Rough Cuts

David Rafaelov was convicted of smuggling huge amounts of uncut diamonds from Russia to Israel, and died in a Russian prison on the day he was issued a pardon by President Putin. His widow is now suing diamond tycoon Dan Gertler for NIS 100 million, claiming Gertler is responsible for her husband's imprisonment. Gertler's associates say that Rafaelov is blackmailing him.

"Shalom, Dan and Roni. It's David, wishing you well, and also hoping you haven't forgotten me. I'm still alive. I want to tell you that it is because of you and your greed that I got eight years. The truth is that Mr. Roni with his greed ought to be sitting here in my place. If I don't get out and you, Dan and Roni, don't help me, I'll try to get Interpol interested in you ... Dan, I traveled and did all your work, I looked after your money as if it were my own. And you don't even think of helping because you feel bad about your money. When I tell, you two will be in plenty of trouble ..." (David Rafaelov writes to Dan Gertler from prison)

On March 9, 2004, on the day that word arrived he'd received a pardon from Russian President Vladimir Putin, diamond trader David Rafaelov of Ramle died in a Russian hospital. The excerpts quoted here are from a letter Rafaelov sent from a Moscow prison to diamond tycoon Dan Gertler in 2000. According to his family, Rafaelov served for many years as Gertler's man in Moscow and as his emissary in diamond deals. In 2001 he was arrested by the Russian authorities and interrogated over a period of months on suspicion of smuggling raw diamonds out of Russia while committing acts of fraud. In 2002 he was convicted and sentenced to eight years. In their verdict, the Russian judges wrote that Rafaelov "joined the participants in a criminal conspiracy with the objective of running an illegal ring of natural gemstones -(diamonds) within Russia, smuggling them, causing damage to the assets of the Russian State-Federation and to the Alrosa diamond company, and of stealing a foreign asset for the purpose of obtaining illegal profits."

In 2004, thanks to the connections of Lev Leviev, another diamond mogul and Gertler's business rival, Putin agreed to pardon Rafaelov. But, as noted, Rafaelov had the misfortune to die that very same day.

Now, two years after his death, Rafaelov's widow, Rita, is bracing for battle against Gertler, the young diamond tycoon whose political connections are nothing to sneeze at, either. About a month ago, she flew to Moscow and gave detailed testimony to investigators from the Russian financial police. In her statements to the police, she claimed her husband had worked in Moscow as Dan Gertler's right-hand man. Meanwhile, Rita Rafaelov also filed a civil suit in Israel seeking damages of NIS 100 million from Gertler.

When Rafaelov met Gertler

Born in Tajikistan in 1952, David Rafaelov ran various businesses there until he immigrated to Israel with his family in 1991 and settled in Ramle. He and Gertler met in the mid-1990s, in the diamond business: The Yakutia province of Russia is home to diamond mines famed for the quality of their stones. For many years, the Soviet Union, and later the Russian government, mined the diamonds in this region and sold them uncut via the De Beers diamond syndicate.

In the early 1990s, the Russian government sought to promote the manufacture and polishing of diamonds within Russia to strengthen the country's economy, and therefore outlawed the export of rough diamonds. A diamond dealer who wished to purchase rough diamonds in Russia had to commit to manufacture, process and polish all or part of the diamonds within the country, in accordance with the conditions of his license. The new legislation defined the export of rough diamonds in violation of the conditions of one's license as criminal smuggling.

Dan Gertler is the scion of a well-known, highly reputable family that has been in the diamond business for years and accumulated many assets. Three years ago, his grandfather, Moshe Schnitzer (Israel's "Mr. Diamonds"), was awarded the Israel Prize for lifetime achievement. Dan's father, Asher Gertler, and his uncle, Shmuel Schnitzer, run the family business. His mother, Hannah Gertler, owns the 99FM radio station. Instead of sliding easily into the family business, Dan Gertler chose to take a harder route. While his family deals in cut diamonds, he preferred to deal in rough diamonds.

