EDIT: To be clear, what he was doing was perfectly legal but he had no illusions about who his customers actually were.
Want to bribe a public official? Give his wife a $100k bracelet, and mention that it can be returned anywhere in the world for CASH (less a 10% “restocking fee” of course). Then you might mention how nice it would be to spend a weekend in Geneva - and coincidentally there is a branch of that jeweler just down the street from some very discreet Swiss bankers (back when they were discreet)...
EDIT: User is visible again, thanks.
I don't dispute that very high end watches can be used for money laundering, but there are quite a bit more than a "few" collectors for watches, even in the $50k range. Blogs like Hodinkee have a large readership of collectors at this level, and relatively speaking a $50k watch is not uncommon among collectors at, say, a watch conference. $50k buys you access to the second tier (right above entry level) for brands such as Patek Philippe, A. Lange & Sohne, Vacheron Constantin or Audemars Piguet (and even smaller "independent" watch houses like F.P. Journe). If you go to the /r/watches subreddit, you can reliably see collectors posting watches well beyond this price, even if the day to day items are <$20k.
Based on my experience with watches and collectors, I'm (weakly) doubtful that your friend's perspective is indicative of the industry overall. Again to be clear, luxury items in general can be used for laundering, but I can't see any basis for calling "most of the business" an effort to frustrate money traceability. For one thing, off the top of my head, there is a clear awareness of disrepute among watch collectors, and savvy collectors (particularly those spending five figures on a watch) engage in due diligence and transparency for most of their purchases that would make laundering pretty difficult and inefficient. Obviously a complicit buyer and seller would have no reason to do this, which implies a bit of a sampling bias to what we can see. That said, these practices are widely and reliably enough used (even on, say, eBay, or among jewelers) that it's clear a very large volume of watches change hands "in the light", so to speak.
There's also a question of valuation. For most of the brands I mentioned above, purchasing them new results in a reliable 30% reduction in worth, though you can stymie that a bit by keeping the watch in excellent condition with its box and papers. The watches which retain their valuation the most are brands like Rolex. A Rolex Submariner can actually appreciate in value over time, even past inflation, because the brand is so recognizable. These would be a good target for money laundering because of their liquidity. On the other hand, brands that retain such value tend to be the most visible, which means they are the most imitated and faked. In 2018, I don't think I'd feel comfortable purchasing a Rolex unless it was new and directly from an authorized dealer. It's become extremely feasible to create fraudulent Rolexes that cannot be distinguished from a real Rolex by anyone, save for an extensive review at a Rolex inspection center.
This was a few years back and he (understandably) didn't go into much detail. This is of course just a single data point, so I can't tell whether it's representative for the entire industry.
One/set of Rolex which don't lose much value over time is perceived better than wad of cash slipped in envelope. Liquidity is quite good too.
If bribery somehow magically stopped worldwide overnight, quite a few watchmakers (definitely not only Swiss) would go bankrupt.