Diamond Dealers in Deep Trouble as Bank Documents Shine Light on Secret Ways

Diamonds
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Belgium, center of the world diamond trade, charges HSBC’s Swiss Private Bank with fraud; many dealers under investigation around the world

In the spring of 2005, Erez Daleyot, a Belgian-Israeli diamond tycoon with some dubious connections, paid a visit to his Swiss bankers at HSBC Private Bank, where he would soon have up to $38.5 million in accounts tied to shell companies in the British Virgin Islands.

Business was good. With $886 million reported in revenue the previous year, Daleyot informed his bankers that he projected topping that amount in the year ahead with $1 billion. He’d recently obtained a tax ruling from Israel allowing him to pay just 5 percent in taxes on $85 million in earnings. Visiting Geneva to buy a $41.5 million private jet, he invited his bankers to the airport to show it off, according to secret HSBC files obtained by the French newspaper Le Monde and the International Consortium of Investigative Journalists.

Now Daleyot is reportedly under investigation by Belgian authorities for money laundering and tax evasion, though he has not been charged.  And the New York-based diamond firm Lazare Kaplan International, a former business partner, alleges that Daleyot participated in a criminal conspiracy to defraud it of $135 million by laundering diamond proceeds, largely through his HSBC accounts, which were also the source of $20 million in bribes paid to bankers at Antwerp Diamond Bank, according to a civil lawsuit filed by Lazare in U.S. federal court in 2011.

Daleyot’s relationship with HSBC was hardly unique for a diamond industry tycoon. Analysis of the Swiss bank’s files shows that it eagerly accommodated almost 2,000 diamond professionals, looking past unsavory associates, criminal investigations and the dismal reputation of the diamond industry generally.

Diamond trade and HSBC 

Diamond dealerThe diamond trade, whose world center is Antwerp, Belgium’s largest city, retains vestiges of ancient ways of commerce that make it highly susceptible to black market activity. Secretive, clannish, it still often operates on cash and a handshake.

“Diamonds are a great way to launder money, to hide money, to evade taxes, and all the rest,” said Ian Smillie, a cofounder of the Kimberley Process, a United Nations effort to stamp out what are often called blood diamonds or conflict diamonds — gems that are exploited to finance wars. “Half a million died in the Angolan civil war,” Smillie said of wars fueled by blood diamonds. “Tens of thousands died in Sierra Leone, Congo, and elsewhere. It was a huge humanitarian crisis that destabilized huge regions.”

As a compact, stable, and transferable store of value, diamonds offer enormous advantages to smugglers, money launderers, and tax evaders. In many ways they are better even than cash. Easier to carry and to conceal, they are, in the wholesale market, almost as liquid and easily sold anywhere. They leave no paper trail and are virtually impossible to trace. They don’t go bad, can’t be burned up in a fire and aren’t devalued by inflation.

Still, without Swiss bank accounts and various offshore financial operators, money laundering and tax evasion would be much harder to pull off. The diamond trade is extraordinarily lucrative, which is why some banks might look the other way to get a piece of the business. The files obtained by ICIJ and Le Monde show the bankers at HSBC were eager to court diamantaires and to help some of them avoid taxes by shielding their assets.

The secret HSBC files ICIJ has analyzed are based on data originally smuggled away by an HSBC employee-turned-whistleblower and handed over to French authorities in 2008. France has shared the files with other countries, and they are causing legal repercussions around the world. A Belgian prosecutor charged HSBC’s Swiss unit in November with fraud, money laundering, and criminal conspiracy — mostly involving clients in the diamond business — accusing the bank of “knowingly favoring and encouraging fiscal fraud, giving privileged clients access to offshore accounts, particularly in Panama and the [British] Virgin Islands.” HSBC said at the time that it would “cooperate to the fullest extent possible.”

In a statement to ICIJ, HSBC wrote, “We acknowledge and are accountable for past compliance and control failures. We have taken significant steps over the past several years to implement reforms and exit clients who did not meet strict new HSBC standards, including those where we had concerns in relation to tax compliance.” 

The bank’s own files show that HSBC ignored frequent warning signs among its array of diamond trade clients while actively helping some set up offshore companies to obscure their business dealings. Amid a flurry of investigations, HSBC decided to shutter its MEDIS group, which included its diamond clients, in the middle of 2013, according to testimony to Belgian authorities by its chief legal officer, David Garrido. “Historically, the MEDIS accounts were disproportionately more often the subjects of requests from Swiss authorities in relation to criminal charges,” he said. “The bank had lost the confidence of the diamond sector, which represented a risk for the bank. The decision was made to separate from the entire sector.”

Unsavory connections 

With Daleyot, the bank looked past his questionable business connections, the most notorious of whom was reportedly Arkadi Gaydamak, a Russian-Israeli businessman convicted in absentia by France for his role in the 1990s “Angolagate” arms-trafficking scandal (some of the charges were overturned on appeal). Daleyot also reportedly financed Yakov Arabov, known to hip-hop stars like 50 Cent and the Notorious B.I.G. as Jacob the Jeweler. Arabov later went to prison in 2008 for lying to U.S. federal agents about laundering money for the Black Mafia Family, a Detroit drug ring. Daleyot did not respond to ICIJ request for comment.

Another HSBC client, Emmanuel Shallop, had earned a mention in a 2001 UN report for doing business with the rebels in Sierra Leone’s vicious civil war. HSBC bankers noted in 2005 that he was “very cautious currently because he is under pressure from the Belgian tax authorities who are investigating his activities in the area of diamond tax fraud.” HSBC continued to serve him. In 2010, a Belgian court convicted Shallop of facilitating the trade of blood diamonds in Sierra Leone, seizing $59 million in diamonds and real estate and sentencing him to six years in prison. “We do not want to give any comment on this issue,” John Maes, Shallop’s attorney, told ICIJ. “My client does not want his name to be mentioned in any article because of reasons of privacy.”

Or take Fisi Daskal, a German-Belgian diamond dealer who in 2005 was about to run into a problem with European tax authorities. “Re: ESD [European Savings Directive] customer confirms that [he] will proceed to open a Panamanian corporation (in 7 days) to solve this problem,” an HSBC banker noted on Daskal’s account. A few months later, HSBC noted that one of his accounts had been blocked, “affected indirectly in a criminal case.” Daskal did not respond to a request for comment.

"[Client] no longer wants us to call him; wiretapping continue[s] in the market … has very concrete plans to leave Antwerp within 6 months"

The European Savings Directive is a law that took effect July 1 of that year.  It required EU members and other countries to disclose names of account holders who were EU residents and the interest that they earned to their home countries.  Countries with bank secrecy laws, such as Switzerland, were allowed to skip disclosing names and interest earned in return for collecting a withholding tax and remitting it to the  to the nation where the client was a resident.

The HSBC files are littered with references to the impending launch of ESD, with bankers discussing with clients ways to set up trusts or corporations in Panama or the British Virgin Islands to shelter their assets from taxes. 

The ESD coincided with serious concern in the Belgian diamond community about a crackdown by authorities in the formerly lax country. HSBC’s files noted that Daskal was worried that “the climate in Antwerp remains very hostile. No longer wants us to call him; wiretapping continue[s] in the market … has very concrete plans to leave Antwerp within 6 months. … Confirms that many diamond office[s] are in the same state of mind and construct similar plans.”

Several of HSBC’s diamond clients would indeed soon be leaving Belgium. Among them were Richard Davidovici, Kenneth Lee Akselrod and Mozes Victor Konig, who are fugitives wanted by Interpol for various alleged crimes in Russia, including fraud, smuggling and tax evasion.

Unsavory companies 

Then there was Omega Diamonds, a major diamond trading outfit owned in 2006 by Sylvain Goldberg, Robert Liling, and Ehud Arye Laniado.  Omega left Belgium after David Renous, a whistleblower who worked for Omega dealing in diamonds from Angola and the Democratic Republic of the Congo and who claims the FBI prevented two attempts on his life, tipped off authorities in 2006 to an alleged money laundering and tax fraud scheme that Renous said allowed Gaydamak to launder arms money.  Tax authorities raided Omega’s offices, seizing $125 million worth of diamonds Belgium suspected Omega had traded unlawfully. While the company eventually reached an agreement to pay a $195 million civil settlement in that case in 2013 without admitting liability, the largest ever involving a Belgian company, there is still an ongoing customs case in Belgium against Omega for an alleged multibillion-dollar import-fraud scheme. Belgium said Omega and several other defendants connected to the alleged scheme owe it an astonishing €4.6 billion.

 “The tax dispute between Omega Diamonds and the Belgian tax authorities involved Omega Diamonds only, neither Mr. Laniado, Mr. Goldberg or Mr. Liling were involved in this,” says their law firm, Harbottle & Lewis, in a letter to ICIJ. “The tax settlement does not refer to or constitute any illicit activity on the part of Omega Diamonds and is based on international principles of profit allocation.”

