Whose Mistake Is It Anyway?

But what surprises is what length a fraudster goes to fulfill his or her means? That, too, putting someone else’s reputation at stake. Here, in case of Gemological Institute of America (GIA) reports being hacked at the behest of third parties has put the ‘Trust’ factor under scanner. Diamond industry is synonymous with ‘Trust’. But such fraudulent activities keep putting the question mark on the authenticity and realness of the industry as a whole. It brings a lot of questions in the minds of a buyer. Should I be buying diamonds? Is the diamond certification the final word on authenticity of a diamond? You all have read about the tampering of the reports but here in this month’s Cover Story, read about Why’s and What’s of this fraud by Kavita Parab and Puja Kumar.

‘It takes years to build trust and but seconds to shatter and forever to reinstate it,’ goes the saying and it stands true in the wake of events troubling the diamond industry since October 2015. In a shocking revelation, on 23rd October 2015, GIA announced that they have invalidated grading reports for 1,042 diamonds submitted primarily to their grading laboratory in India. An outside party who gained unauthorised remote access to GIA’s grading information database altered the reports. The alteration was reportedly done of low grade diamonds to make them of a higher grade.

Here, we would like our readers to focus on – alteration of reports was done of low grade diamonds make them higher grade. Colour is the 2nd most important characteristic of diamond quality.Though most people find it difficult to tell the difference between one colour grade to the other, the price difference between the two can be significant. Considering 1-carat VVS1-I XXX, SL round cut diamond costs around U.S. $4000 and 1-carat VVS1-G XXX, M round cut diamond costs U.S. $ 6000. So in case, one gets the colour enhance from I to G, the person makes clear profit of U.S. $2000. Couldn’t it be tempting? Of course, it would be if one is presented with an opportunity to get the report altered before they are printed. And, get a valid report for false grade and earn big money.
But a lie has no life and is bound to meet its own death. In this case, GIA and Tata Consultancy Services (TCS) discovered the unauthorised access and the fraudulent alteration of grading reports based on discrepancies in grading information identified by internal controls.Based on discrepancies in grading information identified by internal controls, GIA initiated an investigation in conjunction with TCS, the contractor that supports GIA databases. The investigation revealed that an outside party altered grading information for 1,042 diamonds examined by GIA. The investigation indicates that one or more former employees of TCS made these unauthorised changes. The individuals, acting at the behest of other parties unrelated to GIA or TCS, gained unauthorised remote access to alter grades before reports were printed and sent to clients.GIA and TCS made the results of their investigation known to law enforcement agencies in India that are actively investigating the matter.Two former employees of TCS were arrested.

Current Status

GIA continues to work closely with its database support contractor TCS and the Indian police to further the investigation of this fraud against the trade.On 24thNovember 2015, GIA announced a no-cost confirmation service for or any diamond grading report originally issued from November 2014 through October 2015. Anyone with a GIA grading report originally issued in that timeframe who is concerned about the accuracy of the report may submit the original report and the referenced diamond to any GIA location for a confirmation service at no charge. The no-cost confirmation service will be available until 30th January 2016. The diamond and original report must be submitted together using the service name ‘confirmation service’ to obtain the no-fee invoice.
GIA has also announced that it will share information about the investigation that arises.

Questions to ponder?

GIA has reportedly further strengthened their systems, controls and procedures for access to their grading information database. The most important question is how such alteration escaped internal checkpoints and quality audits which are normal routine process in any IT/BPO company. Does it mean that the reviewers were not performing their duties correctly? In case of database management companies, it doesn’t need to be overtly intelligent for the employees to understand the kind of data they are handling and its worth. Anyone would fall prey to the temptation and this has resulted in a GIA report tampering. Then, what can stop this? We are not the one to pass a judgment. But at least as an industry voice we can demand for stringent controls and severe punishment that includes lifelong unemployment in any reputed institute if caught might serve as a deterrent.

…so who would be blamed for this fracas?

Is it greed for few quick pennies? Or is it the companies sitting on huge pile of goods with no demand trying to make profits? Or should we blame market conditions that force man to behave irresponsibly? In the times of trouble, in diamond industry, only cash-rich companies are able to survive but the less-leveraged ones perish. Sometimes, these less-leveraged ones try to find means to sail through troubled times. Would it be an end to all the wrongs by punishing guilty? Time to introspect…

Subsequently, GIA published the list of clients who submitted these stones. Their accounts have also been suspended.Most of the diamonds were submitted in India. Many of those were graded in full or in part at other GIA locations including Carlsbad and New York. Some stones were submitted directly to GIA in Carlsbad. The diamonds were submitted between November 2014 and September 2015; approximately 900 were submitted in July and August.

