GIA's Problems

Ben Janowski -- JCK Online, 3/1/2006 2:00:00 AM

By the time this article is published, all kinds of things may have happened, or not, with the investigations at GIA concerning its lab operations. It would make little sense to speculate on where it might all go, other than to state that the majority of the people at GIA are honest, ethical, and hard working.

This is not to say that there are no lessons to be learned from the case. To start, everyone in our industry knows that security is a huge and difficult issue. We deal in valuable and highly portable items, so we attract people who are tempted by the dollars. We usually think of preventing holdups and inside theft. There are countless tales about attempted and successful thefts, and these attempts are a constant concern. Just go to the JSA site and see for yourself.

This case is different. Manufacturers often go to great lengths to make theft as difficult as possible. Here we have something more akin to embezzlement or fraud. Merchandise is not taken, but money changes hands. Great effort has been exerted to narrow the gray areas that exist in the art of grading, but they are still there. And where there are big dollars involved, the temptation to stretch the “truth” can be too much for some ordinary working souls.

We have long known that even with the best of intentions there are going to be disagreements over the grading of diamonds. I recall a dealer in New York showing me a stone that was graded too well, and he said he could not sell the stone with the report because he would leave himself open to criticism. Yes, there are people like that, but there are also those who keep regrading a stone, looking for a better report. It is not a large leap from that to offering “encouragement” to see things in a better light.

It is that step from arm's-length disputes over the grade of a stone to corrupting the process that we are witnessing. Unlike years ago, however, the stakes are much higher now. Grading reports are de rigueur in any diamond-selling environment—an essential element in nearly every sale, but especially in larger, better stones. No one in our industry wants to throw a monkey wrench into this critical cog in the diamond business. But can we really be surprised that the issue has now, finally, burst open with such force?

GIA, I guess, was a bit naive, and may have believed that being an industry standard for ethics translated into an incorruptible staff. Maybe they failed to test their own security systems often enough or well enough, if at all. Now chastened, I think they will survive the event, presuming no other major revelations appear, even with the recent articles that appeared in the public press. And we might be able to go back to business as usual.

But maybe not. The underlying facts remain the same. In a period of low margins and tough sales there will continue to be too many people who will not hesitate to chisel here and there. We have many labs now, all anxious to satisfy clients and join the certification bandwagon. I saw a “blanket” certificate in one store, stating that all pieces of a certain kind were at least of quality such and such. But the piece displayed was clearly of far poorer quality, and it did not even take a loupe to see that. Another sign offered perfect diamonds (D Flawless!), also wrong. And this was in a supposedly reputable chain store.

These distortions and abuses create the greatest risk of all—loss of consumer confidence. Years ago, De Beers bemoaned the advent of price lists and certificates not because they were wrong but because they moved the product away from romance and beauty. These days, DTC emphasizes best practices primarily because abuses of any kind can undermine the product by turning the public off. Will DTC hesitate to drop any sightholder found to be culpable in the GIA case, no matter who it might be? They shouldn't hesitate, painful as it might be. But then again, it does not change the facts. The cat's out of the bag.

Next month I'll speculate on where this could all lead.

benjanow@gmail.com