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| Following the Murky Trail Left by Diamonds and Cash | Following the Murky Trail Left by Diamonds and Cash |
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| ANTWERP, Belgium — The bond between banker and diamond dealer has long been a cozy one in an industry shaped by an insular culture of carats and cash, secrets and intrigues, weddings and bar mitzvahs. But lately those old bonds are dissolving in the packed square mile of gem traders here that forms the hub of the global diamond industry. | ANTWERP, Belgium — The bond between banker and diamond dealer has long been a cozy one in an industry shaped by an insular culture of carats and cash, secrets and intrigues, weddings and bar mitzvahs. But lately those old bonds are dissolving in the packed square mile of gem traders here that forms the hub of the global diamond industry. |
| A flurry of legal cases, investigations and leaked bank documents have drawn attention to the opaque movement of diamond-backed money. The dealings between gem traders and bankers are coming under new scrutiny as European governments extend crackdowns on tax evasion and money laundering at a time of persistent economic trouble. | A flurry of legal cases, investigations and leaked bank documents have drawn attention to the opaque movement of diamond-backed money. The dealings between gem traders and bankers are coming under new scrutiny as European governments extend crackdowns on tax evasion and money laundering at a time of persistent economic trouble. |
| The complex ties between Antwerp’s bankers and its diamond merchants have investigators especially worried. Government authorities, they warn, are easily outpaced by an industry skilled at moving vast amounts of money through international transfers, backed by diamonds or offshore cash as collateral. | The complex ties between Antwerp’s bankers and its diamond merchants have investigators especially worried. Government authorities, they warn, are easily outpaced by an industry skilled at moving vast amounts of money through international transfers, backed by diamonds or offshore cash as collateral. |
| “Our investigative resources are like a Citroën economy car while our targets are flying and using jets,” said Jean-Claude Delepière, director for the past 20 years of the Belgium Financial Intelligence unit, an agency that sorts through reports of suspicious transactions for prosecutors. “We can’t be naïve, because the interests are enormous.” | “Our investigative resources are like a Citroën economy car while our targets are flying and using jets,” said Jean-Claude Delepière, director for the past 20 years of the Belgium Financial Intelligence unit, an agency that sorts through reports of suspicious transactions for prosecutors. “We can’t be naïve, because the interests are enormous.” |
| In late October, the Brussels prosecutor dispatched a small army of investigators in connection with an inquiry by Judge Michel Claise to stage dawn raids on the Antwerp homes of a number of diamond dealers in a tax evasion investigation focusing on the banking giant HSBC and its Swiss branch in Geneva. HSBC, which says it is cooperating with the Belgian authorities, was targeted because of information leaked to various governments by a former bank employee, Hervé Falciani, who has cast himself as an industry whistle-blower. | In late October, the Brussels prosecutor dispatched a small army of investigators in connection with an inquiry by Judge Michel Claise to stage dawn raids on the Antwerp homes of a number of diamond dealers in a tax evasion investigation focusing on the banking giant HSBC and its Swiss branch in Geneva. HSBC, which says it is cooperating with the Belgian authorities, was targeted because of information leaked to various governments by a former bank employee, Hervé Falciani, who has cast himself as an industry whistle-blower. |
| “What is important to understand is that it was the biggest diamond network ever,” Mr. Falciani said in an interview. “Belgium is in the middle of a very big investigation.” | “What is important to understand is that it was the biggest diamond network ever,” Mr. Falciani said in an interview. “Belgium is in the middle of a very big investigation.” |
| In November, the Flemish newspaper De Tijd reported that of almost 3,000 secret Swiss accounts at HSBC on a list provided by Mr. Falciani, 70 percent were held by diamond dealers. | In November, the Flemish newspaper De Tijd reported that of almost 3,000 secret Swiss accounts at HSBC on a list provided by Mr. Falciani, 70 percent were held by diamond dealers. |
| Those murky ties have drawn unwanted attention to Omega Diamonds, one of the largest importers of African diamonds, which faces fines of up to $6.3 billion in a customs fraud trial that started in November. Omega is accused of a scheme to avoid taxes from 2003 to 2008 by transacting deals for Congolese diamonds through dozens of offshore companies and banks in Dubai and Geneva, before allegedly transferring the money back to Belgium. | Those murky ties have drawn unwanted attention to Omega Diamonds, one of the largest importers of African diamonds, which faces fines of up to $6.3 billion in a customs fraud trial that started in November. Omega is accused of a scheme to avoid taxes from 2003 to 2008 by transacting deals for Congolese diamonds through dozens of offshore companies and banks in Dubai and Geneva, before allegedly transferring the money back to Belgium. |
| The most epic clash, however, pits the century-old diamond cutting and polishing merchants of New York, Lazare Kaplan International, against Antwerp Diamond Bank, an almost 80-year-old institution on the edge of the Antwerp rail station. | The most epic clash, however, pits the century-old diamond cutting and polishing merchants of New York, Lazare Kaplan International, against Antwerp Diamond Bank, an almost 80-year-old institution on the edge of the Antwerp rail station. |
