Pipino and his aides, who must study such factors as size, the quality
of the cutting, the color of the stones, their cleanliness, and the
imperfections left by nature. A diamond may be “ice white” or it may
be any shade of yellow from “top silver cape” to “canary” or any one
of several hues of brown. The colors may vary with the location of the
window through which the light falls on the stone. The imperfections
may range from a speck smaller than a fleck of dust to sizable
fissures, crystals or carbon spots. It may be slightly off-color or the
color may lack a clear definition.
Basically, the value of a diamond is determined by what is known in
the trade as the Four Cs--color, cleanliness, cutting and caratage. As
far as Pipino is concerned, the most important of all of these is the
color, even though color often can be extremely deceptive in certain
diamonds. Stones which come from the Premier mine in South Africa have
a bluish cast in daylight, but when placed under an artificial light
they have a yellowish glow. However, the Customs experts usually can
look at a diamond and make an educated guess as to its origin--whether
it came from Brazil, South Africa or French Equatorial Africa. Very
seldom are these guesses wrong.
The standards used in judging the value of a diamond are the same as
those used in determining the value of other precious stones. The
finest of the rubies, sapphires, emeralds and many of the semi-precious
stones have a deep, rich, velvety color instantly recognizable by the
expert. In addition, the better stones have a glow which comes from
within the stone itself.
Most of the fine gems imported into the United States in recent years
have been those which came from famous jewel collections of the past. A
tiara which Napoleon I reputedly presented to Empress Marie Louise was
brought into the country as an artistic antiquity--free of duty. Then
the jeweler, quite legally, removed the gems from the tiara and placed
them in pieces of modern jewelry. Other fine stones have come from the
collections of Indian maharajas.
To qualify as an artistic antiquity--free of duty--a piece of jewelry
(or any other object) must have been produced prior to 1830. This
arbitrary date for determining antiquity is a sensitive point in the
import trade. As Pipino explained it to one puzzled inquirer: “Anything
that was produced before 1830 is permitted into the country free of
duty as an artistic antiquity--and not as an antique. We don’t presume
to tell a dealer or a curator what is to be considered antique and what
is not. But an antique is not necessarily an artistic antiquity. To
qualify for this legal description, it must have been produced prior to
1830--the date fixed by Congress for determining which cultural objects
shall be free of duty and which shall not.”
Many in the import-export trade angrily take exception to the law,
passed in 1930, which refuses to recognize any object under 100 years
old as being an artistic antiquity. But most will agree that the date
1830 marked the beginning of industry’s mechanization, which permitted
mass production of many items. Mechanization came to the jewelry trade
around 1850 in the Victorian era, and a great deal of mass-produced
jewelry was made in this period of prosperity in England. Customs does
not permit its importation as an artistic antiquity--and it cannot do
so unless Congress changes the date which controls the legal definition.
To the casual observer, Customs’ little diamond room on Varick Street
would appear to be far removed from anything but the dollars and cents
value of precious stones arriving from abroad. But to Leroy Pipino it
is a place where an adventure story unfolds every day for those who can
read the meaning behind the ebb and flow of jewels.
14
THE DIAMOND SMUGGLERS
Richard X, an American dealer in diamonds, sat at the desk in his hotel
room in Antwerp, Belgium, in June, 1953, scribbling figures on a sheet
of paper. Even allowing for an unexpected drop in prices on the diamond
market, his figures showed that this day’s work eventually should
bring him a net profit in the neighborhood of $100,000--a pleasing 50
per cent on his investment and no taxes on profits to be paid to the
Internal Revenue Service.
Long before this, Mr. X had decided it was foolish to bring $200,000
worth of cut diamonds into the United States, to declare the gems on
his customs declaration, to pay the government the required 10 per cent
duty, to pay the Federal luxury tax on retail sales, and then to pay
another tax on the profits from the sale of the diamonds.
He had learned there was a more profitable way to do business. True, it
had its risks--but no one ever made money without risks. The trick was
to buy insurance which guaranteed duty-free delivery of the diamonds
in New York City. The risks were minimized. The system was about as
foolproof as any system could be because you dealt with a reliable
syndicate. By buying and selling secretly the profits were enormous.
