Part 17

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.

At last Deppe strayed from his normal routine. After bringing his plane into Idlewild International Airport on September 27 he left the airport and headed for the Henry Hudson Hotel, followed as usual by the Customs agents. When he arrived at the hotel he did not go directly to his room as he customarily did. He slipped into a lobby telephone booth and made a brief call. Then he went to his room to change into civilian dress.

A short time later, Deppe left the hotel. He walked to the subway and took a train to Columbus Circle. He changed trains and rode into the Bronx, where he left the subway and strolled to an apartment building on Bennett Avenue. He was reaching for the pushbutton at the door of Apartment 1A when the agents closed in on him.