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The alchemy of fraud: Investment scams in the precious-metals mining business
Abstract
Particularly since the emergence of modern stock markets, investment frauds based on hyped or completely phony claims have
been sufficient to cause concern. However those involving precious metals seem in a category by themselves. Partly no doubt
that is because such schemes routinely promise fantastic returns; partly, too, it is because precious metals have a special
lure based on myth, magic or even atavistic religious appeal which con artists exploit. However it is often difficult with
precious metal mines to know precisely where over-enthusiasm by promoters ends and outright fraud against investors begins.
Unlike with base metals, it is commercially feasible to mine precious ones at very low concentrations; while the speculative
nature of most new mining ventures makes failure for legitimate reasons a frequent occurrence, helping to disguise or at least
fudge the distinction between a business venture that went sour and an outright scam. Moreover the geology of sites can be
tricky even for experts to read; assay results are far from conclusive in many instances; and the technologies employed are
often changing with the result that what might have seemed an impossibility one day becomes at least arguable the next. All
this combines with short memories and the lure of potentially very high returns to make investment in the precious metals
sector as much today as in the past treacherous not just for novices but even for experienced investors. This paper examines
the nature of such investment frauds in light of history, technology and geological uncertainty, and suggests reasons to expect
no significant change in the foreseeable future.
... These inducements could be in the form of shareholdings and debenture stakes in briefcase entities within a vicious cycle of never ending gullibility backed by latest production techniques, products and business openings (Blanton 2012). Man's insatiable appetite for self-preservation has seen him invest massive resources in precious-metal mining operations at the cost of life itself (Naylor 2007, Friedrichs 2010. Most investment scams are through passive investment with a clear conviction of a superior investment strategy practiced by the scammer. ...
... When man feels a sense of self-preservation, they ride on irrationality and convince their conscience that whatever action they take towards self-preservation is magnanimous irrespective of collateral damages that come with it. They ignore the going concern nature of their schemes which to an extent starts as legitimate enterprises but opportunistically go haywire with time from poor cash management at the bequest of scammers' twisted thinking to come up with "a salvage value" from an otherwise collapsing enterprise (Naylor, 2007). Closely tied to this aspect is the symbiotic relationship existing below the surface between scammers and independent auditors (Geis 2013;Markopolos 2010;Shapiro 2013). ...
Financial markets attract speculative players from banking and insurance industry with the ultimate
... No gold was found. Within a couple of days, $5 billion worth of stock value in the joint venture had been lost, and Bre-X was forced into bankruptcy (Naylor 2007). ...
... In the ''Agency Theory: Overview'' Section, we mentioned three of these conditions: asymmetric information, goal incongruity, and contract design. As we saw in the ''Perpetrators as Agents'' and ''Adverse Selection Severity and Relative Opportunities to Carry Out 7 Studies include personality traits such as fantasy proneness (Langenderfer and Shimp 2001;Whitty 2013), interpersonal influence susceptibility (Ganzini et al. 1990;Langenderfer and Shimp 2001;Naylor 2007), and social-status fulfilment (Fischer et al. 2013;Holtfreter et al. 2008;Ross and Smith 2011); cognitive impairment (Langenderfer and Shimp 2001;Pinsker et al. 2011), and cognitive biases (Cialdini 2007;Fischer et al. 2013;Gabaix and Laibson 2006;Kahneman and Tversky 1984). 8 Less-informed investors are exploited by better-informed managers when the latter are quick to release good news and slow to release (or actually conceal) bad news about a firm (Kane 2003). ...
Despite the extensive body of literature that aims to explain the phenomenon of consumer scams, the structure of information in scam relationships remains relatively understudied. The purpose of this article is to develop an agency-theoretic approach to the study of information in perpetrator–victim interactions. Drawing a distinction between failures of observation and failures of judgment in the pre-contract phase, we introduce a typology and a set of propositions that explain the severity of adverse selection problems in three classes of scam relationships. Our analysis provides a novel, systematic explanation of the structure of information that facilitates scam victimization, while also enabling critical scrutiny of a core assumption in agency theory regarding contract design. We highlight the role of scam perpetrators as agents who have access to private information and exercise considerable control over the terms and design of scam relationships. Focusing on the consumer scam context, we question a theoretical assumption, largely taken for granted in the agency literature, that contact design is necessarily in the purview of the uninformed principal.
