It looks like any of the other independent jewellery shops in the coastal city of Ernakalum, southern Kerala. The glass shop front sits within Broadway Market: three hundred wholesale outlets selling spices, electronics, jewellery and textiles.
I'm here to meet the owner, who runs a seemingly respectable retail outfit, with a twist. Much of the gold jewellery he sells come from the black market. In fact, Oomen (not his real name) has been running a successful underground import business in untaxed gold for the past ten years. The last year has seen a record level of business.
After a referral from a local contact, he thinks I'm meeting him to arrange a modest shipment of gold jewellery from Dubai, to arrive at an Indian airport next month. After a little cajoling, he begins to explain, at least in part, how his smuggling network operates.
The Indian government raised gold import taxes three times last year, with gold bullion eventually slapped with a ten per cent bill and gold jewellery fifteen per cent. Smuggling, predictably, rocketed.
The reforms were brought in to curb demand and reduce a current account deficit from a record £53bn in 2012-13. This economic measure is the difference between inflow and outflow of foreign currency, and a deficit means imports are greater than exports. As a developing economy, India is expected to be running a current account surplus; the imbalance has affected the value of the rupee seriously. The reforms are seen as necessary, but gold traders are angry.
Another gold trader in Ernakalum, Davis Kairali, told me: "The government doesn't understand the gold market. You cannot tax imports and expect Indian families to stop buying." The owner of Kairali Jewellers also complained that as an independent store he pays five per cent tax, while the larger household-name chains pay just one per cent.
"It is a good time for foreign buyers," says Joseph Asaan, who runs another family-owned jewellery shop in Broadway Market. "Most of the gold is coming into Kerala, normally via the Gulf, and it is refined here and then handed on to the manufacturers."
On top of the tariffs, in July 2013 the Reserve Bank of India made it mandatory for each importer to export 20 per cent of the gold they import.
The policies had an immediate impact on smuggling. The Directorate of Revenue Intelligence, the customs department responsible for stopping illicit imports, reported nearly 1,300kg seized in 2013, compared to around 200kg in 2012 and 150kg in 2011.
Between April and September this year, seizures of gold smuggled into India saw record increases, up 330 per cent on the previous year. Despite capturing illicit shipments worth over £60 million, Indian customs officials admit that they are fighting a losing battle. Overall, they say that they confiscate perhaps one per cent of the gold being smuggled. Some local estimates claim that fifty tons of gold was smuggled into India in September alone, in the busy pre-festival period.
The United Arab Emirates has been hurt more than most by India's new gold taxes, with Dubai gold trade down sixty per cent after the tariffs hit. My dodgy gold importer, Oomen, doesn't see this as too much of a problem though.
"There are always people in the Gulf we can use to help us who fly back here to see their families," he explains. "We pay the price of the air ticket." He hints gently that there may be a "little extra" on top of that.
Although higher wages in Kerala are drawing more expats to move back home, hundreds of thousands of Keralans still work in the UAE, as nurses, engineers, drivers, restaurant staff or construction workers. Those towards the lower end of the pay scale have been tempted by gold smuggling in the last year, willing to chance Indian customs or work with more sophisticated gangs to carry gold into the country, evading the tariffs. Those caught are often let-off with a confiscation, rather than a fine or custodial sentence.
The day before I met with Oomen, 7.5 kg of the yellow metal was seized at Kochi international Airport. Ten gold bars, alongside necklaces, watch straps, rings and chains, were concealed between the core and outer casing of four electrical transformers. Some of the items were also wrapped in carbon paper, or disguised as parts of a handbag.
Customs officials admitted in a statement that "it was the profile of the person who assisted us" which led to a successful seizure, alluding to the existence of informants. They are now being paid more for information on gold tip-offs than they are for narcotics.
An official at the airport, who spoke on condition of anonymity, confirmed that an informant had been involved. "Without people to help us," he said, "it would be very hard for us to catch any of these people."
The ingenuity of the smugglers is part of a wider trend to combat the better efficiency of customs officers. Gold has been found in the batteries of emergency lamps, coils of iron boxes and inside mobile phones and toys, usually by using x-ray scanners. However, although at some airports "priority" flights (usually from Dubai) are screened in full, it is often not practical to use these machines.
In recent months, customs officers claim to be on the front foot. Falling gold prices have seen the price differential narrow between the UAE, through which a quarter of the world's gold passes each year, and India. The falling premium means that smugglers stand to make a little less.
Still, for jewellers like Oomen, who are prepared either to conduct the smuggling themselves or buy from less reputable distributors, the temptation of a ten or fifteen per cent discount on their main product is still there. He claims that on certain flights at certain airports customs officials can be paid to look the other way; this is difficult to verify. Corruption is certainly an endemic and well-documented problem in India, including amongst customs staff.
