The fact that diamonds have high value, are difficult to trace, easy to move and conceal, and are subjectively valued, has made it an attractive vehicle for money laundering and other fraudulent schemes.
The 171-page report submitted by the examiner in the US court, probing into Nirav Modi’s ties to three US companies (Firestar Diamond Inc, A Jaffe Inc and Fantasy Inc) that filed for bankruptcy, identified tens of millions of dollars of purported diamond sales by the US companies to various shadow entities, where payment can be traced to proceeds from the alleged PNB bank fraud in India.
In looking into the US companies’ export invoices for diamond transactions that contained expensive fancy-coloured loose diamonds, the report suggests that the same fancy-coloured diamonds appear in multiple shipments among Modi’s firms and shadow entities.
The examiner’s investigation also corroborates that these transactions were used to inflate diamond inventory and accounts receivables artificially, to justify the need for LOU financing.
Interesting examples
The Examiner identified several specific diamonds that appear to have been round-tripped in 2011-12. The exaggerated prices in various transactions suggest that the same diamonds were used in multiple transactions or were even non-existent.
For instance, the US companies reportedly exported a 3.27 carat Fancy Vivid Yellow Orange Cushion Cut SI1 diamond three times and imported it once between August 8 and September 13, 2011.
According to the diamond expert, between January 1, 2011 and June 30, 2018, only one diamond matching these characteristics was sold internationally at public auction. The value at the relevant time was approximated at $188,000.
Documents indicate that on August 8, 2011, Firestar Diamond Inc (FDI) sold the stone to Fancy Creations Company (a shadow entity) for $1,098,802. Three weeks later, Solar Exports, a Modi firm, exported the diamond to FDI for $183,087 — approximately $900,000 less.
Six days later, FDI exported the diamond back to Fancy Creations Company, for $1,156,043, in excess of the original inflated price. Finally, two weeks later, A Jaffe sold it to World Diamond (shadow entity) for $1,218,991.
Another 1.04 carat Fancy Intense Pink Emerald Cut SI2 — exported twice by the US companies and imported once within six-weeks in 2011 — appears to be non-existent. According to the diamond expert, between January 1, 1981 and June 30, 2018, at international auction, there haven’t been any emerald cut, fancy intense pink SI2 diamonds greater than 1 carat. The only comparable stone was less than 1 carat.
The examiner’s report also talks of another 0.72 carat Princess Blue Diamond Intense SI1 diamond which saw an almost 700 per cent mark-up in just seven days of transactions.
Sham transactions
The Examiner identified that Firestar affiliates in India and Belgium regularly sent the three US companies bulk fancy loose diamonds accompanied by email instructions to export them immediately upon receipt to either the Modi Firms in India or certain shadow entities.
The diamonds would only remain with the US companies for a few days before being exported back to India, Dubai, or Hong Kong.
Based on the examiner’s investigation, it was found that “No employee reported examining a single diamond in connection with these transactions over the entire seven -year period.”
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Published on August 29, 2018