has not legally changed owners.

Section 13 Glossary

Here’s the Notice’s definition of a Revenue Trader:

“In the context of this notice, anyone carrying on a trade or business concerned with the buying, selling, importation, exportation, dealing in, or handling of excise goods, and the financing or facilitation of any such transactions or activities. Find a full definition in CEMA section 1”. (Emphasis added).

More on this below, but for the sake of clarity, and in the specific context of Notice 196, a company or trader is classed as a ‘revenue trader’ if it is regularly trading or doing business in casks, so private individuals are exempt from certain parts where it clearly states “unless not a revenue trader”.

Excise Notice 197

Excise Notice 197 covers how to “Receive goods into and remove goods from an excise warehouse”.

For private individuals purchasing a cask, Section 8 covering the “buying and selling duty-suspended goods in warehouse” is the most relevant.

Section 8.2: The seller’s responsibilities

“Before making any sale you, as the current owner of the goods, should: […] inform the warehousekeeper that the goods are to be sold and give details of the purchaser’s registration. If you fail to advise the warehousekeeper about a change of ownership of the goods, the goods are liable to forfeiture.”.

Section 8.3 The purchasers responsibilities

“Before making any purchase, you should: inform the warehousekeeper that the goods are to be purchased and give details of your registration to the warehousekeeper”.

The law makes clear the seller has a legal obligation to inform the warehousekeeper that goods are being sold and must not simply provide information regarding the purchaser but must also ensure the buyer is in contact with the warehouse about the sale.

This is why a delivery order is so useful, although not legally required. When selling casks, it is the industry-standard method to fulfill Excise Notice 197’s requirements connecting the seller, buyer and warehouse. If the purchaser of a cask does not receive a delivery order or has not had contact with the warehouse storing it, then either or both seller and purchaser might be in breach of the Notice, or the cask has not actually been sold to the buyer.

Excise Notice 206 – defining ‘revenue trader’

Excise Notice 206: revenue traders’ records, defines a revenue trader as “a trader involved in any way with goods or services liable to Excise Duty”.

Excise Notice 196 also defines a revenue trader: “in the context of this notice, anyone carrying on a trade or business concerned with the buying, selling, importation, exportation, dealing in, or handling of excise goods, and the financing or facilitation of any such transactions or activities. Find a full definition in CEMA section 1”. (Emphasis added)

WOWGR and Excise Notice 196 make clear that private individuals do not need to apply for approval and registration as Owners under WOWGR if they are not revenue traders.

Therefore, to purchase a cask as a private individual and store it in a duty suspended warehouse it’s important not to be regarded by the HMRC as a revenue trader. That means the number of casks bought or sold wouldn’t be construed as trading in casks and that they are not purchased through a business.

The History of Delivery Orders

Delivery orders were first passed into law with the Alcoholic Liquor Duties Act 1979 (ALDA)

Section 32

“(2)Spirits manufactured in the United Kingdom chargeable with duty which has not been paid which are in any warehouse other than a distiller’s warehouse shall not be transferred into the name of a purchaser until the purchaser produces to the officer in charge of the warehouse a written order for the delivery of the spirits signed by the person in whose name they are warehoused and countersigned by the occupier of the warehouse or a servant of his acting for him at the warehouse”.

This law was then repealed and replaced by the Finance Act 2006, which invalidated ALDA 1979, meaning that those ‘written orders’ are no longer required.

However, as discussed above, Excise Notice 196, 197 and WOWGR all show there is a legal need for the warehousekeeper to be notified by the seller and the buyer about any change of ownership.

While the legal need for a written note has been repealed, the warehousekeeper still needs to be informed and in contact with both the buyer and seller. And delivery orders, countersigned by both buyer and seller, are still the industry standard ensuring a safe and legal transfer of cask ownership.

Disclaimer

The information provided on Protect Your Cask is intended solely for educational and informational purposes and does not constitute legal, financial, or investment advice. We strongly encourage readers to conduct their own research and, where necessary, consult with professional advisors or legal counsel before making any investment decisions in the Scotch whisky cask market. The views and opinions expressed herein are not intended to serve as a guarantee or prediction of future events and should not be relied upon as such. Protect Your Cask disclaims any liability for decisions made based on the information provided on this website.

