“The illicit trade in commodities by criminals – including precious metals and stones – is an issue that has increasingly caught the attention of respective government officials. Within this context the use of precious stones and precious metals to launder illicit proceeds has further come to the forefront as being vulnerable to money laundering.” This unequivocal statement was made by William J. Fox, Director of the United States Financial Crimes Enforcement Network – popularly known as FinCEN – which is the agency in the United States Treasury Department that spearheads the U.S. fight against money laundering and terrorist financing.

Speaking at an ABN-AMRO Diamond Banking Seminar, held in conjunction with the recent World Diamond Council meeting in Dubai, Fox warned that “the very characteristics of the diamond that make it so valuable may also be the characteristics that make it appealing to criminals and criminal networks. Diamonds have relatively stable prices and can pass undetected across borders and through customs. They can serve as an international medium of exchange and are easy to buy and sell outside the formal banking system. You are all aware of the widely published studies of the use of diamonds by terrorists by NGOs and journalists. Although evidence to prove the connections between diamonds and terrorists is still being developed, we are receiving enough information from government agencies, private concerns and the industry to warrant a closer examination of the problem.”

Fox noted that, in the United States, “a number of companies argued that the time had come for these major corporations to exercise “due diligence” in their international dealings.” Due diligence is now also required from the diamond industry following European Community Directives and the amended Anti-money laundering laws in Belgium and other countries, and, says Fox “crucial alliances began to form between the private and public sectors to tackle this systemic problem. Businesses, banks and law enforcement began a dialogue to devise solutions allowing law enforcement to go after the main perpetrators and beneficiaries of the scheme - the money brokers. At the same time, this dialogue prompted businesses to assess their own vulnerabilities to money laundering and address them. What many of the established companies did not want is their reputation tarnished by the activities of a criminal minority.”

A Call for Dialogue

Then Fox came to his main message for the diamond industry: “We believe the diamond industry could be confronted with a similar situation. And we believe the industry stands to benefit from a similar public-private partnership.” This call for dialogue should be heeded.

So far most decisions on the diamond industry’s role in fighting terrorist financing and money laundering have been imposed by organizations, laws or conventions such as the EC, the Financial Action Task Force (FATF) of the OECD, the Patriot Act, various Guidelines for Multinational Enterprises, Guidelines on Bribing and Transfer Pricing, etc. etc.

Though in the U.S. the diamond and jewelry industries are consulted in working out the industry-specific guidelines to secure the Patriot Act’s implementation, by and large the voice of the industry has remained unheard. This makes Fox’s call for a dialogue between the diamond industry and governments so extremely timely – and necessary. Fox didn’t mince words. “This partnership [between industry and governments] is critical to identifying the possible ways in which criminals or terrorists may seek to exploit the most precious of stones, the diamond.”

The Fox statement didn’t come in a vacuum. It was echoed and amplified by De Beers Chairman Nicky Oppenheimer when he declared: “Foremost amongst those challenges is the vulnerability of the diamond and jewelry industry - as with other commodities - to misuse and abuse by criminals and the perpetrators of terror. The governments of the free world have recognized that financial irregularity, ‘informal’ banking and tax evasion are just a short step on the road to money laundering and the financing of terrorism, and have introduced new laws and regulations to govern ‘financial institutions’. By definition, that means all of us in the diamond industry.”

Hinting on what still is to come, Nicky stressed, “no industry welcomes new rules and regulations - they generally retard the smooth flow of business - but this is different. In a world where our personal security, that of our families and communities, is under real and present threat, we must take notice and take action. We must embrace the new legislation, understand its provisions as they apply to us individually and collectively, and comply fully, wholeheartedly and without reservation.”

The “commander” in charge of the U.S. efforts in the war against money laundering then gave some food for thought to the diamond industry: “We [i.e. the U.S. government] believe efforts to add transparency to other aspects of the diamond trade should be pursued – and let me submit to you that it is in your interest to add transparency to the legitimate diamond trade. Such transparency will focus law enforcement and other government’s efforts where it should be – on the illegitimate trade – particularly on any such trade involving terrorists, or their financial facilitators.”

The importance of the Fox message cannot be sufficiently stressed. The support given by Nicky Oppenheimer to these views will assure that this will now become part of the diamond industry agenda.

In many respects the statements by both Oppenheimer and Fox formally herald the beginning of a new era in the diamond business where terms such as “customer due diligence”, “client and supplier risk assessments”, “suspicious activity reports”, “KYC – Know Your Client programs” will become household words describing compliance measures which each diamond company will implement.

It’s going to be a different world.