... The proliferation of illegal internet services is in line with the expansion of financial technology (Fintech) (Kharisma, 2021). Any fraudulent activity involving investments (such as stocks, bonds, commodities, limited partnerships, real estate, etc.) is considered investment fraud (Naylor, 2007). Scammers often use empty contracts and promises to lure or coerce their victims into following their plans (Tambunan & Hendarsih, 2022). ...
This research delves into the function of the task force in bringing attention to questionable investments via consumer protection measures, particularly in cases when several individuals fall prey to fraud resulting from these questionable investments. The major foundation for integrating and improving law enforcement in the consumer protection sector is Law No. 8 of 1999 regulating consumer protection, which regulates consumer protection. The normative juridical approach, based on deductive inquiry that begins with the examination of legislative items, is the basis of this investigation. The foundational law for Indonesian investment rules is Law no. 25 of 2007, which addresses capital investment. The notion of "full disclosure" is one way that Law no. 8/1995 protects investors from potential harm. Other measures include harsh penalties for administrative infractions, criminal and civil litigation, illegal conduct, and defaults, as well as administrative penalties. Therefore, the government should be stricter in collecting public and consumer money for company licences, and the disadvantaged should take a more active role in selecting their financial investments to avoid falling victim to illicit ones.
... The other is to equip it with hidden contrivances giving the incorrect impression that it is actually producing energy. Similar methods have been employed in so-called gold-from-seawater schemes (which are in fact gold-from-duped-investors schemes) (Naylor 2007). However, these scams seem to be relatively marginal phenomena, due largely to the immediate falsifiability of the claims in question. ...
[[COMPLETE SECONDE ISSUE OF METASCIENCE]]
This second issue of the journal Mεtascience continues the char-
acterization of this new branch of knowledge that is metasci-
ence. If it is new, it is not in a radical sense since Mario Bunge
practiced it in an exemplary way, since logical positivists were accused
of practicing only a mere metascience, since scientists have always
practiced it implicitly, and since some philosophers no longer practice
philosophy but rather metascience, but without characterizing it or
theorizing it, that is, without realizing that they have abandoned one
general discourse for another. The novelty therefore lies in this aware-
ness that a general discourse without philosophy is possible: a scien-
tific general discourse.
The twelve contributions gathered in this volume illustrate the
metascientific approach to knowledge of the world as well as to
knowledge of knowledge of the world, that is, science. And like
Bunge’s project, they are neither part of the analytical movement nor
the continental movement in philosophy. We will read here studies
about the Bungean system, some applications of Bungean thought,
some metascientific contributions, and some reflections around meta-
science.
Among metascientific disciplines, ontology occupies a prominent
place in this issue of Mεtascience. Metascience differs from philoso-
phy in its rejection of the fundamental philosophical distinction be-
tween appearance and reality. Metascientific ontology therefore does
not postulate the existence of any metaphysical reality. But metasci-
entific ontology, no more than philosophical ontology, is a factual sci-
ence. The first, because it studies scientific constructs and not concrete
objects, the second, because it is interested in transcendent or meta-
physical objects.
... La otra es equiparlo con artilugios ocultos que den la impresión incorrecta de que en realidad está produciendo energía. Se han empleado métodos similares en los llamados esquemas de oro del agua de mar (que de hecho son esquemas de oro de inversionistas engañados) (Naylor, 2007). Sin embargo, estas estafas parecen ser fenómenos relativamente marginales, debido en gran parte a la falsabilidad inmediata de las afirmaciones en cuestión. ...
Después de una revisión de los usos previos del término '' pseudotecnología '', se propone una definición: “Una pseudotecnología es una supuesta tecnología que es irreparablemente disfuncional para su propósito previsto, ya que se basa en principios de construcción que no se pueden realizar para trabajar”. Se discute la relación entre la pseudotecnología y la pseudociencia, y también la relación entre la pseudotecnología y el concepto mucho más débil de mal funcionamiento tecnológico. Se ofrece una explicación de por qué rara vez se hace referencia a la pseudotecnología que a la pseudociencia: la tecnología disfuncional suele descubrirse cuando se pone en práctica, mientras que la ciencia disfuncional tiende a ser más difícil a ser expuesta.
... The classification border between the classes of individual companies is blurred and the criteria for the division are different. For example, M. Dougherty uses the size of its assets as a classification criterion, i.e. senior mines would be mining companies with assets exceeding $3 billion, medium mines Rys. 5. Zmiany w wydatkach na eksplorację na przykładzie czterech krajów reprezentujących największe rynki eksploracyjne between $1 billion and $3 billion, and junior mines below $1 billion [28]. D. Cranstoun, on the other hand, distributes the classes by a source of income assuming that: seniors would generate revenues mainly from the extraction and sale of minerals, juniors would depend primarily on effective processes of exploration and sale of documented deposits without production, and the mediums would generate revenues in a complementary manner from both sources [18]. ...
