Diamond trading between Ramat Gan and Dubai was conducted more smoothly through indirect contacts before the Abraham Accords, industry sources say.
Israel’s diamond industry is recovering from the Covid crisis. According to the Ministry of Economy’s Diamond, Special Stones and Jewelry Administration net imports of raw diamonds has risen in 2021 by 120% compared with 2020 and exports are up 146%. Exports of cut and polished diamonds have also risen sharply.
The Dubai Diamond Exchange is one of the world’s largest with annual trade of about $25 billion, double the amount of the Ramat Gan Diamond Exchange. The Dubai Diamond Exchange and Ramat Gan Diamond Exchange had excellent relations even before last year’s diplomatic normalization with trade representing 10% of Israel’s diamond trade volume.
But while the Abraham Accords were meant to bring about a flourishing of the diamond trade between the two countries, the opposite seems to have happened between the Ramat Gan Diamond Exchange and the Dubai Diamond Exchange, which is in the UAE free trade zone.
Previously Israeli diamond companies conducted indirect deals with Dubai via Hong Kong, Belgium and India. But now Israeli diamond dealers report that Mizrahi Tefahot Bank and Israel Discount Bank (the main banks involved in Israel’s diamond sector) are applying tough restrictions on the transfer of money for diamond transactions. These restrictions are making the completion of deals awkward and are resulting in many delays and even cancellation of deals. According to sources familiar with the situation, deals worth millions of dollars are being delayed and cancelled each week.
The delays in transferring money are causing severe problems in credit and cash flow in Israel’s diamond industry, which has seriously suffered during the Covid pandemic. A typical recent example of the problematic situation is that of an Israeli diamond merchant who won a tender from the Dubai Diamond Exchange worth $2 million. The money was sent to him from the UAE but the Israeli bank, which manages his business account, froze the money. For many weeks the diamond dealer has not been able to access the money, which has halted the deal moving ahead, while he still waits for the bank to investigate the source of the funds.
Many others at the Ramat Gan Diamond Exchange speak of similar situations in deals every week ranging from tens of thousands of dollars to many millions. Diamond dealers emphasize the absurdity of the fact that now that the door to Dubai is wide open for Israelis, trade has been harmed.
The reason for the delays is a range of restrictions set by the banks in response to a letter from the Supervisor of Banks at the Bank of Israel. The letter sent last April said that following the Abraham Accords trade with the UAE must be subject to international criteria on preventing money laundering and financing terror. The Supervisor of Banks pointed out the FATF report from April 2020, which set out binding international standards in combatting these phenomena. The report cited a range of flaws in supervision in the UAE and pointed at major risks in this area. It is worth mentioning that since the FATF report, supervisory procedures have been imposed in the UAE to remedy these flaws.
The Israeli banks took fright at the Bank of Israel’s warnings and implemented recommendations that have created the restrictions and binding conditions that delay and bring about the cancellation of deals. Sources involved in international banking support the position of the Supervisor of Banks and explain that banking operations with the UAE are complex. These reasons include limited oversight and tracking of money in Dubai’s free trade zone and the registration of foreign companies there, whose main operations are outside of the UAE, and who cannot be accessed. One source said, “It’s clear that there is large importance to trade and business with the UAE but there are major complication, and there has to be tight supervision.”
The Bank of Israel said, “It has been made clear to the banking system that we are not talking about a closed list and it is up to banking corporations to examine every case according to the individual circumstances of the matter.”
“The Supervisor of Banks monitors the volume of activities from the UAE, which has grown significantly in recent months, and is conducting a dialogue with the private sector to identify obstacles and difficulties in activities.”
The banks see the Supervisor of Banks instructions on the UAE as binding.
Mizrahi Tefahot Bank said, “The bank operates according to regulatory instructions.”
Israel Discount Bank said, “We act according to the law including instructions from the Bank of Israel and domestic and international regulations that apply to the bank.”
The Ramat Gan Diamond Exchange said, “The volume of trade with Dubai and the UAE is undergoing rapid growth and the economic potential is enormous. But to our regret the rigorous instructions of the central bank pile up difficulties on diamond exporters and the commercial banks in the diamond industry. It would be the right thing to initiate a round-table discussion that would include the regulator, the banks and representatives of the diamond industry, in order to remove the unnecessary regulatory obstacles, and contribute to increasing exports from the State of Israel.”
Source: Globes, Israel business news