July 29 2023

Casks and Fraud

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Fraud has persistently affected the Scotch whisky industry throughout its history, and continues to be an issue today. As we discuss in this article, within the past few decades, a number of whisky-cask scams have seduced badly-informed investors who failed to recognize the warning signs.

This makes it all the more important to take extra care when buying a Scotch whisky cask – not simply to pick a tasty whisky but also to ensure actual ownership of the cask so that you have full autonomy over what happens to it after you buy it.

So, first, how does UK law regard any fraud?

The Fraud Act of 2006 clearly defines the crime and the manners in which it is committed:

• Fraud by false representation

• Fraud by failure to disclose information when there is a legal duty to do so (Section 3)

• Fraud by abuse of position

For clarity, it also explains:

• the defendant’s conduct must be dishonest

• the intention must be to make a gain; or cause a loss or the risk of a loss to another

• No gain or loss needs actually to have been made

• The maximum sentence is 10 years’ imprisonment

The arguments below are examples of advice that have been presented by certain brokers, stockists or cask investment firms to convince prospective investors to commit their money, but may actually be considered as fraud by the law.

Private purchasers need to be registered under the Warehousekeepers and Owners of Warehoused Goods Regulations 1999 (WOWGR) to receive a delivery order:

Certain sellers might misleadingly claim this as a reason to persuade potential investors to join a cask investment scheme, where the cask is not genuinely registered in the buyer’s name.

Private purchasers are not required to be registered under WOWGR unless they plan to become revenue traders, and so can theoretically receive a delivery order.

Someone/a company offers to act as a duty representative for a private individual:

Duty representatives may only be used by businesses based outside the UK.

A company that is not a distillery or warehousekeeper offers to sell a cask but does not explain that the cask is held in that company’s name, which means that purchasers have actually signed up for eventual profits made on that cask rather than ownership of the cask itself:

It is extremely important to understand the exact wording on any sales contract, especially when a delivery order (read more about delivery orders here) cannot be procured. If a delivery order is not provided for the purchase of a cask, the seller should be happy to confirm where the cask is stored and be able to provide contact details for that warehousekeeper.

Note the official guidance from the Scotch Whisky Association, the official trade organisation that represents the Scotch whisky industry: “Before completing the purchase you should check with the warehousekeeper what documents they require and ensure that the seller can deliver them to you”.

A company has sold a cask to a customer but misrepresented that cask’s current market value. Hence, the customer has paid more than a reasonably fair price:

Some casks of Scotch whisky offered by brokers, stockists and investment companies may be listed at prices that appear to be significantly above the perceived market value. However, the Scotch whisky cask market is highly volatile. So proving “fair price” in court would be challenging at best. For example, casks of Macallan were sold at massively inflated prices a few decades ago by scammers. But the value of those casks skyrocketed – thus, impossible legally to prove fraud.

A cask company provides historic return rates using irrelevant data, such as the Knight Frank Rare Whisky Icon 100 Index, or promises potential return rates based on the value of casks – but the data is drawn from a limited or biased data set:

It is difficult to track the unpredictable Scotch whisky cask market. Be wary of any promises of annual returns (especially when “guaranteed”). At the moment, metrics that accurately track prices and sales within this industry are difficult to come by, with no publicly available “hard, transparent” data.

“Hard, transparent data” refers to accessible records of Scotch whisky cask sales occurring among private investors, the prices of casks and how they were sold; whether sold at auctions, to other buyers, bottled and then sold through retailers, or via other methods.

Some companies use or have used the Knight Frank Rare Whisky Icon 100 Index as a way to justify selling casks of Scotch whisky. This index tracks sales of bottles of specific whiskies, and is not analogous to the whisky cask market.

The cost of a cask is presented with the potential number of bottles that could come from it, without explaining the significant extra costs involved in bottling:

If a cask company is pushing bottling the cask as a route to profit they should also explain the extra costs involved in addition to the price of the cask itself. Anecdotally, we have heard of many instances of sellers failing to calculate accurately the price per bottle, omitting additional costs such as bottling, duty, transportation and labelling that could impact the overall profitability of the investment.