The article presents an overview of the determinants of exploration works and the definition of the role of junior mines in those processes. Junior mines, as special purpose vehicles, focus on the stages of exploration and documenting of the deposits, without going into theoperational stage related to the exploitation. Due to their nature, those entities finance their activities with equity capital in the formof share issues on the capital markets, addressing their proprietory securities to investors who accept a high level of risk. The largeststock exchanges on which the exploration companies obtain the required funds have been identified, and the trends that complementcapital raising, concerning the involvement of private equity funds, have been presented.
... So much has been done in the past to understand Ponzi scheme investment. Researchers had studied Ponzi scheme investor from multiple context such as the perpetrator (Trahan et al., 2005;Naylor, 2007;Jory & Perry,2011;Frankel, 2012;Lewis, 2012;Reurink, 2018), the participants (Sadiraj & Schram,2001;Loyle, 2007;Wilkins et al., 2012) and the influencing factors (Biggart, 1990;Fairfax, 2001;Cialdini, 2001;Austin, 2004, Legara et al., 2008Greenspan, 2009;Jacobs & Schain, 2011;Tennant, 2011; Perri& Brody, 2012, Daquis et al., 2013;Gunn, 2015). But little is known on the process of Ponzi scheme investors came about to decide to invest in such a scheme. ...
... Por isso, os investimentos são considerados de alto risco. O risco fica por conta ainda da possível manipulação da informação divulgadas pelas próprias mineradoras(NAYLOR, 2007). Na década de 1990, as juniors perderam credibilidade no mercado financeiro por conta da fraude da mineradora canadense Bre-X, que burlou os resultados das pesquisas geológicas da mina de Busang na Indonésia, superestimando o potencial das reservas e assim valorizando artificialmente sua mina e, consequentemente, suas ações. ...
A mineração de ouro foi um importante elemento da formação histórica e geográfica da Amazônia brasileira contemporânea. Apesar das primeiras descobertas remontarem ao período colonial, o metal aurífero amazônico só ganhou notoriedade nacional e expressividade regional quando milhares de indivíduos migraram rumo aos garimpos de ouro no fim do século XX. O sonho do eldorado e a esperança de enriquecimento rápido e repentino moveram as frentes garimpeiras sobre a densa floresta tropical e as terras ocupadas por povos tradicionais. As descobertas de depósitos auríferos e os intensos fluxos migratórios deram origens a cidades e municípios, dinamizaram antigos núcleos urbanos, deixaram uma massa de trabalhadores no campo e nas cidades e também atraíram grandes mineradoras.
Junto a outras frentes e processos socioespaciais, o garimpo contribuiu para ocupar a fronteira demográfica e consolidar o espaço regional. Todavia, mesmo com a adoção de políticas e medidas pelo Estado brasileiro, com finalidade de industrializar a extração do ouro a partir dos anos 1990, o garimpo não desapareceu, como muitos acreditam, nem tampouco foi plenamente substituído pela expansão da mineração industrial. O garimpo se mecanizou, passou a demandar menos mão de obra e, principalmente, se tornou um problema social, sendo criminalizado e reprimido pelo Estado. A região amazônica atual, especialmente a porção meridional, também apresenta novas feições, mais moderna, conectada por redes de transporte e comunicação, e planejada por diversos atores de múltiplas escalas geográficas, que almejam distintos e incompatíveis projetos para a região e seus recursos.
A presente tese analisa, a partir da porção meridional, as mudanças na geografia do ouro e a participação da mineração aurífera – garimpeira e industrial - na organização do espaço amazônico brasileiro ao longo do tempo, demonstrando as alterações e transformações frente aos diferentes contextos regionais, nacionais e globais.
... The other is to equip it with hidden contrivances giving the incorrect impression that it is actually producing energy. Similar methods have been employed in so-called gold-from-seawater schemes (which are in fact gold-from-duped-investors schemes) (Naylor 2007). However, these scams seem to be relatively marginal phenomena, due largely to the immediate falsifiability of the claims in question. ...
