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The underworld of gemstones

Part 1: under the rainbow

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Abstract

In recent decades prices of high-end “colored gemstones” (trade jargon for precious stones other than diamonds), like almost all “collectibles,” have risen dramatically. Demand has been spreading to economic classes formerly excluded at the same time the supply of high-quality material from natural sources falls, leading to constant searches (that may take on the character of gold-rushes) for as yet undiscovered sites. While no doubt criminogenic factors have always existed within the gemstone business, periods of rapid price rise mean stronger temptation for illegal activities. The potential list of economic offenses, civil, regulatory and criminal, associated with the gemstones business includes: illegal mining, environmental offenses, bribery, gun-running, smuggling, “terrorist”(i.e. insurgent) financing, commercial fraud, mining-share swindles, money laundering and, not least, simple theft along with recycling stolen goods. This paper represents an attempt to understand the criminogenic factors in light of the history and current structures of the business. It fits the gemstone trade into a commercial, geo-strategic and sociological matrix, the three often interacting in mutually reinforcing ways. It asks whether, given the incentives and opportunities for illicit activity, relying primarily on industry self-regulation makes sense. But it also questions whether the international regulatory regime now in place for diamonds can be applied to the far more diffuse supply-side conditions of the colored gemstone market. Methodologically, the paper is a research essay in the political economy of clandestine international economic activity, with particular focus on its historical, geo-strategic and sociological context rather than a more narrow, traditional criminological study. The second may work well enough when the activity under investigation is a crime per se, as with studies of illegal drugs. However when the activity is inherently legal, but conducted illegally, it is essential to understand thoroughly the nature and operation of the legal business to make sense of the illegal. The illegal is buried in and works concurrently with the legal, not in the narrow sense of having the legal as cover, but in a more profound sense of the legal and the illegal sharing attitudes and supporting institutions. The paper is divided into three parts. The first, “Under the Rainbow,”examines the shady side of gemstone mining in a geo-political context. The second, “In the Eye of the Beholder,” looks at fraud in cutting and polishing of rough gemstones into finished gems. The third, “Hot Rocks, Cold Cash,” focuses on illicit activity in the retail jewelry trade.

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Notes

  1. Some of the older accounts are particularly illuminating in this regard. See, for example, Jones [1] and Rogers and Beard [2].

  2. E.g. Wall Street Journal 26/11/05; Associated Press 27/11/05.

  3. Examined in Desautels [3].

  4. A good short survey is Besette [4].

  5. The 4,500 year old Papyrus Prisse lauds them but also, somewhat self-servingly, rates good words as more difficult to find. The passage referring to emeralds was likely copied from another text written 1,000 years earlier. (Gemstone Forecaster Vol. 14, No. 1, Spring 1996).

  6. The mine sites (both Cleopatra’s Mines and the equally important Mons Smaragdus, whose schist deposits would have been relatively easy to work, were located near Marsa Alam near the Red Sea Coast. The author explored the area in 2005 and saw no evidence of current mining, even “informal.” Later the Romans extracted some emeralds from Austria and centuries later a few came from Swat in what is now Northern Pakistan. But they were minor sources. (Science Vol. 287 28/1/00).

  7. Emerald is a variant of beryl (beryllium aluminum silicate) tinted green by trace chromium. It is very rare because the two essential elements (chromium and beryllium) are geochemically incompatible—chromium usually occurs in pegmatite and beryllium in ultra-basic rocks - even in the igneous formations where most emeralds are found. But Muzo emeralds are more likely of hydrothermal origin; they appear in organic-rich black shale and limestone. (Nature Vol. 369, 16/6/94).

  8. Sunday Times 17/12/89.

  9. See especially Uribe-Alarcón [5], and Thoumi [6].

  10. Los Angeles Times 15/3/94, 6/1/98; Business Week 14/6/93; Washington Times 25/9/90; The Economist 21/2/98.

  11. I am indebted to Hernando Caceres for much of this information. It was confirmed by a senior police officer in charge of anti-drug investigations.

  12. New York Times 11/4/98.

  13. Weldon [7]; Financial Times 11/5/04; The Independent 29/4/06; Niebla [8].

  14. I am indebted to Nadir Nurmohamed for much of this information. See also Bowersox [9] and “Emeralds of the Panjshir Valley: Afghanistan” Gems and Gemology, Spring 1991; The Economist 14/7/91; Sunday Telegraph 19/10/97; Jane’s Defence Weekly 27/6/01.

  15. On the qualities of Zambian emeralds, see “Zambia’s Deep Green” Professional Jeweler Magazine April 1998. In 1986 to try to stem the underground drain the Zambian government entered a joint venture deal with an Indian gemstone firm giving it a monopoly of legal exports to Jaipur for auction. (The Hindu 10/9/06).

