IN-DEPTH FEATURES
The Glittering Diamond Industry

Part II

The first part told about the famous Millennium Star diamond, the largest blue diamond known at 203 carats. It also discussed the history of modern diamond mining, that is centered on the De Beers complex, including the Central Selling Organization (CSO) known also as the Syndicate, which carefully controls the supply and the price of diamonds in the world. Diamonds have little intrinsic value, but their price is kept high by the advertising and control of the CSO. The diamond trade is a special system that has its own customs and codes.

Proper Conduct

One way or another, whether the diamond dealer purchased crude gems from De Beers or develops new import channels around the world, the rules of the game always remain the same. "Are you discreet?" asks one major Israeli diamond dealer. "Only then are you valued and can one do business with you."

All of the diamond dealers we spoke with insisted on anonymity. None of them wants any publicity.

In the diamond industry there are no written contracts or signed agreements. Rove around the world's diamond centers— the corridors of the diamond exchange in Ramat Gan, 47th Street in New York, Hatton Garden in London and near the opera house in Bombay—and you won't encounter a single lawyer. You won't find effusive descriptions filled with details about who sold what and how much he earned. Even if millions of dollars change hands the deals are finalized in private rooms and rely on trust and an unwritten word, and sealed with a handshake and the words, "Mazol uvrochoh."

"Despite the lack of documents," says one diamond dealer from Antwerp, "despite the fact that on numerous occasions I receive payment only after four or five business days, there are almost no unclaimed debts. I sleep soundly even when merchandise valued in the millions is making its way to New Zealand. If the goy said `mazol uvrochoh' the money will arrive like a Swiss watch."

Legal authorities are not a part of the story. In the event a deal is sealed and the dealer changes his mind, the dirty laundry gets hung inside, in the corridors of the Diamond Exchange. The betrayed friend turns to the exchange board. With deep regret the board conducts an exhaustive inquiry. If and when the investigation finds the other side was lacking in trustworthiness, if it cut corners and failed to keep its end of the deal, it will be punished severely.

In light cases the offender will be distanced from trading for a month or two. In more serious cases where trust was flagrantly violated, the unwanted individual is banished from the exchange and his picture appears on the walls. Rumors travel at the speed of light in the industry. Even dealers at other exchanges will avoid him forever after.

The unwritten rules are carved in stone. "Imagine a certain middleman is looking for a certain kind of stone," says one Israeli diamond dealer. "An agent comes and I show him the merchandise and ask $40,000 for it. Small change. He offers $35,000 and I agree. From this moment on, I have to close the merchandise in an envelope and mark it, `Closed based on an offer of $35,000.'

"Now even if you come and offer me $50,000 I will not be able to take advantage of the opportunity. No matter how great the temptation I must wait until I've received a reply from the dealer. Only if the dealer declines the offer is the merchandise released before the eyes of the middleman and again becomes permitted for trade and available for transport."

A dealer who succumbs to such temptations will be summoned for arbitration and will have to pay a high price, ten times more than the profit he stood to gain from the difference between the two deals.

"Years ago I paid a high price due to the stiff rules of the exchange," recalls an Israeli diamond dealer. "A new dealer arrived at the exchange. In such a case there is no chance that the diamond dealers will place their faith in him. I put out a guarantee for the man, who was a relative of mine." Putting out a guarantee is not an abstract concept. The exchange regulations give it a clear and pragmatic meaning: the veteran dealer guarantees all of the new dealer's transactions. (In exchange for his guarantees the veteran dealer receives a certain percentage of the deals.)

We'll keep it short. The inexperienced dealer was full of good intentions, but lacking business sense, he stumbled and faltered. At that point the established diamond dealer became a target for the betrayed dealers. "Did I have any choice? I paid it all down to the last cent."

In most cases there are no disputes over the value of the merchandise. At the diamond exchange in Ramat Gan people cram into the enormous trading room where long, black tables are set up with chairs on both sides. Every table is called a "station." The one thousand stations are equipped with a lamp, a special carat scale and a box containing white papers.

The price of the diamond is not set according to the dealers' mood or based on whim. Most of the dealers in the world rely on the Rapoport Price List, which provides very definitive indications. The diamonds are ranked according to seven colors marked "A" through "G." For example the most expensive diamonds, the blue-white variety, are marked "D."

