Brace yourselves. The massive financial fraud (so far they’ve unearthed $1.8 billion but it looks like there’s more to come) involving Nirav Modi and Mehul Choksi looks like snowballing into something much bigger — a knockout punch for the industry as far as consumer confidence is concerned.
Indian media are now full of reports of how both Modi and Choksi ran an elaborate operation importing rough diamonds into the Surat Special Economic Zone (SEZ) and then diverting them illegally into the domestic tariff area for cutting and polishing by a select group of diamantaires who in turn supplied them with low-quality polished and polished synthetic diamonds.
The low-quality goods and synthetics were set into the brands that both men owned in India and overseas. Modi apparently sold the natural diamonds in India, while the low-quality and synthetic goods went into the jewellery sold in Hong Kong and the UAE.
One Surat diamond industry stakeholder has been quoted as saying that Choksi had a contract with one polishing unit in the city’s Varachha area to supply him with 700,000 polished synthetic diamonds a year. There have been whispers about Choksi’s brands even in India containing synthetics.
Both men leveraged their big brand reputations to fool consumers worldwide.
It is also telling that not a single diamond dealer has come forward to say that he has lost money or goods in Modi and Choksi’s wrongdoings.
I can tell you from personal conversations I’ve had that the gem and jewellery industry is already viewed with suspicion in the financial world. Leading broking houses and investment banks don’t want to have anything to do with gem and jewellery public offerings. The magnitude of this financial fraud has only confirmed their worst suspicions.
Now however, if consumers learn that these two purveyors of big brands not only swindled banks, but also tricked them into paying high prices for what are essentially low-cost natural and synthetic diamonds, the idea that Real is Rare. Real is a Diamond might actually backfire on us.
We haven’t been selling them the real deal, have we?
The gem and jewellery industry has to do something to redress this. Consumers need to be convinced that our product is indeed the real deal and that it stands for something. If we can’t do that, we won’t have a product worth selling.