In recent years he has been doing business worldwide through his firm DGI (Dan Gertler Israel) Group of Companies, which operates from the 42nd floor of the Maccabi Building in the Ramat Gan Diamond Exchange. He owns a diamond mine, a large diamond-polishing firm, and a franchise to export diamonds from Congo (formerly Zaire). Recently he purchased another mine in Congo for mining other raw materials. He is considered close to Congo President Joseph Kabila.

About 10 years ago, Dan Gertler became more religiously observant and, along with his businesses, devotes most of his energies to matters of faith. He donates to religious institutions and occasionally makes a pilgrimage to the rabbi he admires, David Abu-Hatzeira of Nahariya, to receive a blessing from him and to consult with him. Gertler is close to politicians, especially Avigdor Lieberman, head of the right-wing Yisrael Beiteinu party. In the business world, he is very close to diamond dealer Benny Steinmetz, a good friend of Prime Minister Ehud Olmert. Recently Steinmetz and Gertler launched a copper mine company called Nikanor on the London stock exchange. The company raised $400 million on a market cap of $1.5 billion.

Supporting the family

"Dan, I've lost everything, money, car. Now I told my wife to sell the house because she got entangled in debts. She already owes $80,000. But the worst thing about my situation is that I don't see my children and grandchildren. I know that you are helping my wife with money. I thank you Dan, with God's help I'll get out of this nightmare and leave everything behind me. That's why I'm asking you as my brother to deposit $1.5 million into one account so that I'll be secure and will be able to talk to the federal defense ministry. Of course I'll bargain with them and won't give them all the money." (David Rafaelov writing to Dan Gertler)

In the suit filed by Rita Rafaelov, she claims not only her husband was tempted by the option of purchasing cheap rough diamonds in Russia. "Roni Cohen, Gertler's assistant, introduced Gertler to David. David saw Gertler was from a respectable family and thought that he was a serious person who would work with him properly. That was in about 1996-97," Rita Rafaelov says.

"David used to travel to Yakutia, where he arranged agreements for the purchase of raw diamonds. Once he went with Dan Gertler, as I recall, and later Gertler's men used to join him. My husband would translate the discussions for them. He understood the Russian mentality and knew how to make contacts for buying diamonds.

"Afterward my husband would travel to Russia every two weeks and close the agreements for the purchase of rough diamonds. Gertler's people would join to choose the diamonds. They were supposed to send those diamonds to Birobidjan to a polishing factory, but they didn't send them all for polishing, but would send them to Israel uncut with papers and certificates to the effect that the diamonds had been cut."

In her testimony to the economic police in Russia, Rafaelov claimed that for the purpose of smuggling rough diamonds from Russia and bypassing the law requiring that they be cut and polished in Russia, Gertler and Roni Cohen created "a complex fraud network," as she claims, "which presented the authorities in Russia with false confirmation that the diamonds had been cut in Russia, but in fact, as mentioned, the stones were smuggled as rough diamonds."

On what basis do you claim Gertler was the one who gave the instructions to your husband?

"With my own ears I heard phone conversations between Gertler and my husband, in which Gertler gave him instructions: how to purchase the diamonds, where, where to deposit the money, etc. All my husband's activities were carried out according to Gertler's instructions."

Were there other methods of smuggling diamonds out of Russia?

"I asked David once how they transferred the rough diamonds to Israel. He said there are certain people who swallow the diamonds and put them into their body in various ways."

In other words, you admit your husband broke the law?

"David always said: 'It's impossible to work this way,' but he claimed he had to support the family. He specifically said he was doing something bad under Gertler's orders."

The suit filed by Rafaelov tells a somewhat different version: "In everything connected to the activity of the company and the diamond smuggling described above," it says, "the deceased operated as an employee of the company and as an innocent emissary of the defendants, who at all times were aware of the illegal nature of the activity, but led the deceased to believe there was nothing wrong with their activity in Russia, and presented things falsely to him."

