Leviev Case A Further Blow To Diamond Industry's Reputation

For the diamond industry in general – and the heads of the bourses and the trade organizations in particular – the news this week regarding six of diamond tycoon Lev Leviev's relatives and employees being arrested in connection with diamond smuggling allegations is exactly the kind of report that keeps them up at night.

The industry endlessly discusses the importance of showing that it is clean and operating transparently which, in the vast majority of cases, it is. But the idea that diamonds are being moved around undeclared and sold without passing through the correct channels and without customs duties and other taxes being paid is, unfortunately, one that appears to be fairly widely held by the general public.

In a very unscientific survey, my neighbors, family and friends seemed completely unsurprised, as if to say, that's what we assumed the business was all about. My responses were greeted with knowing smiles as if to say: nice try but we're not buying it.

Needless to say, the news was all over the Israeli media, with Reuters in Israel also reporting the case for their clients all around the world.

For anyone who hasn't been following the reports, Leviev’s son Zevulun and brother Moshe are accused of being involved in a smuggling operation that led to about 300 million shekels ($80 million) worth of diamonds being illegally brought into Israel since 2010.

Lawyers for Zevulun Leviev said the allegations against him were “baseless” and his arrest appeared to be a tactic to “illegitimately pressure his father”. Meanwhile, Moshe Leviev’s lawyer denied in court that his client had any connection to the allegations.

Meanwhile, Lev Leviev himself is wanted for questioning on suspicion of involvement in the diamond smuggling, but he currently lives in Russia and reportedly does not intend to come to Israel any time soon for questioning. Reports say that investigators believe Leviev fled to Russia from London, where he has lived in recent years, after learning of the investigation against him. Lev Leviev denies the accusations and suspicions against him.

The reports are all the more astonishing given Leviev's meteoric career He started out at the age of 15 as a diamond polisher and built an extraordinary empire built on the diamond business and real estate. The global financial crisis of 2008 struck a heavy blow to his businesses, however.

It seems this story has a way to go yet. As Israeli daily Ha'aretz wrote: "Why his [Leviev's] group might be involved in smuggling diamonds in the first place is unclear. A diamond company's tax is based on sales turnover, not profit. Therefore, there is no tax advertising [advantage] in smuggling diamonds into Israel unless they were then smuggled back out, and the sale was registered in some third country with lower tax rates (such as Belgium or Dubai).

"One reason to smuggle could be that the stones were of dubious origin; either their seller had no license to market them; or they were mined illegally, for instance. In any case, bringing them into Israel without declaring them is illegal.

"Another unclear aspect is how this case will affect Israel's diamond industry. On the one hand, Leviev is one of the biggest rough diamond importers in the country; his businesses supply work to dozens of other companies that polish and market the stones through the Ramat Gan Diamond Exchange. These companies employ hundreds of people. If his business hurts, so may dozens more. And this is not a good time for the Israeli diamond business: demand has been tanking and profits are down."

Indeed, one can imagine there was a great deal of anger at the Israel Diamond Exchange at the reports which, in one fell swoop, might have caused inestimable damage to the country's diamond business. And all the more unfair given the IDE's serious work over the past few years to rehabilitate its image after the discovery of the operation of a so-called pirate bank from offices in the bourse half a dozen years ago.

Among the genuine and sincere efforts it has made to show that the diamond trade is composed of honest, hard-working diamantaires was the creation of a Code of Ethics signed just last year which seeks to place the Israeli exchange at the forefront of global practices in terms of proper administration and transparency.

The Code of Ethics outlines the principles by which members of the exchange operate, including responsibility, trust, fairness, integrity, expertise, tradition, business pragmatism and more, all in the framework of human dignity and the rule of law.

But, as the Indian diamond industry discovered at the start of this year, the work of thousands of companies and the livelihoods of tens of thousands of people, or more, can be affected by the selfish and egocentric actions of a few individuals.