FATF released report on Money Laundering & Terrorist Financing

The Paris-based Financial Action Task Force (FATF) released an international report on money laundering and terrorist financing.
Objective: To identify the Money Laundering and Terrorist Financing (ML/TF) vulnerabilities and risks of the “diamond pipeline” that covers all sectors in the diamond trade: production, rough diamond sales, cutting and polishing, jewelry manufacturing and jewelry retailers.

Excerpts of the Paris-based FATF report

• China and India are major markets where diamond trade is done on a large scale.
• India, Israel, Belgium, Canada and the USA has reported instances where diamond prices were overvalued for purposes of laundering and suspected financing. In these countries trade accounts of diamond business are being used to launder illegal funds to the tune of millions of dollars.
• The closed and opaque nature of the diamond markets and the high value of diamonds combined with a lack of expertise in this area on the part of the authorities have left this industry susceptible to abuse by criminals.
• In cases of suspicious money laundering instances of diamond trade, the funds transfer occurred from India, Israel and Switzerland to the UAE.
• India reported a relatively large number of sanitized cases (12) in which suspicious transaction reports were received (in connection with diamond trade). In these specific cases, Hong Kong, China is a destination for illicit cash flows related to the diamond trade.
• Diamond trade, as an international phenomenon, needed a complete and global analysis to understand and determine money laundering and terrorist financing threats and vulnerabilities related to this unique trade.

 
The risks and vulnerabilities of the diamonds trade, identified in this report are

• Global nature of trade – The trade in diamonds is transnational and complex, thus convenient for ML/TF transactions that are, in most cases, of international and multi-jurisdictional nature.
• Use of diamonds as currency – Diamonds are difficult to trace and can provide anonymity in transactions.
• Trade Based Money Laundering (TBML) – the specific characteristics of diamonds as a commodity and the significant proportion of transactions related to international trade make the diamonds trade vulnerable to the different laundering techniques of TBML in general and over/under valuation in particular.
• High amounts – the trade in diamonds can reach tens of millions to billions of dollars. This has bearing on the potential to launder large amounts of money through the diamond trade and also on the level of risks of the diamonds trade.
• Level of awareness – law enforcement and AML / CFT authorities, including Financial Intelligence Units (FIUs), have limited awareness of potential ML/TF schemes through the trade in diamonds.

Note: FATF is a Paris-based multi-disciplinary and inter-governmental body whose purpose is the development and promotion of national and international policies to combat money laundering and terrorist financing. It was founded at the 1989 OECD Economic Summit as a response by the heads of state of the G-7 nations to the growing problem of money laundering.

Month: Current Affairs - February, 2014