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Behind bars: India's 'Diamond King' Nirav Modi's fall from grace

Today, the "jeweller to the stars", as he was frequently called, is behind bars after a year-long Interpol-led manhunt that led to his arrest in central London on March 19. Together with his diamond polisher uncle, Mehul Choksi, he is accused of conniving with junior tellers to defraud the Mumbai branch of India's second-largest state-run bank, the Punjab National Bank, of billions of dollars. Scotland Yard made the arrest on behalf of Indian authorities, who have asked for his extradition. Two weeks earlier, his whereabouts were exposed when Britain's Telegraph newspaper doorstopped him near a flat he was renting in Soho. They found him sporting a handlebar moustache and an ostrich-skin jacket. The "Great Indian Bank Robbery", as Indian media outlets have dubbed it, has shaken the country's $US35-billion diamond sector to the core. From the small family-run concerns of Zaveri Bazaar to the dealers at Mumbai's glistening Bharat Diamond Bourse, the largest in the world, many traders fear that an industry that largely ran on trust might find its reputation on par with that of the scavengers sweeping the streets outside their shops. Modi came from the Jain community of Palanpur, a small town in the western state of Gujarat. And it is among the Palanpuri Jains that the fallout of his alleged crimes is being most acutely felt.

Mumbais jewellery market, the Zaveri Bazaar. Credit:Getty Images The alleged modus operandi behind the biggest bank fraud in Indian history was revealed in a July 2018 dossier prepared for the US Bankruptcy Court in the Southern District of New York, which is investigating the activities of three of Modi's American jewellery companies. According to the 165-page dossier, Modi and his co-conspirators illegally borrowed approximately $US4 billion over a period of seven years by manufacturing sham transactions purportedly to "import" diamonds and other gems into India from trading hubs such as Belgium's Antwerp, using a web of more than 20 secretly controlled shell entities. Diamonds sold to or purchased from these entities "were routinely shipped out the same day or within days after arrival, without ever being opened or inspected by employees to ascertain the contents of the packets", the dossier states. Certain high-value diamonds were bought and sold multiple times at often wildly inflated prices in order to create the appearance of millions of dollars worth of legitimate transactions and to facilitate the movement of funds. Fraudulently obtained letters of undertaking (LOUs), or guarantees under which Indian banks allow their customers to obtain short-term credit from another bank's foreign branch to facilitate import transactions into India, were also used. It was only when one of the bank employees allegedly involved in the scam retired that the seven-year-long operation was exposed. US authorities are also believed to be considering extraditing Modi. Punjab National Bank shares plummeted when the scandal broke in February 2018, as did confidence in India's dysfunctional state-run banking sector, which has lost billions of dollars in recent years from investor frauds. Screaming matches erupted in India's parliament, with opposition parties accusing the government of colluding with the diamantaire to allow him to flee the country. Modi had left India early the previous month bound for Britain, the bolthole of choice for business barons wanted by Indian authorities for tax evasion, fraud and other related crimes. Modi's Indian assets, including the flagship stores that bore his name, a fleet of luxury cars and several factories, have been seized by the authorities. Last month, his art collection was auctioned by India's tax authority, raising $US8 million. Thousands of his employees have been laid off. Modi's Indian lawyer, Vijay Aggarwal, has successfully defended some of India's largest corporate fraud cases. Described as "pugilistic, pugnacious and aggressive" by his critics, his courtroom victories include securing the acquittal of several high-profile businessmen and politicians accused of defrauding the state of a staggering $US26 billion in the allocation of second generation or 2G telecom licences. Aggarwal, who did not respond to interview requests by Good Weekend, told a Mumbai court in January that India's Enforcement Directorate had tried to "falsely implicate" his client by giving a "colour of criminality" to "usual civil banking transactions" to camouflage the bank's failures in connection with the alleged scam. Modi's defence team is expected to argue that the charges against him are politically motivated. India is in the middle of a six-week-long national election, with the ruling Bharatiya Janata Party's alleged connivance with corrupt business figures a major issue. For a man whose number was once on the speed-dial of many of Mumbai's A-list, Modi's fall from grace has been dramatic. The 48-year-old grew up in Belgium, where his father, Deepak Modi, ran a business trading in uncut diamonds. He attended the Antwerp International School, where he dreamt of becoming a music conductor, but instead enrolled in Wharton business college at the University of Pennsylvania. In 1990, he moved from the US to Mumbai to begin a decade-long apprenticeship with his uncle, Mehul Choksi, learning everything from polishing diamonds to selling them. He would later say that he worked 12 hours a day, six and a half days a week, for 3500 rupees ($70) a month. By 1999, he had raised enough capital to launch his own company, Firestar Diamond. Over the next few years, Firestar went on to raise hundreds of millions of dollars to acquire firms such as US-based jewellery retailer Samuels and the De Beers-owned Nakshatra brand, which had 480 stores in India.