“Based on the seriousness of the issue, GJEPC and Bharat Diamond Bourse have jointly constituted a Standing Committee to look into the matter. In order to better understand the intricacies of the matter, the Committee has individually met some of these parties over the past three weeks and also held extensive meeting with senior officials from GIA and TCS,” commented Praveenshankar Pandya, Chairman, GJEPC.

Also, Bharat Diamond Bourse, too, is planning to take the strict action against the culprits, once the investigation report is out. “The matter is now under police investigation and the results of the investigation are awaited. Meanwhile, we assure the trade that we are viewing the issue very seriously. If any member of the industry is found to be guilty, appropriate and stern action will be taken by both the associations,” assured Anoop Mehta, President BDB.

Trust Shattered Again

Currently, diamond industry in going through a crucial phase amidst the market slowdown. Slowing demand has been one of the most troubling issues that the industry is going through at present. Turbulent market conditions, sluggish demand, transparency issues – there are so many issues that the industry is presently grappling with.

Industry is trying to cope with these issues but incidences like that of GIA report tampering, which are result of wrongdoings of few vested interests not only discourages the industry but also consumer confidence in diamonds is shaken.

For consumers, diamond is a symbol of love, purity and trust. But such incidences are putting the ‘Trust’ factor in spot again. The industry is already working towards restoring the younger generation’s interest in diamonds by means of generic promotions. However, such happenings will only drive away the younger lot as they would question authenticity of the product.
Industry has time and again showed that it can overcome the challenges posed by time. But this time, fighting the challenge is not enough. It is pertinent for the industry that it stands together against the wrongdoers and acts sternly against them.

They Say…

GIA on reinstating the consumer confidence

GIA will continue to focus on building consumer confidence and trust by making public any effort by any individual, company or organization to defraud the trade or consumers.
- Nirupa Bhatt, Managing Director - GIA India & Middle East

IGI on precautions being taken at their lab -

Upon request of many jewellers and end-users IGI has set up a Special Review Cell (SRC) for the identification and confirmation of diamonds reports for certificates previously certified by any major lab such as GIA, HRD, etc, including IGI. This service is mainly important at the jeweller’s level who wants to be assured that at no level of the distribution channel changes occurred. At a nominal charge you can submit your diamond along with its original report/certificate. The experts at SRC will verify the diamond on two counts: 1) the SRC will confirm the origin of the diamond verifying whether its origin is natural or synthetic (lab grown), 2) the SRC will confirm that the report coming with the stone corresponds to this stone and the SRC will verify the 4 C's (carat, cut, colour, clarity) as given in the original report. Diamonds remain rare and expensive and the SRC will add for a very nominal fee tremendous confidence for the buyers of diamonds.

Ernie Blom, WFDB President, Says…

“I believe this case proves the lengths and the contemptible means some people are prepared to use to trick their way into receiving higher grades for their diamonds. It also provides further evidence of the constant vigilance that is needed to ensure that such illicit behavior is caught and punished to the full extent of the law.

We must always remember that the confidence of our end-consumers is paramount. The damage caused by the discovery by jewellery buyers of overgraded diamonds is potentially enormous. That is why the WFDB has no tolerance whatsoever for such fraudulent activity. The fact that the number of stones in question is not very large is irrelevant. Our exchanges cannot allow any illegal activity whatsoever and must stamp it out immediately.
Although we obviously have to wait patiently for law enforcement and other bodies to carry out a thorough investigation, there seems to be clear evidence of what was done which cannot be explained away as done innocently or accidentally.

As the President of The World Federation of Diamond Bourses, this latest evidence of apparent wrongdoing is all the more appalling because the WFDB not only represents all the official diamond bourses in the world, but also all that is right and honorable about our business. When we shake hands on a deal and say 'Mazal', we are giving our word as people of honour that the diamond we are selling is exactly what we say it is.

WFDB members trade 95 per cent of the world's diamonds. A main mission of the WFDB is to protect the interests of our bourses and their members. Members who act in contravention of bourse laws and by-laws can be prevented from all member bourses, thus ensuring that they cannot cause further damage. This acts as a strong deterrent to illicit activity and helps ensure that the global diamond industry is able to work in a smooth, honest and transparent manner.

We insist that diamond exchange members promise to uphold our traditions, principles of mutual trust, consideration and friendship. Working according to these principles ensures that they serve as a basis in business relations between members of the affiliated bourses worldwide. This is at the heart of our mission and cases of over-grading are precisely the type of activity we aim to root out.

Such back-handed and despicable activity hits all the harder because we belong to a trade that creates objects of beauty and which represent characteristics such as love and life-long commitment. There is also an irony in the fact that the diamond industry is actually one of the most highly self-regulated industries in the world. We are aware of the type of unacceptable behaviour that goes on and determined to root it out.

The WFDB wants to know about the results of the police investigation and for the punishment to be in line with it if there is a proven case of wrong-doing. All I would ask is that it is brought to a speedy conclusion by the police and the Bharat Diamond Bourse for the good of the whole industry.”