One of the most common recurring themes in the diamond industry, unfortunately, is the issue of unscrupulous diamond and jewelry merchants seeking to pass off synthetic diamonds as natural stones and creating fake jewelry.
The aim is obviously to make a big profit by defrauding other members of the industry with a clear lack of care for the consequences further upstream where they create distrust among consumers who are likely to be deterred from buying jewelry again.
In addition to this recent rising trend of LGDs illegally being set in jewelry and passed off as natural stones in the US and India, as well as in other markets, is the apparent huge number of imports of fake jewelry to the US, according to recent media reports.
This emphasizes the need for constant vigilance and the importance of using state-of-the-art machinery – while bearing in mind that sometimes even these sophisticated devices can be fooled. There’s no shortage of available equipment to detect lab-grown diamonds. According to the Natural Diamond Council (NDC), there are about 40 instruments on the market that aim to discover natural versus synthetic diamonds.
Unfortunately, there will always be criminal elements willing to show a total disregard for the rest of the industry.
Manhattan diamond dealer indicted on gemstone fraud
Manhattan diamond dealer Manashe Sezanayev who, a court heard, had a history of gemstone fraud was indicted in July in what prosecutors said was a scheme to deceive fellow merchants out of nearly $500,000 by replacing their real diamonds with LGD imitations.
According to reports, he invited dealers to his store in New York’s diamond district supposedly wanting to purchase real diamonds from them. He was said to have pocketed three diamonds worth $460,000, while swapping them with duplicates cut and inscribed to look like original stones.
Sezanayev, who operates Rachel’s Diamonds in New York’s diamond district, pleaded not guilty to the charges, which included stealing and fraud, according to the Manhattan District Attorney’s Office.
Sezanayev was accused of swapping the fakes while pretending to weigh two diamonds worth $185,000 and $75,000. Each of the fakes had forged laser inscriptions from the GIA, according to prosecutors.
Sezanayev was among a group of 10 people arrested seven years ago on federal charges of defrauding diamond wholesalers out of $9 million. He was sentenced to one year in prison after pleading guilty and was ordered to pay more than $500,000 in compensation to one of the victims.
Indian case of LGDs, shell companies and money laundering
Investigators in India recently uncovered a scheme where synthetic diamonds were imported with a supposed value that was 100 times their real value.
The stones were paid for by bank transactions made via shell companies in India under the pretext of “payment towards import”.
The diamonds were then set in jewelry and exported at highly inflated prices to show only a small profit as a way of laundering money.
U.S. Customs and Border Protection officers seize fake goods
U.S. Customs and Border Protection (CBP) officers at the Port of Louisville recently seized packages of jewelry containing fake goods.
The packages were reportedly handed over to Homeland Security Investigations for further analysis.
Had the jewelry been real, the three shipments would have had a combined retail value of more than $10 million.
Reports said the first package was seized on July 1. It had been sent from China and was intended for an address in Brooklyn.
IGI Detects 6-Carat LGD With Fake Inscription
The International Gemological Institute’s (IGI) lab in Tel Aviv recently uncovered a six-carat pear-shaped LGD that its owner was intending to sell as a natural stone.
It was fraudulently inscribed with a GIA report number for a G-color natural diamond of the same size and shape.
According to the IGI, its investigation found that it was grown in a factory under the chemical vapor deposition (CVD) process.
“Everyone in our industry must be vigilant,” said CEO Tehmasp Printer in a statement. “IGI pioneered the grading of lab grown diamonds nearly two decades ago for the purpose of clear separation from natural stones. As attempted fraud increases, the need for ongoing verification is a necessary step to protect consumers from purchasing misrepresented gems and jewelry.”
Italy’s Gem-Tech found three LGDs inscribed with GIA report numbers
Some months ago, Rapaport reported on Italian grading lab Gem-Tech finding three LGDs inscribed with GIA report numbers for natural diamonds. They came with physical grading reports stating they were natural diamonds.
The GIA has said more than once that it has seen LGDs with counterfeit inscriptions referencing GIA diamond grading reports for natural diamonds.
Massive global LGD production needs buyers
India is a major hub for the production of LGDs. Thanks to technological breakthroughs, cost-efficient production of gem-quality stones and growing consumer awareness of synthetic diamonds, India’s LGD output was estimated to have reached 1.5 million carats as long ago as 2020, according to a report by consulting firm Bain & Co. India accounts for about a quarter of the estimated global LGD output of 6 to 7 million carats.
China ranks first in LGD production with an output of 3 million carats, according to the same Bain report. Singapore and the USA jointly hold the third position with an output of 1 million carats.
The total LGD market share has been growing steadily and is expected to account for 10% (estimated at 19.2 million carats) of the entire worldwide diamond market by 2030, according to a report by India’s umbrella body the Gems and Jewellery Export Promotion Council.
India’s polished LGD exports are growing at around 55% per year, and account for approximately 6.2% of natural polished diamond exports. LGD prices are approximately 80-90% less than natural diamonds.
Are retailers being transparent with consumers? Unfortunately, this remains a big issue and could be a factor in putting consumers off buying diamond jewelry later in life.
There have been many anecdotal stories of consumers going back to jewelry stores in order to upgrade their LGD-set jewelry only to discover that the LGDs have little or no resale value and that an upgrade would cost far more than they expected.
Industry members should bear in mind that we are all our brother’s keeper. In other words, we all need to do business in a completely transparent and honest manner.
What goes around can have an unintended consequence for other players in the diamond and jewelry business meaning everybody faces the possibility of losing out. It would serve us all well to bear this in mind.
Abraham Dayan for Rough&Polished
