Shred, Baby, Shred!

Guest Memo by Chaim Even-Zohar

Editor Emeritus, Diamond Intelligence Briefs/IDEX

Almost 10 years ago, I exposed a still ongoing fraud in the diamond industry. I wrote: "Alibaba, the leading online internet platform for global wholesale trade, has been sending special Trade Alerts promotions by email to millions of potential diamond buyers, offering CVD Lab-Grown Diamonds with GIA Natural Diamond Certificate as a Top Product 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 claims to have a supply ability of such CVD diamonds of 10,000 carats a week. Priced at $100 per carat and up, each and every one of these CVD diamonds (i.e. pieces over 0.15 carats) carry a genuine GIA natural diamond report."

I was startled. Posing as a Dutch-based potential diamond buyer - using the fictional name "Tyson Edgon" - I engaged with at least two sellers of these synthetics-with-natural-GIA-certificates as part of a journalistic (forensic) investigation. With GIA Executive Vice President Tom Moses and the New York-based FBI diamond fraud investigator fully informed, I proceeded to "order" from one supplier 20 round CVD synthetic diamonds (each G color, VS clarity, 0.95-0.99 carats), and 30 round diamonds (G color, SI1 clarity, 0.45-0.50 carats). From a second supplier, we "ordered" CVD diamonds sized 0.50-0.69 carats (around 75 stones) with GIA natural diamond certificates. We were advised by the seller, "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." Truly, a massive business!

Of course, I am a journalist—not a diamond trader. When I obtained the detailed certificate lists and pro-forma invoices, I halted the purchase. I published these GIA certificate numbers in the Diamond Intelligence Briefs and shared all data with the GIA. Tom Moses removed the compromised certificates from the GIA website. Tom and the FBI knew what to do. So did I.

Why Revisit an Old Story?

Why return from retirement to report on something first exposed almost a decade ago? The trigger was an interview with Tom Moses that appeared on the website of the World Federation of Diamond Bourses (WFDB) this week. It begins: "In the past year there have been several cases reported of lab-grown diamonds being fraudulently labelled as natural diamonds, in some cases bearing fake inscriptions. What has been GIA's experience with this?" Tom responded: "We have encountered several laboratory-grown diamonds that have been cut to fraudulently and closely match natural diamonds graded by GIA. In addition to matching closely the measurements and weight of the natural diamond being copied, the GIA report number associated with the natural diamond report is inscribed on the girdle. In appropriate instances, we have notified law enforcement about the fraud."

I found it odd that this item appeared on a promotional industry platform. It mentions "several" instances. Checking with major industry players, I understand it may be a fringe problem. The truth is: nobody really knows. An Indian manufacturer told me: "While what was written may be true and may be happening, we haven't seen or heard it to be widespread." A lot has changed in the past decade, and the GIA has developed sophisticated detection technologies. But we may be asking the wrong questions. The GIA may be able to detect fraud, but we fail to realize this is an issue the industry - 'our community' - can almost wholly prevent at no cost. The question is: why aren't we doing this?

The "Source" of These Certificates

In the past decade, the mountain of "potentially available GIA certificates for fraudulent use" has been growing. The source of these now-useless certificates can be mined from the drawers or cupboards of secretaries in diamond or diamond jewelry offices, especially in Hong Kong, but also in India, in New York, and elsewhere. In China, for the internal trade, a domestic lab certificate is mandatory, so GIA or other lab certificates are often superfluous. Meanwhile, diamantaires and jewelers selling pieces with multiple smaller stones frequently issue their own store or chain-store certificates, making the original GIA papers redundant.

For instance, a 3-carat total weight tennis bracelet might contain around 30 diamonds of 0.10 carats each; a 5-carat bracelet might have 50 diamonds of 0.10 carats or perhaps 25 diamonds of 0.20 carats each. No jeweler hands over 20 certificates for a single piece of jewelry. Certificates primarily serve trade, facilitating diamond transactions on paper - treating diamonds like commodities. Most certificates never reach a consumer.

When I interviewed an Indian "trader" in these "old" certificates, he admitted: "If I can get $100 for a certificate which is not further used, and I find 50 old certificates in the office, why should I miss the chance to get $5,000?" I later discovered that this "trader" was a relatively low-ranking employee of one of the largest diamond companies. After speaking to his employer  - 'who had no clue what was happening' - I realized that a significant number of these old, abandoned certificates might be sourced from firms without their principals' knowledge. Based on anecdotal evidence, it is clear that in many instances unscrupulous employees may be tempted to sell these useless certificates for personal gain.

