Recently, I wrote an article on the lost margins in the diamond and jewelry businesses. I wrote this article because I was recently engaged to help two separate major jewelry retailers buy rough diamonds in West Africa. Both of these companies feel compelled to buy rough and polished goods for themselves because they have very little profit when they sell loose, polished, diamonds in their stores. (To read the article on lost margins: (http://www.roughdiamondgemologist.com/2/post/2013/01/what-happened-to-my-margins.html)
The first company hired me to take them into Guinea and Sierra Leone. The second company hired me to validate two suppliers, one in South Africa and one in Namibia. This article is about my second customer. My customer, I will call Tom, a nice older gentleman who is nobody’s fool, has owned a successful jewelry store in Las Vegas for more than 40 years and has been trying hard to buy rough and set up his own rough diamond cutting factory. He has investigated the process and has funding to buy the rough and set up the factory. His problem is, all his experiences in the jewelry business and with polished diamonds are of little value when dealing in the rough diamond trade. This led him to search out gemological help and I was the fortunate gemologist he called.
Tom told me the first seller of rough, is a guy in South Africa. They have been going back and forth on Skype, and they were getting close to having worked out prices and procedures to do the buy. However, something in the back of Tom’s mind would not let him pull the trigger. I do not know how Tom and this guy hooked up, but I would bet it was on a Linkedin Group or another internet site. Tom asked me to call the guy in South Africa and when I spoke to the gentleman on the phone, I introduced myself as a consultant for Tom. I then asked a series of questions to determine the origin of the goods and to determine if the goods could be delivered to America with the seller’s procedures. By the time I had gone through my due diligence procedures I was able to conclude that the diamonds were smuggled out of Angola and smuggled into South Africa. This of course meant they had no Kimberley Certificates.
I then asked; “If they have no certs, how are you planning to sell them to Tom and export them to the U.S.?”
He replied without hesitation; “I have a woman at the Ministry of Mines in South Africa who will do the certs for me.”
“South Africa is on the “tender” buying system,” I said; “And, requires all rough diamond sales other than “transit” diamonds (Diamonds not originating in South Africa)to be sold at the tender auctions. In addition, rough diamond buyers must have a license to buy and a license to export. Tom does not have any of these.”
The seller then said. “Not a problem! I have a company I work with who will act as the buyer and another company who will export for us. All of these things will be taken care of once Tom comes to South Africa and buys the rough.”
“Okay,” I said: “I get it. This is what I need from you. I want a picture of the goods with today’s date and my name written on the picture. I need a copy of your passport, the license of the buying company and the license of the export company. I also need to know what bank you are working with in order for Tom to set up his banking. Can you get me these things right away so we can move forward?”
The next day I had a picture of the goods he said were under his control. (See picture above) However, there was no copy of his passport or company buyer’s and export licenses. Don’t tell me you are surprised he did not send them?
Tom called me the next day to hear my report. I told Tom I believed this guy had the stones. However, he has committed several crimes and would involve Tom in several more crimes if Tom should enter into business with this guy. Let us look at some of the crimes involved in this transaction.
1. Diamonds illegally smuggled out of Angola.
2. Transportation of rough diamonds without proper documents and Kimberley Certificates.
3. Failure to pay Angola export taxes
4. Failure to have Angolan export or buyer’s license.
5. Angolan income tax evasion.
6. Smuggling rough diamonds into South Africa.
7. If the person actually works at the Ministry: Bribing a South African official to obtain a South
African Kimberley Certificate.
8. Possession of illegal diamonds.
9. Selling rough diamonds without a license.
10. Fraud for using a South African buying company and their license.
11. Fraud for using a South African export company and their license.
12. Illegal export of rough diamonds.
13. Illegal import of rough diamonds into America.
A good prosecutor can probably find several more charges, but I think it is clear that a multitude of crimes are being committed. Interestingly enough, in some countries, this goes on all the time. Sometimes these deals actually go through and no one is the wiser. Other times, this is what happens. The buyer, who is lured by his own greed and stupidity, goes to Africa to buy rough diamonds. He views the diamonds in an unsecured location even though he was promised before he came to Africa that the goods were to be viewed at Brink’s or some other secure location. The seller, always the innocent, explains that Brink’s was fully booked up and they have no choice but to view it at someone’s house or the buyer’s hotel room. The buyer has already spent thousands to go to Africa and usually falls for this and looks at the diamonds in an unsecure location. Assuming the con is using real diamonds, they will be worth much more than what the seller is asking. The con hooks the mark with the mark’s own greed. The poor buyer thinks he is getting an incredible deal and the African is not smart enough to realize the value of the diamonds. For some reason, greedy people do not think to ask one simple question. The question they should ask is; Why should the seller give me these diamonds so cheaply when he could easily sell them to the locals? At this point the buyer “negotiates “ the final price and the seller tells him it is time to see the kind man who will let the buyer use the buyer’s license. Of course, the buyer cannot expect the man with the buyer’s license to do this for free. Now the buyer is told he needs to pay a few thousand dollars as commission for the use of the buyer’s license. In the back of the sucker’s head is a bell ringing out a warning. It is rare that he can hear the ringing. He pays the money and the con moves him to the exporter. Here too, he needs to pay a fee. He is already into it for several thousand dollars and he cannot back out now or he will lose his money for the trip and the money he paid for the buyer’s license. He now pays several thousand dollars to the exporter.
Now he meets the person who supposedly works at the Ministry of Mines who will take care of the Kimberley Certificate. What a coincidence that this person is just going out of the office just as the buyer and the seller are walking into the Ministry of Mines. This makes the mark think the person actually works at the Ministry because they see him walking out of the building. This has to be done discreetly, the mark is told, and the buyer is taken to a restaurant and once again is hit upon for money. This payment is to pay for the ‘real’ Kimberley Certificates.
Some cons will stop here, take the money and go their merry way. Others will continue and tell the buyer he now has to give the tax money to the exporter because obviously, he is the one who has to pay the taxes to get the Kimberley Certificates. The greedy buyer is now out many thousands of dollars and if he is really dumb, also pays for the diamonds. At this point, the cons skip town or will use dirty cops to arrest the buyer and scare him close to death. The police will now tell him he must bribe them heavily or go to jail for years. They squeeze the victim until dry and after he has paid his bribe, they put him on a plane out of the country.
Sooner or later, one way or another, the con ends and the buyer is standing on the street with no diamonds, and has lost a great deal of money. Now, here is the fun part, because he was involved with illegal activities, he cannot go to the police and complain because he will be arrested. Defeated, and often in tears, he reluctantly takes a plane home. To add more fun to the mix, he has to tell his wife, family and friends that he has lost all the money they invested. Thus ends the adventure of the man who learned how to be a diamond smuggler without really trying.
The Namibian deal had an extra twist to it, but it was fundamentally the same as the South African scam. If you do not want to get scammed, free your mind of greed. Do not believe in miracles in the rough diamond business, and if you don’t know what you are doing, hire someone who does.
When a man with experience, meets a man with money, the man with money gets the experience, and the man with experience gets the money.