Counterfeit Diamond Certificates
A new international scam imitates GIA Diamond Reports to increase the value of low-quality diamonds.
In a scam that became public this spring, certificate counterfeiters imitate the best: diamond grading reports by the Gemological Institute of America (GIA). As discussed in our March 2002 issue, GIA is the most respected authority for diamond grading. GIA standards are universally accepted, and its diamond report is usually accepted without question.
The counterfeit operation involves clarity-enhanced diamonds.
Why clarity-enhanced diamonds?
Diamonds that have internal fractures or surface-breaking cavities cannot command high prices. Clarity enhancement, or fracture-filling, is a process in which such fractures are filled with a foreign substance to make them less noticeable.
The treatment dramatically improves the diamond’s appearance, making
it more appealing to the purchaser. These pictures show the same gem, before
and after fracture-filling. Though the fractures are invisible to the naked
eye, they are still quite evident to a trained gemologist using a microscope.
Fracture filling is not a permanent treatment. As the treatment breaks down, the poor quality of the stone becomes apparent. The gem may come to look like a badly damaged diamond, and the customer might file a claim for breakage. Also, the filling material is weaker than diamond, making the stone more susceptible to breakage. Thus a clarity-enhanced diamond is worth far less than an untreated diamond of similar appearance.
Fracture filling is surrounded by controversy in the jewelry industry because the treatment, and its long-term effects on the stone, often are not disclosed to the customer. The purchase price and the insurance valuation would then be far more than the jewelry is worth.
In one case, a pair of diamond earrings was appraised at $48,000. When one earring was lost, the insurer paid out the full limit of liability (represented as irreplaceable). Examination of the remaining earring, being sold as salvage, revealed that the stone had been clarity-enhanced. It seemed likely that the stone in the lost earring had been similarly treated, and additional documentation showed this to be true. The purchase price and valuation for the earrings had been appropriate for untreated stones of the stated qualities; the insurer had overpaid the claim by $31,000.
Is the jeweler responsible?
The jeweler may be deliberately deceptive in not disclosing clarity enhancement, or the fraud may originate before the retail sale. Suppliers may sell inferior, clarity-enhanced stones to the jeweler without disclosing the treatment, and charge the jeweler for higher quality stones. The jeweler may then just pass on the low quality and high price to the consumer.
Ideally, a selling jeweler examines and verifies the quality of all the jewelry he sells. However, many jewelry retailers have neither the training nor the gemological lab to perform a proper inspection. In a recent survey, 78% of insurance appraisals were written by jewelers with no gemological training. Such jewelers often rely on whatever documentation comes with the jewelry. The operators of this scam could count on many jewelers accepting the counterfeit GIA certificates without independently inspecting stones.
This scam is a double fraud. 1. It takes advantage of GIA’s reputation. The presence of a GIA diamond report puts everyone (retailer, purchaser, insurer) at ease, less motivated to look for an independent appraisal. 2. It passes off low-quality, clarity-enhanced stones as valuable untreated diamonds.
This counterfeiting operation is international in scope. GIA has filed lawsuits in Chicago, Israel and Italy in an effort to halt the operation. Israel is where one of the major clarity-enhancement processes was invented. Florence, Italy, is a major manufacturer of high-end jewelry sold throughout the world. An unknown number of counterfeit certificates are already in circulation. This scam may run to billions of dollars—for consumers and, potentially, for insurers.
FOR AGENTS & UNDERWRITING
GIA, as a matter of policy, does not certify clarity-enhanced diamonds. If you see a GIA Diamond Report with the words "clarity enhanced" or "fracture-filled," it is surely counterfeit.
A GIA Diamond Report is not a substitute for an appraisal, since it describes only the gem, not the setting, and it does not give valuation. For high-quality jewelry, it is a good idea to ask for two appraisals, preferably prepared on the ACORD 78/79 Jewelry Appraisal form. One of them should be from a jeweler other than the seller of this jewelry. The appraisals should completely describe the gems and the setting, and give a valuation. They should list any treatments (such as clarity enhancement) or they should state that the diamond is untreated. Treatments are crucial to the valuation of diamonds and their presence or absence should be explicitly stated.
The counterfeit GIA certificates were used HEAVILY to support Internet sales. If you know the diamond was purchased over the Internet, be especially wary.
GIA reports have various security features, including a hologram, microprint lines, chemically sensitive paper, and other proprietary features, to thwart counterfeiting and tampering with their documents. However, these features are not known, or are not apparent, to the average insurance professional or consumer.
If you have any concern about the authenticity of a GIA Report, contact the GIA Gem Trade Laboratory by phone (760/603-4500) or fax (760/603-1814).
AGS (American Gem Society) is the other highly respected organization for impartially grading diamonds. Occasionally their diamond certificates are also forged. If you suspect a forged AGS certificate, verify the report number with AGS (702-255-6500).
Other labs offering diamond reports may be unreliable or non-existent. As there is no way for you to verify the reliability of other diamond certificates, we recommend that you accept diamond reports only from GIA or AGS.
FOR CLAIMS
See "FOR AGENTS & UNDERWRITING" comments above.
To reiterate, fracture-filled diamonds have a significantly lower value than non-treated gems. An appraisal for any high-priced diamond jewelry should specifically state that the gem is untreated or should list any treatments. If this information is lacking, and the jewelry is of considerable value, consider consulting an expert to help determine that the valuation is consistent with the appraisal description.
Have all damaged stones examined in an independent gem lab by a Certified Insurance Appraiser (CIA)™. It often happens that a treatment temporarily conceals the low quality of a stone, but that time or circumstances cause the treatment to break down.
It is wise to suspect the breakdown of a fracture-filling treatment if:
- damage appeared after the jewelry had been cleaned or the stone reset. (Heat or pressure may have disturbed the fracture-filling treatment.)
- the policyholder’s purchase price seems unusually low for the stated quality of the piece. (He may have gotten a “good deal” on the jewelry because it was low quality to begin with and had been “clarity enhanced.”)
A competent jeweler will be able to see whether or not a foreign substance was injected into the gem. The destruction of a fracture-filling treatment is not considered damage to the stone, and the insurer is not liable.
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