Gems & Jewelry Trade: Significant Portion of The Parallel Economy

It is not a new lesson for any of us that gems and jewelry are highly cash friendly. You may choose to purchase the fascinating jewelry with your credit card, bank checks, or with cash right away.

Another way that you may choose to own a new decorative item made of gold, silver, and platinum is by bartering with your broken or less interesting precious ornaments that you no longer want to own.

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In the present day and age, small gems are not often marked, and the mark that is itched into high-value and big-size gems isn’t tamper-proof. Whereas items made of precious metals, like bricks, bars, coins, and ornaments, are either stamped or laser marked, which can be removed either by morphing the entire item or repolishing the marked area.

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Removing the marks on items isn’t considered illegal, and the items are freely accepted at jewelry and pawn shops for resale. In fact, not only the consumer but also artisans, manufacturers, and traders are the ones practicing de-marking items made of precious metal in the process of creating new art.

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It is less obvious to remove marks on gems since they correspond to the respective gem certificate, which is an accepted and only available tool to educate the attributes to the uninformed. In rare cases when the specification mentioned in the certificate doesn’t match the owner’s expectation or has a higher possibility of higher value under buyer discretion, the gem trader or cutter might opt to erase the mark on the gem.

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Gemstones and precious metals are unproductive assets that are appreciated for long-term investment and for emergency use, such as in times of war or pandemic.

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Have you ever wondered why gems and jewelry are so cash-friendly compared to any other commodity or item?

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The Barter or Job-Work System. As I mentioned at the beginning, you can purchase jewelry by offering your disconnected and broken jewelry, or scraps, coins, bars, and bricks of gold and silver. This convenience degrades the commercial worth of value additions like craftsmanship and design. The sum of the amount that you need to pay to the jeweler is termed "the charge" or the "labor charge", which indeed is very low compared to the raw material used in the piece of art.

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I am sure that you won’t hesitate to pay in cash for the labor charges. But paying labor charges in cash gives you your first experience of a cash transaction and removes your unease, preparing you for your next and larger purchases.

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Valuation Subject to Individual Assessment. Precious metals do have a standard rate; however, gemstones are subject to individual assessment in business-to-business transactions.

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Suppose you are a diamond merchant, and you purchased a lot of diamonds at the value you felt was right while purchasing. After a year, or the next day you purchase, an inspector from the tax department seeks to assess your inventory, which he does with his expertise and advice.

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This complexity of valuation allows businesses to under-invoice their purchases and pay the balance in cash to save money that was supposed to be used to pay sales, income, capital gain, etc. taxes.

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Value Addition. The only value addition as of now in gems and jewelry is craftsmanship and design. The excessive competition and impractical copyright protection limit this value addition to conversation and mediocre premium.

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This forces businesses to recruit a variety of artisans for lower remuneration. Eventually, the only purpose of the invoice left is to show the commercial calculations. The value addition has not been cared for enough to be a record for a future premium.

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Some may claim the history of the piece is premium. However, verifying the evidence that proves so is overwhelming and time-consuming.

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Altogether, the requirement of a purchase invoice is restricted to taxation purposes only. Presently and historically, you are free to resell or barter your valuables without a purchase invoice.

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Parking Area for Illegal Money. Gems and jewelry are highly valued items and can hold millions of dollars in grams. You can carry a hundred thousand dollars worth of diamonds inside your hip wallet.

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A category that can move a sizeable sum of money becomes a favorite tool and parking space for illegitimate money.

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The effect that illegal money and its news generate is disturbing. It hurts fair commercial practices and promotes the comparison between less and more tax evasion, caught and unsolved cases, etc.

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Often, normal people find themselves as the only ones bearing the responsibility to run a clean economy, which they eventually start distancing themselves from. Now, you too want to purchase in cash and save taxes; there are bigger fraudsters roaming freely.

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Corruption. Jewelers are easily considered all-time wealthy persons. Officials and political figures expect abnormal financial favor from them. To fulfill the demand and the fear of needing favors in the future, they periodically manage their accounts and arrange resources to take care of future proposals.

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Private Dealing. Though e-commerce has managed to act as a store for trading precious gems and jewelry, buying and selling jewelry at the retail level and trading gems and bullion at the wholesale level are still subject to private and in-person dealing.

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This is a space where the conversations are open and friendlier, which is a choice for the seller and comfort for the buyer. Now, both parties are cozy enough to initiate an offer of partnership in tax evasion.

Knowledge of Gems and Jewelry. The average person is less likely to have sufficient and confident knowledge of gems and jewelry. They depend on the seller for educating them, which gives the chance to the salesman to befriend and win their trust back from them. Now, you both are friends, and the seller is safe to put his terms of invoicing or transacting entirely in cash.

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Illegal Remittance. Businesses are free to import to sell locally. Businesses might under-invoice their import invoice to save on duties and other taxes.

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The only roadblock for them in making this happen is the payment they need to make to foreign businesses. It is done only through banks after submitting their respective invoice and shipping bill.

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But there is another way to pay — by asking the illegal remitter to settle the excessive amount for a small commission.

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The local remitter then asks its foreign agent to pay the exporter in cash. The financial strength of the remittance network comes from transferring balances, which is a different subject to discuss. However, smuggling gold and exporting diamonds are the most preferred methods for an agent to add a balance to the required destination. Because both gold and diamonds are soluble and not traceable in jewelry businesses, whereas diamonds are transparent to x-ray machines, they are smuggler friendly.

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Traditional, Cultural, and security concerns. Many would oppose and stand with the idea of the gem and jewelry business being a traditional and cultural practice. Also, buyers have security concerns, so they use cash to hide or loosen the trail. For me, these are shy reasons, or a face used to conceal real motives.

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Big Brands. After reading the above eight points, you will surely confront me for not favoring big brands.

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Let me tell you a small story...

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When the world was facing problems, when the world was in a dilemma when the world was failing, there came Superman to save... but whom he had to fight… He was another Superman who came to save the world at another time.

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You might contradict my opposition to the Federal Trade Commission's ruling: "A diamond is a diamond, no matter whether it is grown in a lab or comes out of the ground."

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Without a distinct name for the above supermen, the world will remain confused — who is who? However, sharp humans, filled with information, deal with them daily, might differentiate and surely benefit more than the rest.

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Wait…

for two minutes...

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Let me think more about why one would purchase gems and jewelry with no or under invoice!

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Ok... I got it...!!!

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You, the usual person, a law-abiding person, a fair person, are not the one who wants to purchase illegally. It is the overall taste that is coming after the nine, above, ingredients that are naturally cooked together in one saucepan on a global level for a long period of time.

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And this has made the gem and jewelry trade a significant portion of the parallel economy of our world.

Thank you! Please leave your thoughts in the comments.