Additionally, it is crucial to understand the naming rights belonging to a distillery if a cask is to be bottled: if a seller does not explain this clearly, it could constitute fraud.

To clarify: many whisky brands may not allow casks to have the name of the distillery attached to a bottle or cask under certain conditions — and require the use of a pseudonym known to the industry (for example, ‘Kirkcowan’ is Bladnoch, ‘Williamson’ is Laphroaig and ‘Whitmore’ is Highland Park). It’s important to understand exactly how the whisky is allowed to be named and listed if it is to be sold on or auctioned, or labelled when bottled.

Casks are not actually stored under the WOWGR of a cask seller’s company but, rather, held by a “storage provider” who is a registered owner at the warehouse but not the warehousekeeper:

Not all Scotch whisky cask investment firms store their casks under their own WOWGR registration, instead using a third party storage provider. We’ve heard of one company that stores through a ‘provider’ not even listed with the UK’s Companies House, the government body that stores information on all the limited companies and limited liability partnerships registered in the UK.

Such an arrangement makes it a virtual certainty that a purchaser will not actually ‘own’ a cask. If the situation becomes complicated — for example, the investment company folds or ceases communications with the purchaser – proving ownership of the cask to the warehouse where it’s stored will be very challenging.

Disclaimer

July 29 2023

Delivery Orders Explained: Do You Need One To Buy A Cask?

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A delivery order is the industry-standard method of transferring ownership of a cask, a document listing the details of the cask including the buyer and seller. It is signed and recognised by both, and then acknowledged by the warehouse where the cask is stored.

To be clear, a delivery order is not legally necessary to own a cask. The law requires only that there is a record of clear communication between the warehousekeeper storing the cask and the owner.

However, delivery orders are useful. They ensure full autonomy over the purchased cask. A delivery order makes it straightforward to contact the warehouse where it’s stored, verify its existence and/or even to sell that cask when desired.

How to get a delivery order

In most situations, to obtain a delivery order you either need an account at the warehouse where your cask will be stored or to work with a cask broker who is able to set up an account at a warehouse for you. When opening an account, the warehouse will check your details to comply with relevant legislation -for example, they must confirm that you are not a revenue trader if you are domiciled in the UK.

If a warehouse is willing to store your cask, then all you need to do to get a delivery order is ask the seller to issue one. Any reputable cask brokers will be able to issue a delivery order, a simple document listing the seller’s and purchasers’ details as well as the cask details. The document is then signed by both the seller and purchaser and posted to the warehouse, which must acknowledge receipt.

The delivery order catch-22

Some cask dealers, stockists and brokers will not be able to provide a delivery order to prospective clients.

Here’s why: The laws governing warehouses are very clear about what needs to be done when a cask sale is completed. However, because too many individuals were and are buying and selling casks without providing the warehouses with the relevant information that assures their legal compliance, many warehouses have stopped opening new private accounts, making it harder to own a cask in a safe way.

A dealer, stockist or broker who does not work with a warehouse willing to open new private accounts therefore cannot offer a delivery order unless an account already exists, creating a Catch-22 that complicates acquisition of a delivery order.

Unfortunately, without a delivery order the risks of buying a Scotch whisky cask are higher than many cask investment companies might claim, although it is possible to do so safely and legally.

For example, some cask dealers use or have used the legal terms ‘bailment’ and ‘beneficial title’ as a workaround when they are unable to issue delivery orders. These do have a precedent for according ‘monetary rights’ to the profit of something owned by someone else, but the legal precedent is not found in the whisky industry. Rather, it comes from stock shares, houses and other regulated financial industries. Its application to the whisky industry is untested.

If a Scotch whisky cask investment firm employs these terms as ownership workarounds without adequately explaining them and the rights they confer to the prospective cask ‘owner’, it could amount to misrepresentation, potentially leading to legal implications under UK law.

It’s important to be careful when receiving a certificate of ownership, beneficial title, or similar document. If a seller isn’t able to provide a delivery order, the Scotch Whisky Association recommends the following:

“Before you complete the purchase you should check with the warehousekeeper what documents they require [to record the transfer of ownership] and ensure that the seller can deliver them to you.”

Is there any other way of transferring ownership?

