Why diamonds are the HSBC list’s best friend

77 of the 1,195 Indians in HSBC’s Swiss list are connected to the diamond industry.

Written by Appu Esthose Suresh | Updated: February 10, 2015 4:03 pm
black money, black money list, india black money list, swissleaks, An Indian Express Investigation in collaboration with Le Monde and International Consortium of Investigative Journalists

77 of the 1,195 Indians in HSBC’s Swiss list are connected to the diamond industry. Appu Esthose Suresh travels to Mumbai to find out how a closely knit, mostly familial network controls the industry.

Kinship, trade fuel trade through diamond pipeline

In October 2013, the Paris-based Financial Action Task Force handed in a report revealing what lies at the heart of the diamond trade: close family ties and kinship.

“According to industry sources, it is difficult for a new and unknown individual to get involved in the trade of diamonds without being referred or introduced by an already established dealer,” the task force summed up.

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In the HSBC list, 77 account-holders are connected to the diamond industry, their deposits totalling an estimated $203 million. Of the 77 account holders, 64 are beneficial owners from 12 families and only 13 are individual account holders.

And there is a common thread: all have bases in the Belgian city of Antwerp, the international capital of rough diamond trade. Industry sources say many Indian diamond trading families migrated to Belgium in the 1960s and 1970s.

Trade in rough diamonds takes place in Antwerp, London, Tel Aviv, Dubai and, in recent years, Hong Kong while India is the global manufacturing hub, where much of the cutting and polishing is done.

em2According to data from the Gem and Jewellery Export Promotion Council (GJEPC), India imports 93.75 per cent of the 128 million carats of rough diamonds mined across the world. After cutting and polishing, the diamonds are re-exported. Most traders have relatives, or at least one relative, in India to handle operations.

An internal memo dated January 28, 2004, after a meeting between HSBC officials and Anoop Vrajlal Mehta, shines light on the trading pattern. Anoop Mehta is a second-generation elder who runs Mohit Diamonds with sales offices in India, Dubai and Antwerp. The Mehta family of Mohit Diamonds holds $16.23 million in HSBC through their companies, including Yeel Investment and Dhruv Star BVBA.

Dhruv Star BVBA has two offices in Antwerp and Dubai to look after the sales of Mohit Diamonds and these are run by third-generation cousins Neil Desai and Amish Mehta respectively. Anoop Mehta heads operations based out of Mumbai.

The memo was made in the context of sale of another company, Blue Jay, and officials list Amish Mehta as “a cousin and business partner of AM (Anoop Mehta) and a significant party in the sale and restructuring of Blue Jays”. The memo makes no mention of any amount but quotes Anoop Mehta on the cash flow from the Yeels account, how business is done internally between family partners.

‘‘…cash transfer to the company Dhruv Star BVBA was in fact purchase of equity and not loan… AM (Anoop Mehta) responded to a query from MG (HSBC official) regarding 2 cash transfers made from Amish Mehta (Anoop’s nephew) to Yeel. AM confirmed one of the transfers was a loan repayment and the other was an additional loan provided by Amish,” the memo stated.

Bharat Diamond Bourse, India’s largest diamond trading centre, on Mumbai’s Barla Kurla Complex.( Express Photo by: Mahendra Parikh) Bharat Diamond Bourse, India’s largest diamond trading centre, on Mumbai’s Barla Kurla Complex. ( Express Photo by: Mahendra Parikh)

The Indian Express visited Bharat Diamond Bourse on Mumbai’s Bandra Kurla Complex, the biggest diamond trading centre in India. Here, deals are struck not over stamp papers, but via firm handshakes. Such is the trust, such are the ties that diamonds worth millions are given on credit for sale without any formal agreement.

In India, two communities dominate diamond trade: the Palanpuri Jains and Kathiawaris. The Jains of Palanpur were the original skilled diamond cutters but the Kathiawaris have caught up.