After a review of previous uses of the term “pseudotechnology”, a definition is proposed: “A pseudotechnology is an alleged technology that is irreparably dysfunctional for its intended purpose since it is based on construction principles that cannot be made to work”. The relationship between pseudotechnology and pseudoscience is discussed, and so is the relationship between pseudotechnology and the much weaker concept of technological malfunction. An explanation is offered of why pseudotechnology is much more seldom referred to than pseudoscience: dysfunctional technology usually reveals itself when put to use, whereas dysfunctional science tends to be more difficult to disclose.
... Por isso, os investimentos são considerados de alto risco. O risco fica por conta ainda da possível manipulação da informação divulgada pelas próprias mineradoras (NAYLOR, 2007). Novamente, a performatividade dessas empresas em prometer resultados, para seus potenciais investidores, torna-se parte inerente às suas operações, sendo o caso mais emblemático de tal estratégia a fraude do projeto da mineradora canadense Bre-X na Indonésia (TSING, 2004). ...
Milanez, B., Mansur, M., & Wanderley, L. (2019). FINANCEIRIZAÇÃO E O MERCADO DE COMMODITIES: UMA AVALIAÇÃO A PARTIR DO SETOR DE MINERAL. Revista Tamoios, 15(1) p. 104-125
RESUMO: O artigo avalia a crescente financeirização do setor de commodities minerais a partir de três elementos. A revisão sobre performatividade dos agentes econômicos sugere que a realização de lucros de curto prazo e ações performáticas tendem a se tornar prioritárias, em comparação a decisões de longo prazo. A análise das chamadas junior companies, empresas de prospecção mineral cujo funcionamento depende essencialmente do mercado financeiro, indica que o aumento de sua presença no Brasil tende a aprofundar conflitos territoriais. A avaliação de dados de preço, oferta e demanda do mercado global de minério de ferro mostra uma modificação das formas de captura da renda mineral. Assim, a financeirização do mercado mineral se caracteriza como um processo complexo e multifacetado. Palavras-chave Mineração, mercado financeiro, minério de ferro
ABSTRACT: The article evaluates the financialisation of the mineral commodities sector based on three elements. The review on the performativity of economic agents suggests that short-term profits and performative actions are becoming a priority over long-term decisions. The analysis of junior companies, exploration companies whose operations are essentially dependable of the financial market, indicates that their increasing presence in Brazil is likely to increase territorial conflicts. The evaluation of the behaviour of price, supply and demand for iron ore in the global market shows alterations in the capture of mineral rent. Therefore, the financialisation of the mineral commodities can be characterised as a complex and multifaced process.
... In pursuing their dream, they behave very much like legitimate entrepreneurs and might even believe their scheme to be true 'businesses' (Frankel, 2012). This not only helps to make the investment opportunity appear 'trustworthy' in the eyes of investors, a crucial element of a successful investment scam (Stolowy et al., 2014), it also explains a tendency amongst operators of investment scams not to want to see certain things, such as the unsustainable structure of the scheme (Naylor, 2007). ...
This chapter provides a descriptive account of the different forms of fraudulent behaviour in the context of financial market activities, the prevalence and consequences of such behaviour as identified by previous research, and the market structures that scholars believe facilitate this behavior. To assess the current status and future performance of the issuer and ultimately to establish the perceived value of a financial instrument, both accurate information and the expertise necessary to interpret that information are essential. To make the empirical universe of financial fraud intelligible and to structure the survey presented in this chapter, a conceptual distinction is made between three types of financial fraud: false financial disclosures, financial scams, and fraudulent financial mis‐selling. Where both false financial disclosures and financial scams involve plain lies, financial mis‐selling practices evolve around suggestive communications that create misleading impressions, but do not involve mis‐statements of facts.
... In Martinez Alier's terms, new raw materials frontiers were opened in the former socialist block, especially in Romania, Bulgaria, and other less-developed countries of the region (Berberoglu 2005). In the precious metal sector, for example, promoters or stockbrokers on the Vancouver Stock Exchange -historically known as a source of venture capital for high-risk investments such as gold mines (Naylor 2007) -set their eyes on the precious metal resources of Eastern Europe: 39 Geologists themselves sometimes refer to the discovery of significant ore bodies as "finding a needle in a haystack" (see the very interesting article by Trigger (1997) on uranium exploration in Australia). ...
