Customs dept cracks down on 'rough diamonds', industry cries foul


A packet of stones bearing the label ‘rough diamonds’ recently found its way to the customs department in Mumbai.

It was part of a consignment for a city-based diamantaire, one of many similar packages. The accompanying shipping bill pegged its value as high as any high-yielding, rough-cut diamond lode. But the stones in this particular packet were quartz–they weren’t diamonds.

It wasn’t a packing error, or a case of wrongful disclosure. What it represented, according to the customs department, was evidence of a scam that’s been brewing in the Indian diamond industry over the past few years.

The trade, which imports roughs for polishing, acknowledges the presence of bad apples but allege that the customs department is harassing them indiscriminately. India processes close to 70 per cent of the world’s polished diamonds in terms of value and 92 per cent in terms of number of pieces.

“There are a few dishonest diamantaires and they should be punished. But what’s the point harassing 7,000-odd genuine diamond traders?” said one trader who didn’t want to be named.

The Mumbai customs crackdown began with an office note to all assessors clearing consignments of roughs in the first week of May. It listed a set of “declaration/disclosure rules” that importers have to comply with. They had to specify origin by country and mine, size, shape, type, colour and other key details. This would allow the customs department to assess their value and not just wave the consignment through as had been the practice.

“This diktat, asking rough diamond importers to make very specific declaration, is not helping any cause whatsoever–it’s only adding to our existing challenges,” said Colin Shah, vice chairman of the Gems & Jewellery Export Promotion Council (GJEPC).

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Customs department officials say that fake roughs are being sent to India to generate bank credit, which is then sent overseas. Over the past few years, several diamond traders have opened offices in tax-friendly jurisdictions such as Dubai, Singapore, Tel Aviv and Antwerp.

Many of these are manned by close relatives or trusted employees of diamond manufacturers in India. These foreign offices buy roughs from mining companies directly, empty the packets and refill them with spurious roughs, half-baked lab diamonds and even stones, according to the customs officials.

The refilled packets are sent to India with shipping bills generated by the overseas offices of the Indian diamantaires. These bills are then used to raise bank credit and the money is siphoned off through the overseas offices, according to the officials.

“The money, received by way of bank funding for 90-180 days, is sent overseas,” said another customs official. “This money will then be diverted for other purposes such as investing in the stock market or real estate. They may even bet on horses or on IPL (Indian Premier League) matches with that money.”

Bharat Diamond Bourse sources say the new rules have helped corrupt customs officials demand bigger bribes. Some diamond importers said they have been forced to pay to get their parcels released. Customs officials retort that raising revenue isn’t the reason for the move.

“The idea is not to increase import duty collections,” said one. “At 0.25 per cent IGST (integrated goods and services tax), these collections are negligible anyway. We’re more concerned about the hawala racket that is going around import of roughs.”

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The traders see the “additional declarations” as being antithetical to the much-touted ease-of-doing business policy, one of them said. The move will reduce imports of roughs, hurting the diamond cutting and polishing industry, according to traders. Many are looking to route roughs through Surat, Kolkata, Delhi and Chennai, where customs clearance is regarded as relatively less onerous.

Various industry bodies are said to be lobbying the government at the top levels, seeking an immediate intervention in the matter. But for now, most importers are adhering to the specifications sought by the customs department.

“We’re fine with any number of packets coming to us from a miner,” said one of the officials cited above. “Miners give clear details of packet content on their shipping bills. Our problem is when we don’t know where the packets are coming from, and what quality of roughs are there in the packet.”

According to diamond traders, ascribing a precise valuation to roughs is next to impossible and such a practice is not followed in centres such as Antwerp or Tel Aviv.

Besides that, even in the Kimberley Process manuals, there has never been any attempt to describe roughs in the manner that the customs department has sought. The Kimberley Process is a certification scheme that was put in place to stop conflict diamonds from being trafficked through regular channels.

“Valuing rough diamonds is a very subjective matter,” said Sanjay Shah, a senior partner at KBS Diamonds, India’s largest diamond-studded jewellery exporter, “Roughs that come to India are often ‘run-of-the-mine’ parcels–they’re not sorted for quality or yield. These are packed in smaller packets after doing preliminary mine-level assortment. These are then shipped to polishing hubs like India. Many a time, these are shipped at gross wholesale prices – for example from $5 to $500. Nobody can tell the exact value or nature of roughs inside the packet.”

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Traders add that miners such as Alrosa, Dominion, Rio Tinto and DeBeers have their own set of classifications for roughs. Grading parameters and terminologies also vary for mines located in different countries.

“If we mention the mine specification in the shipping bill, and if the customs appraiser evaluates (or) grades the packet differently, traders may be held for custom misdeclaration, which is a serious charge,” Shah said.

One customs official said he found it hard to believe that importers would have little idea about the value or provenance of the stones. “Do you believe these traders would pay money for roughs without ascertaining their yield potential?” he said.

Many traders view the declaration rules as a fallout of the scam that Nirav Modi and Mehul Choksi allegedly perpetrated at Punjab National Bank. They point to the industry’s substantial contribution to the economy–exports worth $25 billion annually and providing employment for more than 1 million people. That should persuade the customs department to be more lenient, they feel.





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