ANTWERP, Belgium — Diamonds may still be a girl’s best friend — but banks are becoming less keen.
That’s the growing concern for Antwerp’s diamond traders, who are warning that banks risk hurting their business by unfairly blacklisting them over money-laundering fears, closing accounts or refusing to offer basic services.
Diamonds are a vital business in this northern Belgian port city, which has for centuries been the dominant global trading hub for the precious gems and is home to 1,600 registered diamond companies. Eighty-six percent of all of the world’s rough diamonds pass through the city, with diamond houses located in buildings dotted around the central train station.
This new fight centers on whether Belgium’s lenders are playing their role as gatekeepers to the financial system, which is under pressure to block potential dirty money after a series of financial scandals.
From the diamond industry’s perspective, though, it’s a more existential question of whether lenders will use tougher anti-money laundering rules as an excuse to jettison unwanted customers.
Shashin Choksi, the owner of Antwerp-based Swati Gems, has been “thrown out twice” and is now forced to bank overseas with the Bank of India, incurring charges and delays to his business payments that equate to a family holiday a year.
“How can you trade if I don’t have a bank account? If I buy from you, I have to pay you,” the diamond dealer said in the offices of the Antwerp World Diamond Center.
“If it’s more than €3,000, I’m not allowed to pay you [in cash]. It has to be a bank transfer,” he said, referring to a limit on cash transactions in Belgium. “In diamonds, €3,000 is nothing. From all the invoices I had last year, two invoices, maybe three, are of that amount. All the others are much bigger … It has to be with a bank account.”
Choksi insists there is “nothing hidden” in Antwerp due to the amount of record-keeping and checks, like the Kimberley certification process, now required of the industry due to past scandals — including the notorious “conflict diamond” trade that helped fuel violence in the 1990s.
“There’s enough cameras in the neighborhood. You can see there are no bags of money coming in and guns going out,” he said. “There is no blood diamond [trade]. It’s all the things that happened in the mid-1990s, even before.”
Instead, the precious stones trader said he’s now paying personally for banks’ bad business decisions during that period. “I don’t find it fair,” he added.
Michael Freilich, a Belgian lawmaker who represents Antwerp, says lenders are unfairly penalizing the whole diamond sector. He’s pushing for a “basic banking” law to take effect, in which a government body can step in and appoint a bank if a company has already been rejected three times.
“The bank doesn’t have to take the premise that everyone who is a trader in diamonds is a thief or a thug,” he said. “Every industry will have a certain percentage of fraudsters, and the diamond industry is no different. But it’s also no worse than other industries.”
Freilich, from the opposition New Flemish Alliance party, said banks are using rules against tipping off clients on concerns over potential illegal activity to close accounts without explanation — and the problem is now extending to other industries like legal prostitution and gaming.
“The problem is that if organizations don’t receive bank accounts, they’ll start using other ways of transferring money, whether it’s cash or obscure moneylenders or obscure online crypto service payments, which will be completely devoid of any government control,” he said.
These complaints are starting to reach the upper echelons of the EU’s financial-services policy establishment.
The EU’s banking regulator published a report earlier in January warning of “unwarranted de-risking” by lenders that refuse to provide services to categories of “risky” clients.
That group includes diamond dealers but also extends to other cash-intensive businesses like hairdressers, as well as clients like embassy staff and asylum seekers.
The European Banking Authority also noted that businesses in the diamond trade made up a “significant proportion” of respondents who said they had been denied services like business and savings accounts, as well as credit cards and mortgages, with no reasoning provided.
“Many claimed the main reason behind these decisions was a wholesale de-risking of the sector, which is associated with high [money laundering/terrorist financing] risks,” the EBA said.
Ditching whole groups of clients can be a sign of poor anti-money laundering checks internally at lenders, and it risks locking legitimate customers out of the financial system, the Paris-based authority said.
For anti-money laundering experts, though, the diamond industry does come with inherently high risks.
The Financial Action Task Force (FATF), the global watchdog for fighting money laundering, defines the sector as “high risk” due to factors like difficulty in tracing the origins of stones and the eye-watering prices involved — both of which make it an attractive proposition for criminals.
“So-called high-value dealers in precious metals and gems are a recognized high-risk client category. This comes from regulatory direction, not the banks themselves,” said Tom Keatinge, director of the Centre for Financial Crime & Security Studies at the Royal United Services Institute, a think tank in London. “But once a regulator designates a client sector to be high risk, banks have to undertake more detailed due diligence.”
“This costs money and takes staff time that, with a judgment on profitability, may not be worth it, and thus the bank chooses to close the clients’ account,” he added. “It is an entirely understandable decision.”
Keatinge lay the blame with the diamond industry. “Diamond dealers will know that they are designated as a high-risk client sector so they should do everything they can to help the banks make a positive decision for them,” he said. “Often … these sorts of businesses don’t make this effort and thus it’s unsurprising when their accounts get closed.”
The EU, more broadly, has been stepping up its efforts to crack down on money laundering in the financial sector and wants to set up a new watchdog to enforce the stricter rules.
For Belgium’s banks, the tougher requirements mean they’re expected to act as a net to catch dodgy transactions.
“The evolution of the last decade, with new European directives, goes in the same direction: It’s strengthening the framework,” said Rodolphe de Pierpont, spokesman for Febelfin, which represents the interests of Belgium’s financial sector. This push potentially creates a conflict with clients still handling lots of cash transactions, he explained.
“If the clients are always doing the same [as they were] 20 years ago, sorry, but there is a moment where you have a clash,” de Pierpont said.
But the banking representative denies the industry is taking a blanket approach to diamond companies. “The problem is for a limited number of players within the diamond sector,” he said, adding the onus is on those companies to step up their compliance with the anti-money laundering requirements.
Even with Belgium’s plans for a basic banking law — which has passed the country’s parliament but stalled inside government — banks won’t be able to put an EU anti-money laundering law on the back-burner, he warns.
“A Belgian law cannot go above an international obligation for Belgium to comply with the EU directive,” he said.
Choksi, the diamond trader, said the new law also wouldn’t prevent banks from charging sky-high fees. “They will come with expenses, charges that you cannot pay. What difference does it make?” he asked.
But as he sees it, the banking difficulties are already damaging Antwerp, with some players departing for or expanding in other locations — although the city’s multi-billion euro slice of the diamond trade is still growing. “It affected me because when they move, the goods move with them … Without goods, I can’t make a living,” he said.
Freilich, the Antwerp politician, fears the issue is starting to tarnish the city’s image.
“So many diamond business people that I know have left,” he said, citing Dubai, Tel Aviv and London as preferred destinations. “As a country, we’re undermining one of our sources of pride, the diamond industry. Everyone knows diamonds are from Antwerp. And more and more diamond companies are saying this is an anti-business climate here.”
Barbara Moens and Matei Rosca contributed reporting.
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