The Rafaelov family made good money from this shady business. The couple purchased a spacious home in Ramle and even paid for the construction of a synagogue. The indictment against Rafaelov in Russia claims he organized the negotiations with the Alrosa diamond concern belonging to the Russian government, hired Russian workers and smuggled shipments of diamonds worth millions of dollars through the customs service of the Russian Federation, "with forged documents."

The verdict mentions the testimony of Yasek Fishkin, an Israeli citizen who worked for several months in early 1998 as the CEO of Eldar Zion International. In his testimony, Fishkin said he knew Rafaelov, Dan Gertler and Roni Cohen, who came to Russia looking for rough diamonds, partners and processing locations. Rafaelov and another person dealt with organizing the work of the company, according to Fishkin. He believed Gertler and his assistant were funding it.

The verdict states that Rafaelov used an Israeli company - whose shares he had bought - as a brokerage firm. The Israeli company had the right to purchase the diamonds and to polish them in the historical Jewish autonomic state of Birobidjan. But according to the verdict, these diamonds were sent instead to private apartments and hidden storage places in Moscow, and from there smuggled to Israel, to a company owned by Roni Cohen. According to the civil suit that Rafaelov has now filed, Gertler himself was the real controlling owner.

Code name: Katanchik

"Dan, I am asking you once again to help me. I know you're a good-hearted person. If you don't want to do what I'm asking, give me an answer. I'll wait 10 days. If you refuse, I will defend myself and will negotiate with the federal defense ministry to save myself. Dan, this is not an ultimatum. It's my last chance to reduce my jail time. Adlev told them everything and got five years. I didn't tell them anything and got eight years." (David Rafaelov writing to Dan Gertler)

In January 2001, when Rafaelov arrived in Russia for one of his routine visits, he was arrested on suspicion of diamond smuggling. "Before that they arrested another Russian manager who worked with them," said his widow Rita this week. "For a certain period, he didn't travel to Moscow. Before my daughter's wedding, he went to Moscow because he said he had to buy diamonds. He was under pressure."

After the arrest, Rafaelov went to visit her husband in jail. "When he was in prison, I asked him, David, why did you go, you knew it was dangerous there! He told me: They, David Gertler and Roni Cohen, sent me. I can still shout out that sentence ... He gave me a letter in which he wrote to me, Ask for money from Dan Gertler. He didn't write his [Gertler's] name, but used a code name: Katanchik. On the way home on the plane Gertler kept calling me and asking: 'What did David say? What's going on there?'

"No matter where I was, he would call all the time. The second time I went to Moscow with an attorney from Israel he didn't stop calling to ask what David was doing, what I was doing. David remained silent during the investigation because he believed Gertler would get him out of jail."

Rafaelov claims that before her trip to Moscow she used to report to Gertler's luxurious office in the Diamond Exchange in Ramat Gan and receive envelopes full of dollars. "One time, to verify that I was really going to Moscow, he sent the envelope with a messenger with the money. He would give all the money in cash. He gave me $100,000 in all," she says.

Did you ever accuse him of being responsible for the fact that you husband was in jail?

"I would search the house for papers and documents where his name was mentioned. I showed him these papers and told him that if he didn't help me, I would make a fuss. In response he would give me money. I would give him every piece of paper where his name was mentioned. He gave the money out of fear. He would instruct me not to mention his name specifically in conversations with David, but to call him by the code name Katanchik."

Rafaelov claims that on another occasion Gertler made a special request of her: "He asked for a letter from David stating that he, that is, Gertler, was not to blame for David's imprisonment. David refused to write that letter. Others also asked David to write such a letter and he refused."

Maybe Gertler was actually a client of your husband's and your husband was the one who perpetrated the acts of fraud on his own?

