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Money Laundering and Terrorist Financing Through Trade in Diamonds

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Money Laundering and Terrorist Financing Through Trade in Diamonds FATF REPORT MONEY LAUNDERING AND TERRORIST FINANCING THROUGH TRADE IN DIAMONDS October 2013 FINANCIAL ACTION TASK FORCE The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard. For more information about the FATF, please visit the website: www.fatf-gafi.org EGMONT GROUP OF FINANCIAL INTELLIGENCE UNITS The goal of the Egmont Group of Financial Intelligence Units (Egmont Group) is to provide a forum for financial intelligence unites (FIUs) around the world to improve cooperation in the fight against money laundering and the financing of terrorism and to foster the implementation of domestic programs in this field. For more information about the Egmont Group, please visit the website: www.egmontgroup.org © 2013 FATF/OECD. © Egmont Group of Financial Intelligence Units. All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Applications for such permission, for all or part of this publication, should be made to the FATF Secretariat, 2 rue André Pascal 75775 Paris Cedex 16, France (fax: +33 1 44 30 61 37 or e-mail: [email protected]). Photocredits coverphoto: ©Thinkstock MONEY LAUNDERING AND TERRORIST FINANCING THROUGH TRADE IN DIAMONDS Table of Contents ACRONYMS .................................................................................................................................................................................... 3 EXECUTIVE SUMMARY ............................................................................................................................................................. 5 CHAPTER 1. INTRODUCTION .............................................................................................................................................. 9 I. Reasons for conducting the research ............................................................................................................. 11 II. Aim and objectives ................................................................................................................................................ 11 III. Methodology ............................................................................................................................................................ 12 IV. Scope ........................................................................................................................................................................... 14 CHAPTER 2. THE INTERNATIONAL TRADE IN DIAMONDS - OVERVIEW ...................................................... 16 The diamonds pipeline .................................................................................................................................................. 16 Business practices and changes in the diamond trade ..................................................................................... 20 Overview of diamonds and money laundering and terrorist financing .................................................... 26 The diamond trade in numbers .................................................................................................................................. 28 Rough Diamond trade .......................................................................................................................................... 28 Diamond Production Countries ....................................................................................................................... 29 Diamond trade centres ........................................................................................................................................ 32 Cutting & polishing centres ................................................................................................................................ 33 Polished diamond trade ...................................................................................................................................... 34 Jewellery manufacturing ..................................................................................................................................... 35 CHAPTER 3. REGULATION AND LEGISLATION RELATING TO DIAMOND DEALERS AND CROSS-BORDER TRANSPORTATION OF DIAMONDS AND CURRENCY RELATED TO THE TRADE IN DIAMONDS................................................................................................................ 36 FATF Standards................................................................................................................................................................. 36 FATF standards related to designated non-financial businesses and professions ..................... 36 FATF standards related to Cash couriers ..................................................................................................... 37 National AML/CFT regulation/legislation in diamond trading countries ................................................ 37 National AML/CFT regulation on diamond dealers, reporting duties and record keeping duties ......................................................................................................................................................... 37 Licence regime and supervision of the sector ............................................................................................ 39 National AML/CFT regulation on cross-border transportation of diamonds and currency related to the trade in diamonds .................................................................................................. 40 CHAPTER 4. FUNDING THE DIAMOND TRADE ......................................................................................................... 43 CHAPTER 5. STATISTICS (REPORTING, INVESTIGATIONS, INDICTMENTS ETC.) ..................................... 45 CHAPTER 6. THREATS AND RISKS RELATED TO VULNERABILITIES IN THE TRADE IN DIAMONDS ..................................................................................................................................................... 48 Product vulnerabilities ................................................................................................................................................. 48 2013 FATF / Egmont Group 1 MONEY LAUNDERING AND TERRORIST FINANCING THROUGH TRADE IN DIAMONDS Use of diamonds as currency ..................................................................................................................................... 51 Trade based ML ............................................................................................................................................................... 52 Regulation of diamond dealers.................................................................................................................................. 54 Supervision, control and Enforcement vulnerabilities .................................................................................... 56 Supervision .............................................................................................................................................................. 56 Control ....................................................................................................................................................................... 56 Enforcement ............................................................................................................................................................ 58 Vulnerabilities in the different stages of the trade............................................................................................ 59 Mining ........................................................................................................................................................................ 59 Rough trading ......................................................................................................................................................... 60 Trade centres (rough/polished) ..................................................................................................................... 61 Cutting and polishing........................................................................................................................................... 62 Retail level ................................................................................................................................................................ 63 Vulnerabilities in the Use of the Internet .............................................................................................................. 65 Vulnerabilities relating to all stages ........................................................................................................................ 69 Trade financing vulnerabilities ................................................................................................................................. 71 CHAPTER 7. RED FLAGS AND INDICATORS OF ML/TF ......................................................................................... 75 Red flags and indicators for regulated entities ................................................................................................... 76 Red flags
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