Rapaport Magazine


Allegations of Fraud, Tax Evasion

By Marc Goldstein
Illegal diamond smuggling, money laundering and tax evasion are once again in the news headlines in Antwerp. The least that can be said is that diamonds seems to be a never-ending source of sensational news stories in this diamond trading center. 
   On November 17, 2012, the daily Flemish newspaper De Tijd published an article with the headline “Billion Dollar Fraud in the Diamond Sector.” The story centered on allegations by Antwerp authorities that a
Belgian-Lebanese diamantaire headed a ring that illegally imported
$1.7 billion of diamonds to Antwerp between 2003 and 2009. The
report further suggested that the investigation proved how imperfect the
Kimberley Process (KP) was in controlling illegal diamond trade.

Clandestine Business
   The story began with a state security report dating back to February 13, 2008, alleging that a share of the profit from a clandestine diamond business was flowing to the terrorist group Hezbollah. The report identified a 45-year-old Lebanese native, a naturalized Belgian citizen, as head of the ring. A member of the ring reportedly was apprehended in possession of illegal diamonds and a big bundle of cash in Zimbabwe. The ring, said authorities, was part of a huge, worldwide fraud system, with reported links to Lebanon, the United States, the United Arab Emirates (UAE), Geneva and Congo, that smuggled diamonds to Antwerp.
   More dramatic is the fact that, according to De Tijd, the investigation file contains evidence that the fraud involved mixing illegal stones originating from conflict zones with clean stones during stops in such places such as the U.S., Switzerland or the UAE. There also were reports that the ring leader relied on an old schoolmate of his in Geneva to hide the origin of
the suspected stones, mix them in other parcels and then reschedule their shipment under new mixed-origin KP certificates.

Tax Evasion
   Once the diamonds reached Antwerp, it was reported, the profit generated by the sales of the stones was laundered using fictitious invoices. The laundering allegedly involved the transfer of $855 million from Antwerp to some 175 bank accounts in Lebanon. The smuggling and laundering system, if proven, would mean a huge amount of tax revenue also was lost to Antwerp if, for example, the stones traveled between Switzerland and the UAE. In that case, Antwerp would collect tax only when the stones were sold to the Swiss, not when those stones were in turn sold by the Swiss to the UAE, presumably at a much higher price. The revenues from the smuggling operation were reportedly invested in real estate in Beirut, where smugglers would have immunity from prosecution on the Antwerp fraud charges.

Fact or Fiction?
   “The inquiry is about a diamond company that is sought by the Belgian justice for tax evasion. That’s all there is,” said Caroline De Wolf, spokesperson of the Antwerp World Diamond Centre (AWDC). “All alleged breaches in the Kimberley Process Certification Scheme (KPCS) are fictitious. The suggestion that it’s possible to mix clean stones with illegal, uncertified stones in any given KP participating country and then
re-export them unnoticed — and in large quantities, furthermore — is unrealistic. Every three months, the KP import and export statistics of all KP participating countries are closely checked by KP authorities in each country and any discrepancy would have been duly spotted. Any large discrepancy between imports and exports of certified shipments cannot remain unnoticed for long.”

   The AWDC reportedly considers the recent investigation simply a
matter of tax evasion, especially since there’s a considerable economic discrepancy between countries like Dubai or Switzerland — which apply mostly a zero tax policy on profits — and places like Antwerp, where the tax rate theoretically can go as high as 34 percent, although companies usually manage to reduce the rate they pay. “It’s been several years now that we’ve been asking to have an equal, level playing field. But those decisions are to be made by the countries themselves,” concluded De Wolf.

   It was rumored that the accused company and its management had been banned from the trade and the bourses, but Ernie Blom, president of the World Federation of Diamond Bourses (WFDB), said, “I’m not aware of any such ban at this point in time. However, we fully support any move that is undertaken by authorities anywhere in the world to fight against any unlawful behavior.”
   Stephanie Chomé, spokesperson of the Antwerp prosecution office, explained that “We’re going to hand over the investigation file to the Council Chamber and it’s up to them to decide whether or not to take the suspects before the Correctional Court. If there was any leak to De Tijd, or to any reporter, it certainly didn’t come from us.”
   Another story on the rumor mill was the suggestion that the smuggling allegations were timed by critics of the KP to try to embarrass the KP in advance of its Plenary Session to be held in Washington, D.C., at the end of November.

Article from the Rapaport Magazine - December 2012. To subscribe click here.

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