| For more than two decades, the two companies were intertwined in business. But they became bitter enemies after Lazare accused the bank of helping a high-living Israeli dealer launder $135 million from the sales of Lazare’s rough diamonds through secret Swiss accounts, claiming he did not repay the New York company for its stones. | For more than two decades, the two companies were intertwined in business. But they became bitter enemies after Lazare accused the bank of helping a high-living Israeli dealer launder $135 million from the sales of Lazare’s rough diamonds through secret Swiss accounts, claiming he did not repay the New York company for its stones. |
| The bank denies the allegations, which Lazare made in criminal and civil lawsuits in Antwerp and New York, and accuses Lazare of using the lawsuits to avoid paying debts of almost $45 million it owes to the bank. | The bank denies the allegations, which Lazare made in criminal and civil lawsuits in Antwerp and New York, and accuses Lazare of using the lawsuits to avoid paying debts of almost $45 million it owes to the bank. |
| The hunt to recover the $135 million is now a full-time quest for Leon Tempelsman, 57, Lazare’s president. He has become a fixture in courtroom hearings alongside his father, Maurice, 84, chairman of the board and a native of Antwerp who was the last romantic companion of Jacqueline Kennedy Onassis. | The hunt to recover the $135 million is now a full-time quest for Leon Tempelsman, 57, Lazare’s president. He has become a fixture in courtroom hearings alongside his father, Maurice, 84, chairman of the board and a native of Antwerp who was the last romantic companion of Jacqueline Kennedy Onassis. |
| “Our objective is recovery and not revenge,” said the younger Mr. Tempelsman. “We trusted our banks and expected the banks and bankers to conduct themselves in conformity with the law. We were wrong.” | “Our objective is recovery and not revenge,” said the younger Mr. Tempelsman. “We trusted our banks and expected the banks and bankers to conduct themselves in conformity with the law. We were wrong.” |
| Even for someone like him, with a long family history in the diamond business, the case has become Exhibit A in exposing the underside of an industry increasingly capable of exploiting the easy movement of money across borders, and the extraordinarily complex financial transactions often used to disguise it. | Even for someone like him, with a long family history in the diamond business, the case has become Exhibit A in exposing the underside of an industry increasingly capable of exploiting the easy movement of money across borders, and the extraordinarily complex financial transactions often used to disguise it. |
| Because of the nature of the product, “the diamond trade lends itself to financial abuse,” Mr. Tempelsman said. | Because of the nature of the product, “the diamond trade lends itself to financial abuse,” Mr. Tempelsman said. |
| Diamonds, a highly portable commodity, are used as precious collateral for loans. But they can easily be employed to evade taxes or launder money by manipulating their worth on paper during international bank transfers. | Diamonds, a highly portable commodity, are used as precious collateral for loans. But they can easily be employed to evade taxes or launder money by manipulating their worth on paper during international bank transfers. |
| Increasingly, government investigators are looking to see whether bankers have helped facilitate such manipulations or have turned a blind eye to suspected bad practices, so long as the money flows through their institutions. | Increasingly, government investigators are looking to see whether bankers have helped facilitate such manipulations or have turned a blind eye to suspected bad practices, so long as the money flows through their institutions. |
| The Belgian government investigation of HSBC is looking into a system where bankers offered diamond dealers a variety of complex offers to set up accounts and offshore shell companies in places like Panama to transfer money secretly through Switzerland and then to Belgium. | The Belgian government investigation of HSBC is looking into a system where bankers offered diamond dealers a variety of complex offers to set up accounts and offshore shell companies in places like Panama to transfer money secretly through Switzerland and then to Belgium. |
| “What you have is that money is passing through accounts very quickly and banks are accepting such behavior,” Mr. Falciani, the former HSBC employee, said. “The main problem is that once the money is in the bank it becomes white,” he added, meaning that it is cleaned, or laundered. | “What you have is that money is passing through accounts very quickly and banks are accepting such behavior,” Mr. Falciani, the former HSBC employee, said. “The main problem is that once the money is in the bank it becomes white,” he added, meaning that it is cleaned, or laundered. |
| HSBC has called Mr. Falciani’s data inaccurate and out of date. “We take compliance with the law very seriously and seek to ensure that our services are not misused for illicit purposes, including tax evasion,” its head of media relations, David Brügger, said. “We require existing and new clients to fulfill their personal tax obligations.” | HSBC has called Mr. Falciani’s data inaccurate and out of date. “We take compliance with the law very seriously and seek to ensure that our services are not misused for illicit purposes, including tax evasion,” its head of media relations, David Brügger, said. “We require existing and new clients to fulfill their personal tax obligations.” |
