Alibaba, the leading online internet platform for global wholesale trade, has sent special Trade Alerts by email to millions of potential diamond buyers, offering CVD Lab-Grown Diamonds with GIA Natural Diamond Certificates as one of its Top Products of the Week.

 

This offer is a blatant – and ostensibly fraudulent – attack on the Gemological Institute of America’s (GIA) product integrity. Made on behalf of a New Delhi-based supplier of synthetic diamonds and gem simulants, the offer is akin to selling a fake Rolex watch with a genuine Rolex certificate of authenticity and guarantee.

 

The offer was concrete and specific: the seller, the International Trading Corporation (ITC), claimed to have the ability to supply 10,000 carats of CVD diamonds a week. Priced at $100 per carat and above, each and every one of these CVD diamonds (i.e., pieces over 0.15 carats) carried a genuine GIA natural diamond report. If this was true, it might easily be the most serious marketing fraud in the diamond business ever. In response to our queries about this offer, GIA Senior Vice President Tom Moses said: “We will immediately investigate this fraudulent use of our certificates.”

 

Alibaba’s Marketing Power

 

The publicly traded Alibaba Group “reached a milestone of over 400 million annual active buyers,” said Alibaba’s CEO Daniel Zhang in his most recent quarterly review. “Our proven ability to deliver an unparalleled consumer experience and to help merchants attract, engage and retain buyers will drive future growth in our core business,” he added. It is that unparalleled global marketing power that enables innocuous, almost anonymous, unscrupulous entities to wreak havoc in the diamond world.

 

Catastrophic Reputational Consequences for GIA

 

Our first reaction upon receiving the Alibaba Trade Alert directly to our inbox was to think that the combination of synthetic stones with a GIA natural diamond report was a contradiction in terms. We believed that no bona fide diamond buyer could be that naive, and browsed the website of the seller (www.itc.org.in), seeking an explanation. Lo and behold, the ITC website gave the inexplicable explanation in bold letters: “Some of the CVD Diamonds when sent to Laboratories get passed as Natural diamonds, and hence they can be provided with GIA natural diamond certificates.”

 

Is this plausible? Unlikely? Impossible? We have learned over the years that nothing is impossible. What makes the statement ridiculous, however, is the volumes this seller was offering. Could the GIA really “miss” up to 10,000 CVD carats a week and mistakenly issue natural diamond reports for them? Not in a million years.

 

We thought it must just have been a mistake. But, what if out in the market, there are thousands or tens of thousands of synthetic diamonds inscribed with GIA certificate numbers corresponding to genuine GIA natural diamond reports? This scenario would not only be “the beginning of the end” of trust in both diamonds and diamond traders, but also catastrophic for the GIA and its reputation.

Not a single diamond trader or consumer holding a numbered natural GIA certificate and a laser-inscribed diamond will ever suspect that his or her diamond may be synthetic. At least not until now.

 

Purchase Inquiries and Price Quotes

 

Assuming the ITC might be reluctant to the talk to the press, we asked a Dutch-based trader, Tyson Edgon, to approach someone calling himself Mr. Shobhit, who seemed to be the principal of the Delhi-based synthetic diamond trading company, to make an initial purchase for us and to ask some specific questions by e-mail. Complete and unequivocal answers were provided by the company.

 

Tyson went ahead and first asked for price quotations for 20 round CVD synthetic diamonds (each of G color, VS clarity, and 0.95-0.99 carats) and for 30 round diamonds (G color, SI1 clarity, and 0.45-0.50 carats). The answer was quite surprising. The diamonds of just below one carat would come to $1,290 per carat, plus $298 per stone for the GIA natural diamond report and $50 per laser inscription. The almost half caraters would cost $780 per carat for G/VVS-VS. If we required SI1, the price would go down to $690 per carat. Comparing these prices to IDEX Real Prices, some goods were up to 70% below going market price, others were closer to the natural market prices.

 

A separate inquiry was also made, which was directed at Rajesh Dubey, the name listed on the Alibaba offer as Head of International Sales at ITC. We asked for price quotations for “CVD diamonds sized 0.50-0.69 carats (some 75 stones) with GIA natural diamond certificate.” Dubey replied immediately: “We can supply the size you required at US$790 per carat. The cost of certificates will be $75 each. The order must be minimum 100 stones.”