Three years earlier Mr. X had arrived in Antwerp on his first buying
trip, carrying a letter of credit for $200,000 from his bank in New
York, and had fully expected to carry his diamond purchases home with
him on his return.
Soon after his arrival, he had called a business acquaintance in the
Antwerp diamond trade and asked him to dinner at his hotel. He had
met the Belgian in New York City and the Belgian had insisted that
they should get together on his first trip to Antwerp. The friend had
arrived at the hotel and they had enjoyed an excellent dinner that
evening. Over a brandy, they had discussed business. Mr. X had confided
that the next day he intended to purchase $200,000 worth of diamonds in
the market. And then he had complained of the customs duties and the
taxes that he would have to pay on the profits.
After several more brandies, his friend had said to him: “Listen to
me. It is silly for you to pay such taxes when it is unnecessary.
Let me tell you how you can avoid the taxes. Tomorrow, go to any of
the regular diamond houses, any that you prefer, and make discreet
purchases. After you have selected the stones, go to the coffeehouse on
the corner of (and he named the street). Order a cup of coffee and then
tell the waiter that you wish to speak to the manager. When the manager
comes to your table, ask him to have a cup of coffee with you. Tell
him that you have purchased some merchandise and you wish to contact
someone who will deliver the merchandise to you in New York City. The
manager, quite naturally, will say he knows nothing of such affairs,
but in a short time you will be approached by a stranger. This man will
say he understands you wish the delivery of certain merchandise to the
United States. He will ask you, ‘How do you wish to pay for this?’ And
you say, ‘By cash.’”
Mr. X had interrupted to say, “Can you give me the name of this man who
will approach me?”
His friend had shaken his head. “No. You will never know his name--and
you will never know the names of anyone with whom you deal. You must
trust these men because they are reliable. They have to be reliable to
stay in business.”
“Now,” he had continued, “the man who approaches you will take you to
an appraiser’s office somewhere in the city. You carry your diamonds
with you to be appraised. When the value of the stones is confirmed,
you will be asked for a cash payment of six or seven per cent of the
stones’ value as insurance which guarantees their safe delivery to
you in New York. The insurance rate varies from six to ten per cent
depending on circumstances. I think it now is about six or seven. After
you pay the fee, you leave the diamonds with the gentlemen. They will
tell you when to expect delivery.”
Mr. X remembered his amazement. He had exclaimed, “Do they give me a
receipt for the diamonds? Do I just walk out the door with nothing--not
even knowing the names of the men I’m dealing with?”
His friend had said, “You get nothing. Believe me, this is the way the
syndicates operate. It is done every week. You understand they cannot
have a record of these transactions.”
Then his friend had explained the syndicates. In Antwerp there
were many wealthy businessmen who could not break into the tightly
controlled, legitimate diamond business, which was in the hands of five
old-line diamond clubs. Closed out of this market, they had turned
to the only diamond business open to them--the insuring of diamonds
smuggled into the United States and other countries. They had formed
loose syndicates and had organized rings of men and women to act as
carriers.
Members of these shadowy syndicates frequented certain coffeehouses in
and near the diamond market. When advised that someone had prepared a
shipment of diamonds, and wished insurance, the group would meet to
prorate the risk. One man would take $20,000, another $30,000, and so
on, until the full value of the diamonds was covered. They would agree
to pay the appraised value of the stones if the stones were lost,
stolen, or seized by Customs officers.
Mr. X had lain awake for hours after the conversation with his friend,
trying to decide whether he should make such a gamble. He had decided
finally that the risk was worth it. The next day he had gone to the
diamond market, purchased the stones, and then gone to the coffeehouse
as his friend had suggested. He had talked to the manager. The stranger
had approached him. He had been taken to an office in a part of the
city which he could never find again. His gems had been appraised. He
had paid the insurance fee--seven per cent of the appraised value--and
had walked out of the office with nothing to show for any of the
transaction.
Before he left the office one of the men had asked him, “When are you
leaving for the United States?” He had said that he intended to leave
the next day, which was Saturday. Then the man had said, “We will
deliver the stones to you on Tuesday night next. You will receive a
phone call at your home and be given further instructions.”
Mr. X had returned to New York City and had waited at his home for the
expected call on Tuesday night. The call came, finally, at 10 P.M. A
voice had said, “Mr. X? Were you expecting delivery of a package?” Mr.
