The Internal Revenue Service (IRS) is embarking on a USA PATRIOT ACT antimoney-laundering (AML) enforcement blitz, approaching diamond and jewelry companies in U.S. diamond trading centers and asking to see their AML programs, according to Cecilia Gardner, Esq., the president and chief executive officer (CEO) of the Jewelers Vigilance Committee (JVC). At a seminar at the New York Diamond Dealers Club (DDC) headquarters, Gardner explained that the IRS has so far chosen to grant noncompliant companies 60 days to comply, though it has the power to levy fines and conduct criminal prosecutions of violators.
Gardner estimated that only one-third of diamond industry businesses are following the requirements of the law. “There is going to come a point when they are going to have to make an example of someone,” she warned.
Gardner also said that the USA PATRIOT ACT requires that wholesale diamond and jewelry dealers with purchases and sales above $50,000, as well as certain retail jewelers, have a written AML program. In addition, companies may not engage in any business with individuals whose names appear on the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) list of Specially Designated Nationals (SDN).
The JVC offers a do-it-yourself AML kit, with discounts for DDC and JVC members. Companies may also hire the JVC to set up their AML programs. For more information, visit jvclegal.org or call 212.997.2002.
Zale May Sell Minority Stake
Zale Corporation is planning to sell a minority stake to the private equity firm Golden Gate Capital Corp., Bloomberg reported, citing two unnamed sources familiar with the negotiations. The jewelry retailer is seeking $100 million to $150 million for the stake, according to the report, which did not reveal what percentage of the stake is being sold. Zale is said to have selected Golden Gate’s offer over proposals from Centerbridge Capital Partners and TPG Capital. In February, Zale hired advisory firm Peter J. Solomon Company to help it identify areas where it can strengthen its financial position.
Meanwhile, Citibank notified Zale Canada, a subsidiary of Zale Corporation, that it will terminate its agreement to finance the jewelry retailer’s Canadian customers through private-label credit cards as of June 1, 2010. Zale representatives noted that the company had initiated discussions with other banks to replace the agreement when it expires. At press time, Citibank had offered Zale a deadline extension of April 30 to pay an outstanding $6 million in the U.S., which would allow the retailer to maintain its U.S. merchant services agreement with the bank.
Diamdel Sees Strong Demand
Diamdel, which sells De Beers goods to nonsightholders, reported that it sold all 138 lots of 2- to 15-carat rough diamonds presented during the first quarter on their first showing. Neil Ventura, Diamdel’s managing director, noted that the most intense competition was for 2-carat ranges. Jonathan Whitney, Diamdel’s head of sales, added that approximately 75 percent of all winning bids were placed by small- to medium-sized specialist manufacturers in Israel, Antwerp, India and the Far East.
BHP Billiton’s Production Slips
BHP Billiton reported that its rough diamond production fell by 19 percent to 770,000 carats during the quarter that ended on March 31, 2010. The company explained that output declined due to lower average grade recoveries at its Ekati mine in Canada. BHP Billiton owns 80 percent of the Ekati mine, the company’s only asset in the diamond sector.
De Beers Production Jumps
De Beers rough diamond production increased sixfold during the first quarter of 2010 as the company ramped up its output in light of improved market conditions. The diamond giant mined 7.012 million carats during the quarter that ended on March 31, 2010, compared with only 1.082 million in the same period of 2009, according to a report from Anglo American, the mining company that owns 45 percent of De Beers. Rough production still fell 40 percent below the 11.774 million carats that the company mined in the first quarter of 2008.
Gareth Penny, De Beers group managing director, told the Financial Times (FT) that the company is planning to keep its long-term diamond production well below its peak levels before the economic downturn. De Beers production will plateau at approximately 40 million carats in 2011, the newspaper reported.
Article from the Rapaport Magazine - May 2010. To subscribe click here.