 

So, we had two separate, unequivocal, and quite similar price quotations. Tyson then followed this up with a request: “In the Alibaba publicity and in our [order] inquiry, it is specifically noted that these CVD goods come with a GIA Natural Diamond Certificate. Please confirm that this is indeed the case.” The answer: “YES, it is true. They will come with GIA certificate and laser inscription of GIA number written on the girdle of diamond. Plus they can also be verified at www.gia.edu, GIA official website.” That could not be clearer.

 

Stocks of GIA Natural Diamond Reports?

 

We wondered whether the supplier had these goods in stock or whether they needed to be produced. This gives added meaning to the remark on the ITC website that the GIA “mistakenly” certifies CVD diamonds as natural. If there are not enough specific goods in stock, how can the company know beforehand that the GIA will “mistake” these lab-grown diamonds for natural diamonds?

 

On Tyson’s aforementioned specific order, Shobhit replied: “We have 1.00-1.10 carat sizes, F-G-H, VVS-VS in stock, around 14 pieces as samples. Rest we need to cut and polish. The raw material is always in stock with us. The lead time of order fulfillment is 7-10 days.” That is miraculous, as the GIA takes 7-10 days to certify the stones. One wonders how they polish, certify and ship them in this time, and as a result our skepticism grew to suspicion.

 

Tyson asked for a picture of one of the natural certificates that would come with a CVD diamond. Shobhit sent him GIA certificate 7206591355, a round brilliant of 1.05 carats, issued on August 10, 2015. We found the report on the GIA website. A further inquiry with Moses in New York, revealed that this diamond was a Type I diamond – thus it could not have been a CVD stone.

 

The statement, therefore, on the ITC website claiming that these natural certificates represented grading mishaps by the GIA and that the laboratory had failed to recognize CVD, was clearly false.

According to the ITC’s own “About Us” section on its website, the company only deals in synthetic and simulated gems, stating this fact repeatedly. However, the website also states: “Currently we are holding a stock of more than 25,000 IGI and GIA certified diamonds.” Let’s think about this – no, let’s not. I really don’t want to think about the possibility that the company has 25,000 falsely-certified diamonds. Some of the CVD diamonds offered to us have already been certified. [See detailed list.]

 

An Indian Company that is Really Chinese

 

The Indian company, by its own admission, acts solely as the sales office of a Chinese mother company. But strangely, it is emphasized that none of its products originate from China. “We do not deal in any kind of Chinese or Korean Products. Our products are made in Czech Republic, Austria, Egypt and USA,” says the ITC. Apparently the company’s main offices are in Shenzhen, China. The Indian sales office was reportedly established in 2009 “to provide better services to their customers located in international market.” There are also sales offices in the Czech Republic and in China. The invoice issued by the Delhi office also notes the address of the Shenzhen head office on its letterhead. Strangely, however, its registration for Indian VAT purposes was only completed in November 2014. So too was the website.

 

What does the company say about itself? “With the experience of 50 years in the field of synthetic Lab grown diamonds & cubic zirconia, [we] are one of the oldest houses to cater the requirements of [our] esteemed customers in all their stimulated [sic] diamond needs. Along with serving its old customers, the company has created its unique identity in the market for machine-cut high quality synthetic diamonds and cubic zirconia.” For a 50-year-old company it lacks any “visible” history either on records or on the Internet.

 

Synthetic Diamond Sources Unknown

 

Where do the CVD raw materials come from? We really don’t know – at least not yet. Maybe the FBI will be able to find that out. The website asserts that “synthetic lab-grown diamonds [are] made [by] CobLabs Hong Kong Limited and [our] HPHT/CVD synthetic diamonds can pass all [natural] diamond testers. The company has got tie-ups with top brands so as to deliver the right quality and its consistency to their customers.” This one simple line impugns the credibility of all synthetic diamond detection devices.

