Be Careful Of Buying Diamonds

In the past few months, the diamond bourse in Mumbai and several dealers of the stone have installed a small, black machine in their offices. The little device, which can be mistaken for a laser printer linked to a computer, is one that separates the natural rough diamonds from the much cheaper synthetic stones.

The timing is interesting and unmistakable. At the time, the Winsome group, India’s largest bank defaulter (with loan outstanding bigger than Kingfisher’s),emerged as the world’s largest maker of synthetic diamonds. While in India, banks have directed forensic audit on Winsome and government agencies are probing the money trail following the Rs 6,500 crore credit default, Winsome has consolidated its position as a leading player in man-made diamonds by operating from its bases in Singapore, Malaysia and the US.

Selling man-made diamonds, which are almost 30-40% cheaper than the natural ones, is a legitimate business. But what is worrying the trade in Mumbai and Surat is the undisclosed mixing of the two varieties of stones, the failure of dealers to segregate the synthetic ones which have almost all the physical characteristics of natural diamond, the presence of unscrupulous elements, and the bad name it can bring to a business that’s based on trust.

These diamond merchants, who installed automated melee screening machines, were reacting to market intelligence and unconfirmed reports that the import of synthetic diamonds was on the rise and instances of undisclosed mixing of natural and synthetic stones. Most sightholders -the preferred customers of the leading global supplier Diamond Trading Company -have installed screening devices, and representations have been made before the government to introduce differential duty structure to curb abuse. But even as they put in checks and balances, trade members are keeping a close watch on the Winsome group which once had a run-in with American authorities over synthetic diamond business carried out by an US company where the group had interest.

Promoted by Jatin Mehta (whose family is related to the Adanis by marriage), Winsome has failed to repay banks that issued standby letters of credit to enable the company to import gold. Winsome said that it was unable to repay because its overseas clients were not in a position to pay back. Over the weekend, diamond houses subscribing to http://www.moneylaundering.com, the newsletter released by ACAMS (an association of finance professionals), were exchanging among themselves a report that said : “When Winsome defaulted on the loans, subsequent forensic investigations by Kroll Advisory Solutions concluded that most of the buyers appeared to have no secure way to store the gold, many of the businesses had been incorporated on the same day and Haytham Obidah, the business associate of Mehta, wholly owned or controlled all of the firms…“ Winsome has not taken kindly to some of the bad press. Seeking a billion dollars in damages, Winsome has recently sued the Israeli diamond analyst Chaim Even-Zohar, a widely followed name in the trade, over an editorial published in Diamond Intelligence Briefs. The outcome will be closely tracked in the world of diamonds.