A dealer assessing the value of a diamond goes through the price list carefully, examining the weight column and the color column to arrive at a final price. Despite all these codified procedures there can still be disagreements over the price. "On numerous occasions there are real finds to be had," says our Israeli diamond dealer. "A few weeks ago I made a small deal and purchased diamonds worth tens of thousands of dollars. After examining the Rapoport table a second time I realized the main diamond in the deal was really worth three times the price I had paid. I peered through my magnifying glass but I couldn't understand how the error had been made.

"How does such a thing happen? Sometimes mistakes are made in the initial selection at the exchange. The colors on the price list are amazingly similar to one another and hard to tell apart. In this case I bought a diamond from a dealer who insisted it was a certain color and the deal was worthwhile for him. I was honest, insistently telling him my opinion. In spite of all this he insisted on selling it to me at this great price. Maybe he was having funding problems, I have no idea."

When the dealer is interested in a diamond worth a certain amount he attaches a certificate to it. The dealer must go to a known gem laboratory, which appraises the diamond through sophisticated means, and then the stone receives a certificate recognized around the world. A stone roaming around the world with its certificate receives the same price appraisal at every diamond exchange in every country.

A Diamond is Forever

"A diamond is forever," goes the famous De Beers slogan. Despite—and because of—the new millionaires who made easy money from startup companies and went bust when the big bubble burst, many capital investors prefer to put their money in diamonds. Diamond prices tend to swell and ebb. Various fashion trends also influence their value and the current recession is having its effect. Yet diamonds are a genuine asset that can be used and realized many years down the road.

"Maybe its worth it . . . ?" say many convinced readers, rushing to take their stash out of its secret hiding place to buy a nice little diamondchik. Why not?

When it comes down to practical details, where does one go to buy diamonds? How can one defend against fakes? Indeed, a diamond is not something you buy capriciously from some chapper promising you a good price. Any of those among you who don't happen to have a place at the Sights and alas, do not have direct access to crude diamonds, will have to turn to a diamond dealer with a membership at the Diamond Exchange.

How Do You Know it is Not a Fake?

"Here at the Diamond Exchange you will be safe from fakes," our diamond dealer explains. But is the consumer really fully protected from fraud? A fake cannot be discerned with the naked eye. Very high-quality zirconium is available in the market. Even professionals have a hard time distinguishing a fake diamond from a real one after it has been set.

The easiest way for the professional to identify a fake diamond is to weigh it. Typical fake diamonds weigh twice as much as real diamonds of the same size. Another technique is to turn it upside down and lay it on a colored surface. If it appears highly translucent it is invariably a zirconium or another imitation gem. Poor translucency is one of the signs of a real diamond. Of course these two methods are not to be relied on. Diamond experts use sophisticated, tried-and-true techniques to uncover false diamonds.

Yet recently synthetic diamonds fooled even authoritative experts who had seen it all, when a Newsweek reporter made the rounds of the jewelry stores on 47th Street in New York City with three small half-carat gems—one pink, one colorless and the third a green marquise.

The reporter approached the storeowners, asking them to decide whether the stones were real or synthetic. After checking with magnifying glasses—and in one store with other devices as well—one by one they told him they were genuine diamonds when in fact they had been manufactured in a Boston laboratory by Apollo Diamonds a few days earlier.

The reporter then sent the stones to be checked by the laboratory IGI. The laboratory used a powerful microscope to see whether the stones' insides indicated they were genuine. Then they did a test to locate nitrogen atoms. In the next phase they tested the stones with implements developed by De Beers.

In the end only using a $100,000 apparatus were any differences found between the diamonds tested and real diamonds. The reporter claims that it is merely a question of time before it becomes possible to deceive even the most advanced equipment by adding imperfections or minute quantities of nitrogen to synthetic diamonds.

Today two techniques are employed to create laboratory diamonds that are extremely hard to tell apart from diamonds emerging from the belly of the earth: the method used by Apollo Diamonds (which currently manufactures diamonds of up to one carat, but promises to manufacture two-carat diamonds by 2006) and the method used by Gemesis of Sarasota, Florida, which sells fancy colored diamonds at prices as low as 75 percent of market prices. At least three other companies are working on these technologies, reports Newsweek.

According to the report, Apollo plans to begin selling diamonds in the next six months, apparently in partnership with designers of prestigious jewelry. The stones are expected to be sold at 10 percent-30 percent below the price of genuine diamonds. Gemesis places a laser imprint on the stones to indicate they are synthetic. Apollo promises its synthetic diamonds will be accompanied by certificates.

