Dispatch

Rough Cut

Nearly all the world's diamonds -- legal or not -- pass through this one Indian city.

SURAT, India — The Gujarat Mail is just another red-eye train. Twelve powder-blue passenger cars crisscrossing, like so many hundreds of others, India's northwestern breadbasket through the dark of night. At five minutes past two, the Mail begins its four-hour journey, lumbering south from Surat to Mumbai. Inside, the third-class cabins are equal parts scurrying roaches and dangling unwashed feet; fading monsoon rains that bleed through the iron-barred windows grant only fleeting mercies. A few hundred unwilling insomniacs are sandwiched together, helplessly sweating on filthy vinyl benches as the shrieking of the rails splinters dreams along every gentle bend. In this part of the world, it's an utterly unexceptional journey.

Aside from the $25 million or so in freshly polished diamonds on board, that is.

The grungy wagons are filled with dozens of diamond mules, each man secretly carrying tens of thousands of dollars of stones inside custom-made tank tops with hidden stomach pouches.

Everyone sleeps with one eye open. Despite their attempts at traveling incognito, the nervous paces of the conductor -- and the fact that the doors are bolted from the outside for the entirety of the trip -- belie the false sense of ease. Altogether, the mules on this sweltering, tense train trip shuttle almost every single diamond sold in the world today.

The diamonds come to Surat, the world's fourth fastest-growing city, to get cut and polished inside the microfactories within countless rows of crumbling, whitewashed concrete office buildings. Of Surat's 5 million residents, an estimated 500,000 deal, polish, or move stones. The gems are flown, freighted, and trucked in from Africa, Central Asia, and other mining hot spots to take advantage of India's cheap labor and no-questions-asked atmosphere. In Antwerp, Belgium, which for 500 years served as the world's diamond headquarters, old money, rigorous documentation, and high security epitomized the business. But nearly 6,000 miles away in Surat, I discovered legitimate merchandise mingling openly with undocumented diamonds in a trading free-for-all. Indeed, so-called conflict diamonds -- illicitly mined stones that fund conflicts in the world's war zones -- are for sale by everyone from small-time street hustlers to the Indian government itself. And the entire system is protected by an intricate familial society of brokers and middlemen that operates almost exclusively on the black market.

Here in Surat, dirt-cheap wages and loose regulations have created a dream environment for the global diamond industry. It has turned a sleepy provincial town into a new megacity within a single generation, a business center where more than 90 percent of the world's unpolished diamonds are now processed and polished. Individual stones can change hands up to a dozen times over a matter of weeks in polishing houses that grab from piles of legal and illegal stones like mix-'n'-match candy bins. Deciphering clean from dirty becomes nearly impossible. Once the Gujarat Mail reaches the end of the line in Mumbai, the stones have had their damning histories washed away, and buyers ship more than $40 billion of certified merchandise annually out of a country that international authorities say is clean. But if you own a diamond bought in the 21st century, odds are it took an overnight journey on the Mail. Odds are too, you'll have no idea where it really came from.

DIAMONDS CARRY a stately image that is as much carefully crafted corporate mythmaking as treacherous intrigue. They conjure glamour and promises of love, or perhaps shady backroom dealings by faceless financiers handcuffed to their briefcases. For years De Beers, the diamond trade's dominant company and public face, sold the allure of the glittering stones while it ran the industry as a cartel, using its extensive reserves throughout Africa to create a near monopoly on the mining and trade of rough stones. To some, the firm seemed the pinnacle of luxury and success; to others, it was a cautionary tale of how Western greed funded conflict across the continent.

The diamond world has changed, however, and cheats have found new ways to game the system. The De Beers empire has been parceled out and sold to even bigger conglomerates; marketplaces in Hong Kong and Dubai are replacing the old guard; and the world's largest diamond bourse now sits in Mumbai.

Meanwhile, efforts have been made to clean up the business, most notably the Kimberley Process -- named for a diamond-producing region in South Africa and started in 2000 after human rights organizations and some industry players saw how the trade in illicit diamonds was fueling wars and warlords (and eroding the business). The Kimberley Process attempts to ensure conflict-free provenance by functioning like a passport for shipments of rough stones. But while the Kimberley certificate is today's near-universal standard requirement to trade rough diamonds, it is still shamefully basic. It's a single sheet of paper identifying only the country of origin, the country of import, value, and total carats of each diamond shipment -- along with a serial number and a couple of signatures. It's about as easy to fake as an old driver's license. Because certificates only note the total amount of rough carats, it's also easy to add or subtract polished merchandise to the bags as needed because polishing can carve away up to 50 percent of the original rough carat weight. As India is now the world's third-largest diamond consumer (after the United States and China), leftover certificates from shipments intended for domestic sales are reused to smuggle conflict stones out of the country, providing another laundering avenue. And since there's no established mechanism to ascertain the quantity of legitimate stones coming into India for cutting and polishing, it's basically impossible to know where the diamonds leaving the country have truly come from.

