Report: US loophole allows Israel diamond traders fund Putin’s war in Ukraine

Israeli diamond traders are helping to fund President Vladimir Putin’s war in Ukraine, according to a report in the Haaretz. It’s claimed that a loophole in US law allows traders to sell Russian diamonds if they come via Israel.

Despite the pledge of Israeli Foreign Minister Yair Lapid that “Israel will not become a bypass route for the sanctions imposed on Russia,” it’s claimed that the occupation state has not imposed any sanctions on President Vladimir Putin including the businesses supporting his government, or oligarchs close to him. Israel’s refusal to join Western sanctions is said to be of “unique significance” because it could potentially have implications on the efficacy of US sanctions on Moscow.

Russian diamonds make their way to the US via the Kremlin controlled company Alrosa. The firm controls 99 per cent of the exports of Russian rough diamonds and about 28 per cent of the world’s rough diamond market. Alrosa does not sell on the retail market or on the global diamond exchanges, but through a limited list of several dozen regular customers referred to as “sightholders.”

READ: Israel Diamond Exchange opens office in Dubai

Sightholders are guaranteed a regular annual supply of rough diamonds worth tens of millions of dollars, and sometimes even more. They may polish the stones and sell them or sell rough diamonds. Sometimes a diamond will pass via several intermediaries before reaching the end of the value chain: a piece of jewellery.

Five Israeli companies are named by Alrosa as sightholders. Last year, diamond imports from Russia to Israel totalled $413 million, accounting for about 60 per cent of Russian imports to Israel. Most of this amount is divided among the five Israeli sightholders.

The loophole in US law allows bringing diamonds originating in the Alrosa mines into the US jewellery market, as long as they pass through Israel en route. The loophole involves polishing the gems in a third country. US tax law defines that third player as the country of origin, as long as the stone underwent “a significant transformation.” This allows a Russian stone polished in Israel to be shipped to the US as an Israeli product.

The Haaretz report also found that the most important destination for the export of Russian diamonds to Europe is Antwerp, Belgium, where the diamond industry is flourishing, and where Jews – some of whom are Israeli citizens – play an important role.

Diamond dealers in Antwerp are said to have activated a lobby to prevent the inclusion of the import of rough diamonds on the EU sanctions list. Their efforts seem to have worked as the EU – as opposed to the US and UK – has yet to place Alrosa or Russian diamonds on the list of sanctions. This failure triggered a backlash from Ukrainian President Volodymyr Zelenskyy when he spoke to the Belgian parliament a week ago.

READ: UAE failing to stem money laundering and terrorist financing, says watchdog

“We’re fighting a tyranny that wants to dismantle Europe and to eliminate those who sanctify freedom… But there are people to whom Russian rough diamonds [diamonds in their natural state], which are sometimes sold in Antwerp too, are more important,” he said.

The Haaretz report mentioned the UAE as a rising player. Israel’s new ally offers diamond dealers a lenient tax policy and a permissive banking system when it comes to enforcing the rules against money laundering, an issue that is still considered an advantage in the diamond industry.

In February Israel Diamond Exchange (IDE) opened a representative office at Dubai Diamond Exchange (DDE) in Almas Tower, Dubai Multi Commodities Centre (DMCC). The opening of the IDE office came one day after the DMCC announced that the UAE became the world’s largest rough diamond trade hub, with $22.8 billion-worth of rough diamonds traded last year.