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Belgian tax authorities set their eyes on Russian diamond traders

26 december 2012

The regulatory authorities have claims to the financial statements filed by the Antwerp-based subsidiary of Kristall.

The tax administration of Antwerp, the world's diamond capital, has found problems in the financial statements of Smolensk Diamonds N.V., the Izvestia Daily said in an article posted on its online portal, izvestia.ru. This is a subsidiary of the Smolensk-based state-owned joint stock company, Kristall Production Corporation, Russia’s largest diamond manufacturer (it accounted for about 40% of polished production in the country in 2011, while its share in the global market is 1.6%).

Smolensk Diamonds is mainly a re-seller of rough diamonds, most of which come from the Smolensk parent. Kristall’s largest supplier is ALROSA, also a state-owned entity.

As it follows from the reports of the Audit Chamber, which this year examined the foreign economic activities of Kristall and Smolensk Diamonds, the Antwerp tax authorities claim the latter lacks necessary reserves to offset possible risks and losses. In particular, this refers to $ 2 million owed by Yossi Kuzi Diamond Ltd, an Israeli company owned by Yossi Kuzi, to this Belgian diamond trader.

The Belgian tax authorities have sued Smolensk Diamonds - they are worried about the financial situation in the company and possible consequences of this case. Indeed, according to Smolensk Diamonds’ statements its net profit reached mere € 289,000 in 2011. And the company was in the red for ? 22,000 in 2008 and for ? 449,000 in 2009. Last year was relatively successful for the company, including the abolition of the export limit by the Russian government: until the end of 2010, Russian companies were permitted to export only 15% of rough diamonds (by value) acquired during the year.

According to the consolidated financial statements issued by Smolensk Diamonds N.V. and seen by the Izvestia, the company’s tax debts since 2007 did not exceed € 40,000, but in 2011 the figure jumped to ? 146,000. However, Kristall denies the existence of problems with tax authorities. Raymond Cohen, CEO of Smolensk Diamonds, who owns 0.11% of the company, did not respond to the questions posed by the Izvestia.

According to Andrey Shenk, an analyst of Investkafe, the company may even face criminal charges for providing false information in the financial statements. The report of the Audit Chamber said that Kristall’s another Belgian "offshoot," UBM Diamonds, in fact, ceased its operations since 2007 due to litigation.

The most notorious scandal in Belgium involving taxes on the diamond business is dated back to the fall of 2011. At that time, the Antwerp tax authorities announced that 800 diamond traders hid incomes amounting to $ 1 billion in the Swiss branch of the HSBC bank. Three head officers of the Antwerp Diamond Bourse, the head of Antwerpische Diamantkring, the world's largest stock exchange trading in rough diamonds, as well as employees of the Antwerp World Diamond Centre (AWDC) were among the suspects of the country’s police and tax service. The Belgian authorities obtained the data pointing to concealed incomes from the French authorities, which, in turn, got them from an ex-employee of HSBC’s Swiss subsidiary, who had stolen this information.