Sociology has long struggled with the problem of human agency in its theoretical constructions. Systematically purged from the corpus of positivist, functionalist and rational choice theories, agency has nevertheless surfaced repeatedly in empirical analyses as a constant reminder that individuals are able and willing to act in ways that are not fully explained by the dominant theories. This thesis deals with the problem of human agency by exploring a particular instance of human interaction in which the choices and actions of individuals as well as the contingencies facing them are particularly conspicuous. The example chosen as a case study is the conflict over the planned Roşia Montană gold and silver mine in Romania. As neither the supporters, nor the opponents of the planned open cast mine have managed to impose their will and determine the commencement or cancelation of the mining project, the resulting struggle was extended over more than a decade. During this period, a variety of social actors with different interests and worldviews were drawn into complex interactions with each other, thus making the trajectory and outcome of the conflict unpredictable. At the same time, there emerged an enlarged space for human agency, especially for those actors that have been usually conceived as voiceless and powerless. The origins of this space of agency are traced to the particular configuration of macro-social processes which interacted in series of highly contingent events. More exactly, none of the broad processes discussed in the literature on resource conflicts – such as accumulation by dispossession, the resource curse or unequal development – ran its full course in determining the outcomes of the conflict. The temporary suspension of overpowering structural determinations opened up a realm in which social actors could convert the contingencies of the conflict into opportunities and risks. Individuals became relatively free to make choices and influence the choices of others. The language of the sociology of translation is used as the most apt description of the fluidity of these interactions. The dynamic between the ordering and reordering of the social world of Roşia Montană through interaction is a key insight of the thesis.
Purpose
Response to suggestion that EU-wide cash payment limits would assist in the control of terrorism finance and money laundering.
Design/methodology/approach
Desk review and interviews
Findings
The inception impact assessment (IIA) is ill-conceived, not grounded on firm empirical evidence and harmful to both crime control and the legitimate interests and rights of the EU citizens. The action under discussion is presented as a measure against terrorism finance, serious crime and tax evasion. The problem is that these criminal acts correspond to very different methods, volumes, perpetrators, causes and control challenges. Cash payment limitations (CPLs) are nowhere near a panacea that can address all of them and cannot make any of them go away magically. Even when each of these crime challenges are considered on their own, the empirical linkage of CPLs to effective controls is not there. The evidence from EU countries with CPLs in place shows higher levels of informal economy, corruption, tax evasion and terrorism risks than those without. There is substantial evidence of non-cash, very serious and organized crime, while the amounts needed and used by terrorists in Europe are usually very small in cash transactions, way below the thresholds under consideration. In fact, determined offenders will shift to other methods and become more sophisticated, posing new problems to controllers. Displacement and incentives for better-organized crime may well be the main products of such measures.
Originality/value
It counters the argument that the cash payment limits can help reduce serious crime, while pointing to several adverse consequences on legitimate interests and human rights.
This paper describes the empirical universe of financial fraud as it has been documented
in the academic literature. More specifically, it describes the different forms of fraudulent
behavior in the context of financial market activities, the prevalence and consequences of
such behavior as identified by previous research, and the economic and market structures
that scholars believe facilitate it. To structure the discussion, a conceptual distinction is
made between three types of financial fraud: financial statement fraud, financial scams, and
fraudulent financial mis-selling. What emerges is a picture of financial fraud as a complex
phenomenon that can take very different forms, depending on the market segments in
which it occurs, the financial instruments it pertains to, and the actors involved. Moreover,
the findings of the literature review highlight a number of recent developments that schol-
ars think have facilitated the occurrence of financial fraud, including: (1) the development
of new fundamental conflicts of interest and perverse incentive structures in the financial
industry; (2) an influx of unsophisticated, gullible participants in the financial market-
place; (3) the increasing complexity involved in financial market transactions as a result of
rapid technological, legal, and financial innovation and an ever-widening menu of financial
products; (4) an increase in the use of justified secrecy in the form of strict confidentiality
rules around banking and legal services and the use of off-balance-sheet constructions and
shell companies located in secrecy jurisdictions.