X had eagerly assured the caller that he was expecting a delivery. The
voice had said, “Can you be on the corner of 57th Street and Third
Avenue at 11 P.M.?” Mr. X had told the caller that he would be there.
Then the voice had said, “So that I will not make any mistakes, please
stand on the southwest corner of the street and have a copy of the
_Chicago Tribune_ under your left arm.”
Mr. X had taken a cab to the corner of 57th Street and Third Avenue. He
had purchased a copy of the _Chicago Tribune_ at a newsstand selling
out-of-town papers, and he folded it under his left arm. As he stood
on the corner, a man walked up and said, “Mr. X?” And he had replied,
“Yes, I am Mr. X.” The man had said, “Here is your package.” Then he
had walked away.
Mr. X had taken the diamonds back to his apartment. He had ripped the
paper from the box and had opened it to find every gem that he had
purchased in Antwerp and turned over to the syndicate representatives.
It was as simple as that. There was not a scrap of paper on record
anywhere showing that he was liable for taxes.
The second time he had made the trip to Antwerp he had followed the
same procedure, although he had dealt with different men. The second
delivery had been made safely also. And now he was ready for the
syndicate to make its third delivery. All he had to do was wait....
After Mr. X’s return from his third trip to Antwerp--on July 12,
1953--a Belgian Sabena Airlines plane glided to a landing at Idlewild
International Airport in New York City with Capt. Robert Edmund Deppe
at the controls.
The passengers debarked. Members of the plane’s crew came down the
gangway with Deppe bringing up the rear. Deppe carried in his hand a
shoe box tied with a string. He saw one of the airline clerks near the
ship and he tossed the box to him.
“Hold this for me, Joe,” he said. “It’s a little gift I brought over
for a friend. He’ll be calling for it.”
The clerk said, “Sure, Captain. I’ll put it in the crews’ baggage
room.” No one paid any attention to the incident nor did anyone later
give a second look at the shoe box when the clerk tossed it onto a
shelf in the baggage room.
There was considerable excitement in the terminal when the crew checked
in. “What’s going on?” Captain Deppe asked. An airline employee
replied, “The Customs people are searching everyone again. You might as
well get in line yourself.”
Deppe got in line. He watched the agents and inspectors go through his
luggage and then one of them ran his hands lightly over his clothing.
“What is it all about this time?” he asked.
The inspector grinned. “Just another one of those routine checks,
Captain. I’ll admit it’s getting monotonous.”
But it was more than merely another routine check. Several weeks
earlier Tom Duncan, chief of the Customs Service’s Racket Squad, had
received a tip from an informer in Antwerp that diamonds were being
smuggled into the United States by crew members of a trans-Atlantic
airline. The informer didn’t know which airline was involved. All he
knew was that the carriers were airline employees. The chances were,
however, that the carriers were employees of the Belgian airline,
Sabena.
Duncan called in several agents and told them the story. “Let’s start
shaking down the crew members on those Sabena planes,” he said. “We
can’t search them on every flight. But we can make it so rough maybe
somebody will crack.”
The searches had been underway for more than a month when Duncan
received a telephone call from a Sabena representative.
“What can I do for you?” Duncan asked.
“We’re pretty upset about these searches,” the caller said. “One of our
crew members is in my office now. He wants to talk to you. He believes
he has some information that may be helpful. Will you see him?”
“Of course I’ll see him,” Duncan said.
“He’ll be at the Henry Hudson Hotel in one hour,” the Sabena
representative said. “Room 301. He’s one of our radio operators.”
Duncan went to the hotel with Agent Harold Smith, another veteran
investigator with whom he had worked on scores of cases. The Sabena
radio operator was waiting for them in his room.
“You have some information for us?” Duncan asked.
“I think so,” the operator said. “I want you to understand why I’m
giving you this information. I’m damned tired of being under suspicion
every time I come into New York. I’m fed up with being searched and
questioned and delayed. I want to see this thing cleared up.”
“We don’t like it any more than you do,” Duncan said. “We’ll let up on
the pressure as soon as we can.”
