The Diamond Business and Swiss Leaks

In 2009, a former HSBC computer tech, Hervé Falciani, turned over data listing thousands of customers of the HSBC Private Bank in Switzerland to French authorities, after unsuccessfully trying to sell it. They began an investigation.  

Five years later, an unnamed source showed up at the French newspaper Le Monde with a USB drive containing data on more than 100,000 of the Swiss bank’s customers. Editors contacted the International Council of Investigative Journalists (ICIJ) to assemble a team of international reporters to write up the data. The results were published this week. 

Along with rock stars, supermodels, arms dealers, royalty, and one of the owners of Le Monde, the names of many prominent diamond companies appear in the stolen files: 

– According to the ICIJ, “Almost 2,000 HSBC clients who appear in the files are associated with the diamond industry.” 

Some 900 of those companies are reportedly from Antwerp, Belgium; another 77 are from India.

– The list includes prominent members of the Indian diamond business, says a local newspaper.

Swiss bank accounts have long been (in)famous because of the country’s bank secrecy laws, which were passed in 1934 and recently scuttled. The secrecy laws for years created “the world’s biggest tax haven,” wrote The Economist.  In 2008, in a precedent-setting prosecution that ended decades of hands-off treatment, the United States charged a Swiss bank executive for helping Americans conceal some $20 billion of taxable income.

Yet, as the ICIJ notes:

There are legitimate uses for Swiss bank accounts and trusts. We do not intend to suggest or imply that any persons, companies or other entities included in the ICIJ Swiss Leaks interactive application have broken the law or otherwise acted improperly.

Beyond the names of the account holders—some of which had been previously published in Belgium—the diamond-related articles don’t contain much new information, focusing primarily on HSBC’s lack of due diligence in granting accounts to—and sometimes bending over backwards for—industry players caught up in court cases. ICIJ partner 60 Minutes singled out the bank’s treatment of Emmanuel Shallop, who was convicted of selling conflict diamonds:

The documents show in 2005 HSBC knew Shallop was under investigation, yet helped hide his assets. “We have opened a company account for him based in Dubai…” one entry read. ”The client is very cautious currently, because he is under pressure from Belgian tax authorities, who are investigating his activities in the area of diamond tax fraud. 

We don’t know if there will be much fallout from these revelations. In November, Belgium prosecutors charged officials of the HSBC Private Bank with “organized fraud, money-laundering, criminal conspiracy and illegally functioning as a financial intermediary…[involving] the assets of wealthy clients, mainly from the Antwerp diamond industry.” Belgium has also negotiated with local diamond dealers for an amnesty program; at press time, it wasn’t clear where those negotiations stand. (The dealers’ lawyer did not return emails for comment.)(See update.)

While a lot of this is old news, the revelations will contribute to the negative impressions of our industry—one article calls the industry’s reputation “dismal”—when it’s already having a tough time attracting banks. It is also another reminder that some practices that used to be fairly common are no longer acceptable.     

The stories “involve mostly old money, old structures and relics of ancient times, of a generation that offshore banking was the most normal thing in the world,” wrote a columnist for the Antwerp daily De Tijd. “The times and fiscal mores have changed enormously.”

For one, revenue-hungry governments no longer turn a blind eye to tax shelters. They have been aided by technology. In a new, more transparent world, hiding things has become far more difficult.

As the Irish Independent put it:

In the old days, a bank manager kept his or her most sensitive files under lock and key, very few people would ever see them and there was little possibility of reams of documents being copied. But that no longer holds true in this world of split-second technology.…

The ‘leaking’ of thousands of secret files from the HSBC’s private bank in Switzerland should be a warning to those who think they can get away with tax evasion of just how easy it is for their personal, and what some considered highly secret, financial information to be disseminated around the world.


UPDATE: Theirry Afschrift, the lawyer who reportedly represented Antwerp dealers in negotiations with the government, writes in:

There are no general amnesty negotiations and I do not think such negotiations are probable because the many people involved in the case are in very different situations.
But most of the cases were resolved, separately, with agreements with the Tax administration and probably part of the remaining cases will also be resolved before summer.
The information published recently about the HSBC case is not new for anybody. Everybody knew that some people used bank accounts in Switzerland to pay, legally or not, less taxes and the Tax administration knew the names of HSBC clients since 2010.
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JCK News Director