Consequences

RAPAPORT… After the recent police raids in Antwerp, part of an ongoing money-laundering investigation of Monstrey Worldwide Services, people in the industry are uncomfortable and continue to feel quite uncertain about the business. A diamond manufacturer commented, “The problem is not to have clients nor to find to whom this or that type of goods can be sold, but whether, if I entrust stones to company X or Y, will I be able to get them back rather than see them confiscated by the authorities?”

The bankers are even less thrilled than the diamond dealers as inventories have been taken into custody. Dilip Mehta of Rosy Blue confirmed: “Yes, it is making the whole sector nervous and more so the lenders, who normally have a claim on the client’s assets they hold as collateral.” Loet Kniphorst of ABN AMRO Bank explained that “It’s not so much the size [of the inventories seized] or the fact that inventories were taken away, rather that the companies [whose inventories were seized] can’t work anymore. Not to mention the impact on the trade. The authorities should act to release the goods that can be released as quickly as possible.”

International Impact

Mickey Weinstock of The Love Diamond Company is unruffled by the situation. “There is no reason to panic. Although the raids took place recently, the authorities had been investigating this case for two years.” The police closure of Monstrey’s Antwerp offices was in September 2005. “Although the police had to take necessary measures,” continued Weinstock, “their actions have become too public. This unfortunate business will allow emerging diamond centers — such as Dubai, Tel Aviv, Mumbai or Hong Kong — to benefit from Antwerp’s weakening position. Despite the recent unpleasantness [of the raids], we have to commend the government’s other recent efforts to help restore Antwerp’s competitiveness as a diamond center,” a reference to tax law changes on diamond valuations.

In a very significant indication of the impact of the raids, the price of real estate in the diamond districts in Dubai and in Ramat Gan rose immediately afterward. In Dubai, offices in the Almas Tower had been changing hands at the initial offering price minus 15 percent. But immediately following the raid, one office was sold for the offering price plus 14 percent. In Tel Aviv, in the days following the raid, it was confirmed that the sale prices of offices in Ramat Gan had gone up by $10,000 to $12,000 per square meter.

Antwerp Aftermath

The police seizure of inventories in raids comes at the same time the Antwerp diamond community is applauding government changes in stock valuations that gave them significant tax advantages. Kniphorst has mixed feelings. “In theory, we finance transactions, not stock. When there’s a penal case, we can’t comment on judges’ decisions. On the other hand, [these raids] seem to be like using a cannon to kill a fly. It might be better for Antwerp if the authorities would opt for other ways of securing guarantees” that the taxes due will be paid.

The big concern now is whether diamonds and diamond companies will be leaving Antwerp at an even faster pace. For some, the answer is yes. But for others who might like to leave, the question remains as to where they would go.

One suggestion to protect diamond inventories from seizure is to transfer ownership of diamond inventories, making the goods the property of some Dubai- or Tel Aviv-based mother companies, which would then “lend” those goods on consignment to their Antwerp-based subsidiaries.

The most successful diamantaires generally believe that it will be better for the industry to find legitimate and practical solutions for the current problems rather than leave the city. The old wisdom of “prevention is better than cure” seems to apply here. The underlying recommendation is that it would be better to learn to work within the existing legal and fiscal framework of the country.

Nobody denies that those who have been acting illegally should be punished. On February 7, a group of four Antwerp World Diamond Centre (AWDC) representatives — Freddy Hanard, Kaushik Mehta, Willy Rotti and the AWDC attorney — met with the Instruction Judge. Hanard and Mehta said they left the meeting “more reassured and confident for the future of Antwerp.” The general feedback is that the judge has taken notice and understands the concerns of the Antwerpians and that efforts will be made in order not to spoil the global reputation of Antwerp. Meanwhile, Roland Lorié of International Gemological Institute (IGI) confirmed that “January was our best month ever, with a 10 percent increase compared to last January.”

The Marketplace

• 5 carats of gem quality sold for $75,000 to $80,000 per carat, which some believe indicates speculation.
• The recent change to issuing weekly fancy prices list instead of monthly lists improves the market for selling better-quality stones.
• 90 points to 2 carat, VS2 to SI,
certificate stones are being sold at up to -3 percent.
• Too many 30 to 90 points, VS2-SI and G down are on the market so sales are slow.
• 10- to 25-point goods in cleanish VS/F-I are moving okay.
• 2.5 carats+ in D-F/VVS-VS in pear, heart, emerald and cushion are moving very well.