In recent decades prices of high-end "colored gemstones" (trade jargon for precious stones other than diamonds), like almost all "collectibles," have risen dramatically. Demand has been spreading to economic classes formerly excluded at the same time the supply of high-quality material from natural sources falls, leading to constant searches for as yet undiscovered sites, which may take on the character of gold-rushes. While no doubt criminogenic factors have always existed within the gemstone business, periods of rapid price rise mean stronger temptation for illegal activities. The potential list of economic offenses, civil, regulatory and criminal, associated with the gemstones business includes: illegal mining, environmental offenses, bribery, gun-running, smuggling, "terrorist" (i. e. insurgent) financing, commercial fraud, mining-share swindles, money laundering and, not least, simple theft along with recycling stolen goods. This paper represents an attempt to understand the criminogenic factors in light of the history and current structures of the business. It fits the gemstone trade into a commercial, geo-strategic and sociological matrix, the three often interacting in mutually reinforcing ways. It asks whether, given the incentives and opportunities for illicit activity, relying primarily on industry self-regulation makes sense. But it questions whether the international regulatory regime now in place for diamonds can be applied to the far more diffuse supply-side of the colored gemstone market. The paper is divided into three parts. The first, "Under the Rainbow," examined the shady side of gemstone mining in a geo-political context. The second "In the Eye of the Beholder" looked at fraud in cutting and polishing of rough gemstones into finished gems. The third, the current one, entitled "Hot Rocks, Cold Cash," focuses on illicit activity in the retail jewelry trade.
This breakthrough work provides an organizing structure for the history and current state of the field of victimology, and outlines the reasons compelling a separate focus on crime victims. Highly readable, Victimology explores the role of victimology in today's criminal justice system, examining the consequences of victimization and the various remedies now available for victims. In addition to adding the latest developments in victimology, the authors have included a new chapter on property victimization, and have enhanced and expanded the chapter on personal victimization. The text is supplemented by learning tools including chapter-by-chapter learning objectives, key terms, illustrative figures and tables, and a listing of related Internet sites.
In the U.S.–Mexico borderlands during the late nineteenth century, concern about the existence of mining fraud—be it stock manipulation, salting, or straight-up false advertising—was prevalent in the mining community. The belief that fraud was endemic in the region forced the small community of mining engineers working there to tailor their presentation of themselves as technical professionals in relation to these pervasive concerns about fraud. The ways in which mining engineers in this time and place addressed the problem of fraud illustrates how technical-knowledge claims are mediated through the local concerns of professional engineers.
Some geological fakes and frauds are carried out solely for financial gain (mining fraud), whereas others maybe have increasing aesthetic appeal (faked fossils) or academic advancement (fabricated data) as their motive. All types of geological fake or fraud can be ingenious and sophisticated, as demonstrated in this article. Fake gems, faked fossils and mining fraud are common examples where monetary profit is to blame: nonetheless these may impact both scientific theory and the reputation of geologists and Earth scientists. The substitution or fabrication of both physical and intellectual data also occurs for no direct financial gain, such as career advancement or establishment of belief (e.g. evolution vs. creationism). Knowledge of such fakes and frauds may assist in spotting undetected geological crimes: application of geoforensic techniques helps the scientific community to detect such activity, which ultimately undermines scientific integrity.
In recent decades prices of high-end "colored gemstones" (trade jargon for precious stones other than diamonds), like almost all "collectibles," have risen dramatically. Demand has been spreading to economic classes formerly excluded at the same time the supply of high-quality material from natural sources falls, leading to constant searches for as yet undiscovered sites, which may take on the character of gold-rushes. While no doubt criminogenic factors have always existed within the gemstone business, periods of rapid price rise mean stronger temptation for illegal activities. The potential list of economic offenses, civil, regulatory and criminal, associated with the gemstones business includes: illegal mining, environmental offenses, bribery, gun-running, smuggling, "terrorist"(i.e. insurgent) financing, commercial fraud, mining-share swindles, money laundering and, not least, simple theft along with recycling stolen goods. This paper represents an attempt to understand the criminogenic factors in light of the history and current structures of the business. It fits the gemstone trade into a commercial, geo-strategic and sociological matrix, the three often interacting in mutually reinforcing ways. It asks whether, given the incentives and opportunities for illicit activity, relying primarily on industry self-regulation makes sense. But it questions whether the international regulatory regime now in place for diamonds can be applied to the far more diffuse supply-side of the colored gemstone market. The paper is divided into three parts. The first, "Under the Rainbow," examined the shady side of gemstone mining in a geo-political context. The current one, the second in the series, entitled "In the Eye of the Beholder," looks at fraud in cutting and polishing of rough gemstones into finished gems. The third "Hot Rocks, Cold Cash" will focus on illicit activity in the retail jewelry trade.
Nearly all legitimate mining companies are in search of good mining prospects. This makes them susceptible to modern day con artists. Some of these scams involve venture-capital fraud. Some involve fraudulent mining proposals, and some involve unqualified individuals who are providing services by the precious metals industry. Before spending money on this type of proposal, have a due diligence investigation conducted on those making the proposal. If these individuals are legitimate, they should not oppose having inquiries into their background.