Huge Potential Risk for Mid-Stream Companies

A certificate only holds true value when it remains with the diamond it describes. Once a certificate and its diamond part ways, the paper becomes essentially worthless. Worse, if a certificate later gets paired with a different diamond, it becomes a legal and reputational liability for the original owner. Any serious mismatch between a diamond's characteristics and its certificate - especially where bad faith is suspected (e.g. bribing for "upgrading" a diamond) - presents a grave risk. While fraud is a criminal offense, diamond industry players often pursue civil litigation instead. The rationale is simple: jailing perpetrators does not necessarily secure financial restitution.

Sometimes a mismatching case arises due to external events. One noteworthy example is an ongoing lawsuit in the New York Supreme Court between a certificate user and a lab [I will refrain from naming the lab]. The case began in 2016; as of now, 498 documents have been filed. By a rough estimate, both sides have already spent millions of dollars on legal expenses, and the matter is not yet resolved. In simplified terms, the dispute centers on alleged discrepancies between characteristics of certain diamonds and their corresponding certificates. Irrespective of the truth, it underscores again the value of a certificate - as well as the length litigants may go to preserve or undermine it. 

In cases involving CVD lab-grown diamonds fraudulently paired with GIA natural diamond certificates, the GIA is not the legal "victim" in the narrow sense—its clients are. My recommendation to responsible diamantaires, especially larger firms, is to investigate what happens to any old, unused certificates. My advice is straightforward: Shred the darned paper. If unused certificates are systematically destroyed, the global supply of documents available for fraudulent pairing would diminish significantly.

Proposing an Industry Covenant with the GIA

Paraphrasing John F. Kennedy, I would say to the diamond community: "Don't only ask what the GIA can do for you to solve this problem; ask what you can do to eradicate this abyss—and thus help the GIA preserve the integrity of its certificates." Unquestionably, GIA certificates are under attack. What may or may not have been published already is that some time ago, the Chinese police confiscated 20,000 counterfeit GIA certificates. They were destroyed. The GIA examined a sample and found it to be of the highest quality - truly frightening. If trust in GIA certificates were to erode or be lost altogether, I don't want to speculate on the ramifications for all of us. All of us stand a lot to lose. 

There are several steps each of us can take immediately. First, shred the unnecessary and now useless certificates in your possession. I would suggest dropping Tom Moses a note letting him know your office shredder is working overtime! This could help the GIA gauge the reduction of this paper mountain, which may contain hundreds of thousands of certificates. But the GIA itself could do more. A shredded certificate no longer exists - so it should be removed from GIA's online certificate-check tool. This benefits everyone. And if, God forbid, counterfeiters were to use your old number, it would no longer be verifiable.

I would go a step further: I encourage the GIA to allow companies to submit a "shredding report" listing all destroyed certificates. Those certificates should then be removed from the GIA website or be placed on an official "shred list". As an extra incentive, the GIA might consider a small financial benefit  - maybe a discount on certification fees - for those who routinely submit shredding reports. Tom, please think about this!

The Benefits of Shredding

There are many additional advantages to shredding. A diamond company could inform its clients - perhaps through its website - that "we shred used certificates, so there can never be a counterfeit diamond, a synthetic fake with the unique GIA inscription, on the market". Fraudsters will always exist, but the industry can mitigate the damage, and each diamantaire can ensure it never happens to him or her personally!

If the mountain of available certificates is reduced, fraudsters will find it far more difficult to source the "raw material" for their crimes. If the "market price" of used certificates starts to climb, we will know our collective shredding has made an impact. You also enhance the integrity of your own operation, something your employees will notice. In short, shredding is a win-win.

Think about it. Shredding old certificates costs you nothing but brings real benefits:

1. Temptation: The mere presence of abandoned certificates can tempt employees seeking a quick profit. Removing that option removes the temptation.

2. Reputation: If an employee is caught selling them or a synthetic shows up with your number, it not only tarnishes your company's reputation but raises questions about your internal controls.

3. Legal Liability: If fraud winds up in criminal court, the original owner of the certificates will inevitably be drawn in, facing potential legal costs and reputational damage — even if he or she did nothing wrong.

All of this is avoidable, at no cost. So, what stops you from starting today? I listened recently to President Donald Trump's inauguration speech. He said something about oil drilling that I will slightly adapt here: "Shred, baby, shred!" Shred, baby, shred... and you will not only eliminate needless risks to your own business but also help safeguard trust in our sparkling diamond trade. I wish all of us well!