The operator said that earlier in the year he had been approached in
Belgium by a pilot with whom he had flown as a member of the Belgian
air force. This man had told him he could earn a large sum of money if
he would merely wear a pair of specially made shoes into the United
States and then turn the shoes over to a man who would call for them.
It was obvious to the operator that he was being asked to smuggle
diamonds into the United States.
“I turned them down,” he said to Duncan. “I didn’t want to get mixed up
in anything like that.”
“Do you know anyone who is carrying diamonds?” Duncan asked.
“No,” the operator said, “I don’t. But I presume the same offer was
made to someone else. Probably another Sabena crew member with whom
this man had flown in the past.” He gave them the pilot’s name.
The conversation tended to support Duncan’s suspicion that the
smuggling was being done by a person connected with Sabena. He sent
a cable to the Treasury representative in Antwerp, Bill Beers, a
gregarious, bilingual agent with a remarkable talent for cultivating
sources of information in Europe. He asked Beers to furnish a list of
the names of Sabena employees who once had been fliers in the Belgian
air force. He got the list, but at the time it wasn’t much help, even
though one of the names was Robert Edmund Deppe.
When the search of Deppe’s luggage was completed at the airport, an
agent said, “That’s all. You may go now.”
Deppe collected his luggage and walked outside to hail a cab. He was
driven to the Henry Hudson Hotel on 57th Street between Eighth and
Ninth Avenues, where Sabena Airlines personnel were quartered on their
stopovers in New York.
When he reached his room, he tried to make a phone call, but no one
answered. For the next few hours, he tried again and again to get an
answer from the number. At last he took a shower, changed into light
sports clothes and left the hotel to get a late dinner.
The telephone which Deppe heard ringing was in the apartment of Julius
Falkenstein at 58 West 72nd St. The reason Falkenstein didn’t answer at
the time was that he and his wife were being detained and searched by
Customs agents at the Canadian border.
As far as Falkenstein’s friends knew, he was merely a hard-working
employee of a New York furrier whose place of business was in the
Manhattan garment district. He was a quiet chap who minded his own
business. Customs agents had never heard his name until Friday, July
10--two days before Deppe’s plane landed at Idlewild--when Duncan
received an urgent trans-Atlantic call from Beers in Antwerp.
“Tom,” Beers said, “I’ve got a good line on a smuggling ring. My
informant here tells me that their New York contact is Julius
Falkenstein. He has a brother in the business in Antwerp.”
“Maybe this is what we’ve been looking for,” Duncan said. “We’ll get
right on it.”
Two agents called at the furrier’s shop where Falkenstein worked but
were told that he had left for the weekend. This news was relayed to
Agents Harold F. Smith and John Moseley, who had been sent by Duncan
to watch the Falkenstein apartment building. The agents had obtained a
description of their man from an apartment employee.
At 6 P.M. on that muggy afternoon, Falkenstein and his wife Ann came
out of the building carrying suitcases. They walked around the corner
and climbed into a car. Then they headed across town to the elevated
West Side Highway and turned north. The agents followed them for
several miles but finally lost them in the heavy weekend traffic. When
the agents reported by radio to Duncan that they had lost contact,
Duncan said, “Let ’em go. They are probably headed for the Catskills.
We’ll pick them up again Monday.”
That night Duncan had another call from Antwerp. He was told that an
informant had reported two shipments of diamonds were enroute to New
York, one by way of Canada.
Duncan played a hunch. He called Agent Abe Eisenberg, the Customs’
representative in Montreal. Eisenberg was about sixty years old, a
chunky man with graying hair who had been matching wits with smugglers
for almost forty years. He was one of the best undercover men in the
Service; he had an actor’s ability to look like a dignified banker or
a bum. A man of meticulous honesty, he had one obsession: he hated
crooked Jews. Being Jewish himself, he regarded every dishonest Jew as
a disgrace to his race.
When Eisenberg answered the call, Duncan told him of the tip from
Antwerp and the suspicion that Falkenstein was involved. He explained
that the Falkensteins had left Manhattan that afternoon and had headed
north.
“Keep a check on the hotels, Abe,” Duncan said. “They may be headed
your way to pick up the diamonds.”
“Remember, I’m up here all alone,” Eisenberg said. “I can’t do my job
and watch them too.”
