Israel’s diamond industry is recovering from the Covid crisis. According to the Diamonds, Special Stones and Jewelry Administration of the Ministry of the Economy, net imports of rough diamonds increased by 120% in 2021 compared to 2020, and exports increased by 146%. Exports of cut and polished diamonds have also increased sharply.
The Dubai Diamond Exchange is one of the largest in the world with an annual trade of around $ 25 billion, which is double the amount of the Ramat Gan Diamond Exchange. The Dubai Diamond Exchange and Ramat Gan Diamond Exchange enjoyed excellent relations even before diplomatic normalization last year, with trade accounting for 10% of Israel’s diamond trade volume.
But while the Abraham Agreements were supposed to promote the expansion of the diamond trade between the two countries, the reverse seems to have happened between the Ramat Gan Diamond Exchange and the Dubai Diamond Exchange, which is in the area of free trade of the United Arab Emirates.
Previously, Israeli diamond companies conducted indirect deals with Dubai through Hong Kong, Belgium and India. But now Israeli diamond dealers are reporting that Mizrahi Tefahot Bank (TASE:MZTF) and Israel Discount Bank (TASE: DSCT) (the main banks involved in the diamond business in Israel) have strict restrictions on the transfer of money for diamond transactions. These restrictions make it difficult to conclude agreements and lead to many delays and even cancellation of agreements. According to sources familiar with the matter, deals worth millions of dollars are delayed and canceled every week.
Delays in transferring money are causing serious credit and cash flow problems in Israel’s diamond industry, which suffered badly during the Covid pandemic. A typical recent example of the problematic situation is that of an Israeli diamond dealer who won a Dubai Diamond Exchange tender worth $ 2 million. The money was sent to him from the United Arab Emirates but the Israeli bank, which manages his business account, froze the money. For many weeks, the diamond dealer was unable to access the money, causing the transaction to stop continuing while he is still waiting for the bank to investigate the source of the funds.
Many others at the Ramat Gan Diamond Exchange talk about similar situations in transactions ranging from tens of thousands of dollars to millions of dollars every week. Diamond dealers point out the absurdity of the fact that now that the door to Dubai is wide open for Israelis, trade is suffering.
The reason for the delays is a series of restrictions set by the banks in response to a letter from the banking supervisor of the Bank of Israel. The letter sent last April indicated that as a result of the Abrahamic Agreements, trade with the United Arab Emirates should be subject to international criteria on the prevention of money laundering and terrorist financing. The Supervisor of Banks recalled the FATF report of April 2020, which set out binding international standards to combat these phenomena. The report cited a series of surveillance loopholes in the UAE and highlighted the major risks in this area. It should be mentioned that since the FATF report, surveillance procedures have been imposed on the UAE to address these loopholes.
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Israeli banks feared the warnings from the Bank of Israel and implemented recommendations that created the restrictions and binding conditions that delay and result in the cancellation of the agreements. Sources involved in the international banking industry support the position of the Supervisor of Banks and explain that banking operations with the UAE are complex. These reasons include limited surveillance and tracking of money in the Dubai Free Trade Zone and the registration of foreign companies there, whose main operations are outside the United Arab Emirates and to which it is. impossible to access. A source said: “It is clear that trade and business with the UAE is of great importance, but there are major complications and strict supervision must be put in place.”
The Bank of Israel said, “It has been made clear to the banking system that we are not talking about a closed list and that it is up to the banking companies to consider each case based on the individual circumstances of the case.
“The Banking Supervisor is monitoring the UAE’s business volume, which has grown significantly in recent months, and is engaging in dialogue with the private sector to identify obstacles and difficulties in business.”
Banks regard the UAE banking supervisor’s instructions as binding.
Mizrahi Tefahot Bank said, “The bank is operating in accordance with regulatory instructions. “
Israel Discount Bank said, “We are acting in accordance with the law, including the instructions of the Bank of Israel and the national and international regulations that apply to the bank.
The Ramat Gan Diamond Exchange said, “The volume of trade with Dubai and the United Arab Emirates is growing rapidly and the economic potential is enormous. But to our regret, the harsh instructions from the central bank are piling up difficulties for diamond exporters and banks.It would be the right thing to start a roundtable that would include the regulator, banks and representatives of the diamond industry, in order to remove unnecessary regulatory hurdles, and help increase exports from the State of Israel. “
Posted by Globes, Israel business news – en.globes.co.il – December 2, 2021.
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