It is obvious that a lot of thought and careful collection of information is behind the complaint Lazare Kaplan International (LKI) filed against KBC bank and Antwerp Diamond Bank (ADB) on December 23. If a guess could be made, there are many emotions in the case too. This is far from a typical heated business clash. LKI is trying to prove that officers of KBC and ADB acted jointly with Israeli diamond trader Erez Daleyot as an “Enterprise,” under the Racketeer Influenced and Corrupt Organizations Act (RICO Act).
In its complaint, LKI provides details about companies, their shareholders, bank accounts and examples of how “Daleyot Entities” allegedly stole more than $135 million worth of diamonds from LKI and used the proceeds to pay debts to the banks. These allegations come complete with flow charts that demonstrate how the banks were allegedly involved in transferring the money. This is part of the enterprising activities.
According to the court filing, Maurice Tempelsman’s LKI alleges that the defendants and these individuals collectively formed an association that carried out a scheme through a pattern of illegal conduct that included money laundering, bribery, mail and wire fraud, international transportation of stolen property and extortion.
If this sounds to you like something you heard in a movie, it is no coincidence. The RICO Act was originally drafted to catch the mafia in the U.S.
Senator Pat Geary: Mr. Cici, was there always a buffer involved?
Willis Cici: A what?
Senator Pat Geary: A buffer. Someone in between you and your possible superiors who passed on to you the actual order to kill someone.
Willi Cici: Oh yeah, a buffer. The family had a lot of buffers!
(The Godfather)
These “buffers” are behind the RICO Act. According to Jeffrey E. Grell, Esq. a RICO consultant and associate adjunct professor at the University of Minnesota Law School, “In a typical Mafia prosecution under RICO, the defendant person (i.e., the target of the RICO Act) is the Godfather. The ‘racketeering activity’ is the criminal activities in which the Mafia engages,” such as extortion or bribery. The act was formed to get the person at the top, even if he never personally engaged in any criminal behavior. “The Godfather can be imprisoned because he operated and managed a criminal enterprise that engaged in such acts,” Grell explains.
LKI mentions in the complaint that in October 2010, it settled its claims against ABN-AMRO, “including those relating to ABN-AMRO’s alleged participation in the Illegal Scheme.” Under the settlement, ABN-AMRO paid more than $50 million and returned more than 2 million LKI shares representing about 26 percent of the outstanding shares.
After reaching the settlement with ABN, on July 1, 2011, LKI settled with its insurance carriers over “certain claims relating to the theft and misappropriation of the LKI Diamonds,” with LKI receiving another $60 million.
Now LKI is after KBC and ADB. LKI lists in the complaint Bank Leumi, HSBC and LGT Bank as “Other Participants in the Illegal Scheme.” The course seems charted.
LKI further claims that it received a smaller Sight because of alleged illegal conduct of the defendants.
The interesting thing is that Daleyot himself is mentioned as a non-defendant in the complaint. Tempelsman is not going after Daleyot directly. No one knows what the future holds.
It seems that LKI is making a bold, multi-staged and long-term move.
In Italian history, there are stories from the 16th century of “going to the mattresses,” or getting ready for battle. Families moved to safe houses when war neared and mattresses were brought out for the soldiers on guard. This expression was later popularized by Mario Puzo in his book The Godfather.
One must stop and wonder. While we are worried at times about consumer perception of diamonds due to Kimberley Process decisions (and let’s be honest, in the eyes of the general public, these are utterly obscure decisions), we should really be concerned about how consumers will react to a story that claims that major diamond companies, together with a list of large banks, are involved in money laundering, bribery, mail and wire fraud, international transportation of stolen property and extortion.
In one of several examples that LKI provides in the complaint, diamond companies “stepped up the value of their inventory as part of a tax amnesty program by approximately €82.5 million (i.e., more than $100 million) or approximately 25 times the previous book value of such inventory.”
How would newspaper readers view the diamond industry after seeing a chart that claims to show “the flow of money from ADB through Daleyot shell companies to KBC-related real estate projects,” or read a claim that banks funneled money to allow Daleyot to purchase private airplanes and a yacht accompanied by a list of money transfers complete with amounts, dates and bank branches?
Chaim Even-Zohar, in covering this story in this week’s Diamond Intelligence Briefs, conjured up the image of Samson bringing down the temple – on the Philistines and on himself. It’s a great image and a nice play of words (Samson the Tempelsman?). The possible collateral damage to the industry is enormous, regardless of who is in the wrong or not, or how the case (and possible future cases) are settled.
As an industry, we need to brace ourselves for the outcome. We too should go to the mattresses, not because we want to wage war, but because war is headed in our direction; a war for the good name of a very precious and unique product. It won’t be a pajama party.