Duncan laughed. “Don’t worry. You’ll get reinforcements. I’ll send
Harold Smith up on the next plane. Julius Zamosky and I will come up by
car. We may need the car to tail them when they start back this way.”
Duncan called Smith and told him to get to Montreal by plane as quickly
as possible to give Eisenberg a helping hand. Then he called Zamosky,
another of the veterans on the Racket Squad, and at dawn they were
headed out of Manhattan for the Canadian border.
All day Saturday and Saturday night the agents, working with Canadian
police, kept Falkenstein and his wife under surveillance. Falkenstein
made several telephone calls to friends and visited them in their
offices. Then at 9 A.M. on Sunday, he and his wife checked out of the
hotel. They stowed their luggage in the car trunk and headed south.
Duncan, Smith and Zamosky followed the Falkenstein car out of Montreal.
When it was evident the couple intended to cross the border at
Champlain, New York, Duncan radioed a request to the Champlain Customs
station asking that the Falkensteins be detained.
Julius and Ann Falkenstein were seated in an inspector’s office when
Duncan and his aides walked in and closed the door.
Falkenstein came out of his chair with a display of outraged innocence.
“What is the meaning of this?” he shouted. “Why are we being held here?”
Duncan said, “We happen to think you went to Montreal to pick up a
shipment of diamonds.”
“We have no diamonds,” Falkenstein said. “Go ahead and search us.”
“That’s what we intend to do, Mr. Falkenstein,” Duncan said.
A search of their persons revealed nothing. Duncan ordered their
automobile and luggage searched. Nothing was found.
Duncan felt certain that Falkenstein had gone to Montreal to pick up
the diamonds. There must have been a hitch which prevented delivery.
He questioned the couple at length. And then reluctantly, late in the
afternoon, he told them they could go.
It was during this questioning that Captain Deppe was sitting in his
room at the Henry Hudson Hotel listening to the telephone ring in the
apartment of the Falkensteins.
* * * * *
When Duncan returned to his office the next morning, he found a cable
from Beers congratulating him on the “seizure” of the diamonds.
A telephone call to Antwerp cleared up the mystery of the cable:
rumors were afloat in the diamond market underworld that a shipment
of diamonds to the United States had not been acknowledged--and the
diamonds were presumed to have been seized by Customs agents. There
were reports, too, that Falkenstein was “in trouble.”
The following day, Beers advised New York that Falkenstein was supposed
to have received one shipment of diamonds in Montreal on July 11 and
another shipment in New York on July 12. The shipment to Montreal had
been delayed--but the shipment had arrived in New York and presumably
was “safe.”
Duncan could not know that the New York shipment at that moment was
lying in a shoe box on a shelf at the Sabena Airlines baggage room. On
the day of Captain Deppe’s arrival, the room had been turned upside
down in a search for contraband, with no one noticing the box. Duncan
later said ruefully, “The box was in plain view, just sitting there. I
suppose that’s why it was never opened. It was too obvious.”
A few days later another Sabena pilot would casually enter the baggage
room, pick up the box, and deliver it to Mr. X--completing the job
which Deppe had started.
At this point Duncan decided to drop the searches at the airport and to
take another tack. A good starting point seemed to be the Henry Hudson
Hotel. Agents Smith and Moseley were ordered to obtain from the hotel
all records of outgoing telephone calls made by Sabena personnel over a
period of several months. Hotels normally keep such records for as long
as four or five years--or until there is no further need for them in
verifying accounts.
The checking of the telephone calls was slow, tedious work. At last one
of the agents came up with the record of two interesting calls--both
made to Trafalgar 3-8682, the telephone of Julius Falkenstein. The
calls had been placed from the room occupied at the time by Capt.
Robert Edmund Deppe. “I think we had better keep a check on this
gentleman,” Duncan said.
From that day forward, each time Captain Deppe arrived in New York he
was under surveillance by Customs agents. They checked him in and out
of the hotel, in and out of restaurants, and in and out of movies, cabs
and subways. Wherever he went, he had an agent as a shadow.
It was a boring surveillance. Captain Deppe was a methodical and
unimaginative man who stayed pretty much to himself. He made few
outside calls, and the incoming calls usually were those from the
airline’s flight operations office relaying routine instructions.