"My husband made a living from a company belonging to Roni Cohen and controlled de facto by Gertler. I have his salary slips. Had it not been his company, he would not have met with my husband."

In the initial interrogations by the Russian police, Rafaelov and her husband denied knowing Gertler. Now, Rita Rafaelov said she has returned to Moscow to ask the police to open a new investigation, and has provided them with new information - everything she knows about Gertler's involvement.

In her lawsuit, Rafaelov says a police investigator told her that it would be possible to release her husband for a ransom. According to the prosecution, she brought this information to Gertler and Cohen, but they continued to scatter false promises that the matter would be arranged quickly and the payment was not made.

"Once," continues Rafaelov, "before I went to Moscow he informed me that David would be released the next day. I said to him 'Why should I go?' He said to me, 'Go, you're already on the way.' He kept promising me that he was working to release David. He didn't explain to me whom he was speaking with and how exactly he was working to release him. He kept telling me all the time, 'Good news.'"

During that same period Rita Rafaelov's daughter fell ill and was hospitalized, and Gertler, according to Rafaelov, was in contact with her about that (according to Gertler's attorney Dr. Yaakov Weinroth, his client helped the mother and daughter to pay for the operation).

In March 2002, Rafaelov was sentenced to eight years' imprisonment. Rafaelov denied the allegations against him. In the verdict his testimony in the interrogations is summed up as follows: "He did not incriminate himself, explained that he was not a member of the organized group, did not cause damage to Alrosa, did not carry out illegal transactions to ship and store diamonds, did not commit acts of fraud and did not try to smuggle diamonds by using forged documents." After this declaration, all the incriminating evidence against him is spelled out.

His wife stayed in Moscow during the trial. "I lived in a small house belonging to children of friends of mine, in a crowded two-room apartment with another five people and a paralyzed grandmother. I didn't have money to go to a hotel or another place. I lived in very difficult conditions. Gertler would call me and ask about David, but I made sure not to mention Gertler by name in conversations with David, but only using the nickname that we had agreed on. Had David not heard Gertler was helping me, he would have spoken about him during the interrogations. He took the sentence very hard. He shouted that he was alone and they weren't helping him."

After your husband's arrest, did you meet with Gertler?

"Yes. He once again said he had to help my husband, he continued to give me money. But after the verdict I received less from him, only for trips and purchases for David, $3,000 each time."

Leviev gets involved

"Shalom, my dear brother Dan, I am informing you that I am fine. I am lacking only freedom, and without freedom in this world, there is nothing good. I rely only on God and on you, Dan. I ask you to help my family if you think you are my brother. Rita's financial situation is very bad. She has debts. People are asking that you help her. I am sitting in prison because of you and I don't have to repeat that. Dan, I am treating you with respect as in the past. Just don't forget my family." (David Rafaelov writes to Dan Gertler)

After his arrest, due to the very difficult conditions in the Russian penal system, Rafaelov's health suffered in prison. "He had diabetes, he lost weight. He looked old," says Rita Rafaelov. "He had nothing to eat. He asked me for food. I would travel twice a month to visit him. In December 2003 he suffered a heart attack, and was taken by ambulance to a hospital. They gave me 15 minutes to see if he was alive."

Rafaelov's family tried to have his sentence reduced. In her efforts to have her husband released, Rita Rafaelov turned to one of Gertler's business rivals, Lev Leviev. Leviev and Gertler fought fiercely over control of the diamond market in Russia, and even more so in Africa. Recently Gertler succeeded in cutting into Leviev's diamond exports from Angola and Russia. "I went to him with everyone in my neighborhood. He began to work at the consulate and in various places to help us. Meanwhile they returned David to prison, claiming he was suffering from pneumonia rather than a heart attack. Afterward I was informed that he had been hospitalized again."

With help from Leviev, Rafaelov turned to Russian President Vladimir Putin in the hope that he would get her husband out of jail. Early in 2004 Rafaelov was hospitalized in the prison hospital for three months. He died there on March 9, 2004, on the day a pardon from Putin and a release order arrived at the prison.

