As technology grows, so does the creativity of those attempting to commit fraud. While online marketplaces often present a cheaper and easier method of purchase, they have likely also opened the door to a rash of counterfeit diamond certificates that have infiltrated the industry.
In April, the National Gemstone Testing Center in China discovered a 3.10-carat lab-grown diamond with a forged inscription and a falsified report that actually belonged to a natural diamond with similar characteristics. And in July, the Asian Institute of Gemological Sciences (AIGS) issued a warning that counterfeit gemstone reports bearing its logo were circulating throughout the industry, containing QR codes that directed users to a fake website.
This phenomenon is not new, however. As far back as 2008, the Diamond Dealers Club (DDC) cautioned the trade to be on the lookout for forged reports using actual GIA certificate numbers and grading information.
While some labs are seeing cases of fake reports coming from the wholesale sector, many believe the bulk of them are originating online. “Fake reports are coming from internet sellers and platforms, in my opinion,” says Don Palmieri, president of Gem Certification and Assurance Lab (GCAL).
Gaetano Cavalieri, president of the World Jewellery Confederation (CIBJO), agrees: “From our experience, the largest number seem to be circulating in the wholesale trade, and the weakest link in the chain today is most probably those goods being sold online.”
Online forgeries are the easiest to fake, according to Cavalieri, because purchasers generally examine a scan or photo of the certificate on the web, rather than the original document. This makes it more difficult to notice subtle discrepancies.
The catch-22
But how pervasive is this issue? Industry insiders say it’s likely more widespread than even the trade itself realizes.
“Nobody really knows how much is going on,” says AIGS chairman Kennedy Ho. “We only found out about our fake reports because a buyer contacted us.”
In fact, most labs only become aware of fake certificates when conscientious consumers or retailers report them. But the catch-22 is that most buyers don’t realize they’ve received an inauthentic report until the labs put out a warning.
“I don’t believe consumers are very aware of this, the retailers aren’t even very aware of this,” says wholesaler Kevin Vantyghem, owner of Vantyghem Diamonds.
This vicious cycle makes it difficult to determine the true scope of the counterfeiting problem.
“I think it is quite possible that we will never know the extent of such acts of blatant fraud, because the victims are unlikely to find out for years, if ever,” says Palmieri.
Protective measures
Many labs have upped the security features on their gem certificates to make it more difficult for fraudsters to create counterfeit versions.
GIA reports now contain holograms, security screens, and microprint lines that prevent them from being forged or duplicated. GCAL’s certificates have protections “similar to credit cards,” according to Palmieri, as well as a feature called Gemprint, which takes an optical “fingerprint” of the diamond and registers it in a database. HRD Antwerp implements security measures such as micro text, fluo marks, line structure, holograms and special paper, which the lab says make its grading reports “tamper-proof.”
Others in the industry are also taking precautionary measures. Diamond supplier and jewelry wholesaler Stuller has highly detailed procedures for adding new diamonds to its inventory, according to its diamond director, Carl Lehnhardt. One of the company’s gemologists completes a thorough examination of each diamond Stuller purchases to make sure it matches the
lab report.
“All measurements are validated, as well as a visual inspection under the microscope to make sure all clarity…and surface characteristics match the plot and key to symbols written on the report,” Lehnhardt adds.
In the eye of the consumer
Yet all this effort, experts say, is not enough. Retailers and consumers also need to be diligent when making purchases, especially of this financial magnitude. Taking what you see
on a grading report at face value, without double-checking
that the certificate matches the stone you’re buying, can be a costly mistake.
“Faking a gemstone report is easy,” says Ho. “Labs can only
try to make it more difficult to copy, but [it’s] not impossible.”
He advises consumers who plan to buy a gemstone with an AIGS report to verify the stone on the lab’s website first.
Cavalieri takes it a step further: Not only should consumers check the report in front of them against the grading lab’s site, they should also check the printed document for any spelling mistakes or obvious discrepancies that would point to a fake.
Another option is to have stones appraised by a third party, notes Palmieri — although he warns that even this method can be problematic. “Even if the consumer has it independently appraised, most appraisers are so used to rubber-stamping
what is on the grading report, they will rarely try to check it,”
he cautions.
Dealing with losses
While there is some recourse open to those who find themselves unwitting recipients of counterfeit reports, it may be difficult for them to receive full compensation.
Cavalieri suggests informing the involved gem lab immediately, as well as filing a complaint with local law enforcement. Palmieri advocates involving consumer protection agencies or diamond industry member associations, too, such as the Jewelers Vigilance Committee (JVC), the DDC or the Diamond Manufacturers and Importers Association of America (DMIA).
However, for diamonds purchased online, or those with grading certificates from lesser-known overseas labs, the trail is much harder to follow. Palmieri questions the authenticity of some of these labs, which he says are “loose” with their grading and therefore hard to trust.
“If [the consumer] bought a synthetic stone thinking it’s natural, they will lose a lot of money,” says Ho. “[It is] difficult to catch the culprits, as they disappear very quickly.”
A blow to trust
One of the worst consequences of counterfeiting is the toll it takes on consumers’ trust in the industry. As the trade fights for greater transparency in an increasingly vigilant consumer market, the rise in fake certificates can damage that market’s confidence, laments Ho.
David Bouffard, vice president of corporate affairs at Signet Jewelers, calls the situation “really unfortunate” — a sentiment Cavalieri backs up.
“If this problem runs unchecked, it could have a severe effect on the credibility of our industry and our product,” the CIBJO president states.
Lehnhardt worries that it won’t be long before consumers start questioning the integrity of even respected labs and dealers. “This kind of illegal activity obviously can have a huge negative impact on the consumer’s image of [the] diamond industry,”
he says.
Unfortunately, much of the onus to protect the trade falls
on the grading labs, which are under threat through no fault of their own.
“As a lab, [it’s in] our DNA to provide confidence,” says Pascal Delvenne, chief commercial officer of HRD Antwerp. “So how? By inventing and promoting solutions that will make it more difficult for counterfeiters to have their way.”
Bringing it into the light
But most experts say the only way to save the trade from consumer blowback is to be as up-front as possible, and to keep the public informed of any breaches.
“We will never be able to completely stamp out the crooks, [as] criminals always find a way to cheat,” says Lehnhardt. “It’s how an industry reacts and establishes proactive measures to minimize the actions of these perpetrators that will help maintain consumer confidence.”
While Cavalieri agrees with this notion, he is of two minds when it comes to publicizing information. On the one hand, he feels it is essential to report breaches as publicly as possible, noting that “transparency and openness are always our best weapons in this campaign.” But he also points to the potential fallout of doing so.
“I do not believe the danger is so much in the numbers, which [is hard] to really quantify accurately, but more in the fact that this is happening, and it is being reported upon,” he explains. “Such adverse publicity could damage the integrity of all grading reports.”
Lehnhardt, however, is adamant that being as transparent as possible is the only solution the industry has if it wants to retain consumer trust. “All we can do is be forever vigilant,” he says. “We can’t be sweeping things under the rug in the hopes that they go away.”
Article from the Rapaport Magazine - September 2018. To subscribe click here.