The legal requirement to have a delivery order for cask ownership was repealed in 2006. Currently, the warehouse storing the cask is obliged to determine how ownership is transferred. Most still require a delivery order but receiving direct confirmation from the warehouse where the cask is stored that the cask is in the new owner’s name is an acceptable legal alternative.

Nor is a delivery order required when the purchase of a cask is arranged directly with the company that owns the warehouse where the cask is stored – for example from a distillery. In this situation, your purchase is already logged with the warehouse storing the cask, hence no need for a delivery order.

The absence of a delivery order does not necessarily imply fraudulent activity, but it may elevate the risks associated with purchasing a cask.

Disclaimer

July 29 2023

A Primer On WOWGR and Revenue Traders

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WOWGR – an acronym for the Warehousekeepers and Owners of Warehoused Goods Regulations 1999 – is the law that must be followed by Warehouses, Warehousekeepers and owners of goods kept in UK warehouses. Despite rumours that it soon will be repealed, for now it remains a legal pillar governing cask storage.

Think of it as a registry that includes warehousekeepers, cask owners without a warehouse and duty representatives, amongst others, whose applications are approved.

Must an individual or entity that decides to purchase a cask register under WOWGR? The simple answer is ‘yes’ – but only for revenue traders.

What is a revenue trader?

Regarding cask ownership, revenue traders are defined in Excise Notice 206: revenue traders’ records, and in the glossary of Excise notice 196.

• Excise Notice 206 defines a revenue trader as “involved in any way with goods or services liable to Excise Duty”;

• Excise Notice 196 section 13 also defines a revenue trader “in the context of this notice, anyone carrying on a trade or business concerned with the buying, selling, importation, exportation, dealing in, or handling of excise goods, and the financing or facilitation of any such transactions or activities. Find a full definition in CEMA section 1.”

A revenue trader is, therefore, a trade, trader, or business involved in casks. The following flowchart helps determine whether a person or entity purchasing a cask must apply for registration under WOWGR.

Owning more than five casks

Owning five casks or fewer is the unofficial threshold considered by many legal experts and industry figures as the reasonable limit of what could be classed as ‘personal consumption.’ Ownership of more than five casks could be considered as beyond personal consumption and means the owner may be classed as a revenue trader and must apply for registration under WOWGR. It is possible to own more than five casks as a private individual but the casks’ owner would need to justify their reasoning to both the warehouse holding the casks and HMRC.

Regularly buying and selling casks

Even when you own fewer than five casks, if you are regularly buying and selling casks to make a profit that supplements your income you could be classed as a business and must apply as an owner under WOWGR

Buying casks via a business bank account?

If Scotch whisky casks are being bought and sold through a business bank account, then HMRC will likely assume the whisky is being used for business purposes and therefore consider the entity a revenue trader. For individuals and entities not planning to become revenue traders, it is highly recommended to use a personal bank account for the relevant transactions.

Disclaimer

July 29 2023

3 Red Flags To Watch For With Scotch Whisky Cask Investment

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The information provided in introductory brochures by many Scotch whisky cask investment firms seems to be innocuous, offering basic information about the industry and ways for potential investors to invest in a cask.

However, information that is opaque, outdated, or miscontextualises the cask investment market characterises many of these firms’ brochures and social media ads.

Here’s three claims about Scotch whisky cask investment that we’ve seen published by firms operating today that don’t provide the factual information prospective investors need and that very likely constitute fraud.

582% or 586% growth in 10 years

To prove the financial viability of Scotch whisky cask investment, some firms point to growth in the rare whisky market of 582% or 586% over the past 10 years.

That figure is drawn from the Knight Frank Rare Whisky Icon 100 Index, which only tracks the changing auction prices of 100 rare and desirable bottles of whisky. It is a measurement created by whisky consultants Rare Whisky 101.

The 582% and 586% figures are outdated and inaccurate. The most recent figure covering index changes over the past 10 years through February 2023 represents an overall index increase of 392%. While a considerable figure, it lacks context, failing to account for the radical shift in the secondary market for whisky bottles as single malts became globally recognised as a luxury asset.

A more apt comparison, the overall prices for those specific index bottles, grew by only 28% between February 2019 and 2023, and even slightly decreased between February 2022 and 2023.

