Rapaport Magazine


By Sarah Manning
New Rules for Industry

Israeli diamond dealers are learning to operate with new rules on cash transactions introduced this summer, a dramatic change for an industry traditionally based on handshakes, personal relationships and cash deals. The rules require dealers to report any transactions for the sale of precious stones that involve cash payments in excess of $14,000 or that seem to them “suspicious.” In either case, they must inquire about the source of the money and file a report with the Ministry of Justice with details of the transaction.
   These new regulations were introduced by the Knesset Constitution Law and Justice Committee to bring the diamond industry into line with Israeli and international antimoney-laundering laws, which did not previously apply to precious stones. At the same time, tighter restrictions on cash transactions are being gradually introduced throughout the Israeli economy, based on suspicions that some individuals and businesses may be evading taxes by not reporting cash transactions to the tax authorities.
   The requirement for diamond traders to report “suspicious” transactions suggests an effort by authorities to scrutinize the precious stones trade more closely. Elaborating on what constitutes “suspicious,” the regulations require traders to report “any transaction that makes no economic sense — such as a seller offering a real ‘bargain’ on valuable stones — or deals with clients residing in certain countries, including Saudi Arabia, Jordan, Egypt and Morocco, trade with a suspected terrorist organization, or dealings with a client who seems ‘unreasonably concerned’ with his personal privacy.”

Tighter Regulation
   These new rules are part of a housecleaning exercise required before Israel can be accepted as a member of the Financial Action Task Force (FATF), a Paris-based intergovernmental body set up to combat money laundering and terrorist financing. Israel was invited to join the FATF in August 2014, and gaining acceptance is regarded as a prestigious goal, although it does necessitate tighter regulation of some sectors of the economy, including diamonds and gemstones, that had been loosely monitored until now.
   Moti Besser, managing director of the Israel Diamond Exchange (IDE), estimated that only 1 percent of diamond industry transactions today involve cash payments, but feels confident that members of the bourse will take the issue of money laundering and terrorist financing seriously. “We now need to educate our membership about what suspicious behaviors they should look out for and how to file the necessary reports for cash transactions. We are pleased that the Israeli government has worked with us to make special provisions and allow extra time for the diamond industry to adjust to these new regulations,” Besser said.

Holiday Season
   Overall, the industry is anticipating a successful holiday season around the world, based on good demand from manufacturers and retailers stocking up on high-end diamonds in September and October. The U.S. market is clearly the strongest market for preholiday diamond sales, while the market in China is currently performing better than was expected, although this may change with the political situation developing in Hong Kong.
   The positive holiday sentiment reflects business at the recent Hong Kong show. “The Hong Kong show was very good — 10 percent higher than expected — and the major international jewelry brands are buying confidently, particularly in the 2-carat to 7-carat range,” said Avraham Eshed, president of Eshed Diam Ltd.
   “Particularly in light of recent falls in the stock exchanges around the world, we are seeing increasing demand for diamonds,” Eshed added. “Traditionally, when there is uncertainty in the stock markets, investors move their money into gemstones, and this could strengthen an already buoyant market.”
   Ory Vogel, co-owner of Diamond Boutique Ltd., manufacturer of fancy shape diamonds, also reported encouraging upward trends in the market. “We are seeing an increase in demand, bringing us back to the normal level of trading after 2013’s quieter market.”
   However, Vogel said that there is very little consistency in the market, making it increasingly difficult to track clear trends in demand. “Usually, we can see where the market is heading, but this year different customers are buying different goods, and individual customers are changing their demands from month to month. This has enabled us to sell a wider range of stones, but it does mean that future manufacturing and restocking will be more difficult.”

Hong Kong Concerns
   Avraham Fluk, chairman of Yoshfe Diamonds International (YDI), described the Hong Kong fair as very productive. “I hope that the protests that erupted in Hong Kong soon after the fair will be short-lived, as their continuation could impact jewelry sales in the local market, as well as disrupt incoming tourism,” he said. “These two factors could affect not only Hong Kong but all Far Eastern markets.”
   Overall, Fluk was positive about the outlook, noting that “With our worldwide presence, we are enjoying strong demand in all markets. We are confident that 2014 will prove to be a good year overall.”

Article from the Rapaport Magazine - November 2014. To subscribe click here.

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