What do the diamond professionals have to say about synthetic diamonds? Does the industry fear for its life? "Let it be clear," says Meir Wertheim, chairman of the legal committee of the Israeli diamond exchange and chairman of the legal council of the World Federation of Diamond Exchanges. "The industry does not even have the very slightest concern and we are not at war against synthetic diamonds. There is enough room in the market for synthetic diamonds alongside genuine diamonds, and there is no reason to prohibit their manufacture and sale. We open the gates to those who purchase real diamonds and definitely appreciate the need to purchase inexpensive products, such as synthetic diamonds."

The danger lies in the mixture of the two and the problem is a matter of ethics. Diamond deals are based on complete trust. Diamond purchasers want the real thing, an authentic diamond. (Why is a broad topic with many facets— psychological, materialistic, etc.) Diamond sellers are totally obliged by proper disclosure. The buyer, says Wertheim, must be confident that the dealer sold him a real diamond and not an imitation. If this trust is undermined the cornerstone of the entire industry will slip out of place. The diamond dealers' worst fear is a confused market lacking order and lacking the ability to substantiate, which would discourage buyers from laying down their money.

The Israeli Connection Jews have been in the diamond business for hundreds of years. Frequent expulsions and general uncertainty led them to invest in moveable goods, often sewing diamonds into the folds of their clothes as an economic basis with which to get started in new lands. Thus it comes as no surprise that many Jewish words became permanent fixtures in the world diamond trade. The patron (diamond owner) would send stones to the market through a mekler (middleman), who would open a luktach (envelope containing diamonds) in front of the trader equipped with a lufa (magnifying glass). Deals are concluded with the words, "Mazol uvrochoh." Afterwards the mekler claims his right to a substantial pertzent (percent). It would be hard and misleading to overlook the Jews' impact on the world diamond market. "Recently I was at a convention in New York," says Mr. Shmuel Mordechai, the diamond superintendent for the Trade and Commerce Ministry. "At all of the meetings, luncheons and conferences the food was glatt kosher. Even at an event held by the Dubai Sheikdom all the food was kosher lemehadrin." Today the Israeli diamond industry is one of the most important in the world. The diamond industry has a place of honor in Israel's foreign trade, providing a critical source of foreign currency. According to Mordechai, the year 2004 brought a sharp rise in activity in the Israeli diamond market. Polished diamond exports totaled $6.333 billion in 2004, compared to $5.532 billion in 2003, an increase of 14.4 percent. Unfinished diamond exports came to $2.920 billion in 2004, compared to $2.228 billion in 2003, an increase of 31 percent. These results were achieved, in part, due to efforts by the heads of the Israeli diamond industry and healthy cooperation with the Trade and Commerce Ministry. The Ramat Gan Diamond Exchange is a major junction for world diamond dealers. What makes the exchange unique, its heads claim, is the security and service. To gain entry requires an exacting security check, including a photo ID tag that visitors must wear at all times. The tag has a time limit and is only valid for the building where it was issued. Without a tag one cannot go to the trading room. Each of the four buildings has one point of entry and anyone without a tag cannot pass from one building to the next via the internal connecting bridges. Some 900 cameras are used for surveillance in public areas. On the wall of the trade room are a series of large clocks showing different time zones, an indication of the close ties to diamond exchanges around the world. The strength of the Israeli diamond industry does not disguise the fact that the number of people working in the industry has decreased significantly in recent years. Likewise it is hard to overlook the difficulties diamond dealers have to confront, including constantly working to obtain crude diamonds, an area in which the Trade and Commerce Ministry assists considerably. The industry has to cope with competing diamond centers such as India and China, where labor costs are much lower. In 2004, $1 million was invested in research and development, placing emphasis on mechanization to help compete against the low labor costs in these countries. The Israeli diamond industry is very closed to newcomers, but welcomes the sons of insiders with open arms. The same names appear over and over. "That's true," Schnitzer admitted, "but you have to realize that in this industry those who enter the business are scrutinized very carefully because of the nature of the work. This is not the Knesset—not everyone who wants to gain admission can just walk right in. But it's not a closed profession. It should be understood that among the goyim, as well, this is a family business passed down from generation to generation. The same is true of the jewelers. This is an intimate profession. You can't talk about it much with people from the outside, so you look for someone close to talk with. Who is closer than a son or grandson?" The world diamond centers roam from place to place. In the 1970s a group of Jains in Bombay began to cut and polish diamonds for export. Over time production expanded to Surat and other provincial towns. These newcomers enjoyed several advantages: close family ties, the weakness of the rupee, tax breaks and most of all, inexpensive labor. De Beers was glad to unload its stock of small stones and the US government also began to sell a supply of industrial diamonds it had purchased in the 1940s. A visit to the main transportation artery, Varacha Street, in the area of the Indian diamond factories in Surat provides some insight into the world's new diamond centers. At 8:00 pm the street transforms into a pandemonium of cars, rickshaws, motor scooters and thousands of bicycles transporting half a million workers home from the diamond factories. Work conditions there vary from appalling exploitation to very reasonable conditions. In Antwerp things have changed as well. "In the good old days," says one Belgian diamond dealer, "twenty five avreichim yerei'im sat in one room, cutting and polishing diamonds. It was clean, easy work. Shiurim could always be heard in the background and the avreichim would polish their sevoras during the course of their work." Then a tremendous upheaval took place. First of all, today there is almost no need for diamond polishers. Lasers have replaced manual labor and China and India are full of polishers working at impossibly low rates. The numerous middlemen were displaced, either because they were not suited to the new conditions in marketing and trade or because of harsh steps De Beers took (cuts at the Sights and stringent regulations). The monthly Rapoport Price List reduced profit margins. Now only the big players remain in Antwerp, those who knew how to survive and grow despite the challenges.

