Israel's chief diamond regulator Shmuel Mordechai told CNN that lawmakers were working to pass legislation by late this year or early next that would require more stringent due diligence and background checks.
The new law will also give him greater powers -- two forensic accountants would be hired to work full time to check for suspicious activities.
But Mordechai said existing rules had been effective in catching suspicious deals and clamping down on criminal activity, a view shared by industry analyst Chaim Even-Zohar.
"It is one of the most controlled businesses in the country, if not the most controlled," he said, noting that gaining access to Israel's main diamond exchange requires finger printing, eye scans and passport reviews. "It's easier to get into Fort Knox in America."
There has been some resistance among the country's 2,500 licensed dealers to yet more regulations, but most acknowledge that it's in their interests to ensure the industry has a clean reputation.