In an industry based on trust, a sting is everybody's nightmare. It seems that someone, probably very familiar with the banking system and how the diamond industry operates, is targeting diamond dealers and has so far hit at least nine companies and netted over $5.5 million in goods.

 

The key to the sting: A loophole in the way banks report wire transfers. This is a widespread sting, and the following story is just one example.

 

Last December, a respectable broker in Antwerp received a phone call from a man who introduced himself as a building contractor looking to buy a big diamond for his wife for Christmas and willing to pay around $750,000 for it. However, the buyer set a condition on the purchase: it had to be in cash.

 

The broker approached an established diamond dealer in town, proposed the deal and the dealer in turn, after consulting with his bank in Switzerland, agreed to go ahead with the deal if the broker would answer three questions that the Swiss bank posed: Did the broker know the seller personally; had he done any business with him in the past; and would the money come from a Swiss bank.

 

The last question was aimed at ensuring that the money went through the Swiss banking system where money laundering has been almost entirely eliminated.

 

The broker answered yes to all three questions, apparently encouraged by his eagerness to see the deal materialize, and a Mazal was given.

 

On the day of the transaction the buyer’s bank called the seller's bank to report the money transfer, and the bank, in turn, passed the information to the seller who handed the stone to the broker in good faith the following day.

 

As it was later discovered, about two hours after the transfer order was made, the buyer called his bank and cancelled it. Unfortunately this was discovered too late.

 

A series of phone conversations with the buyer who promised the money was on its way did not yield anything and he finally disappeared two weeks later. It is assumed the buyer used this time to stall the seller and get rid of the stone, perhaps cutting or re-polishing it to help disguise its origin. Sting complete.

 

Upon investigation, it was found that behind the seller's bank account stood a dummy company, and that at least eight additional companies in Antwerp had also fallen victim to this con. The cases all related to big diamonds and the total value of the stones comes to more than $5.5 million.

 

The key elements to the sting were:

§       First and foremost: The banks announce money transfers (SWIFT) as if the money has arrived when, in reality, that is not necessarily the case

§       A wire transfer can sometimes be cancelled

§       The use of a familiar broker who specializes in big stones and who served as a respectable front

§       The con man spoke the lingo and knew what to ask for

§       And, of course, the reluctance of the seller to report the sting to the police after making a sale.

 

The con man seems to know the market well, knowing who might be the right broker to approach and how to tempt him into the deal, even though they had never previously met.

 

In the first two stings by this con man, the banks were not even notified by the buyer’s bank, but rather by a person who posed as a bank employee who provided all the required SWIFT information, proving that the con man was familiar with internal banking procedures. The banks, by the way, refuse to take responsibility for the erroneous verbal announcements they gave to their clients in all cases.

 

It is also known that the con man speaks fluent French, a little Hebrew, very little Flemish and sounds about 30 to 40 years old.

 

But this con man is not the only one who is taking advantage of the loopholes in the system. In the course of investigating this story, numerous reports about attempts to swindle dealers by other con men were recounted to IDEX Online.

 

In one such instance, a New York diamond dealer got a call from a Spanish company regarding a 10 carat diamond he had for sale. After negotiating a price of about $230,000, the Spanish buyer faxed a copy of a SWIFT message to the seller in NYC. However the message was apparently a fake, no money was transferred, and the bank account itself seems to not exist.

 

In this case, the diamond was handed over upon receipt of the SWIFT copy and immediately re-sold in Antwerp at a great discount. Only thanks to a quick response on the part of a couple of prominent diamond dealers in Antwerp who stepped in and assured that the diamond was returned to its rightful owner the loss was recovered. This time the Antwerp dealer who bought the diamond lost his money.

 

The same Spanish based person tried to repeat the con with another NYC diamond dealership. This time it was foiled thanks to a chance conversation between the proposed seller and the New York dealer who had fallen victim just a few weeks earlier.

 

It should be noted that banking regulations vary, and there are differences between international SWIFTs and local SWIFTs. In all cases, however, it is clearly vital to ensure that the money has in fact been transferred before releasing goods.