Of course, warlords and dictators have never stopped digging up conflict diamonds; they're drifting into the market today through these enormous gaps in the Kimberley Process. While rough stones can be traced to their origin, every press on the polishing wheel removes a diamond's distinctive and distinguishing surface features, like the "argyle pink" from certain Australian mines or the telltale nitrogen deposits on some South African stones. Kimberley Process officials declined requests for interviews, but what those involved in the trade told me is that smuggling stones directly into Europe or the United States is no longer necessary. It's not worth the risk when they can be imported, laundered, and stamped with approval in India before being sold onward.

And Surat's where they go to get their shine. Thirty-five tons of rough diamonds pass through this city every year to be cut and polished, but fewer than two-thirds arrive by legal channels, according to investigations by Yagnesh Mehta of the Times of India. The rest sneak in by container or courier from Angola, Ivory Coast, the Democratic Republic of the Congo, and other areas. Or they come from Zimbabwe, where a major diamond-producing region was recently approved as conflict-free, though the country is still officially untouchable for U.S. diamond buyers.

The Indian system rests on the back of a tight-knit, secretive familial network of many thousands of importers, dealers, and polishers. They come from small towns like Palanpur and the Saurashtra region, hundreds of miles away from Surat, and prospective employees need to be vouched for by current workers to have any shot at joining the business. No locals, nobody from other parts of India, and certainly no internationals can penetrate this cabal. The unarmed traders accept the smuggled stones for up to a 40 percent discount compared with accredited diamonds. Violence is rare, owing to their total monopoly, and authorities told me they feel pressure to look the other way to avoid tarnishing the image of India's "Diamond City."

The real laundering begins in Surat's Mahidharpura diamond market. Here, thousands of clubby traders congregate daily along a long pedestrian alley strewn with electric wires and dotted with sari-wearing mothers hauling construction bricks as tinny speakers blast Bob Sinclar's "World, Hold On" into the throng. Each man is a walking bank, wearing an undershirt ballooning with diamonds. When it comes time to deal, they pull out a small, blue felt-lined tray and display the goods -- right in the open on steps, sitting on the endless rows of parked motorcycles, or anywhere there's a free space. Dealers mix the conflict stones with the legitimate, breaking them up into small parcels before doling them out to brokers.

Paperwork is frowned upon. Instead, this $40 billion economy runs on Post-it notes. When deals are made, the parties exchange squares of paper that mark only the date, participants, carats, and value of the merchandise. No other transaction traces exist. If a dealer cheats someone, he's kicked out of the circle forever and his debt is shifted to other family members. Their trustworthiness thus assured, the brokers fan out across the city, climbing the staircases of dozens of nondescript weathered buildings to deliver merchandise to the independent contractors who do the polishing.

Surat hosts more than 3,000 polishing companies large and small. Like most of the complexes, the Diamond World towers have lighter security than a strip mall, with a sole half-asleep guard leaning on a bamboo stick that is both weapon and crutch. Beyond this inattentive gatekeeper are hundreds of compact, dimly lit polishing rooms, where rows of teenage boys work 14-hour shifts, each grinding and shining about $10,000 in diamonds a day.

Ramesh Dhanjibhai and his cousin Kalpesh Mangukiya run two typical chop shops in Diamond World. Their workers earn about $1 for each of the 0.3-carat stones they polish, most of which will retail for about $1,000. The cousins process half a million dollars' worth of polished stones a month. Dhanjibhai told me that most local polishers have "no idea where the stones came from or where they're going, and we don't really care." Whether their merchandise is from Congo or Ghana, they export exclusively to the United States. "Our entire business is black market," Mangukiya beamed. "We need Kimberley Process documentation if we want to legally import diamonds ourselves. Once we get them here, we just throw the certificate away -- we don't need it anymore."

