The diamond industry has of late been wracked by a string of bankruptcies all over the world — India, Antwerp, Hong Kong, Dubai and Bangkok, just to name the main centres. The industry is braced for more to come and what is really worrying is that those who will be impacted most are not those going bankrupt, but those whom they owe money when they go belly-up.
The monies owed in diamond bankruptcies sometimes run into hundreds of millions of dollars. A terrible sign of the times is that a bankruptcy with tens of millions owed is now considered “routine”.
A business going bankrupt is, by itself, not something that should worry us. Business involves taking risks and sometimes a person makes a miscalculation that is so big, the business cannot recover from it. Bankruptcies are part of life in any business segment.
The vast majority of the diamond bankruptcies of late, however, have NOT been a result of business miscalculations, market downturns, or bad timing. They have all been planned, well-orchestrated moves to intentionally defraud other diamond industry stakeholders, particularly banks, of large sums of money. Many of these people — particularly in India — have been declared wilful defaulters by the banks and the authorities. And we’re all braced for many more.
These bankruptcies do two things. First, they cause banks to lose trust the diamond industry as a whole. Most banks today, are reluctant to do business with diamond industry stakeholders. Standard Chartered, which had diamond portfolio of some $2 billion, has decided it wants to exit the diamond finance segment completely. They also make governments suspicious of the industry as a whole.
In the Indian diamond industry, you can declare yourself bankrupt; leave dozens of banks and other diamantaires whom you’ve taken goods on memo from, poorer by tens if not hundreds of millions of dollars poorer, and exit without any action being taken.
What is really shocking is that within months of declaring bankruptcy, many of these people are back in the diamond business, usually with a newly set-up company or in partnership with a relative already in the diamond industry.
Now banks and even governments are calling for action. If we want to keep their trust, the entire diamond industry must act. And we do have the means.
All those who declare these fraudulent bankruptcies are members of some industry body or the other. In India, you have to be a member of the Gem & Jewellery Export Promotion Council (GJEPC), the Bharat Diamond Bourse (BDB) or bodies like the Mumbai Diamond Merchants Association (MDMA).
All these bodies have articles of association that include stipulations of moral and ethical behaviour in all the member’s dealings with other members. There are clearly spelled out consequences if these rules are breached. The global diamond industry fraternity must pressure the governing bodies of these institutions to take stringent action against these erring members under their own articles of association.
Also, the majority stakeholders of the diamond industry stakeholder are members of the World Federation of Diamond Bourses (WFDB). The WFDB too has clearly spelled out norms on such issues. The WFDB too should insist that member bourses take action against such people.
In India, we need to support and strengthen the initiatives taken by banks and other financial institutions, as well as the government against all publicly declared wilful defaulters. If our institutions can persuade banks to provide us data on their diamond industry non-performing assets (NPAs), we can take some proactive measures.
We gained the respect of governments and civil society organisations when we took the lead to form the Kimberley Process. We need to do the same thing now with regard to the diamond industry’s financial and business dealings.
If we don’t act, we are definitely going to have more of these cases. It is an easy way to make huge amounts of money at the cost of others. We will all be the poorer for it, our reputations tarnished in the eyes of the financial institutions and governments and institutional finance will become all but impossible to get.
If you agree with what I have said, please speak up or write to your representative institutions. Your own future is at stake.