Last year, an Indian Revenue Service officer and customs agent were jailed for asking for £12,000 in electrical items and cash from an importer whom they accused of under-valuing a shipment of imitation gold jewellery. The importer went to the authorities but said that it took months for the investigation to begin. His persistence and determination is unusual in the face of government officials who prefer not to investigate. The corrupt customs officers were eventually charged with criminal conspiracy.
Oomen wouldn't say which flights or even which airports through which he has been guaranteed safe passage. He did note, though, that airports beyond Kerala were now his preferred route, as many of the flights from Dubai and elsewhere in the Gulf were under close scrutiny by Indian customs.
Another preferred smuggling method is to hide the gold in the toilets of the planes landing from the Gulf. Airport cleaners are then paid to collect it and deliver the gold to the smuggling gangs.
Dubai is famously home to the largest gold souk in the world. Not only is it a hit with tourists but also home to hundreds of gold processing, distribution and wholesaling companies.
One of the most frequent practices our investigation uncovered is the use of gold as a way to settle hawala debts between agents based in India and those in Dubai. One hawala agent our correspondent spoke to in Dubai, who spoke on condition of anonymity, claimed: "When the [Indian import] tariffs came in, there was a rush to send gold over. It was a good way to settle debts, but there was also an opportunity to make some money with the transfer."
The hawala system is an informal network of money transfer agents which relies on trust rather than financial instruments to transfer money. Approaching a hawala agent in Dubai, you can ask to transfer a set amount of cash. Within two days, the cash will be available for a relative or friend to withdraw from a corresponding agent in Kerala. The hawala agents operate on an honour basis, rebalancing their debts to other agents as they go. Transfers to repay debts typically come as cash, electrical goods or in the case of transfers between Dubai and Kerala, gold bullion or jewellery. The system is popular amongst expatriate Indians as it is faster and cheaper than conventional transfer systems like Western Union. Dubai hawala agents now say that the customs crackdown in Kerala has put them off transferring too much gold, in case they lose the shipment.
Another key element of how the gold souk operates in Dubai is the dominance of south Asian businessmen over Emiratis. Gold and hawala agents, many of whom are Indian, were not keen to speak to an Emirati journalist, so we hired an Indian correspondent.
"We don't want to speak to an Emirati about these things," said the owner of one jewellery shop in Dubai. When we probed to find out why, he responded, "They may be inspectors."
According to research by Emarat Alyoum, an Arabic language newspaper based in the UAE, over two million Indians live and work in the country, with an estimated 40 per cent hailing from Kerala. With so many returning frequently to visit their families in India, many are tempted to take some extra gold. Others work with more organised gangs, members of which collect them from the airport once they land in India.
"There is a shortage of legal gold," explains another independent jewellery trader in Kerala. "Lots of gold is still being smuggled into the country and apparently flows into the mainstream." He adds that it hasn't been "the best" season for his company, a reference to the festival season from September to December. "Gold prices are very low at the moment."
The trader confirms what Oomen has told me: "At the moment only about thirty per cent of the jewellery in the retail market is legal. There is always scope for bullion to enter into the illegitimate sales of the remaining seventy per cent."
Have the government tariffs worked? While smuggling is clearly out of control, legal imports are soaring. October shipments jumped to about 150 tons, from less than 25 tons a year earlier, and 143 tons in September, a finance ministry official announced last week. September imports were up 450 per cent. India's gold imports are always stronger in the second half of the year as both banks and jewellers stock up for major festivals such as Dhanteras and Diwali, as well as the wedding season.
Policymakers are still undecided on whether to impose even higher taxes on imports, though analysts from Nomura say that the government should wait another two months before conducting a review. It was rumoured back in February and again over the summer that the government would reduce the taxes, but these proved to be unfounded. Instead, customs officials have made only small decreases to the gold and silver tariffs, bringing down the untaxable proportion of imports to match falling gold prices.
It is clear from Oomen, and conversations with numerous gold traders in Kerala and Dubai, that gold smuggling is a structural feature of the market in India. Domestic appetite, craving the yellow metal, will always mean that smuggling makes sense so long as the tariffs remain in place, even if officials claim that they are dealing with the problem. If what Oomen tells me is the truth, many of those customs officials may even be in on the racket.
Note: this article was amended at 15.19 GMT on December 21, 2014 to remove allegations made against the procurement and business practices of Kaloti – the Dubai based refiner, and references to a leaked copy of an unfinished audit report by Ernest & Young. The accusations in the leaked report were not verfied or substantiated in the final audit report by Ernest & Young, not by a subsequent supply chain audit by Grant Thornton (Aug 2014), and as such, were removed due to factual inaccuracies. Both of these reports concluded that Kaloti was fully complaint with applicable legal frameworks.
We apologise to our readers and Kaloti for this.
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