Diamond Jeweler Turns Alleged Smuggler as India Gold Prices Rise

Diamond Jeweler Turns Alleged Smuggler as India Gold Prices Rise

In January, jeweler Vihari Sheth was publicizing a ritzy new line of diamond-encrusted designs. Last week, she was arrested at Mumbai airport with nearly $400,000 of gold jewelry in her underwear and on her person.

The 27-year-old has a store in Singapore and is married to a director of Mumbai-based Siyaram Silk Mills Ltd (SIYA), a suit maker that is a household name in the country. She is suspected of smuggling to supply a relative’s stores in Mumbai, according to court documents examined by Bloomberg.Her arrest offers a glimpse into how even the wealthy may be joining small jewelers and organized gangs to skirt new government taxes on bullion imports that have made gold about 9 percent more expensive in Indian stores.

“The financial incentive to smuggle and bring in gold illegally is just increasing,” said Victor Thianpiriya, commodities analyst at Australia and New Zealand Banking.

The government’s actions have created a shortage of gold in the domestic market, he said.

India is the world’s largest buyer of gold and the government has doubled taxes on bullion imports this year to shrink a ballooning trade deficit and end a slide in the rupee. Gold is the country’s second largest import after oil.

Middle East

The precious metal cost about $4,185 more, or 9 percent extra, per kilogram in Mumbai last week compared to Dubai or Singapore after the taxes. That means anyone who buys cheaply overseas and then evades the taxes can sell at a profit.

In global markets, gold prices have been falling as some investors lose faith in the metal as a store of value. Bullion fell to $1,180.50 per ounce on June 28 in London, the lowest level in almost three years.

Poor laborers working in the Middle East are acting as couriers for organized gangs in return for a ticket home and a few thousand rupees, according to Rishi Yadav, assistant commissioner at the Mumbai customs department’s Air Intelligence Unit.

The gangs seek to benefit by selling that smuggled bullion to traders and mom-and-pop jewelry stores, who benefit from cheaper supplies. Customs agents also say there is an increasing incidence of lay people sneaking in gold bars and jewelry without paying the duty.

’Gold Sells’

Government experts believe the jewelry being brought in by Sheth was likely intended for resale, prosecutor Arun Gupte said at an Aug. 3 bail hearing.

The steady demand for gold among Indian households means there’s a ready market for smuggled gold, said Suresh Hundia, owner of Hundia Exports Ltd. and a former president of the Bombay Bullion Association. “Gold always sells.”

Sheth, now being held in a women’s jail in Mumbai, had planned to use the jewels found on her at a wedding later this week and wasn’t smuggling, one of her lawyers argued at the bail hearing.

The prosecutors countered by producing a customs declaration signed by Sheth at the airport before she was searched, in which she said she had nothing to declare. Sheth’s uncle told investigators she regularly smuggled jewelry for sale at two stores in Mumbai, government lawyer Gupte said in court.

Her admissions to revenue officials were made under duress and she wasn’t smuggling for herself or her uncle, her lawyer Ravi Hirani said in an interview. All the confiscated jewelry was for her personal use and the family is ready to pay the duties and fines to settle the case, he said.

In a January interview with the Singapore Tatler, Sheth told the publication she had come up with a “chic and elegant” luxury line of jewelry for women and planned to expand by adding stores in India and Southeast Asia.

She is married to Abhishek Poddar, a member of the family that controls Siyaram Silk Mills. Pawan Poddar, Abhishek’s father and a joint managing director of the company present at her bail hearing, didn’t comment. The magistrate has given until Aug. 14 for the investigating agency to gather evidence, according to court documents.

Electronic Items

Sheth’s case contrasts with South Asian laborers working in the Middle East who have accounted for most recent gold smuggling arrests at Mumbai airport. In the last few months, agents have caught laborers from Dubai bringing in gold hidden on their person or in electronic goods like televisions.

Organized rings “target those fellows who have stayed there for more than one year and would like to come back, but do not have any money,” Satish Kumar, commissioner of central excise for Mumbai Zone 2, said in an interview.

Agents recently nabbed one traveler after a metal detector kept beeping near his waist. He was smuggling the precious metal in his rectum and records showed he traveled the Dubai-Mumbai route 13 times last year.

Last month, India’s government said it will require importers to export a fifth of the bullion they bring into the country by selling jewelry overseas. Added to the new taxes, this rule reduces the amount of gold left for Indian shoppers to buy legally.

The latest government curbs put retailers such as Titan Industries Ltd. (TTAN), Tribhovandas Bhimji Zaveri Ltd. (TBZL), and PC Jeweller Ltd. (PCJL) at a disadvantage. An overwhelming majority of their business is in the domestic market, and they must find a way to either raise exports to meet government restrictions or arrange with other companies to export on their behalf.

Illegal Trade

The government’s curbs are fueling a “huge gap between the supply and demand for gold,” said Hundia, the former president of the Bombay Bullion Association. Illegal traffickers of the yellow metal are trying to fill at least part of that gap.

At Mumbai airport, customs agents confiscated gold worth 93 million rupees from April to June, almost as much they nabbed in the whole of the last year.

Airports constitute only a “tiny fraction” of the gold entering the country illegally: The bulk of the metal smuggled into India comes by road from Nepal and Bangladesh, said Gnanasekar Thiagarajan, director of Mumbai-based commodities consultant Commtrendz Risk Management Services.

Government agencies across the country have so far seized about 160 kilos (352 pounds) of gold from people trying to bring it in illegally in the last four months, according to a senior revenue official, who declined to be named as he isn’t allowed to speak to the media.

Nothing to Declare

Last week, after clearing immigration, Sheth walked out of the terminal telling officials she had nothing to declare, according to court documents examined by Bloomberg.

After closer examination by female officers, she admitted to having jewelry on her person. They found 15 sets of “diamond-studded gold jewelry, concealed and recovered from the upper and lower inner garments,” according to court documents. These items were valued at 23.5 million rupees ($384,000).

“It doesn’t stand to reason that she had any intention of declaring the jewelry,” prosecutor Gupte told a packed courtroom at the bail hearing. “Could she have undressed in the baggage hall to declare all the jewelry?”

The judge turned down the bail application.

To contact the reporter on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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