  16. See Republic of Kenya, Office of Public Communictions “Kenya lauds cooperation with Israel” www.communication.go.ke/news.asp?id=107.

  17. Thanks to Daniel Assaf for information on the East Africa gem business.

  18. I am indebted to Willard Myers for explaining the intricacies of the social matrix in which overseas Chinese commerce takes place. See Seagrave [10] for an excellent treatment of these issues.

  19. There is an enormous amount of largely police-inspired nonsense written about this so-called underground banking system. For a dissection, see Naylor [13] 142-5.

  20. A former Singapore Minister of Information summed it up well: “China has never been a civilization with a tradition of the rule of the law above the rule of men. It’s always been the rule of men, idealistically moral men, above the rule of the law.” (Far Eastern Economic Review 2/12/93) Apart from the minister’s self-serving suggestion that those who make the rules (or condition public thinking about them) are generally “idealistically moral,” this statement pinpoints a key difference between Chinese and western ways of thinking about commerce, and crime.

  21. See, for example, “Child Sex Tourism” www.usdoj.gov/criminal/ceos/sextour.html.

  22. It is not true, says the industry, that prisoners are unremunerated – maybe they get no pay but they are being trained as future gem-trade workers! (JewelSiam Sept. 1992).

  23. The term “pigeon blood” is actually an ancient Burmese classification still in use. These stones are also sometimes called “pomergranate seeds,” a more accurate description of the color. Those slighter darker and bluish in tint are called “rabbit blood” while deep hot pink stones are called bho-kyaik which means preference of the British. There is even a “crying Indian” variety.

  24. For an excellent overall treatment, see Hughes [14]. See also his “Seeing Red: A guide to ruby connoisseurship” The Guide, Vol. 22, No. 2, March-April 2002. Thai or Cambodian rubies lack “silk.” Sri Lankan ones possess it but are regarded as too light in hue. Those from East Africa, when they have rutile, are supposedly not clean enough for proper faceting. Initially Vietnamese rubies that came on the market in the late 1980s approached Mogok in quality, but the crimsons were soon exhausted, and the remaining stones tend to pink. Hence the combination of color and internal cleanliness puts Mogok stones at the top.

  25. Gemstone Forecaster Vol. 13, No. 1, Spring 1995.

  26. Forbes 26/10/87; FBIS – East Asia 90-251, 31/12/90.

  27. Gemstone Forecaster Vol. 13, No. 2, Summer 1995; Vol. 15, No. 3, Fall 1997.

  28. Far Eastern Economic Review 7/2/91; US News & World Report 24/5/93.

  29. FBIS-EAS 23/1/95.

  30. See the excellent article by Hughes [16].

  31. Far Eastern Economic Review 7/2/91; FBIS – East Asia 15,/11/89, 29/3/90, 18/11/94, 2/12/94.

  32. New York Times 12/2/89, 6/2/95, 30/7/97; Los Angeles Times 18/11/90; Sunday Telegraph 29/9/91; Journal of Commerce 22/7/91; San Francisco Chronicle 8/10/91; Far Eastern Economic Review 21/11/92; FBIS–East Asia 8/12/92, 3/6/93; Business Times (Singapore) 15/7/94; Japan Economic Newswire 29/6/98.

  33. There is a useful timeline for Kashmiri sapphire in www.ruby-sapphire.com/r-s-bk-india.htm.

  34. Information supplied in confidence.

  35. Naturally bubbly gemologists breathlessly called them “the richest ruby deposit found this century anywhere in the world!” (Far Eastern Economic Review 9/5/91) That is also an accolade conferred a short time before on Mong Hsu in Burma, Pailin in Cambodia and a major find in Kenya.

  36. Far Eastern Economic Review 12/8/88.

  37. Far Eastern Economic Review 29/6/95.

  38. For a suitably laundered official version, see Embassy of the State of Israel–Nairobi “Bilateral Relations: Historical Overview” nairobi.mfa.gov.il.

  39. This information was given to me by a former resident of the area who, for security reasons, must remain unnamed.

  40. Sunday Times 29/9/74; International Herald Tribune 9/12/74; New York Times 5/10/74; Time “The Ruby Ripoff” 14/10/74. That name has been since corrected, so that John Saul rubies are among collector favorites today.

  41. For example: “Savana Ruby” www.creativegem.com/gem_deals/html/savanda.htm and Swala Gem Traders “Ruby - The John Saul Ruby Mine” www.swalagemtraders.com 6/2/08.

  42. For general conditions, see Walsh [19]; “In the Wake of Things: Speculating in and about Sapphires in Northern Madagascar” American Anthropologist Vol. 106, No. 2, 2004, and “Nobody has a money taboo” Anthropology Today Vol. 22, No. 4, August 2006. See also Duffy [20].