Rafaelov says she received the information about the pardon by phone. "That is thanks to Leviev. His secretary was the one who informed me about the pardon my husband had received from Putin," she says. "On March 5 they allowed me to visit him in the hospital. The doctors asked me not to tell him anything dramatic so he wouldn't get excited. I said to him: 'David, hold on, a few more signatures and you're out,' but I didn't tell him the news. I didn't think that was the last time I would see him. I went to the justice ministry to bring the pardon form and on the way they informed me he had died."

Rafaelov says that after the shiva (the seven-day mourning period), she met with Gertler. "He called me and told me to come to his office. I went and he asked me for a full report on what had happened. I reported to him, and told him that I also had heavy debts and asked him to help me. He agreed. But since that day he has given me a few thousand dollars for the gravestone and the grave and that's it ... Since then, I've called several times but he ignored me, didn't answer and didn't return my calls."

How did Leviev help you?

"He sent me to lawyers in Russia who helped David."

Did you pay them?

"No. There was no need to pay his lawyers. They looked for ways to help bring about David's release. Leviev really helped me and he told me that Gertler had to help me too. Dan questioned me about the meetings with Leviev. He preferred not to have me speak to him. He kept saying: 'Only I help you. Don't forget who helps you!' And I answered him: 'You help me with money but my husband is in prison because of you.'"

I used blackmail?

"Shalom, Dan. I'm sorry I wrote you that letter. You have to realize that I'm not sitting in a hotel and I wrote out of nerves. I will never sell you out, and I haven't sold out anyone." (Rafaelov writing to Gertler)

During the past year, Rafaelov, through attorney Gilad Harish, has been conducting negotiations with Gertler's representatives over compensation. The latest agreement stood at $2 million. Gertler's representatives returned to attorney Harish with a negative reply, and Rafaelov decided to go to battle.

"We sent a personal letter to Gertler," says Harish, "and immediately after that his attorney Avi Lavi met with me. He mentioned a sum that I found unacceptable. Since then I have been conducting negotiations during many meetings, in which we reached exact sums. They promised me that he would sign for a sum of $2 million in compensation. They played for time, I understood they were deceiving me. I think Gertler had to play for time and that's why he behaved that way. They were futile negotiations." In the lawsuit Rafaelov is demanding NIS 100 million in compensation for the suffering that was caused to the family.

Gertler's associates maintain that Leviev is using Rafaelov to advance his interests regarding the rivalry between the two.

Is Leviev funding you?

Attorney Harish: "Absolutely not."

Who is paying for the lawsuit and for your services?

"We agreed I would receive 20 percent of the compensation she gets from Gertler."

Leviev's associates confirm that they worked to get a pardon for David Rafaelov. They say that they sent Rita Rafaelov to Rabbi Berel Lazar, the chief rabbi of Moscow, who in the end obtained the pardon. Leviev's people contemptuously denied that he is the one behind Rafaelov's lawsuit.

Gertler's associates confirm that Rafaelov sold Gertler diamonds via Roni Cohen, but deny his involvement in defrauding the Russian authorities. They confirm that he agreed to pay Rita Rafaelov money over a long period, as a donation to a woman in distress, and then became involved in protracted negotiations with her about compensation, but they dismiss that as "foolishness."

Gertler's associates also emphasize that Rita Rafaelov and her attorney went to Russia to file complaints about suspicions of fraud only after their request for millions of shekels had been rejected. They say the mediation discussions between the two sides were recorded, and that these discussions clearly demonstrate that an attempt was made to blackmail Gertler. To date Gertler has not filed a complaint of blackmail with the police.

Is it possible that Gertler actually did you a favor? That he was a client of your husband, who had gotten into trouble, and that Gertler tried to help you get out of it?

