Wide Scale KP Certification Fraud in Brazil

An internal report by Brazil’s Kimberley Process authority DNPM claims that diamond shipments valued at an estimated $46 million had fraudulent Brazilian Kimberley Process certificates. The DNPM report concluded that of the 147 certificates issued by Brazil since it joined the Kimberley Process, 49 were fraudulent.

Partnership Africa Canada (PAC), who revealed the fraud in its latest newsletter, said that following a suspension in rough diamond exports from Brazil in February, authorities resumed shipments last month after new KP regulations were introduction.

The findings follow two reports about Brazilian diamonds issued by PAC in 2005 and 2006 (The Failure of Good Intentions: Fraud, Theft and Murder in the Brazilian Diamond Industry; Fugitives and Phantoms: The Diamond Exporters of Brazil), and a nation-wide police investigation.

The investigation found DNPM officials were involved in producing false certificates, several of whom were arrested together with a number of diamond dealers. They were charged with a range of offenses, including smuggling, tax evasion, money laundering, and conspiracy.

The DNPM directed some of the blame at a lack of interest by the government. According to DNPM director general, Miguel Antonio Cedras Nery, DNPM did not even have an integrated computer network. “We were living in the stone age,” he told the local press.

According to PAC, the challenge for Brazil will be the enforcement of the new regulations, which are largely computer-based, in a system where huge volumes of diamonds are mined by diggers with no legal land title and no Internet access. Under both the old and new regulations there is no way for these diamonds to enter the formal system legally. This, in turn, leads to fraudulent documentation and smuggling, warns PAC.

A Kimberley Process review team visited Brazil in June and submitted a draft report before the new regulations were put into effect.