  43. Indian Ocean Newsletter 10/4/99.

  44. Africa Energy & Mining 17/5/00; African Mining Intelligence 30/5/01.

  45. See especially Harris [21]; (with O. Galibert et. al.) “Tracing the Green Line: a Journey to Myanmar’s Jade Mines” Jewelers’ Circular–Keystone, Vol. 167, No. 11, 1996, Vol. 168, No. 1, Jan. 1997; (with Fred Ward) “Heaven and Hell: the Quest for jade in Upper Burma” Asia Diamonds Vol. 1, No. 2, 1997; and (with Fred Ward et. al.) “Burma Jade: the Inscrutable Gem” Gems and Gemology Vol. 36, No. 1, Spring 2000.

  46. There is an excellent historical and contemporary treatment in Levy and Clark [22].

  47. Levy and Clark, Stone, 118-26.

  48. Harris in the articles cited above, compiled and reproduced descriptions of the mining operations take from the original texts of 19th century British visitors.

  49. For general background, see Linter [24].

  50. “Jade is Special, as are the Risks of Bringing it to Market” The Smithsonian August 1986.

  51. These are explored in Naylor, Wages of Crime, Chap. 2 “The Insurgent Economy: Black Market Operations of Guerrilla Groups”.

  52. The most influential“investigation” was “For a Few Dollars More: How al Qaeda Moved into the Diamond Trade,” by Global Witness, the NGO that had, since 1998, taken the lead in agitating for controls on the traffic in diamonds. See also Campbell [25], which takes much the same line.

  53. On this see Naylor [27].

  54. For the full story see Naylor [28], Chap. 16.

  55. When Fleming raised the story of the Soviet diamond discovery, “John Blaize” assured him that “No one’s ever seen anything to back that story up.” (Fleming, Smugglers, 147,148).

  56. The individual, Fouad “Flash Fred” Kamil, told his story in The Diamond Underworld (London, 1979). It needs to be read with a certain degree of skepticism.

  57. The story is outlined in Cockerill [33].

  58. For a summary see Naylor [34], 167-71.

  59. One of the best works on this topic is by Epstein [36].

  60. For the most thorough investigation, see Roberts [37].

  61. For a thorough dissection of the accusations Dietrich and Danssaert [38].

  62. On this see Naylor [39], reprinted in updated form as Chapter II of Wages of Crime.

  63. For a sensible view of the “conflict diamond” and terrorist diamond confusion, and the myths created about them, see the testimony of Christian Dietrich to the Commission d’enquête parlementaire “Grands Lacs” of the Sénat de Belgique 11/1/02. He comments, “I cannot imagine that Al Qaida agents would be terribly good in dealing in diamonds unless they could take protection fees from somebody.”

  64. Nor have they stopped. Global Witness still calls on the public to demand from sales staff if they can reassure them that their stones are “conflict-free.” The Independent 10/2/06. For how bogus the claims were, and the largely fraudulent evidence on which they were based, see Naylor, Satanic Purses, 268-270.

  65. See for example BBC News “Angola swoops on diamond diggers” 10/04/04.

  66. Financial Times 31/1/00, 1/7/00.

  67. This material is summarized from Naylor [28] Chap. 16.

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Acknowledgements

This paper is the product, not just of a lifelong interest in gemstones and mineralogy, but of nearly two decades of academic investigations into various aspects of the trade. I have consulted industry professionals including those who have worked the wrong side of the law, former or serving law enforcement personnel or revenue agents, and academic criminologists, plus a wide range of authors, both expert and journalistic. And many, I am proud to say, are former students who did excellent research on these topics. Among those to whom thanks are owed are (in alphabetical order only) Pierre Akkalian, Daniel Assaf, Cara Benvenuti, Jeffrey Berger, Ronel Borner, Hernando Caceres, Elliott Cappel, Jonathan Cheszes, Peter Chisolm, Manju Ismael, Rafi Kourouian, Theodore Kryes, Mohammed Naqi, Nadir Nurmohamed, Varouj Pogharian, Santiago Pombo, Katie Rothschild, Kiernan Shah, Sudkaneung Somboonwong, Stephanie Winokur, Kirsten Winther and Willard Myers. There are also numerous authors whose works have been invaluable, particularly gemologists like Richard Hughes, Robert Genis and Fred Ward. A special thanks to Professor Pam Ritchie of the Nova Scotia College of Art & Design for initiating me into the kinds of debates waged among professional jewelry designers. I am also indebted to two readers of the original paper who made sensible comments and suggestions, largely incorporated into this final version.

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  1. Department of Economics, McGill University, Leacock Building Room 443, 855 Sherbrooke Street West, Montreal, QC, H3A 2T7, Canada

    Thomas Naylor

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Naylor, T. The underworld of gemstones. Crime Law Soc Change 53, 131–158 (2010). https://doi.org/10.1007/s10611-009-9223-z

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