Modis uncle and co-accused, Mehul Choksi, with Bollywood actress Urvashi Sharma. Credit:AFP When the global financial crisis hit in 2008 and the value of large diamonds fell by up to 40 per cent, Modi took the opportunity to buy diamonds at cheap prices, including $15 million worth of rare pink diamonds from Argyle in Australia's Kimberley. In 2009, he switched his main supplier from De Beers to Russia's Alrosa, just as the global diamond giant's output plummeted and the Russian company's rose. His move from retail to design came in 2009, when a friend asked him to make a pair of earrings for her. After months of persuasion, he relented. "I can actually look back to [this] single moment that propelled me into starting my eponymous brand," Modi told Forbes in 2017. He had at last found his calling. His big breakthrough as a designer came in 2010, when a necklace set with a flawless pear-shaped 12.29-carat Golconda diamond was featured on the cover of a Christie's auction catalogue.

Modis 12.29-carat Golconda diamond necklace. The piece went under the hammer in Hong Kong for $US3.6 million, nearly a million dollars more than its asking price. A year later, he launched his eponymous Nirav Modi brand, a line that would blend the best of Eastern and Western designs. "All of my jewellery marries my Indian roots with my international exposure and love of art, nature, travel and poetry," he once said. "Every collection has its own unique story to tell." His target buyer was the "woman of global sensibilities". His focus was on delivering pieces that would go as well with a gown as with a sari. "The jewellery should move with the woman, it should be a second skin." No expense was spared in achieving his dream of becoming one of the world's top five luxury jewellery brands. Millions of dollars were spent on two state-of-the-art factories in India to manufacture his designs. Showrooms fitted out by Spanish artist-designer Jaime Hayon sprang up in cities such as New York, London, New Delhi and Hong Kong. Former palaces were hired for product launches, with Bollywood stars and Indian billionaires arriving by private jet. Modi's public persona he was rarely photographed without being flanked by celebrities was very different to his private one. "He never could look you in the eye," says a former business associate, who asks not to be named. "He always played his cards close to his chest."

Nirav Modi with actor Naomi Watts at the opening of his New York boutique in 2015.Credit:Getty Images By 2013, Modi had entered the Forbes list of billionaires with a net worth of $US1.4 billion and two years later, became the first Indian retailer to open on New York's Madison Avenue. His signature pieces now graced the necklines and earlobes of celebrities such as Naomi Watts, Kate Winslet, Taraji P. Henson and supermodel Karlie Kloss as they strode down the red carpet at the Oscars. British actor and model Rosie Huntington-Whiteley was hired to be the "face" of the brand. Indian actress Priyanka Chopra (now Chopra-Jonas) appeared in a commercial that ended with the punchline "Say Yes, Forever". Chopra-Jonas is now suing Modi for non-payment of fees. The fallout from the Modi affair goes far deeper than his failure to settle his debts. Shortly after India's independence in 1947, the Jains of Palanpur followers of a religion which emerged on the subcontinent around the sixth century BC and which preaches non-violence, strict vegetarianism and renunciation of worldly effects abandoned their traditional occupations as bankers and money-lenders and began trading in diamonds. Like Modi's father, many moved to Antwerp, buying low-quality roughs, sending them back to India for polishing and then selling them at a small profit. Today a community of no more than 20,000 controls India's multibillion-dollar diamond cutting and polishing industry. Modi never could look you in the eye. He always played his cards close to his chest. "Their reputation has definitely taken a beating because of Modi," says Usha Balakrishnan, a Mumbai-based authority on India's jewellery trade. "Normally the community will close ranks behind one of their own. This time, they have disowned him." Balakrishnan traces the community's rise to the 1960s, when De Beers began looking for a centre to cut and polish its vast stockpile of industrial and small diamonds. India's plentiful supply of low-cost skilled labour made it the most attractive option and the Palanpuris were well positioned to supply the mining giant's demands. Community members started returning to India, where they dominated the wholesale diamond trade in Zaveri Bazaar and the cutting and polishing centres in cities such as Surat in Gujarat. When Zaveri Bazaar's congested office spaces became too small, most traders moved to the Bharat Diamond Bourse, a sprawling eight-hectare complex in central Mumbai that opened in 2001 and is now home to more than 2500 companies. Known for their work ethic and close family ties, Palanpuri Jains rarely marry outside their community. If one of their own falls on hard times, extended families act as a safety net, providing jobs, accommodation and financial help. Networks of loyalty and trust that go back generations have been shaken by Modi's alleged wrongdoings. Ashish Mehta, a Palanpuri Jain whose company, Kantilal Chhotalal, is one of the diamond industry's leading players, says the allegations surrounding Modi have shocked the community. "The last few years when he was opening stores in places like London, New York and Hong Kong, most people were wondering how he was able to grow so fast. Nobody knew that there was this borrowed money behind the market aggression that he was showing. That was to most of us a big surprise."

