Part 43

Gems imported in their settings automatically become subject to a 30 per cent duty, based on the total value of the gems and the settings. But if the stones were separated from the mountings, then the importer paid only a 10 per cent tax on the stones and a 30 per cent tax on the mountings. Since most of the value of jewelry was in the stones, the refugees were able to reduce the duty roughly 20 per cent by this manipulation.

Americans travelling abroad today may take advantage of this law when they bring home a fine piece of jewelry. They are permitted to separate gems from setting and then have them appraised separately.

The flight of jewelry to the United States from Europe was great before the war, but it was even greater in the years immediately following the conflict. Pipino’s office handled a record-breaking 10,000 packages of gems in 1947. And the rise in diamond shipments was a gauge of Europe’s economic desperation.

In the postwar years, Europe’s economy was shattered. Factories were in ruins. People were digging out of the debris of war to repair the ravages of the long struggle. They needed money not only to rebuild, but to survive.

Men and women took their gems from vaults, cupboards, and from secret burial places and forwarded them to the United States to exchange them for U.S. dollars. The demand for diamonds and other precious stones was strong in the United States and prices were high. The flow of gems became a flood.

The weakness of Britain’s pound sterling in the postwar years also had a strong influence on the movement of diamonds. Countries with a large accumulation of sterling were willing to give discounts of up to 10 per cent on diamonds if the purchasers agreed to pay for them in dollars. And in this juggling of currencies and discounts, diamonds were moving about the world in strange patterns.

Diamond shipments would leave South Africa and go to Holland, for example. There they would be re-addressed and shipped to the United States so that payment could be made to Holland. Holland would accept dollars in payment and transfer pounds sterling to South Africa. The same thing was happening in Japan and other countries in the Far East where the currencies were weak.

Black market operators also found ways to evade currency controls. Some of them shipped their diamonds to Switzerland and then used that country as their base of operations to take advantage of Switzerland’s total secrecy in banking operations. In this manner they were able to mask the origin of the diamonds.

Through the postwar years, the United States was the financial magnet drawing jewels from all parts of the world. But as the economies of the European countries improved with the support of American foreign aid programs, the tide began to turn in the 1950s. The purchasing power of the West Germans, British, French and Italians had improved to the point where the flight of jewelry was from the United States to Europe. The time had come when the baubles were more important to the buyers than American dollars.

Despite the ebb and flow of the diamond trade, diamonds remain one of the most tightly controlled commodities in the world. Each diamond-producing country tries to police the production to maintain price stability--since diamonds are an important means of earning dollar exchange.

The Diamond Syndicate, based in London, each month allots the rough diamond material to buyers in Belgium, Holland, Israel and the United States. Each country’s share depends on the Syndicate’s appraisal of what the world market will absorb without disturbing the price structure. The list of dealers permitted to purchase the rough stones remains relatively constant and there is rarely room for new members.

The tight monopoly held by the Syndicate has created a black market supported by dealers who look to sources other than the Syndicate for their merchandise. This market is called, in polite terms, the “open market.” It also is the market of the underworld, operating illicitly and in defiance of the Syndicate controls.

Liberia in recent years has become an important source of diamonds for the “open market.” It is whispered in the diamond trade that all of the diamonds which come from Liberia actually were stolen from the neighboring diamond-producing country of Sierra Leone where the production is controlled by the Syndicate. There are some who claim these diamonds were mined on Liberian soil near the Sierra Leone border.

One enterprising European dealer years ago started a mail-order business with individual diamond miners who would smuggle diamonds from the mines and mail them to him at various post office boxes. From a small beginning, these shipments reached the point where a $50,000 shipment was not uncommon.

This flow of bootleg diamonds has created a problem for Customs. The illicit material cannot be officially acknowledged by the merchants and no record can be made by the cutters in those countries where the production is carefully policed. The result is that these diamonds find their way into the hands of smugglers, who constantly are seeking ways to slip them past Customs without payment of duty.

With the rise in popularity of the marquise and teardrop diamonds, the demand for the emerald-cut diamond has waned. Cutters look for rough material which can be shaped into the marquise, teardrop, or the round diamond. The round stone has never lost its popularity and continued year after year among the fashion leaders. The oval diamond fell from popularity for a period of time but it, also, has staged a comeback.

