a letter of clarification to the banks regarding the opening of accounts and the
provision of credit to diamond merchants, which will enable the banks to relay
on the submission of a voluntary disclosure request as a measure mitigating
compliance risk with Israeli tax laws.
In recent years, the diamond industry has encountered difficulties in acting vis-à-vis the banking system, due to a global deterioration in the industry, as well as due to an increase in compliance risk in general, and in the industry in particular (the Underground Bank case, the determination of tax offenses as predicate offenses regarding money laundering, financial statements without a flawless professional opinion from an accountant, and more). This has been reflected in the decline of bank credit to the diamond industry, and there were even banks that completely stopped financing the industry.
The letter was published following measures taken by the Israel Tax Authority in order to regulate the tax affairs of diamond merchants vis-à-vis the authorities in Israel, in conjunction with the Diamond Exchange, including the opening of a voluntary disclosure program by the Israel Tax Authority for diamond merchants, and the regulation through legislation of how inventory is to be managed in the diamond merchants’ books and how end-of-year closing inventory is to be reported for tax purposes. These measures are expected to mitigate the risk to banks in managing the account, in terms of compliance with the State of Israel’s tax laws, and could thereby make it more likely for diamond merchant to obtain credit from the banks, although it is all subject to a business risk analysis conducted by the bank at its discretion.
The letter notes that in 2018, the banks will be able to rely on confirmation of the submission of a request for voluntary disclosure proceedings on the part of the diamond merchants (as long as the request has not been rejected), for the purpose of managing their risks as early as the intermediate stage, before the voluntary disclosure proceedings have been completed. This will contribute, according to the assessment of the Tax Authority and by the Banking Supervision Department, to the diamond merchant’s ability to manage bank accounts in Israel at this stage.