| The Flemish newspaper De Tijd reported that of 369 offshore companies included in information about HSBC provided by Mr. Falciani, 193 were connected to diamond dealers. | The Flemish newspaper De Tijd reported that of 369 offshore companies included in information about HSBC provided by Mr. Falciani, 193 were connected to diamond dealers. |
| The newspaper also reported that a manager at the Antwerp Diamond Bank had surfaced on Mr. Falciani’s lists with $685,000 in a secret account in Geneva. The Antwerp bank has called the revelation a private matter, not connected to the bank. | The newspaper also reported that a manager at the Antwerp Diamond Bank had surfaced on Mr. Falciani’s lists with $685,000 in a secret account in Geneva. The Antwerp bank has called the revelation a private matter, not connected to the bank. |
| In its complaints against the Antwerp Diamond Bank, Lazare depicts the bankers as calculating participants in a criminal enterprise that helped one diamond dealer, Erez Daleyot, launder the profits from the sale of diamonds consigned by Lazare through HSBC to Belgium. | In its complaints against the Antwerp Diamond Bank, Lazare depicts the bankers as calculating participants in a criminal enterprise that helped one diamond dealer, Erez Daleyot, launder the profits from the sale of diamonds consigned by Lazare through HSBC to Belgium. |
| Mr. Daleyot, who holds dual Belgian and Israeli nationality, did not respond to messages seeking comment. He has not been charged with a crime, but he is mentioned repeatedly in Lazare’s criminal complaint. | Mr. Daleyot, who holds dual Belgian and Israeli nationality, did not respond to messages seeking comment. He has not been charged with a crime, but he is mentioned repeatedly in Lazare’s criminal complaint. |
| According to the lawsuit, Mr. Daleyot diverted the money to pay off enormous loans from the Antwerp Diamond Bank — for a $27 million yacht, a $49 million Bombardier jet, $70 million in Eastern European real estate and $28 million for artworks such as an Andy Warhol painting of a dollar sign. | According to the lawsuit, Mr. Daleyot diverted the money to pay off enormous loans from the Antwerp Diamond Bank — for a $27 million yacht, a $49 million Bombardier jet, $70 million in Eastern European real estate and $28 million for artworks such as an Andy Warhol painting of a dollar sign. |
| Lazare says it warned the Antwerp Diamond Bank of its suspicions about Mr. Dayelot in 2009, but that the warnings were ignored as money continued to flow to the bank from secret accounts at HSBC in Geneva to pay off bank loans instead of paying back Lazare for its stones. | Lazare says it warned the Antwerp Diamond Bank of its suspicions about Mr. Dayelot in 2009, but that the warnings were ignored as money continued to flow to the bank from secret accounts at HSBC in Geneva to pay off bank loans instead of paying back Lazare for its stones. |
| The parent company of Antwerp Diamond Bank, KBC, based in Belgium, declined to comment through its New York lawyer, Peter A. Bicks. “Given that the case is still pending before the courts, KBC does not want to frustrate the courts with out-of-court discussions and media statements,” the bank said in a statement. | The parent company of Antwerp Diamond Bank, KBC, based in Belgium, declined to comment through its New York lawyer, Peter A. Bicks. “Given that the case is still pending before the courts, KBC does not want to frustrate the courts with out-of-court discussions and media statements,” the bank said in a statement. |
| An Antwerp prosecutor, Paul Hannes, sided with the local banks, recommending that the criminal accusations not be pursued and calling Lazare’s lawsuit “provocative” and “defamatory.” | An Antwerp prosecutor, Paul Hannes, sided with the local banks, recommending that the criminal accusations not be pursued and calling Lazare’s lawsuit “provocative” and “defamatory.” |
| “It does not want to pay back the monies loaned,” Mr. Hannes wrote, referring to Lazare. | “It does not want to pay back the monies loaned,” Mr. Hannes wrote, referring to Lazare. |
| The company has already settled $60 million in claims for the diamonds with Lloyd’s of London, Swiss Re and the Dutch bank ABN-AMRO, which is the leading bank specializing in diamond finance. | |
| In October, a Belgian court ruled that Lazare’s complaints were beyond its jurisdiction and that only government prosecutors could investigate. | In October, a Belgian court ruled that Lazare’s complaints were beyond its jurisdiction and that only government prosecutors could investigate. |
| Investigators like Mr. Delepière say pursuing such allegations is challenging. In recent weeks, he has publicly spoken about the threat of money laundering and tax evasion. But when he appeared Wednesday before a finance committee of Belgian legislators, only three of 17 showed up to hear his alarms. | Investigators like Mr. Delepière say pursuing such allegations is challenging. In recent weeks, he has publicly spoken about the threat of money laundering and tax evasion. But when he appeared Wednesday before a finance committee of Belgian legislators, only three of 17 showed up to hear his alarms. |
| “We have to stay vigilant because we can win a battle,” he said, “but the war is not finished.” | “We have to stay vigilant because we can win a battle,” he said, “but the war is not finished.” |
This article has been revised to reflect the following correction: | |
| Correction: December 15, 2013 | |
An earlier version of this article misspelled the name of a Dutch bank that is the leading bank specializing in diamond finance. It is ABN-AMRO, not ABM-AMRO. |