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.