Harbottle says Mr. Renous’s claims were found to be baseless and were dismissed

Sifting for diamonds in CongoThe HSBC files list Goldberg and Liling as beneficial owners of an account under the name of Nybelgo Inc., a Liberian company cited in a 2000 United Nations report for illegal exporting possibly connected to conflict diamonds.  The same report lists Omega Diamonds among Belgian companies importing diamonds from Liberia. Harbottle denies Omega had any involvement in blood diamonds. (Two other firms cited in the same UN report – Alcorta Trading and Pier Enterprises SA – are also in the HSBC files, though they are not connected to Goldberg or Liling).

Goldberg and Laniado were also partners in Ascorp, the Angolan diamond monopoly controlled by Russian-Israeli billionaire Lev Leviev, who is a close friend of Vladimir Putin (Leviev had several numbered accounts at HSBC). Among Ascorp’s shareholders, ICIJ reported in 2002, was the Angolan dictator’s daughter, Isabel dos Santos, the richest woman in Africa with nearly $4 billion. Her mother, Tatiana Cergueevna Koukanova Regan, was connected to two numbered accounts at HSBC that contained as much as $4.5 million sometime in 2006/2007.  Regan, whose exact role for the accounts is not specified, could not be reached for comment.

Also in the files is Dan Gertler, an Israeli diamond dealer and close friend of Congolese President Joseph Kabila. He reportedly got his big start trading arms for diamonds in African civil wars during the 1990s in violation of UN embargoes. A 2001 UN Security Council report found “very credible sources” who told of a secret deal that, in exchange for a sweetheart deal giving Gertler a monopoly on diamond rights in the Congo, the Israeli “agreed to arrange, through its connections with high-ranking Israeli military officers the delivery of undisclosed quantities of arms as well as training for the Congolese armed forces.”

Mischon de Reya, a London law firm representing Gertler, said in a letter to ICIJ that “our client categorically denies any involvement in the alleged diamonds-for arms trades in Congo in the late 1990s” and that Gertler “has no knowledge of the companies listed in your letter as having these bank accounts.”

“Details of his private affairs are of no legitimate public interest. Our client has, however, always paid all taxes due in every jurisdiction.”

Gertler is listed in the HSBC files as beneficial owner of an account under the name of Concordia Marketing Group Inc., a British Virgin Islands firm. The other beneficial owner of the account was Daniel Steinmetz of the Steinmetz family, one of the biggest HSBC-linked diamond clients of all (Gertler’s lawyers said he is not associated with Daniel Steinmetz). Steinmetz family members appear to have controlled accounts containing nearly half a billion dollars at the bank in 2006/2007. One HSBC banker noted with an exclamation mark that an inactive account belonged to the Daniel Steinmetz group and that the bank expected much new business from him in the next year.  He cautioned that the account was “part of DS Group!!!” Another HSBC banker also noted that Daniel’s mother was very ill and that bank officials would travel to Sardinia, where the Steinmetzes lived four months every year, to visit the family. 

The bankers were not wrong to be excited. One numbered account called 25225 KT with Daniel Steinmetz listed as attorney would eventually have as much as $264 million at HSBC in 2006/2007.

Wildly lucrative deal

Beny SteinmetzSteinmetz’s brother Beny offered the prospect of even more business. One of the richest men in Israel and a Gertler business partner, Beny expanded his father’s diamond business into a multi-industry empire. He had major business interests in African warzones, including Angola, Liberia, and Sierra Leone, and in 2008 in Guinea, he made one of the most lucrative deals of all time.

As longtime Guinean dictator Lansana Conté lay dying, he handed Steinmetz half the mining rights to Simandou, the richest iron-ore deposit on earth, wresting it away from the Anglo-Australian giant Rio Tinto. A year later, Steinmetz, who had no experience in iron mining, sold 51 percent of the rights for $2.5 billion. It was almost pure profit. He had paid nothing for the exploration license – in a country whose entire GDP was just $4.5 billion that year – while investing just $160 million in the project.

But a new Guinean government under reformer Alpha Condé suspected that Steinmetz had paid someone for the license to develop Simandou after all – and illicitly. An investigation bankrolled by billionaire George Soros  (whose Open Society Foundations help fund ICIJ) and assisted by former British prime minister Tony Blair through his Africa Governance Initiative found that Steinmetz’s Pentler Holdings had bribed one of the late dictator’s wives, Mamadie Touré, giving her millions of dollars and a 5 percent stake in the project in exchange for her help getting Conté to sign over the rights, according to The New Yorker.

