A Delicate Balancing Act

This column and many others in the world of journalism, often seeks to point out something that needs to be changed or corrected. This week, we want to commend a positive.

Over the past few months, we have called on the diamond industry to do the right thing on issues of ethical behavior. In a sentence, wherever members of the industry did a wrong, government intervention or consumer backlash may result in a price paid by the entire industry. This included round tripping, money laundering and self-regulation on the one hand, and the Kimberley Process, human rights, NGO criticism and legislation on the other.

Last week, something unusual happened. A month and a half after the police and tax authority investigation into the operations of an illegal bank inside the Israeli diamond exchange became public, investigators announced that they were stopping their weekly raids for a month.

It is unusual because of the reasons behind the decision of the Police National Fraud Unit and the Israel Tax Authority's Investigation Unit.

A Balancing Act

The authorities had been covertly investigating the case for many months, which culminated in a string of arrests in January and February. Once the investigation became public, traders in Israel and around the world became apprehensive about doing business in Israel, resulting in a sharp drop in trade, as evidenced by the 41 percent decrease in rough imports in January.

The diamond industry is an important contributor to the Israeli economy. Polished and rough diamond imports and exports in 2011 totaled nearly $21 billion – 15.8 percent of the country's international trade.

The authorities are not stopping their investigation. Indeed, authorities in a law-abiding country should investigate crime. The praiseworthy move is the balancing act. The decision to keep the legal process going while minimizing the harm to an atypically important economic sector is as important as it is rare.

In Belgium, authorities investigated the industry to the point that many took their business elsewhere. Although it is not very evident at first glance, Belgian traders moved large parts of their operations out of the country after opening offices in Dubai, Hong Kong and Israel. Some of Belgium's largest rough traders no longer even bring their goods to Antwerp.

This business flight has started to rear its head in Israel as well. A number of Israeli traders have begun looking into moving parts of their business to Hong Kong and even Botswana. Thankfully, the government recognized that not only would such a move damage the Israeli diamond sector, which employees thousands and supports many more, it would also have dealt the Israeli economy a painful blow.

There is value in having a balance between law enforcement and doing business. At this point, we can only hope that the innocent will be cleared, the guilty punished and the rest of the industry moves forward wisely.