The community bonding is best explained by a foundation set up in 2004 by leading diamond traders — Palanpur Community Foundation. India’s top nine diamond traders are its promoters — Jatin R Mehta of Winsome Group, Arvindbhai T Shah of Asian Star Co Ltd, Shantilal M Mehta of D Navinchandra & Co, Arunbhai R Mehta of Rosy Blue, Ketanbhai B Parikh of Mahendra Brothers, Sudhirbhai R Mehta of Sur Gems, Anoopbhai V Mehta of Mohit Diamonds and Pareshbhai K Mehta of Dimexon.

The memorandum of association of the Palanpur Community Foundation says besides philanthropy, another objective of the foundation is to help the community keep the edge in diamond cutting and polishing, and trading skills.

Industry sources in Mumbai said that the first generation of 11 of the 12 families who hold HSBC accounts came from Palanpur and migrated to Antwerp.

The pattern of business with footprints in three or four diamond trading cities is what is often called the “diamond pipeline”. It has three legs: rough diamonds are purchased in bulk by sightholders, and brought to markets in Antwerp, Dubai and London; rough diamonds are then sent for cutting and polishing; the CPDs or cut-and-polished diamonds are exported across the world.

In India, where there is no tax on import of rough diamonds, the precious stones are vulnerable to misuse – these are often used for illegal money transfer, money laundering and exploitation of credit facilities.

The Income Tax (I-T), Enforcement Directorate (ED) and Directorate of Revenue Intelligence (DRI) have named diamond traders in at least 65 cases. It is alleged that they are key players in trade-based money laundering of an estimated Rs 60,000 crore.

A February 2014 internal I-T paper on the diamond traders of Surat and Mumbai outlines how traders facilitate bogus entries through which black money is converted to legitimate money for other sectors such as real estate.

A forensic report dated October 28, 2013, submitted by a consortium of banks to the Reserve Bank of India in connection with the credit facility used by a diamond trading company, underlines: “It is very common for one family to have multiple companies under multiple names across geographies that receive exports from India so that companies can avail import duty allowances and letters of credit from banks.”

DRI investigations in the last two years have listed 41 instances of the involvement of Hong Kong-based diamond traders in high-value money transfer.

A report by the GJEPC to the Commerce Secretary in October 28, 2014, stated: “Huge discrepancies were observed in the trade data which indicated that there has been import of rough diamonds from Hong Kong at a very high value per carat, and exporting almost same volumes of carats at a very nominal price, resulting in loss of foreign exchange to the nation. A similar analysis done for other trading centers such as Belgium and Israel etc does not indicate such alarming variations…”

From the list, who and how much

MEHTAS of ROSY BLUE
BALANCE: $53.63 mn
Six of this family of diamantaires have $53.63 million (Rs 332.50 crore) in HSBC as beneficial owners of White Cedar Investment and Rosy Blue FZE. Rosy Blue has three brothers at the helm — Dilip Mehta, Harshad Mehta and Russell Mehta. Rosy Blue is a Diamond Trading Company sightholder, a preferred client of Russian diamond conglomerate Alrosa, and has 30 retail chains and a jewellery-manufacturing arm. Rosy Blue has its headquarters in Antwerp, Belgium, while Rosy Blue (India) Ltd is based in Mumbai. White Cedar beneficial owners are Russell Mehta, his son Vinay Russell Mehta and Harshad Mehta’s wife Naina Harshad Mehta, their two daughters Priti Harshad Mehta and Soigne Rajiv Kothari, and Harshad Mehta’s son Rihen Harshad Mehta.

COMMENT:
Russell Mehta’s office said: “We will get in touch with you in case we are interested in commenting.”