 

We searched the Internet, company registration records in Hong Kong, and in every data bank we could find. There was no CobLabs in Hong Kong. Then we checked Internet domains. Lo and behold, we found a COBLABS.COM domain registration. The registered owners and domain operators are – make one guess – International Trading Corporation in New Delhi. That website is not active. The domain registration has expired – it can be picked up for $8.

 

Who is ITC?

 

We subsequently checked “International Trading Corporation.” Apparently, it does not exist as a limited company. We only found an address. Their invoices have a VAT number (called TIN number in India). The number was indeed issued in the name of International Trading Corporation, but the address was entirely different. It seems to be a residential apartment address – not a corporate location and not the address on the invoice’s letterhead.

 

Maybe, just maybe, the whole organization is just a few con-men, determined to make a fast buck – and disappear when exposed. Or perhaps they are “freelancers,” employees of a larger company massively engaged in this fraud. What is real, however, is the bank. The YES Bank Ltd., India’s fifth largest private sector bank and founded about a dozen years ago is a “Full Service Commercial Bank.” At the very least, the account seems real.

 

We refrained from contacting the bank and have yet to pay for our outstanding diamond invoice. My own bank, when learning why DIB suddenly wanted to make a diamond purchase, warned me. I was told that if the product I purchase is “fake,” and if the sellers can be suspected of being engaged in illegal activities, there may be a reasonable chance that the Indian anti-money-laundering authorities may actually confiscate the account – and my money. I may end up paying money for nothing.

 

Suspicions about the Fraudulent Scheme

 

Moses confirmed that he has been aware for some time of an active trade in genuine GIA certificates – and only in the certificates, separate from the diamonds. Many traders and jewelers have a GIA certificate that is used as a basis for in-store certification or for jewelry sales where the consumers are not really interested in certificates.

 

“When you sell a tennis bracelet, the consumer is not getting a bundle of a few dozen GIA certificates,” confirmed one jeweler. There are millions of genuine GIA certificates in circulation, and it may not be ruled out that these are being purchased by unscrupulous parties.

 

If that would be the case, a CVD manufacturer or trader could simply cut and polish a synthetic stone in conformity with the certificate specifications – easily making a stone of the same weight and proportions. “We know that this has happened,” admitted Moses.

 

Another option is going onto the GIA website, randomly selecting some certificates, and then simply manufacturing a CVD diamond accordingly. The number on the girdle will allow the owner or buyer of a stone to verify the quality and characteristics of his or her diamond, even without having a certificate. And, of course, there is also a possibility that false certificates are being printed. This brings us back to the Rolex comparison: fake watches with fake documentation.

 

Options Open to the GIA

 

The disclosures made in this Intelligence Briefing may be one concrete, though isolated example of fraud or it might turn out to be the tip of the iceberg.

 

For all practical purposes, this disclosure might mean that there may be hundreds or even thousands of GIA-certified undisclosed synthetic diamonds in circulation that may have the same number of the real stone on their girdles. Some of these duplicate numbered stones may be synthetic, some others may be of another simulant. They may also just be an inferior quality natural diamond recut to the precise measurements of a GIA certificate. As we said, we know this has also happened.

 

Establishing a Chain of Custody for Certificates?

 

It comes down to controlling the value chain or as some call it, the chain of custody. This also applies to GIA certification. One of the ideas floating around to counter such possible fraud would be to require the registration of every new owner of an issued GIA certificate. This would mean that just as with many other branded products, the owner would register their details. The diamond industry would most likely vehemently oppose such a move.
 

Maybe a pilot project for large goods could be considered. However, in the end, it becomes a commercial cost-benefit analysis for the GIA. The GIA will need to do its utmost to defend its brand – which will also be in the best interest of the entire diamond industry.

 

Though the industry is often reluctant to involve police, this is an instance where the FBI and India’s Central Intelligence Directorate (CID) should be called in. The FBI, the Indian police, and lawyers, through legal actions against those who cause damage to a product, may solve specific isolated instances of fraud. But this does not solve the issue itself. Let’s wait and see what both the industry and the GIA will do.

This isn’t a movie or a novel in which, halfway through, we more or less predict the happy ending. This story is far from over – stay tuned.