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How Chinese bust the Surat-Shenzhen diamond racket

By Manoj Shinde
January 13, 2010 00:51 IST
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The fast growing trade relations between India and China received a jolt last Friday when Shenzhen Customs arrested over 30 diamond merchants for smuggling diamonds and doing business in cash.

The arrested merchants were indulging in massive corrupt practices to evade transactional cash in China. Since Hong Kong does not have a similar tax, the diamonds were smuggled from there to satiate the burgeoning craze for diamonds amongst the Chinese.

In a well-planned operation, Chinese customs investigated the Rs 1000 crore-plus illegal diamond market being run by Indians, mostly Gujaratis. More than 50 people have come under the Customs net and according to sources in diamond market in Surat, some 33 merchants belongs to firms having headquarters in Surat and Mumbai.

According to a leading diamond merchant based in Surat, illegal business worth Rs125 crore has been busted. The big companies, whose employees have been arrested, are now seeking legal help and trying desperately to contact Indian Ambassador in Beijing, S Jaishankar.

The illegal trade was going on uninterrupted till the Chinese authorities launched a secret operation two months ago. They started taping the phones, getting information from buyers and collecting crucial documents to prove their allegations.

The diamonds are smuggled from Hong Kong to Shenzhen with help of local Chinese population. They are then given to local factories from where the finished product is sold through legal channels.

There is a well-established system to indulge in illegal diamond trade in Hong Kong, Mumbai and Surat.

There are scores of illegal couriers, who carry diamonds to Shenzhen. Mumbai and Surat's best-known firms are making quick bucks by evading tax in China.

There is a huge network through which they sell these diamonds to Chinese bureaucrats, rich men and women who are flush with illegal money earned through corruption.

According to a local Chinese daily, the operation was executed with the deployment of over 100 policemen at the Luohu Checkpoint where couriers of illegal diamonds normally enter China.

Weng, 60, a Hong Kong-based man was arrested on January 8. The Chinese alleged that he was hiding three bags of diamonds in 'secret' pockets. He took the cops to a hotel in Shenzhen and arrested an Indian, who was awaiting delivery. Few other Gujarati merchants were arrested from a restaurant on Cuizhu Road and from the Beili Road in Luohu. The Daily Sunshine and many Chinese websites reported the news prominently.

It is a curious coincidence that two days after Indian merchants were arrested, three Chinese engineers were arrested by the Chhattisgarh Police in connection with the collapse of the under-construction chimney of Bharat Aluminium Company (Balco) in Korba district on September 23 last year. Forty-one people were killed and many injured in the incident.

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Manoj Shinde in Surat