Lev Leviev, the Israeli tycoon the police are linking to diamond-smuggling allegations that led to six arrests Monday, is probably the best-known figure in Israel’s diamond industry.
But as news of the arrests and investigation surfaced, people in the industry said they were mystified as to what could be behind the alleged smuggling. “It can’t be that the affair is simply about tax evasion – it has to be something far more sophisticated,” one source, who like everyone else requested anonymity, told TheMarker.
Long a closed and secretive sector, the industry has become somewhat more transparent since 2017 when the Israel Tax Authority forced it to begin reporting on a regular and organized basis.
The secretive business environment was made possible because diamonds are small and portable but highly valuable. Deals were closed with a handshake and the words “mazal u-bracha” – “good luck and a blessing.”
It was hard for the authorities to track stones as they moved from rough to polished and around the world between Africa, Russia, Belgium, India, Hong Kong and Israel, where diamonds became a major industry even before the founding of the state.
In a 2017 report, the Israel Money Laundering and Terror Financing Prohibition Authority said the problem involved more than just tax evasion.
“The unique characteristics of diamonds and the nature of their trade expose the industry and its dealers to money laundering and terrorist financing risks,” it said, noting the problems of anonymous transactions, difficulties tracking the source of diamonds and the use of diamonds as a means of payment. “Without documents or documentation, it is difficult to estimate the value of the diamonds.”
The extent of the problem surfaced in 2012 when the police uncovered an black-market bank operating near the Diamond Exchange in Tel Aviv suburb Ramat Gan. The bank made fictitious and other illegal trades that the police estimated could have been worth 1 billion shekels ($270 million at the current exchange rate).
Diamond purchases alleged to have been made overseas turned out to be fictitious transactions involving faked invoices all done in Israel to facilitate tax evasion and money laundering. As many as 50 people were investigated and the two central figures in the affair were sentenced to five- and 10-year prison terms, respectively.
According to a source speaking in 2015, Leviev’s company, LLD, appeared four times in the records of another diamond business at the center of a probe called Aduma. In response, LLD said that it was a “company that obeys the law, and any attempt to claim or hint that it used the underground bank to is entirely baseless.”
The probe of the black-market bank exposed the extent of money laundering and tax evasion in the diamond industry, which took a long time to recover. Four years ago, Bank Leumi stopped proving financing, citing the problems of tax evasion.
Today, even with the new tax regime in place, industry sources said that most but not all diamond transactions were subject to disclosure. Diamond dealers can easily reduce their tax liability by inflating their costs, so why risk evading taxes altogether?
“Someone who buys diamonds, let’s say in Africa, can ask that it be invoiced at whatever amount he wants, even double what he paid for it,” one source said. Thus many in the industry say the arrests Monday involve something deeper – though they declined to speculate what.
In a 2012 court statement involving a civil suit, Uzbekistan-born Leviev offered a brief autobiography.
“My involvement in the diamond industry began more than 40 years ago when I was 15, when I immigrated to Israel from the Soviet Union and started working as an apprentice in the diamond-polishing industry,” he said. “Then I managed, against all expectations, to break the monopoly of the giant corporation De Beers; over the years I even won the nickname ‘the world’s largest diamond manufacturer.’”
Now 62, Leviev’s real fame in Israeli business came in 1996 when he took his initial diamond fortune to buy Africa Israel Investments, a publicly traded property and investment firm. He had a stormy ride with the company, including two debt bailouts, the second of which this year forced him to cede control.
To his credit and unlike other tycoons, Leviev injected a lot of his own money to help cover Africa Israel’s debts. But even today his closely held investment vehicle still owes hundreds of millions of shekels.