$55M Fraud Case Reveals Cracks In Israel Exclusive Diamond Exchange Club

“For seven months Hanan Abramovich told us stories there is money, there isn’t money.

He kept saying ‘God will provide’ and making promises. We counted 12 different stories.

All the scenarios imploded. Finally the diamond traders gave up and started proceedings,” says Eli Avidar, managing director of the Israel Diamond Institute Group of Companies, about the period before Abramovich’s arrest last week for allegedly stealing $55 million from Israel Diamond Exchange members.

What the diamantaires did is complain to the legal committee of the Israel Diamond Exchange, asking for internal arbitration regarding his debts. “When a complaint is filed, the deadbeat trader is summoned immediately to a meeting and asked to explain his situation,” lest his problems cause harm to other IDE members, Avidar explains.

In Abramovich’s case, last week he was summoned to appear before the IDE legal committee. When he didn’t show, the police were contacted.

Yoram Dvash, elected last December as president of the IDE, says he called Jerusalem Police Chief Moshe (Chico) Edri and asked for his best team to investigate, and promised full cooperation.

“But even if Abramovich had showed up for questioning, his case would have reached the police,” Avidar adds.

That may sound obvious. But the IDE is a club of 2,800 members that traditionally preferred to resolve business disputes quietly, without involving the police or courts. “The management changed four months ago, and since then there’s been a change of phase,” says Avidar. “The way the affair was handled is an example of what I mean.

This is the first time that the president of the IDE invites the police into the domain to investigate a story like this.”

The IDE building in Ramat Gan is one of the most tightly secured sites in the country. It is monitored by CCTV 24 hours a day.

Nobody may enter without invitation.

It is a place where deals worth hundreds of thousands of dollars are closed on a handshake, without guarantees, which is what happened in Abramovich’s case. According to Dvash and Avidar, the Abramovich case involves consignation, a practice also common in ordinary retail circles.

According to this practice, Abramovich would receive large amounts of diamonds, and was supposed to return any amounts he failed to sell. He is suspected of not paying for the diamonds and not returning unsold ones.

According to a source, only one out of Abramovich’s dozens of creditors insured the gems given to him, as a precaution, following a receivership process in 2008, in which he returned 70% of his debts to IDE members. “It could well be that the trader who insured the merchandise will be the only one to see money,” says the source.

Abramovich has been in jail since the affair blew up. Last week his son Tom arrived for questioning by police and was also arrested.

The father’s remand was extended by six days and the son was remanded to house arrest. The judge justified the remand based on the sheer extent of the fraud, its methodical character, and its sophistication. Abramovich’s lawyers, Adi Carmeli and Avihai Vardi, deny the allegations and claim it wasn’t a sting, Abramovich is simply a businessman who encountered financial difficulties.

“Abramovich claims the difficulties were due in part to past losses and repayment of debts from the past,” Vardi says. “Regarding the alleged debts, remember too that as far as some elements were concerned, large sums were involved in the activity, without collateral. The relations are not buyer and seller, but are more complex, reflecting other interests.”

Dvash and Avidar tell of another suspicion of criminality, revealed here for the first time. A month and a half ago, the IDE management filed another complaint with the police, against the diamond trading company Ben-Dor, resulting in an investigation. Brothers Oren and Tomer Ben-Dor are the third generation of a renowned diamond trading family that went bankrupt last October.

Dvash and Avidar say they owe other diamond traders $15 million. “We called in the police because they ostensibly committed a crime,” says Dvash. “They took merchandise from people by the consignation method, but didn’t return the money. Abramovich also took merchandise on consignation. He was trusted.

That’s why he reached such extraordinary sums he wasn’t sold the goods, he was given them. We involved the police because if a trader gets into financial trouble, we would support him, but somebody who stings other traders – we condemn.”

Oren Ben-Dor commented that he is prepared to answer any question posed by the police.

“Diamonds are forever,” they say, but since the global crisis of 2008, their sparkle has dimmed somewhat, worldwide and in Israel. Global demand for diamonds, a luxury item, has abated and in parallel, the Israeli industry of gem polishing has lost its gleam. From the ’60s through the ’80s, Netanya was regarded as Diamond City, by virtue of its many polishing workshops.

Today most polishing is done in India. Exporting diamonds still officially constitutes 20% of Israeli exports, but in practice, what it amounts to is mediation – Israel is exporting diamonds that are imported from other countries. That is why the Israeli industry is so deeply affected by global changes.

Yet even after the decline in production, the Israeli diamond traders about a quarter of whom are ultra-Orthodox – have preserved close ties in the international market. Some 25% of the world’s trade in diamonds passes through Ramat Gan, says Dvash, and the volumes involved are tremendous: turnover of some $20 billion a year.

“On Passover and Rosh Hashanah, the whole diamond world shuts down,” says Dvash. During Passover week, diamantaires in exchanges in Hong Kong, Belgium and New York also went on holiday, he notes.

