The Savory Trinity: Taxes, Wealth and Diamonds
September 03, 09The agreement signed between UBS and the U.S. Government, in which the Swiss bank will release to the government the names of 4,450 account holders suspected of tax evasion, triggered a quiet but very persistent positive spillover effect for the diamond business. In the last few weeks, inquiries about acquiring diamonds from financial consultancies and advisories representing private and institutional investors have intensified.
Questions regarding diamonds as investments have changed in nature: the long-term worthiness of investing in diamonds and their long-term value appreciation are no longer being questioned; diamonds as an investment are accepted as an axiom. The inquiring institutions now appear to be mostly exploring the best mechanism through which they can protect the wealth of their clients, in a quiet and discreet manner.
Though players in the diamond industry are committed to conducting client due diligence, required by Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) laws, the fact that the funds come from large, well-established and respected international banks with superior compliance systems, virtually removes any obstacles to concluding successful deals. The expected investment yield seems to be a secondary factor – safe wealth preservation is the main driver.
But this is not brought on just as a result of the UBS tax deal. The G20 finance ministers’ meeting in
They are discovering diamonds.
The world’s nations seem to be steamrolling new agreements on the exchange of tax information – quietly, but effectively. By my count, since the previous G20 meeting in April 2009, over 50 new tax information exchange agreements have been signed (doubling the total number of agreements signed since 2000) and over 40 double taxation conventions have been confirmed. As a consequence, another six jurisdictions have implemented the internationally agreed tax standards.
In a short period of four months more agreements were conducted than in the past decade!
The list of countries becoming more pro-active promoting agreements on tax information exchange is mind-boggling. This week, very quietly,
This is not to suggest that we launch an international promotion campaign to move parts of the world’s wealth into diamonds, but we b
Only a “tiny part” of the wealth will do the job. Take
The Nature of Information-Sharing
The Organisation for Economic Co-operation and Development (OECD) spokesman,
Brian Monroe, the editor of an anti-money laundering website, explains that bilateral “information sharing agreements typically involve more than a dozen tenets spelling out the depth and breadth of the information to be exchanged, the legal powers allowing the exchange to occur in both countries and the requirements to get the information. Investigators must usually provide client names, account numbers or evidence of suspicious transactions.”
The model developed around the UBS case may be repeated. The U.S.-Switzerland deal tries to sidestep the breach in Swiss banking secrecy laws by requiring the
Diamonds to Become the New Gold?
Institutional investors are generally aware of only one very crucial diamond investment parameter: they realize that the absence of new major mine discoveries will lead to a dwindling of new diamond supplies. In a few decades, the main diamond producers of today may not be around anymore. They also realize that through the development of mostly underground mining activities, the cost of mining will go up in almost any scenario. There is no way investors can lose out under these circumstances.
In the diamond investment schemes of the 1980s, there was a high emphasis on the commodity’s volatility and the belief that in a futures market one could reap fruits by playing the market. Short-term gains were just for the grabbing.
With the institutional investors of today, that element seems to have disappeared. Investors are looking for long term. They are focusing on ways to acquire diamonds and are less, or almost unconcerned with how to sell them in due time. Secrecy, confidentiality and discretion – all of these are part of the attraction and essential prerequisites.
In the world of gold, one is used to regular statistics showing the percentage of gold demand for jewelry fabrication, for industrial applications and for investment demand. Except for a short period in the 1980s, the investment demands for diamonds have never been clearly monitored or really measured in quantitative terms. At its peak the entire diamond investment portfolio may have been worth $500 million per year. Today, we have anecdotal data that investment demand is growing, but we think that we are still some distance from its real takeoff.
Unlike gold, the act of physically storing diamonds is a very unobtrusive and discreet issue. The intensifying war that the world’s governments are now relentlessly waging to discover and tax private wealth anywhere and everywhere will, we expect, consider
We may not really get excited
Have a nice weekend.