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Conflict diamonds threaten India's booming polishing business.
Kimberley Process regulator fails to stem flow of blood diamonds overseas.
Blood diamonds or no, Antwerp remains a go-to spot for the polished stones.

India plays the middleman

Conflict diamonds threaten Surat's booming polishing business.

monitoring the diamond trade since 2008, because diamond imports are not taxed.

Since the authorities began tracking the business, however, they have already busted traders with three consignments of blood diamonds, each valued around $1 million or more. In September 2008, revenue intelligence officials arrested two Lebanese men — Robai Hussain and Yusuf Ossely — with 3,600 carats in rough diamonds worth around $875,000 at the time.

This April, they caught two Indians — Jora and Prema Desai — allegedly attempting to sell 48,000 carats of conflict diamonds from Zimbabwe worth more than $2 million. And in August, Indian authorities arrested an Indian trader named Pravin Ajudiya and a Congolese national named Jean Tshinaga with some 10,000 carats in alleged blood diamonds valued around $950,000.

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Writing in India Today magazine, journalist Shantanu Guha Ray recently cited local traders as saying that such conflict diamonds routinely come to Surat on dhows sailing from Dubai. But in each of the three cases broken by Indian officials, the alleged smugglers hand-carried the rough stones on international flights and were caught because of tips from local informants, the senior revenue official said.

“There may be many such carriers,” the revenue intelligence officer said. “But unless and until we get information, we cannot catch them.”

For opponents of the trade in conflict diamonds, India's frontier-style market presents a serious problem, mainly because the entire interdiction system hinges on documentation.

Since 2003, the Kimberley Process Certification Scheme has made it mandatory for diamond exporters to document every shipment of rough stones to certify that they do not come from conflict zones. According to the Diamond Trading Corporation — a subsidiary of De Beers, the world's largest diamond company — the scheme has ensured that blood diamonds account for less than 1 percent of the global trade, compared with 15 percent before there was any monitoring system.

But others are less sanguine about the certification scheme's success. Once a diamond is cut and polished, there's virtually no way to trace its origin, though a handful of retailers have tried to set up a method that would allow buyers to do so.

Meanwhile, the main market for cut diamonds is increasingly moving to countries like India and China, where the idea of “ethical consumerism” is even less common than it is in richer nations.

Last year, as the U.S. economy languished, around 70 percent of India's gem and jewelry exports went to diamond traders Hong Kong and the United Arab Emirates.

“Essentially, illicit diamonds that bypass the early stages of the Kimberley Process (such as those from Gabon and Cameroon, or those smuggled from Cote d'Ivoire, Venezuela, or Zimbabwe) can be laundered through willing companies in the cutting and polishing industry,” Ian Smillie, chairman of the Diamond Development Initiative, wrote in a recent report.

“Arrests and the seizure of uncertified rough diamonds in the United States, the European Union, India and elsewhere demonstrate what may be the tip on an iceberg, one that the [Kimberly Process] has been unwilling to acknowledge or deal with.”

Non-governmental organizations like Diamond Development Initiative, Amnesty International and Global Witness have repeatedly criticized the Kimberley Process for failing to plug loopholes in the system, and, worse, for failing to crack down on offenders like Venezuela, Guinea, Lebanon and Zimbabwe.

But faith in the Kimberely Process has recently fallen to a new low. Activists walked out of a key meeting in June in what Global Witness termed a “vote of no confidence” triggered by a deal to allow Zimbabwe to sell diamonds from its violence-plagued Marange fields that “does not contain sufficient checks and balances to prevent substantial volumes of illicit diamonds from entering the global diamond supply chain.”

According to India Today, the deal allowed the Surat Rough Diamond Sourcing India Limited, a consortium of 1,500 diamond traders, to directly source rough diamonds from miners in Zimbabwe, making it more difficult for the Kimberley Process to track the stones.

Last year, Surat Rough Diamond Sourcing India Limited and the Zimbabwe government signed an agreement for the regular supply of diamonds worth $1.2 billion a year in exchange for training Zimbabweans in Surat's diamond-processing units, the magazine reported in May.

Many of those stones will doubtless wind up in Surat's “Mini Bazaar” — a small outpost compared to the main market in Mahidharpura, where there are some 50,000 traders, according to a local broker.

On a typical weekday afternoon here, hundreds of diamond brokers line the street. Clad in the standard cheap polyblend slacks, button-down shirt and rubber sandals, they sit on the back of motorcycles and on stoops, lean against shopfronts or squat on their heels, farmer-style, on the curb.

Behind them, in open-air shops, dozens of traders sit cross-legged behind rows of tiny desks, examining sachets of glittering stones with tiny jeweler's loupes.

If the roughs they came from once had blood on them, nobody would be the wiser, judging from the way polished stones change hands.

“Hello, hello, gentleman,” a local trader calls out from behind a tiny desk. Keen to make a sale, he spills a sparkling pile of half-carat diamonds onto the table from a paper sachet.

“All the documents are in Mumbai only, so there is no need to look at them,” he says when asked whether they are legal. “We buy the diamonds on trust.”