When Dhanjibhai's crew finishes the grinding, the stones begin the most dangerous part of their Indian saga -- the transport to Mumbai. They go via the angadias, a secretive community of couriers who hail from the faraway Mehsana district in northern Gujarat state. They're not much to look at: mostly middle-aged men with wrinkled collared shirts, knockoff Chinese suitcases, and ill-fitting slacks -- the kind of potbellied guys all over India nobody ever thinks twice about. It's a perfect disguise. From the smallest polisher to the biggest processing center, everyone counts on their delivery services across India, and that means the Gujarat Mail.

"The whole trip is scary. It's mentally very tough, and we don't sleep much," says Navrattambhai Patel, a senior angadia who goes on runs as a reserve agent when some of his 700 regulars can't. Eschewing other means of transportation means cheap rates; shipping $20,000 in diamonds by angadia costs only $2, and one person carries anywhere from $10,000 to $150,000 in stones a night. Most angadia firms are small, family-based businesses. But to find the biggest, just wander down the hallway of burned-out light bulbs on the ground floor of Diamond World to the door with a haphazardly taped sheet of paper that reads "B.V.C."

Even the most hackneyed thriller novelist wouldn't dare dream up B.V.C. Logistics Private Limited. It's just too unbelievable. Out of a diminutive 200-square-foot office, Manisha Chinai claims to oversee the transport of an astonishing $5 billion in diamonds a year. B.V.C. is the most sophisticated of all angadia firms -- it bypasses the Mail in favor of a single armored vehicle ingeniously cobbled together from an old Mahindra pickup truck and some spare steel plates. Chinai's specialty is making deliveries for the larger firms that need multimillion-dollar deliveries on a weekly basis.

Those angadias who don't get the premium ride down south in B.V.C.'s makeshift Brink's truck are rounded up every night at midnight, save Sunday, by jeeps darting around the city with police escorts. Then they're unceremoniously dumped at the back entrance of the railroad station, where the couriers try to blend into the rest of the expectant crowd waiting for the train to Mumbai.

SURAT MAY BE one of the world's fastest-growing cities in economic terms, but it's no paradise. Child labor is pervasive. When the movie Blood Diamond hit the screens in 2006, India cracked down on companies employing underage workers -- including as many as 100,000 child laborers in the diamond industry -- out of fear of similar scandal. But the kids don't stop coming. They just move into the massive textile factories clogging the town, biding their time until they can shift to the more profitable polishing industry.

Despite the promise of riches, it's a hard life, as several current and former diamond workers told me. After two decades of constant squinting and 100-hour workweeks, most boys who come here to make their fortunes in the polishing trade no longer have the eyesight to do the work. By 35, if they haven't been lucky enough to become dealers, those polishers already suffering from early-onset vision loss are shown the door and left to fend for themselves. And decades of continuously inhaling microscopic diamond grains often leads to tuberculosis and respiratory diseases ("diamond lung," as it's called locally), which afflict tens of thousands of workers. Most go back to their villages to try to farm the land they abandoned years earlier -- literally sent out to pasture.

Chanderbhai Suta knows firsthand how quickly fortunes (and reputations) can change in the market. In 2007, disgruntled with a system in which small traders were consistently cheated out of the best prices and best stones, Suta organized the first trader strike in the history of Mahidharpura market. By his own account, it was a spectacular success, winning "over 95 percent" of their goals of market fairness and self-policing against cheaters. Among his colleagues, he was a hero.

Suta says that at about the same time, "foreigners started coming around asking around if we'd ever heard of blood diamonds. We'd never heard of them, or of the movie. After it came out, a few of us saw it and thought that we were funding wars and felt that it wasn't good. But the stones without the Kimberley certification were 40 to 50 percent cheaper, so there were still a lot of buyers." Emboldened by his newfound standing, Suta took on the cause.

This time, the reaction was swift and vicious. "Once I came out [against blood diamonds], all the rough-diamond dealers decreased their support to me significantly," said Suta. "The bigger traders were upset, asking, 'Why do you want to publicize this thing? Everyone is making their bread in peace.'" Undeterred, he pushed on. "Then they started giving me death threats. I stopped -- I didn't have any other choice."

A short ride across town, the Directorate of Revenue Intelligence (DRI) isn't exactly taking up Suta's shattered mantle. The DRI is the main line of defense against smuggling, tasked with ensuring that all merchandise entering India has the requisite paperwork identifying it as legitimate. Its local headquarters in Surat feel as sleepy as its dilapidated waiting room, which is stacked floor to ceiling with slowly molding customs forms and newspaper clippings. Here, seven employees are tasked with tracking nearly all the illegal diamonds coming in and out of India; a few wormholed ledgers that need liberal doses of cellophane tape to stay in one piece tally their successes. Despite the anemic staffing, the longhand still tells of a few big scores: a staggering 48,000 Zimbabwean carats seized in April 2011, 10,000 carats from Congo later that year.

What happens with the seized stones? The Indian government auctions them off. Local and international diamond firms are then free to bid on the lots. Stamped with a new origin in a Kimberley-approved country, these blood diamonds are handed right back to the global market -- now totally untraceable and indistinguishable from legitimately sourced stones. Want to bid? Just sign up online. Proceeds are deposited into the Indian treasury.

DOWN IN MUMBAI, the stones hit the catwalk. At the India International Jewellery Show (IIJS), which bills itself as the world's premier diamond expo, some 25,000 buyers arrive each August from all over the world to make roughly $1 billion in deals with some of the industry's biggest firms.

If India is where the Kimberley Process goes to die, the IIJS feels something like its Las Vegas funeral. Display cases are stuffed with porcelain bowls glittering with loose diamonds. The hyaline saleswomen attempt to entice the slick-suited foreign dealers walking about with suitcases of cash. Conspicuously absent is any mention of the stones' origins. As one major dealer told me, buyers don't ask about working conditions in Surat because they don't care; they don't ask about the Kimberley Process in Mumbai because they know it's useless.

None of this is news to officials, who have their suspicions about how the Indian leg of the global diamond-processing chain operates. "The South African ambassador came here [in 2011] to see the Kimberley Process in action," Dinesh Navadiya, head of the Surat Diamond Association, told me. "I showed them the small producers and how easy it is to mix up the packets when two bags [of legal and illegal stones] come in. Nobody can tell because [the Kimberley certificate] only lists total carats. And lots of people are coming from China, the U.S., and Europe to buy polished stones like this."

And Mumbai is where they come to buy. The massive convention center feels like it could be hosting any other trade show, with its stale air-conditioning, pop-up display structures, and cavernous rows of dealers, but upstairs from the showrooms is where the gem world's biggest deals are now iced. Once a buyer's eye is caught, he's escorted above the display level into what would best be described as a "closing room" in a car dealership. Drink trays and potted plants decorate the mahogany desks behind which senior executives from Surat mill nervously about, quickly adjusting their ties and demeanors when the shadows of potential whales begin to creep up the staircase walls. If they make the right pitch, their polishing centers might be in business for years. Once there's a handshake, everything else is a trifle. The Mumbai bourse, where inspection and pickup of the diamonds take place, is in the same neighborhood as the convention hall, and from there, the final hurdle is just across the street.

In the shadow of Mumbai's Chhatrapati Shivaji International Airport, the diamond division of the customs office is always bustling. Nearly $60 million in diamonds passes through every day in hundreds of packages on their way to North America, Europe, and East Asia. The 30 inspectors in this office epitomize Indian bureaucracy: They fly through reams of paperwork, stamping pages hurriedly while staring absentmindedly down the hallway; once in a while they breeze their box cutters across security-taped parcels to scan random bags of diamonds inside.

They can be excused for their lack of vigilance -- their work is purely a formality. The stacks of certificates accompanying every box mean that the onus of responsibility has been passed along to the dealers. "For us, the Kimberley Process has no relevance," explained a frustrated senior official, Dinesh Nanak. The inspectors can't even inspect; the law requires they let even the most suspicious shipments go if they pass the minimal Kimberley bar, which by the time the certificate reaches the airport customs office is worth about as much as a crumpled ATM slip.

Nanak watched as a security guard dollied away a load of packages destined for the luggage holds of planes bound for New York, London, and Los Angeles. In the United States alone, cash registers ring up some $10 billion in holiday diamond sales each year. And it's hard to fathom that most of that loot, at one point in time, passed through this dinky customs office.

Meanwhile, at a quiet suburban Mumbai train station not far from the airport, the angadias are enjoying some well-earned downtime. A few huddle around one of India's ubiquitous tea stalls, exchanging war stories and laughing together over lukewarm samosas as dawn breaks. The next batch of freshly dug rough stones will be filling their stomach pouches soon enough. But when the steel squeals of the Gujarat Mail start drifting back in, they're now a welcome sound. It's time to go home.

Photo by Jason Miklian

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