MEHTAS of MOHIT DIAMONDS
BALANCE: $16.23 mn
Six from the family of Vrajlal Mehta own approximately $16.23 million (Rs 100.62 crore) in three Antwerp-based companies — Yeel Investment, Euro Investment and Lexcor Investment — which have accounts with HSBC. Beneficial owners span three generations: Chandulal Vrajlal Mehta and Suman Vrajlal Mehta, cousins Rajesh Mehta and Anoop Mehta and Anoop Mehta’s wife Devaunshi Anoop Mehta. Two account holders also figure in the British Virgin Islands list released by the ICIJ in 2014. The group’s main brand is Mohit Diamonds, marketed as Mohira diamond jewellery in the mid-size market while DiA boutiques in New Delhi, Mumbai and Pune showcase high-end jewellery. The group has ventured into real estate and other allied industries with 23 companies registered in India.

COMMENT:
Anoop Mehta said, “I don’t have any account in HSBC. My lawyers are handling those issues. I would not like to comment.”

PARIKHS of MAHENDRA BROTHERS EXPORTS
BALANCE: $30.13 mn
Four second-generation cousins – Saunak Jitendra Parikh, Milan Kavichandra Parikh, Jay Ketan Parikh and Raj Hiten Parikh – hold $30.13 million (Rs 186.80 crore) in HSBC. The account is held in the name of Laptis Trading Ltd and Sulay Trading Ltd, both registered in Tortola, Switzerland, known for tax management vehicles. Mahendra Brothers Exports Pvt Ltd, among the first from India to become a Diamond Trading Company sightholder, is based in Mumbai where it has a cutting-and-polishing facility and retail outlets. Uni-Design Jewellery India is its diamond studded jewellery division for the mid-size market while Uni-Design Elite Jewellery Ltd showcases the high-end products. Its trust Parikh Foundation runs education institutes in Surat district and funds four hospitals.

COMMENT:
Saunak Parikh said: “I would not like to comment on this now.”

MEHTAS of GEMBEL GROUP and LILAVATI HOSPITAL
BALANCE: $6.80 mn
Chetan Mehta, father Prabodh Kirtilal Mehta, Bhavin Mehta, father Rashmi Kirtilal Mehta, hold $6.8 million (Rs 42.16 crore) in HSBC as beneficial holders of four companies registered in Switzerland. Prabodh and Rashmi are sons of Kirtilal Mehta, founder of Mumbai’s Lilavati Hospital and Belgium-based Gembel Group. The family of Kirtilal Mehta migrated to Belgium and is known as the Gembel family in diamond circles. Prabodh Kirtilal Mehta was conferred the Order of Leopold II from the King of Belgium in 1993 and Officer in de Kroonorde in 2004.

COMMENT:
Rashmi Kirtilal Mehta did not respond to text messages and email.

RASIKLAL KUMAR MEHTA and NITA KUMAR MEHTA
BALANCE: $117,216
In December 2007, Rasiklal Mehta’s Shairu Gems arrived in the diamond industry, making it to the De Beers’ sightholders list. The balance in the account of Rasiklal Mehta for 2006-07 was $117,216 (Rs 72.67 lakh). Since 2008, the company has expanded its operations to Hong Kong and United States. Its Mumbai headquarters employs more than 2,000 people with expertise in cutting and polishing of rough diamonds.

COMMENT:
Rasiklal Mehta said: “No comments.”

KAKADIAS of SHEETAL GROUP
BALANCE: $9,100
The Kakadia family of Surat-based Sheetal Group had $9,100 (Rs 5.64 lakh) in HSBC in 2006-07. Beneficial owners of the account of its three companies are Govindbhai Kakadia, Vallabhbhai Laljibhai Kakadia, Ravjibhai Laljibhai Kakadia and Hirabhai Kanjibhai Kakadia, all brothers. Established in 1985, Sheetal Group has a turnover of $700 million and 1.2 million carats. It operates out of Hong Kong and Antwerp and procures diamonds from mining companies in Canada, Russia, Africa and Australia. Sheetal Group supported the revamp of a hospital named after Laxmiben Laljibhai Kakadia.

COMMENT:
Govindbhai Kakadia did not respond to telephone calls and emails.