When 12 young diamond traders arrived at Mumbai’s Chhatrapati Shivaji International Airport on 6 January after spending two years in a jail in China, they received a hero’s welcome, write David Shaftel and Khushboo Narayan at www.livemint.com.
One by one, as they emerged from the terminal, they were greeted and garlanded by well-wishers, hugged by mothers and sisters, and carried on the shoulders of brothers and friends. Before whisking the traders away, family and friends repeated the mantra that their arrest for diamond smuggling had been the result of a simple “misunderstanding” of Chinese law.
Their release came at a time when sensitivities over trade with China were heightened by the alleged detention and torture of two Indian traders by Chinese counterparts in the eastern Chinese city of Yiwu.
Both Bharatiya Janata Party and Congress politicians from Gujarat, where the Indian diamond cutting and polishing industry is based, jockeyed for any political capital that was to be gained from the episode by claiming credit for the traders’ release. Indian news reports described their experience in China as “horrifying”, with one even saying that they had been “kidnapped”.
But that line of narrative isn’t in sync with accounts emerging from Shenzhen, a city in the Chinese province of Guangdong, where diamond smuggling is rife.
According to court documents obtained by Mint, the traders were part of a racket to circumvent Chinese import duties by selling smuggled diamonds, sourced in Hong Kong, to diamantaires and jewellery sellers on the mainland in off-the-book transactions.
The traders were treated well during their incarceration, held together in a basic but comfortable bunkhouse away from the general prison population, their family members said in interviews.
In all, 21 Indians were arrested in a sting operation. Thirteen have been released, one of whom has remained in China to give evidence in a future trial, vice-consul Anil Kumar said in Guangdong province. The remaining eight are still in jail, having received harsher sentences.
Speaking through family members, several of the deported traders declined comment, some not wishing to jeopardize the fate of the traders still in China.
The smuggling ring worked this way: Companies with ties to India would typically buy diamonds from India and send them to Hong Kong, and then instruct Hong Kong citizens or Chinese to carry the diamonds illegally, without declaring them at customs, to Shenzhen, where they were marketed to buyers, said a trader identified as Soni Amitkumar Arunkumar in a confession that is part of a judgement by the Intermediate People’s Court of Shenzhen City.
Hong Kong has no import duties on diamonds, which helps promote the trade in the city. Mainland China, however, levies a 4% import duty on diamonds, which diamantaires say encourages the smuggling of the precious stones, which can be easily concealed.
Soni, as he is referred to in the judgement, testified that he and a Chinese accomplice would collect the diamonds from a courier, known as a mule, at a railway station or shopping mall in Shenzhen and sell them at the Shenzhen Shuibei International Jewelry Trade Centre. One such mule was known to them only as “Hong Kong old man”, according to the judgement.
Alternatively, Soni’s confession said, his “clients go to Hong Kong directly to choose the diamond shipped from India and then…ask someone to help them smuggle the diamonds to Shenzhen, thereafter, (the accomplice) and I pick the diamonds and send them to clients”.
Often Soni would recommend a mule from their network, who earned between 1,000 and 3,000 renminbi per trip (about Rs.8,000-24,000).
The court documents identify Soni as being an “Indian citizen with university education” on the rolls of the Hong Kong-registered Unimax Software Ltd. Soni testified that he participated in around 15 such transactions per month, in which diamonds ranging from one-two carats to 40-50 carats changed hands.
He said he and his accomplices smuggled diamonds valued at “about $200,000 per month” (about Rs.1 crore). The court documents said Unimax was accused of evading taxes worth 6,108,739.10 renminbi.
Most transactions were conducted in cash, the judgement said, but occasionally money was routed to Unimax via the bank account of Soni’s local accomplice.
Soni also testified that he would often sell smuggled diamonds without the knowledge of his employers at Unimax, along with a cousin, identified by the court documents as Taral Manoj Parekh. Soni testified that the price of the diamonds smuggled by the two men was marked up by 3-5% from the price paid in Hong Kong to Indian suppliers.
Because his cousin “has just been in the diamond business for a short time and is not familiar with the suppliers, he gives me 2% profit for the diamond sold by him,” Soni testified, adding that the business was completely off the books.
Kishore Shah, whose nephew Parth Shah was one of the traders to return to Mumbai, conceded that his nephew had been breaking the law at the time of his arrest. “He’d get the diamonds in Hong Kong and sell them in China. He was not paying taxes to the Chinese government.” Shah said his nephew had recently graduated from college and had been sent by his parents to China to learn the family business.
In April 2011, the Shenzhen Daily newspaper reported that six local suspects were also arrested in connection with the racket, and that the bust led to a 10% rise in diamond prices in Shenzhen. The newspaper reported that there are some 2,300 jewellery companies in Shenzhen with around 300,000 employees.
A leading diamond trader, speaking on condition of anonymity from his office in the diamond bourse office complex in Mumbai’s Opera House neighbourhood, said countries that have import duties or high sales tax on diamonds, such as Thailand, Taiwan and South Korea, are targeted by the smugglers.
Nor are the smugglers confined to Indians, the trader said. Traders from Israel, Belgium and China—any country with a robust diamond industry—are also involved. He said the culprits are likely small-scale traders; large diamond firms wouldn’t risk breaking the law to evade duty as low as 4%.
There are some 5,000 Indian citizens living in Shenzhen, engaged in vocations such as diamond trading, electronics and garment manufacturing, said the Indian consular official cited earlier.
The people arrested were part of a community of young Indian traders trying to make a name for themselves in the diamond business, said another leading Opera House importer-exporter, also speaking on condition of anonymity. It’s likely, he said, that they are backed by diamond traders in India or incorporated in Hong Kong but with family ties to India.
“Of course there is someone behind them. These traders do not have the capital to start a business themselves. This kind of work is a springboard to understanding the business abroad. If they’re smart, they’ll move on or maybe two or three of them can eventually band together and start a business,” the official said.
Even if the Chinese authorities know about their backers in India, “what can they do?” he said.
Jigar Mehta, 31, appears to be one such aspiring trader. In 2010, Mehta was observed, “suspicious-looking”, in a local bank during a sting by the anti-smuggling sub-bureau of Chinese customs.
Mehta, who went by the local alias James, was found to possess 12 packages of diamonds. He “immediately confessed”, court documents said.
Mehta testified that the diamonds were arranged to be taken from Hong Kong to Shenzhen by his employer, and that the profit from selling the stones belonged to his employer. Because he played only an “auxiliary role” in the smuggling ring, Mehta was given a relatively light sentence and was one of the traders who returned recently to Mumbai, the judgement revealed.
Mehta and the other Indian traders were housed in a jail that “was like a hotel”, said his uncle Bharat Mehta.
Each room was around 1,000 sq. ft, he said, housing five prisoners. Each morning they were allowed out to exercise. There was no phone or Internet, but they had books to read, he said, mostly Jain religious texts brought by family members, who were allowed to visit every three months.
The prisoners were given debit cards that their relatives could refill, and with which they could buy food from a local Gujarati catering outfit that serves the Indian community in Shenzhen.
“They were treated very well,” Bharat Mehta said. “When Jigar went in he weighed 60 kg. When he came out he weighed 62kg.”
Mehta said his nephew had been working as a diamond trader in China for the past two years selling diamonds “door to door” at jewellery showrooms.
The majority of the arrested traders had been there for five-seven years, he said. There were 200 young men like Jigar Mehta working in China, he said, but since the arrests “most have relocated, gone to Hong Kong or Taiwan or Bangkok”.
