U.S. Government Views on Laundering in the Diamond IndustryMarch 27, 08
Ostensibly, there is little or no reason for diamonds to become an issue in this report, but in the just-released 2008 edition, one gets the impression that things aren’t well in the diamond world.
There are quite a few findings on which one might challenge their accuracy, but that may be a futile exercise. What is important is that the diamond industry should take note of the concerns identified by U.S. government, as the report generally serves as a basis for decisions on strategies and policies. What it is really troubling is that the report raises doubts
The annual report on Money Laundering and Financial Crimes is a legislatively mandated section of the U.S. Department of State’s annual International Narcotics Control Strategy Report (INCSR). It represents an enormous effort and is based upon the contributions of numerous U.S. Government agencies and international sources. However, the principal contributor is the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which has also issued the Jewelry Rule, requiring the U.S. diamond and jewelry business to adopt AML/CFT compliance programs.
Indeed, FinCEN has been identified as “the primary contributor to the individual country reports.” That makes the U.S. views on the international diamond industry even more captivating – as they reflect the position of the very agency that regulates the U.S. diamond industry’s anti-money laundering efforts. So it is more than just another (major) government report – it clearly reflects the perceptions of FinCEN on the state of money laundering in the international diamond business.
It is important, however, not to lose perspective. As the industry is always concerned
But precisely because our industry’s possible infringements are so infinitely small in the overall context, we need to be concerned – and certainly not ignore – the significance FinCEN, other US governmental agencies, and the U.S. Department of States give to what is taking place in the diamond industry. The law that mandates the compiling of the annual report does not require a report on the United States, itself. If it would have, the GIA Certifigate scandal would certainly have been included in any reference to the diamond industry.
The report puts major diamond trading countries, such as India, Israel, the U.S., the United Kingdom, South Africa, Switzerland, Russia, UAE, Hong Kong and the Netherlands, on the list of some 50 “major money laundering countries in 2008.” Belgium does not appear on that list. Let’s review some of the relevant country observations.
When discussing Angola, the report identifies “the laundering of funds derived from continuous and widespread high-level corruption as a concern, as is the use of diamonds as a vehicle for money laundering. Angola has implemented a diamond control system in accordance with the Kimberley Process. However, through the method of ‘mixing parcels’ of licit and illicit diamonds and the fraudulent purchasing of Kimberley Process ‘certificates of authenticity,’ the Kimberley Process can be compromised. Corruption and Angola’s long and porous borders further facilitate smuggling and the laundering of diamonds.”
The U.S. report is quite positive on Belgium, after it first dubiously concludes that “most of the ‘blood’ or ‘conflict diamonds’ from long-running African civil wars were processed in Antwerp. Authorities have transmitted a number of cases relating to diamonds to the public prosecutor, and that office is examining the sector closely in cooperation with local police and diamond industry officials.”
While complimenting the Kimberley certification process for “introducing much-needed transparency into the global diamond trade,” the report then concludes in the same sentence that “diamonds of question
The report isn’t generous to India either. “India’s emerging status as a regional financial center, its large system of informal cross-border money flows, and its widely perceived tax avoidance problems all contribute to the country’s vulner
From the significant diamond countries, South Africa gets, perhaps, the worst criticism as being a center of “international crime groups,” which, naturally, are involved in “illegal dealings and theft of precious metals and diamonds” and a host of other criminal activity.
What troubles me is the apparent lack of evidence and
The U.S. government report doesn’t mince words
The alleged premature release of two question
Israel’s diamond industry fared well in the report. It cited the first reading in the Knesset (Parliament) of a bill that imposes anti-money laundering rules on the diamond sector. The report also states that Israel’s “Customs Authority continues to intercept unreported diamond shipments, despite the fact that Israel imposes no tariffs on diamond imports.”
Focusing on Lebanese Traders in Africa
While describing the apparent, effective Kimberley Process operations at Beirut International Airport, the report nevertheless laments that all these “safeguards do not address the issue of smuggled diamonds, the purchase of fraudulently obtained Kimberley Process certificates, the laundering of diamonds, or value transfer via the diamond trade.”
“Lebanon has a large expatriate community throughout the Middle East, Africa and parts of Latin America. They often work as brokers and traders. Many Lebanese ‘import-export’ concerns are found in free trade zones. Many of these Lebanese brokers network via family ties and are involved with underground finance and trade-based money laundering. Informal remittances and value transfer in the form of trade goods add substantially to the remittance flows from expatriates via official banking,” says the report to Congress.
“Expatriate Lebanese brokers are actively involved in the smuggling and laundering of diamonds in Africa. There are also reports that many in the Lebanese expatriate business community willingly or unwillingly give ‘charitable donations’ to representatives of Hezbollah (which is based in Lebanon). The funds are then repatriated or laundered back to Lebanon.”
Deterrence and Convictions are the Objectives
It isn’t so simple to place all these “findings”
There are many factors that are simply beyond the controls of the diamond industry players, especially in Africa. The report signals that there are jurisdictions which are having trouble converting their anti-money laundering policies and programs into investigations, prosecutions and convictions. “In some cases”, says the report, “the lack of enforcement is due to lack of capacity, but in far too many others it is due to a lack of political will.”
Virtually all diamond dealers in the U.S. and in the main trading partner countries have some kind of AML/CFT program, do client and supplier due diligence, report suspicious transactions – but, sometimes, this all seems frustratingly irrelevant in the total scheme of things. One of the concerns expressed in the report is that too many jurisdictions are getting caught up in the AML/CTF process and losing sight of the objective.
Financial intelligence is simply the process; the means to an end. Rather, says the report, “the objective continues to be anti-money laundering and counter-terrorism finance convictions. Convictions, combined with asset seizure and forfeiture are the true deterrents, the most meaningful ‘measurable,’ and the bottom line. Far too many jurisdictions continue to fall short in this regard.” This is so true.
With all the criticism and concerns
Let’s look at the U.S., the “author” of the report and leader in spearheading the international war against money laundering. As we have noted in last week’s column, New York diamond industry leaders are literally pleading and lobbying government to investigate and bring to justice those involved in one of the industry’s most serious bribing and laundering scandals. When you actually think
Have a nice weekend.