Industry crisis

But the sense of crisis is palpable. Advertising budgets have been slashed and every year somebody else goes bankrupt.

About a third of the merchants on the IDE have suspended or stopped working, estimates Jacob Kattan, former deputy general manager of the IDE.

Offices are standing empty. “Since 2008, every year there are two to five bankruptcies, and making a living has become hard,” Dvash says. “I have no doubt some members have left.

It’s mainly because the economies in Europe and the Far East are still stagnating. Still, there are 250 people waiting to be accepted as exchange members.

I believe things will get better, thanks to things we’re doing in production and marketing.

We have a polishing workshop inside the exchange building and are initiating the establishment of two new polishing workshops that will be, technologically, at the level of high-tech.

We’re also working to bring new big diamond centers to Israel and we’re increasing marketing by internet, including by trading on eBay and we’re setting up a special site, just for members of the IDE in Israel, to market diamonds from Israel to the world.

The site should go live in June but already has 100,000 registered traders.”

Becoming an IDE member is no easy task.

“The exchange is a highly selective club,” says Dvash. “To be a member, you have to work as an employee or self-employed for seven years. You have to have five references and five people to sign guarantees of about $200,000. You also have to pass a polygraph test and buy a share, which costs about 100,000 shekels.

If you pass the selection committee, you get temporary membership for five years, then become a permanent member. ”

The diamond industry is notorious for working in cash. Even the polishers in Netanya were paid in cash. Has the crackdown on money-laundering created even more problems for the industry?

“There is no connection between enforcing money-laundering laws and the decrease in diamond transactions,” says Dvash. “Generally speaking, in this industry, there are no suitcases or envelopes [of cash]. That time has passed.

A cash deal, I must stress, is legal the moment you deposit the money in a bank.

But in recent years cash has gone out of fashion. Not only in Israel, in the world in general. We stay in touch with the money-laundering authority and abide by all the rules.”

Yet until recently, a great deal of cash made its way down the IDE corridors.

In 2012, the underground bank affair blew up, jolting the industry.

The police discovered that an illegal bank had been operating within the IDE building, in which diamantaires exchanged notes attesting to deals done in cash (dollars).

The underground bank also converted currency and cleared “checks” really, notes about diamond deals.

The core activity, amounting to more than a billion shekels, was fictitious deals ostensible purchases of diamonds from overseas, but in practice the only thing exchanged was invoices and notes.

The purpose: to dodge the tax authorities and launder money.

Secret bank

A red notebook containing the names of diamond traders was also found at the illegal bank.

The Channel 10 news show “The Source” reported that the names included big ones, like Lev Leviev, Beny Steinmetz, and Shmuel Schnitzer, former president of the IDE. All denied any connection with the illegal bank.

The police and prosecution elected not to pursue that angle.

A source, Menahem Magen, a central figure in the underground bank who cooperated with the investigation, claimed the top IDE people knew about the bank.

At the court hearing at which diamantaire Meir Ohana was convicted, the judge criticized the evidence given by Schnitzer and another top diamantaire, Amiram Gertler.

The two appeared in the book and had appeared as witnesses for the defense, on behalf of Ohana. Judge David Rosen ruled that their testimony had not strengthened the case for the defense.

Ohana was sentenced to 10 years, Magen to four (in a plea bargain). Talking with Channel 10, other diamantaires claim the IDE still houses underground banks.

Nonsense, claims Dvash, whose name also appears in the red book.

On his name being listed, he says, “Sometimes notes with the names of decent people doing real deals also reached the underground bank. My note wound up there from another deal. I never did deals with the underground bank. Remember that Magen and Ohana worked small scale.

It’s a drop in the sea compared with the giant turnovers on the exchange.

The affair made headlines, but it ended five years ago.”

Maybe the lesson is to abolish the notes, which open the door to another underground bank.

Dvash: “After the affair exploded, a new regulation came into force, under which invoices may only be issued by the person who received the note.

It was a flaw in the system and we fixed it.

True, there are cases here that shouldn’t have happened, but it can’t become the norm, as though that were how the diamond industry operates. The people who were partners in the underground bank are in jail.

What happened with the notes happened, we pushed restart, and moved on.”

Maybe the Abramovich affair shows that the system of notes and handshakes has to be changed?

“I don’t think so. This system works in Israel and the rest of the world too. We all still do deals by shaking hands.

The little note is our tradition, but two or three days later an invoice is issued like in the rest of the State of Israel.

Life has taught me that if you sign in a lawyer’s office and everything’s backed up by documents, if the other guy is a crook, in the end, he won’t pay and there’s nothing you can do about it.” The whole industry is based on trust, he says: “Even if I do a deal with somebody in Malaysia, we say ‘mazal and bracha’ and he sends the money and I send the goods.

Some abuse the system but today there’s a new generation, young, modern and transparent, that’s come to clean up. We want to signal categorically that we will act against anybody who abuses our ethical codes.”

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply