The air above the Belgian diamond sector is being poisoned by its very own government – mostly for domestic political purposes – with some apparent racist underpinnings. The main actors are the Fiscal Authorities and the Judiciary Authorities: each of these sectors want to “prove” that they can pressure (I am careful not to say “extort”) more money out of a small group of 800 individuals whose names appear on a list of alleged HSBC Private Banking accounts in Switzerland.

Just because one’s name is on a bank’s client list doesn’t necessarily point to any wrongdoing whatsoever. But it seems politically expedient for the Special Tax Directorate to let friendly journalists peek at the list and allow them to write about “one of the greatest tax scandals in Belgian history,” involving some 170 diamantaires who, together, were holding, at some point, at least $1 billion at HSBC Private Banking in Switzerland.

The ‘De Tijd’ Story
The “De Tijd” newspaper, not missing a cue to incite, reports that the “list shows especially the shadow-side of the Diamond Square Mile. Allowing for some overlap, we talk about 170 diamantaires. Virtually all of these belong to the Jewish community, except for a handful of Indian families.”

Writer Lars Bove speculates that this large group of diamantaires may have ended up banking with HSBC as that Swiss bank “may have filled the vacuum created by the closure of the Max Fischer Bank where many diamantaires had secret accounts?” (An affair that dates back to the 1980’s.)

The “De Tijd” exposé ended with suggestions that some of the individuals on the list have been prosecuted for smuggling in blood diamonds. “This all gives reasons to expect that the fiscal authorities and judiciary will not be finished with the diamond sector for a very long time,” concludes the story.  

Industry Response
The fact that justice department officials, who have consistently refused to allow the HSBC account holders access to information relevant to them, decided to show this confidential investigative material to a friendly journalist is a gross travesty of justice and infuriated the leadership of Antwerp’s diamond sector.

The Antwerp World Diamond Center (AWDC), the promotional arm of the industry, issued a statement noting “with astonishment the information that has appeared in the media and the apparent violation of the secrecy of the investigation which has occurred because the authorities have granted access to a stolen list containing names of private persons and bank accounts outside Belgium. Since the beginning of this year the Special Tax Directorate (BBI) systematically refuses diamond undertakings to have access to their individual file, this while also the auditor-general (public prosecutor) at the State Council (supreme administrative court in Belgium) agrees with the arguments of the diamond companies. It now appears that granting full access to the media is not a problem,” says the AWDC statement.

The Stolen Files
Amid all the confusion, the history of the files has almost been forgotten. Back in 2006-2007, Hervé Falciani, a French-Italian computer specialist working at HSBC in Geneva, was tasked with the bank’s transformation to a more sophisticated computer system. This required the transfer of data of 127,000 accounts from the “old” to the “new” system – and, apparently, it wasn’t difficult to download all this data onto computer disks or maybe just onto a simple disk-on-key, for that matter.

Initially, the British HSBC had said, “information on 24,000 HSBC customers with Swiss accounts has been stolen, involving accounts that were all opened before October 2006 and some 9,000 have since been closed.” (DIB learned that on the closed accounts, information does contain the Iban/Swift data on the recipient bank to which funds were transferred.) The theft took place in 2007; the HSBC announcement came only in March 2010 – and even then, the bank was yet unaware of the scope of the theft.

Falciani tried to fence his stolen property by sending letters to tax authorities around Europe in an infamous letter that carried as subject reference: “Tax Evasion Client List Available.” The German authorities confirmed that this “Robin Hood” only wanted a $3.39 million payment. Falciani also tried to sell the list to the Lebanese government. Meanwhile, the French government, as part of a deal, has given him a “new identity” after he identified up to 80,000 names (of which 8,000 were Frenchmen.) It is not clear how much the French government has paid for the list. It is known that the French has handed over lists of names to other governments in Europe (including Italy, Belgium, Spain, U.K.) and (recently) also to India and Israel.

The “problem” facing the Belgian fiscal authorities and the judiciary is that they are basing their cases on stolen properties; they don’t know whether the stolen data has been tampered with – or whether it genuine altogether.

Illegal Law Enforcement Tactics
The French authorities were the first to have faced the virtually insurmountable problem that stolen property cannot be used as evidence in a legal proceeding. The same counts for Belgium: government can use pressure techniques to cajole or embarrass those with foreign undeclared bank accounts to come forward. But they cannot do much more. It is even doubtful that house searches etc. based on the HSBC lists can be conducted.

The New Testament is the original source of a legal doctrine applicable to the data theft and the conduct of law enforcement. In Matthew 7:17-18 it says: "Likewise, every good tree bears good fruit, but a bad tree bears bad fruit. A good tree cannot bear bad fruit, and a bad tree cannot bear good fruit." This phrase is applied to the law in the so-called "fruit of the poisonous tree" doctrine:  evidence obtained from an illegal arrest, unreasonable search, or coercive interrogation must be excluded from trial.

Interestingly, the “fruit of the poisonous tree” doctrine was established primarily to deter law enforcement from violating rights against unreasonable searches and seizures. For government investigators to leak information to embarrass or to smear is highly unacceptable. The AWDC was quite right in expressing its outrage in a press statement. The Belgian tax investigators must be quite desperate – and apparently lack the legal means to “get to the diamond people.”

Fishing in the Waters of the Schelde
In all the noise about this “greatest tax scandal ever,” a few “minor” points are missing from the public discourse. First, there is nothing “illegal” or “improper” about having a bank account in Switzerland, Luxembourg, Belgium, Israel – or elsewhere. In certain jurisdictions one must declare earnings in foreign accounts, or there may be a requirement to declare accounts. Not having done so doesn’t mean that the moneys are “fraudulent”; it doesn’t mean that taxes may not have been paid in another jurisdiction. There are even doubts about whether some of these accounts needed to be declared in Belgium to begin with.

Many families – and extended families – may have held their wealth in appropriate banks for generations. Funds properly earned anywhere in the world (and taxed) may have subsequently been turned over to professional wealth management. Because of the nature of the HSBC private banking business, the accounts are held by individuals – who may or may not – also happen to be a director or official of a diamond company. Many account holders are not the owners of their families’ Belgian diamond businesses. The link between individuals and their companies is in most of these cases remote – and in any case irrelevant, as individuals and corporations there are separate legal entities.

Belgium’s fiscal authorities, especially the Special Tax Directorate, have been advised more than once by the courts (including the so-called Council of State) that before demanding that individual diamantaires must submit data, the authorities have an obligation to indicate on what basis they are making the request. The Special Tax Directorate must show “what they have” – something they are legally required to do but conveniently ignore – and which probably also puts them in violation of the appropriate laws of legal procedures. It is expected that the Council of State will side with the law – and ultimately order the Special Tax Directorate to share the relevant information with the alleged account-holders.

For whatever puzzling reasons, the Belgian government seems to leave no stone unturned to encourage the diamond companies to migrate to Dubai or to Israel. The cumulative potential tax revenues – and other positive economic spillovers on the national economy – that Belgium loses through migration are far more than any income it may eventually derive from the present HSBC spectacle. This is a classic case of being penny-wise but pound-foolish.

The Special Tax Directorate may have far less tangible materials than it likes journalists to believe. The names of “suspects” disclosed so far include individuals who passed away a long time ago – and they must be viewing this Belgian spectacle unbelievingly from the Heavens. It clearly underscores that the Belgian authorities are out on a massive “fishing expedition,” ignoring the enormous damage they are needlessly inflicting on one of the nation’s most important economic sectors.