Touré insisted on a signed contract, she later testified, and when word of the documents emerged during the Soros-backed Guinean investigation, which would result in a U.S. probe, Steinmetz agent Frederic Cilins then traveled to Florida to pay Touré up to $11 million to destroy the contract and change her story. Touré was wearing a wire for the FBI, which recorded Cilins telling her that he was acting on the authority of Steinmetz himself. Cilins later pleaded guilty to obstructing a federal bribery investigation.

“BSGR and Beny Steinmetz have consistently denied wrong doing in Guinea,” says Theo Crutcher, a Steinmetz spokesman, adding that “BSGR has taken the Government of Guinea to international arbitration at ICSID [International Centre for Settlement of Investment Disputes] to defend itself against the allegations that have been made against it,” said Theo Crutcher, a Steinmetz spokesman.

Beny Steinmetz and BSG Resources allege that the documents were forged and that Cilins was trying to destroy the forgeries. But Steinmetz is now himself a target of an ongoing U.S. investigation, along with probes in several other countries, including Guinea, and Switzerland, his latest residence. Steinmetz changed his official residence from Israel to Geneva in 2012, while Israeli tax authorities were pursuing an investigation that ultimately determined that he evaded $1.1 billion in taxes.

“Beny Steinmetz is a Swiss resident, pays taxes in strict accordance with his agreement with the Swiss tax authorities and has always managed his bank accounts in Switzerland in full compliance with all applicable laws and regulations,” Crutcher said.

A Pentler Pacific Ltd. appears in the HSBC files. Though it is not connected by HSBC to the Steinmetz group, Pentler Pacific is listed having the same address in the British Virgin Islands as Pentler Holdings, the Steinmetz vehicle that the FBI says bribed Touré. 

How the system works 

Digging for diamondsBanks like HSBC, as well as the offshore-front industry, are part of an infrastructure that enables the looting of poor countries and the evasion of taxes in rich countries.

“By and large really significant corruption in the resources sector does not involve suitcases of cash,” said Scott Horton, a lecturer at Columbia Law School who investigated the Simandou concessions for the new Guinean government and who wasn't speaking specifically about Steinmetz. “It involves millions of dollars being paid into bank accounts. They may be in Geneva or London or New York. They may be held in the British Virgin Islands or the Caymans. Very, very rarely are they moving money into banks in Guinea or Liberia or Sierra Leone. You cannot pull off this large scale corruption without involving lawyers, accountants, investment advisers in places like Geneva, London, Amsterdam, New York and Paris.”

And Antwerp.

In September 2005, a diamond dealer from war-torn Central African Republic (CAR), one of the poorest countries on Earth, bumped into his new HSBC banker at the Park Lane hotel in Antwerp. Abdoul-Karim Dan Azoumi “was with the minister and the Central African delegations in the hall [or lobby],” noted his banker, and the two exchanged contact information in order to talk later. 

Dan-Azoumi’s papers weren’t in order with the bank for an unspecified reason, and the banker told him in phone calls over the next few weeks that he “wasn't comfortable with the current situation,” and that forming an offshore company would solve the issue.

The banker noted that Dan-Azoumi was Muslim and had 18 children by four wives, two of whom he was still married to, and that he directed Badica, a diamond company based in the CAR. Badica would later be fingered by a United Nations Security Council committee for trafficking in blood diamonds.  The U.S. State Department noted reports that Badica had financed the Séléka, the Muslim rebel group that overthrew the predominantly Christian CAR government in 2013, setting off a civil war.

The Park Lane hotel itself was co-owned by four of the bank’s clients, including Luscha Baumwald, Louis Stranders, and Josif Grosz. “A family member has court concerns, so we wait to contact,” HSBC noted on Stranders’ account.

Mozes Victor Konig, one of the men now wanted by Interpol, was the fourth co-owner of the Park Lane. Konig had as much as $114 million in his HSBC accounts, one of which was called Front Trading Consultants Inc., during 2006/2007.  

The group had used the hotel investment to launder tens of millions in dirty money. All four would be convicted of fraud in 2012. A criminal court in Antwerp forced them to forfeit the $40 million hotel and another $18 million in cash and handed out sentences that ranged from probation to two years in prison.

Neither Konig nor Baumwald, Stranders, Azoumi or Grosz could be reached for comment.

Konig, with Interpol after him, is still at large. 

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CORRECTION: Although French police participated in the 2013 raid of the home of a director of the management services firm that provides services for BSGR, a company controlled by Beny Steinmetz, the raid was on behalf of U.S. and Guinean investigations, according to published reports. France is not investigating Steinmetz.

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