Furthermore, the Rare Whisky Icon 100 Index does not account for casks, nor is an appropriate indicator of the market performance of Scotch whisky casks. The Knight Frank report’s editor, Andrew Shirley, made clear his distaste for how his work is sometimes used by firms promoting Scotch whisky cask investment in an article in Whisky Magazine: “Our index is tracking 100 bottles of rare and valuable whisky; it has absolutely nothing to do with cask whisky.”

Any firm publishing a report or social media ad using those 582% or 586% figures to promote Scotch whisky cask investment to prospective investors should be reported to the ASA.

Annual returns of 8%-20%

Many firms claim that investing in Scotch whisky casks can lead to annual returns of 8% to 20%. While it is certainly possible to profit from a cask of Scotch whisky, just like other alternative assets such as art or vintage cars, it’s important to note that there is no publicly-available hard, transparent data to support assertions of indisputable profits.

“Hard, transparent data” refers to accessible records of Scotch whisky cask sales taking place between private investors and how they were sold; whether through auctions, sold on to other buyers, bottled and then sold through retailers, or other methods.

Public auction purchases of bottles can be tracked, offering clear data regarding whisky bottles on the secondary market. But as noted above, it is a wholly different market from Scotch whisky cask investment.

Therefore, no concrete proof currently exists verifying that any of those annual returns are ‘guaranteed’ or that everyone who invests in a Scotch whisky cask will be enjoying them. Remember that when it comes to investment there is no such thing as ‘guaranteed’, especially when it comes to the volatile and unregulated Scotch whisky cask market.

A Scotch whisky cask doesn’t need a delivery order to be sold to a new owner

This is actually true, but requires further explanation.

A Delivery Order (DO) as defined by the Scotch Whisky Association (SWA) is “a document setting out the details of the cask to be transferred, signed by purchaser and seller and then delivered to the warehousekeeper”. It serves as a kind of contract fulfilling the legal requirements covering the transfer of ownership of a cask of Scotch Whisky.

DOs have not been legally required since 2006 — the SWA states “nowadays an invoice or owner’s certificate may suffice” — but still serve as the industry standard for cask ownership transfers in Scotland. Very few warehouses in Scotland, if any, operate without them. So anyone buying a new cask should have one in order to ensure that the cask exists and is indeed owned by the purchaser.

But here’s the problem: obtaining a DO requires a warehouse to open a new account and at the time of writing very few warehouses are opening new accounts for individual investors buying small amounts of casks as it places significant strain on warehouse operations.

Many firms or brokers providing Scotch whisky cask investment services, therefore, act as middlemen helping clients purchase casks under their warehouse accounts with the DO for the cask placed under that firm’s name. But that raises the risk that ‘purchased’ casks might not meet legal requirements regarding ownership transfers.

Some cask investment firms or brokers will mention that a delivery order isn’t needed to safely buy and own a cask, and might quote the SWA guidance stating ‘Nowadays an invoice or owner’s certificate may suffice’. If they do mention the SWA in this way and neglect to mention the very important sentence that comes after that phrase, ‘Before completing the purchase you should check with the warehousekeeper what documents they require and ensure that the seller can deliver them to you’, that’s a red flag.

Therefore, in situations where a purchaser cannot get a DO with a cask, the firm or broker facilitating the sale should provide the contact details of the warehouse holding the cask in order to follow the official SWA recommendations.

Without a delivery order or a clear documentation trail of the transfer that includes the warehouse keeping the cask, it is not certain that a purchaser legally owns the cask they bought.

Disclaimer

July 29 2023

Advice For Overseas Buyers

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Anyone can own a cask of Scotch whisky regardless of where they live.

However, any business based outside the UK purchasing casks, or any individual who owns and sells enough casks to be classified as a revenue trader, is required to employ a “duty representative” to act on their behalf.

Only UK-based revenue traders can act as duty representatives and they can only be used by non-UK-based businesses – private individuals or UK-based businesses don’t need them.

If you are based in the UK or are a private indavidual living overseas do not be misled into thinking you need a duty representative.

What is a duty representative?