Rita Rafaelov: "Gertler was in contact with me all the time. Why did he request that I ask my husband to write him a letter to the effect that he was not involved in the affair?"

Perhaps you and your husband simply blackmailed him, and are continuing to do so?

"I blackmailed him? He used to sit on my head 24 hours a day, arrange lawyers for me, pay for lawyers for David, and ask me all the time not to open my mouth and not to mention his name in front of the investigators. I hope that as a result of my request to the economic police in Russia, an international arrest warrant will be issued against him."

Cynical conclusions The response of Dan Gertler's attorney, Dr. Yaakov Weinroth

"This is a groundless lawsuit that was filed to prevent an initial public offering on the London stock exchange, in which Mr. Gertler is one of the shareholders. The request to the investigative authorities in Russia also testifies to the fact that the only purpose is to apply pressure and threats against Mr. Gertler. Anyone perusing the lawsuit will see that it is nothing but a mixture of irrelevant hearsay, which will be disproved when the time comes with positive and unequivocal evidence.

"After Mr. Rafaelov was arrested in Russia, Mr. Gertler did in fact help the family, and provided monetary assistance. Mr. Gertler did so and will continue to do so in the future, in cases of humanitarian distress suffered by members of the Diamond Exchange or others. Only someone who is unfamiliar with Mr. Gertler's behavior on this matter could reach cynical conclusions from his humanitarian support, as has been done in this case.

"Mr. Gertler provided support for the family out of charitable motives, and when asked by the family for monetary assistance for medical treatments required by the daughter of the family, he gave it generously. After the death of the deceased, Mr. Gertler received requests involving blackmail accompanied by threats. Mr. Gertler refused to lend a hand to such an indecent act.

"As opposed to the groundless accusations that appear in the lawsuit, the detailed and reasoned verdict given in Russia indicates that after examining the extensive evidence on the subject gathered by the authorities in Russia, Mr. Gertler had no connection to the crimes ostensibly committed there. On the other hand, the verdict spells out and clarifies the status of each person involved in the affair. Mr. Gertler was not prevented from traveling to Russia and the Russian authorities have no complaint whatsoever against him.

"There is no truth to the claim that Mr. Gertler asked Mrs. Rafaelov and her husband not to mention his name to the investigators from the Russian police. The deceased told the Russian police all the facts. Had Mr. Gertler been involved criminally in the affair in any way, even the silence of the deceased would not have helped him.

"As opposed to her claim, Mrs. Rafaelov did not present documents in which Mr. Gertler's name was mentioned in order to accelerate his monetary payments. There are not, nor were there, any such documents and she had no need to do so in light of Mr. Gertler's willingness to help the deceased in his distress. Rafaelov did not travel to Russia as an emissary of Mr. Gertler. On the contrary, he traveled there despite clear warnings that the authorities in Russia were investigating him and the partners named in the verdict.

"It is true that in the letter received by Mr. Gertler, the deceased, in his distress, tried to point an accusing finger at Mr. Gertler, but Mr. Gertler has a specific letter in which the deceased apologizes for doing so and blames his behavior on the conditions of his arrest and on his distress.

"And finally: Mr. Gertler regrets that the family has chosen to punish him for his good deeds, to serve as a tool in the hands of interested parties who want to harm him. No glory will come from this. Despite everything, and when all is said and done, Mr. Gertler will continue to help people in distress, while at the same time determinedly refusing anyone who tries to achieve something by unacceptable means."

Roni Cohen replies: "Mr. Gertler was not the controlling owner or a shareholder in the company I ran. I never sent Rafaelov to Russia and I never instructed him to smuggle diamonds. That is a false claim that constitutes slander. I never received a letter from Rafaelov from prison and I never saw such a letter. I am doubtful of the very existence of the letters. It is possible that they were written by Rafaelov in prison when he was in distress. I was never a party to a trial against Rafaelov. I will submit my response to Rafaelov's lawsuit in the writ of defense."