Responsible Jewellery Council (RJC) – Dalberg report identifies 2 out of 5 serious issues in the diamond industry as Money Laundering and Corruption including overvaluation, tax evasion and manipulation, round tripping etc. The report mentions that low level of regulations, diamond prices being unregulated and unstable, and diamonds being non-fungible and untraceable makes it relatively easy to change ‘dirty’ money into diamonds and transport them across borders.
Per a 2013 FATF report, a case was recorded against a company concealing funds received from illicit transactions and being transferred into diamond trade. In another case, 4 diamond importers from Surat and Mumbai were found to be involved in fraudulent gross overvaluation of 28 packages of roughs, aimed at transferring huge amounts of foreign exchange outside India. The report also highlights a tax evasion case wherein diamond consignments were shown to be transported to Surat where sales tax levy is exempted, despite being imported locally in Mumbai.
Lower taxes prevail in Special Economic Zones (SEZ) but many companies take undue advantage of the same and engage in falsification of paper work and commit large-scale tax frauds. Cases of ‘Round Tripping’ where same goods are traded over and over in order to raise cheap capital have also been recorded in the past.
Similar such cases involving illicit activities, fraudulent practices and underworld kingpins are rising globally.
On a much larger level though, a recent news article highlighted a possible USD 14+ billion (INR 89,000 crore) fraud by the diamond trade. Till 2006-07, India’s net export of diamonds was positive and suddenly since then it turned negative. When India is the largest cutting and polishing center in the world, which according to GJEPC cuts 10 out of 11 stones globally, net import of diamonds points to only a large scale fraud. It emphasizes that “… diamond industry could have been one of the largest generators of black money…”
Besides, India’s Enforcement Directorate (ED) has filed a charge-sheet before Special Preventions of Money Laundering Act court for a USD 850+ million (INR 5,300 crore) ‘hawala’ (money laundering) scam involving a Surat based trader. Though the names are not disclosed, some of those traders may be De Beers sightholders and even office-bearers of GJEPC, as per the article.
Unless more stringent policies and regulations are enforced globally, some industry players will keep taking advantage and continue engaging in such fraudulent practices.