A duty representative is a UK-based revenue trader who has been approved by HM Revenue & Customs (HMRC) to act as an agent for non-UK based businesses involved in the buying, selling and storage of duty suspended goods in UK excise warehouses. The most important rules regarding duty representatives are detailed in The Warehousekeepers and Owners of Warehoused Goods Regulations 1999 (WOWGR) and Excise Notice 196, Section 5.3.

This is distinct from WOWGR’s (find out more about WOWGR here) requirements to become a registered cask owner or warehousekeeper.

Finally, any overseas company seeking a duty representative should ask to see the representative’s approval letter, which should have a Great Britain Duty Representative (GBDR) number that can be verified by any approved warehouse.

Disclaimer

July 29 2023

Risky Whisky Business – Examples of Scotch Whisky Cask Investment Fraud

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Throughout its history as a large-scale industry, Scotch whisky has featured, or suffered from, a host of shady characters seeking to make money from unsuspecting investors. Though some companies may pitch the purchase of a Scotch whisky cask as a surprisingly ‘safe’ alternative investment, the marketing language used by some of today’s firms and scams of the present and recent past echoes a rich history of cask investment fraud.

The 1970s

In an article on Master of Malt, former Diageo executive and historian Nick Morgan draws attention to phrases that could well appear in social media ads today; “15 – 30% capital growth per annum”; “in four years your matured whisky may double in value”; “malt whisky investment shows an average profit of 50% at maturity.” But these claims from the late 60s and early 70s were made by dodgy companies looking for investors to sign on to risky or fraudulent schemes.

Morgan points to historical examples such as the 1970s story of John Haffenden. A flashy self-promoter selling himself as a plucky upstart entrepreneur shaking up the industry, he sold Scotch whisky casks to aspiring US and UK investors using high-pressure sales techniques. He and other similar firms lied about the returns investors could expect on their whisky, the risks involved in buying casks and how the whisky itself could be transported while casks were sold at an enormous markup. His businesses were shuttered following investigations by the FBI, Interpol and Scotland Yard.

The judge writing the memorandum opinion on the USA court case against Haffenden makes clear how investors lost their money:

“Most, if not all, of the investors relied solely on the advice of the defendants in selecting, buying, storing, trading and selling the Scotch represented by their warehouse receipts and/or letters of acknowledgment — Their participation in the enterprise was limited to providing capital with the hope of a favorable return.”

Then there were the two partnering fraudster firms, Michael Lundy & Associates and its collaborator, Scotch Whisky Limited, which issued warehouse receipts to US-based investors for casks that were both real and imaginary. Convicted by a Rhode Island court for fraud, Michael Lundy ended up in jail for six years.

The 1990s

The history of the modern whisky industry is filled with booms and busts – a parallel to waves of whisky scammers through the ages. In the 1990s, a number of firms emerged claiming that buying whisky casks was a safe investment.

A firm called Cavendish bought casks from Macallan, Ledaig and Tobermory and sold them as ‘investments’ at a significant markup. Cavendish eventually moved its office to Gibraltar and renamed itself as the Hamilton Spirit Management Company while collecting £6.2 million from mostly elderly investors who paid the grossly inflated prices for the casks. Its founders and sales director were eventually found guilty and sent to prison.

Another scammer firm, The Napier Spirit Company, sold casks at enormously inflated prices compared to actual market value, collecting £3.2 million in investments from people who were promised annual returns of 18%. The company claimed that this lofty target was supported by data from JP Morgan. (It wasn’t.)

Eventually, the Department of Trade & Industry petitioned the High Court for an order to wind up the company.

The 2020s

Casey Alexander is the latest whisky cask scammer brought to public attention. Alexander’s company, Vintage Whisky, was one of several — his firms Windsor Jones and Charles Winn were selling wine — cold-calling elderly Americans and aggressively pushing them for investment, eventually collecting $13 million from his victims across all three companies. Investors attempting to retrieve their money were ignored or fobbed off with excuses. His activity eventually caught the attention of the FBI, which conducted a sting operation that resulted in his arrest in Ohio. He faces up to 20 years in jail after pleading guilty to conspiracy to commit wire fraud.

These examples are a few of many scammers over decades who have committed fraud in an unregulated market, making it all the more critical for potential investors to be both aware of and educated about the risks involved in buying a Scotch whisky cask.

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