Determining the value of a gem is often a controversial task for Pipino and his aides, who must study such factors as size, the quality of the cutting, the color of the stones, their cleanliness, and the imperfections left by nature. A diamond may be “ice white” or it may be any shade of yellow from “top silver cape” to “canary” or any one of several hues of brown. The colors may vary with the location of the window through which the light falls on the stone. The imperfections may range from a speck smaller than a fleck of dust to sizable fissures, crystals or carbon spots. It may be slightly off-color or the color may lack a clear definition.

Basically, the value of a diamond is determined by what is known in the trade as the Four Cs--color, cleanliness, cutting and caratage. As far as Pipino is concerned, the most important of all of these is the color, even though color often can be extremely deceptive in certain diamonds. Stones which come from the Premier mine in South Africa have a bluish cast in daylight, but when placed under an artificial light they have a yellowish glow. However, the Customs experts usually can look at a diamond and make an educated guess as to its origin--whether it came from Brazil, South Africa or French Equatorial Africa. Very seldom are these guesses wrong.

The standards used in judging the value of a diamond are the same as those used in determining the value of other precious stones. The finest of the rubies, sapphires, emeralds and many of the semi-precious stones have a deep, rich, velvety color instantly recognizable by the expert. In addition, the better stones have a glow which comes from within the stone itself.

Most of the fine gems imported into the United States in recent years have been those which came from famous jewel collections of the past. A tiara which Napoleon I reputedly presented to Empress Marie Louise was brought into the country as an artistic antiquity--free of duty. Then the jeweler, quite legally, removed the gems from the tiara and placed them in pieces of modern jewelry. Other fine stones have come from the collections of Indian maharajas.

To qualify as an artistic antiquity--free of duty--a piece of jewelry (or any other object) must have been produced prior to 1830. This arbitrary date for determining antiquity is a sensitive point in the import trade. As Pipino explained it to one puzzled inquirer: “Anything that was produced before 1830 is permitted into the country free of duty as an artistic antiquity--and not as an antique. We don’t presume to tell a dealer or a curator what is to be considered antique and what is not. But an antique is not necessarily an artistic antiquity. To qualify for this legal description, it must have been produced prior to 1830--the date fixed by Congress for determining which cultural objects shall be free of duty and which shall not.”

Many in the import-export trade angrily take exception to the law, passed in 1930, which refuses to recognize any object under 100 years old as being an artistic antiquity. But most will agree that the date 1830 marked the beginning of industry’s mechanization, which permitted mass production of many items. Mechanization came to the jewelry trade around 1850 in the Victorian era, and a great deal of mass-produced jewelry was made in this period of prosperity in England. Customs does not permit its importation as an artistic antiquity--and it cannot do so unless Congress changes the date which controls the legal definition.

To the casual observer, Customs’ little diamond room on Varick Street would appear to be far removed from anything but the dollars and cents value of precious stones arriving from abroad. But to Leroy Pipino it is a place where an adventure story unfolds every day for those who can read the meaning behind the ebb and flow of jewels.

THE DIAMOND SMUGGLERS

Richard X, an American dealer in diamonds, sat at the desk in his hotel room in Antwerp, Belgium, in June, 1953, scribbling figures on a sheet of paper. Even allowing for an unexpected drop in prices on the diamond market, his figures showed that this day’s work eventually should bring him a net profit in the neighborhood of $100,000--a pleasing 50 per cent on his investment and no taxes on profits to be paid to the Internal Revenue Service.

Long before this, Mr. X had decided it was foolish to bring $200,000 worth of cut diamonds into the United States, to declare the gems on his customs declaration, to pay the government the required 10 per cent duty, to pay the Federal luxury tax on retail sales, and then to pay another tax on the profits from the sale of the diamonds.

He had learned there was a more profitable way to do business. True, it had its risks--but no one ever made money without risks. The trick was to buy insurance which guaranteed duty-free delivery of the diamonds in New York City. The risks were minimized. The system was about as foolproof as any system could be because you dealt with a reliable syndicate. By buying and selling secretly the profits were enormous.

Three years earlier Mr. X had arrived in Antwerp on his first buying trip, carrying a letter of credit for $200,000 from his bank in New York, and had fully expected to carry his diamond purchases home with him on his return.