The Kind of Diamond You Wouldn't Even Dream About For years India was a source of the diamonds that enchanted European travelers. Marco Polo wrote about palace walls glittering with diamonds and treasure chests overflowing with fabulous gemstones. In the 16th century a European in India stood dumbfounded at the sight of the horse of King Vijiangar. "The horse was adorned with jewels and studded with diamonds worth as much as a city," he wrote. Diamonds of renown throughout the world originated in India, including the Hope Diamond, one of the biggest in the world cut in the shape of a heart, and the Kohinoor, a 108-carat diamond currently set in a crown belonging to the royal family of England. The Pumpkin, an orange diamond with the vibrant colors of the jeweler Harry Winston was offered for sale in exchange for the modest sum of $3 million. Israel also takes pride in a diamond bearing an Israeli name. Who is familiar with the Pink Steinmetz? A year and a half ago Israeli billionaire Benny Steinmetz offered for sale one of the seven largest and most beautiful diamonds in the word. The 60-carat diamond, which has no internal flaws, took 20 months to cut. Appraising the diamond was no easy task for the simple reason that there were so few potential buyers. The Sultan of Brunei and Arab oil tycoons were considered potential customers who might be willing to pay $100 million or more for the spectacular gem. Sometimes there are also discouraging losses. The Israeli diamond company Steinmetz lost a diamond worth $360,000. How does such a slip take place? As part of an advertising campaign the company ran at the Formula 1 races in Monaco, two diamonds the size of a button were set in the front of two Jaguar race cars. Early in the race the driver collided into the barrier fence. Only two hours later, at the end of the race, was the support crew permitted to search for the diamond, which never turned up. And now for the good news. The happy tidings are reserved for J.I.B. Jewelers, with stores in Tel Aviv, Herzliya and Jerusalem. In a state where tens of thousands of elderly people go without needed medication because of the economic conditions and 45 percent of the population foregoes dental treatment, it's a nice change of pace to drop by these stores. And how encouraging it is, indeed, to know that here, too, one can buy a cute NIS-50,000 necklace with black and white diamonds to decorate a spoiled little girl's dolly.

Grading Diamonds Diamonds are graded by the four Cs: Color, Clarity, Cut and Carat (weight). Diamond color is described on a scale of the letters of the alphabet using letters D through Z. (The letters A, B, and C aren't used.) The colors D, E, and F are considered to be completely colorless. D is of course, the best. The Millennium Star is a D. The colors go from clear to a pretty strong yellow. Clarity is measured on a scale of I3 to FL. These are short for Imperfect and Flawless. I3 means imperfect with eye-visible inclusions. Cut can be any of many types that have been developed. Some popular cuts include the round brilliant, the oval, the marquise, cushion cuts, and the pear. They all have 57 facets. Other very common diamond cuts are the heart, the step, and the princess. The Carats (weight) of a diamond are very important to determining its price. Diamonds are compared according to the price paid per carat. Top diamonds can command prices of $1 million per carat. The largest faceted diamond in the world is the Golden Jubilee, which weighs 545.67 carats. It has a brownish-yellow color.

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