Model/actor Rosie Huntington-Whiteley at another Modi store-opening in London in 2016.Credit:Alamy Modi kept a low profile in the community, once boasting: "Ask any jeweller in Mumbai if he has met me in the last decade and the answer you'll get is no." When it came to networking with the city's business and cultural elite, however, he was everywhere, buying up contemporary Indian art at auctions, attending high-society weddings, and enticing Bollywood stars to buy his creations. He was anathema in a traditionally conservative community that shied away from retail and prided themselves on keeping out of the spotlight. After the Punjab National Bank scandal broke, the demand for diamond jewellery in India plummeted by 10 to 15 per cent, according to the Indian industry lobby group Assocham. There are also fears that India might lose its near monopoly on diamond cutting and polishing, with new entrants such as China poised to take advantage of the turmoil. Small and medium-sized traders are feeling the greatest impact, says Mehta. "Banks are worried, so they have curtailed their lending facilities and are now asking for more collateral than before." While hikes in short-term interest rates and a tightening of repayment terms are quantifiable, the erosion of trust is harder to measure. At Mumbai's Diamond Bourse, transactions worth millions of dollars are sealed with a handshake and contracts and invoices are almost unheard of. Even the transportation of rough diamonds from the bourse to the cutting and polishing centres is entrusted to a centuries-old system run by the Angadias, a community of couriers who secrete their precious cargo in hidden pockets and rely on their anonymity to keep it safe. Naming and shaming is not something that comes naturally to Palanpuri Jains, but Mehta concedes that Modi's actions have harmed the trade. "When the consumers see that there is a guy like this in your community, your credibility for sure gets affected." Back in Zaveri Bazaar, the streets have been swept by the niarewalas to a level of cleanliness uncharacteristic by Mumbai standards and the stores are starting to open. My guide is the pugnacious Rajesh Chugani, a small-time jewellery manufacturer who buys his stones from local wholesalers and sends them to his workshop in nearby Masjid Bandar. Chugani takes me deep inside the labyrinthine laneways of the bazaar, up crumbling staircases and down dimly lit corridors so narrow two people can hardly pass. An open doorway reveals a huddle of buyers engaged in heated negotiations with a wholesaler over a fistful of gold necklaces. Further on, a diamond is being cut in a hot and humid room no bigger than a broom closet. Business is brisk and demand for traditional commodities such as gold is as strong as ever. But the traders Chugani deals with say the Modi affair has made it harder for them to get bank credit and consumers are suspicious about the quality of stones on sale. "In this industry it's impossible to grow overnight; that should have sent alarm bells ringing somewhere down the line, I think the government is also covering up," Chugani says, referring to the commonly held belief of a nexus of corruption between politicians and high-profile business people. Small units such as Chugani's have always accounted for the bulk of India's jewellery manufacturing. The set-up inside the four-metre by three-metre room where eight men work 10-hour days might look Dickensian, but it is sophisticated and includes the use of 3D-printers to make moulds, and a network of CCTV cameras that monitor every corner of the workshop and can be remotely controlled by an app on his smartphone. It's unlikely that Chugani's clients, many of whom are based in the Middle East, would know or care about the conditions under which their engagement rings or diamond bracelets are made. Maintaining close relations with his suppliers and customers and providing quality products is what makes thousands of businesses like his prosper. "Whatever you'll see in a catalogue, we can copy and sell it more cheaply," says Chugani as he inspects a diamond brooch that one of his workmen is repairing. "I can make you a Nirav Modi piece as well," he adds cheekily. "And I don't think he's in a position to complain if I do." Chugani is safe for now. Even if Britain accedes to India's extradition request, it may take years for the country's notoriously slow legal system to decide on Modi's guilt or innocence. The damage to the trust that has kept the diamond industry so prosperous may take even longer to repair. To read more from Good Weekend magazine, visit our page at The Sydney Morning Herald, The Age and Brisbane Times Most Viewed in World Loading https://www.brisbanetimes.com.au/world/asia/behind-bars-india-s-diamond-king-nirav-modi-s-fall-from-grace-20190423-p51gf4.html?ref=rss&utm_medium=rss&utm_source=rss_feed

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