black-market banking case -  Ilan Assayag - 09022012
A suspect in the black-market banking case reaches the court. Photo by Ilan Assayag
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The Israeli diamond industry has seen a 70% drop in business in the past month, and the entire sector has been thrown into turmoil due to a police investigation into an illegal bank that operated near the Ramat Gan Diamond Exchange, said an industry source.

A number of diamond traders' bank accounts have been frozen and this has caused a chain reaction of bounced checks throughout the sector, said the senior figure in the diamond industry. A number of diamond firms have gone bankrupt in recent weeks, leaving $30 million in unpaid debts.

About a month ago, the police raided a black-market bank caught operating in the area of the Ramat Gan Diamond Exchange. The National Fraud Squad confiscated large sums of money when it found out about the illegal bank. Police suspect the bank was used for evading taxes and money laundering.

One company, Imber Diamonds, announced it was on the verge of bankruptcy and industry sources estimated its debts at about $20 million, though some of these debts are guaranteed by Israel Discount Bank. Two Indian diamond companies have also declared bankruptcy and left Israel. Their debts amounted to some $10 million. Another diamond company from Bnei Brak also declared bankruptcy with an estimated $2 million in debts.

Most deals have been frozen over the past few weeks because the parties involved are very wary of one another, said the industry source. The few deals that have taken place have been done in cash, not on credit.

Even the import of raw diamonds has been halted and the entire industry is barely functioning, he said. Most foreign diamond dealers are avoiding coming to Israel, he added, and many fear they may be arrested or have their diamonds confiscated if they do enter the country.

"The sector has collapsed," said diamond dealer Moti Ganz, the former president of the Diamond Manufacturers Association. "The investigation has ruined the industry. We are in support of [the police] investigating whoever they need to, but they should give the investigation priority and finish it, since the industry is not functioning. The import of raw material has collapsed, and if there is no raw material now then in another three or four months there will also not be any exports of polished diamonds," said Ganz.

Many diamond dealers are worried that the Tax Authority will start its own investigation in the wake of the police investigation, said Ganz. Dealers from Korea and Hong Kong do not want to send diamonds to Israel because of the police investigation, he said. He said that in investigations in Belgium the police confiscated diamonds and that dealers here are worried it could happen in Israel too.

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"They are waiting for the wave to pass in the diamond industry, and at the same time the diamond exchange has accelerated its own internal examinations among diamond dealers," said the senior industry source.

The exchange is carefully examining who enters and is making credit terms more strict, based on the rules of the new Basel III capital adequacy reforms. Investigators have been entering the diamond exchange less frequently in recent days and industry sources hope this is a sign that the investigation is nearing completion.