It is quite unusual to write about a “money-laundering through diamonds” transaction that is still in progress, but the following article summarizes events related to a lawyer who is now very well known to residents of Singapore, the police, and participants in the diamond market there. If any reader has in the past thirty days been offered or bought a 10.89 carat IF fancy yellow (rectangular modified) brilliant or a 10.70 carat VS2 fancy yellow (rectangular modified) brilliant from a Singapore lawyer, called David Rasif, they should know that they are holding diamonds that the seller has purchased with stolen money (We will gladly submit the GIA and HRD certificate numbers of these and other laundered goods upon request).

            Every jeweler (high-value dealer) in the United States and in Europe knows by now that the law imposes specific obligations with respect to reporting and completing suspicious (or “irregular”) transactions. Jewelers in Asia, especially in FATF (Financial Action Task Force) member countries, should be in a similar situation – but they are not.

            The U.S. State Department, in a recent report, singled out Singapore, saying, “As a significant international financial and investment center, and in particular as a major offshore financial center, Singapore is vulnerable to potential money launderers. Bank secrecy laws and the lack of routine currency reporting requirements make Singapore an attractive destination for [those] seeking to launder money.”

            This atmosphere might warrant extra caution for those doing business in such an environment. In early June, a local jeweler, whom we shall refer to as “D”, sold almost 30 pieces of diamonds and jewelry to a local lawyer, who paid millions of (Singapore) dollars using money he embezzled from clients. The absence of AML/CFT diamond/jewelry regulations – and the fact that jewelers have not yet been required to have AML/CFT compliance programs – is proving to be problematic for “D”.

            The facts that the local lawyer laundered money (stolen from a client’s escrow account at a Singapore bank) through transportable high value items that can be turned into cash again elsewhere in the world are beyond doubt. The question that both law enforcement and the victims (those who lost their money) may endeavor to ascertain is whether the behavior of the customer should have raised the jeweler’s suspicions and/or should have raised reasonable grounds to suspect that the customer was laundering criminal proceeds.

            That is a subjective test that will soon be argued before the High Court in Singapore. The jeweler will undoubtedly say that these transactions were all in the normal course of business and that all the publicity generated in the Singapore and the international press has caused great damage to his reputation. It is therefore that we want to state equivocally that we have no information whatsoever to think otherwise. We are aware, however, that assets and accounts of the jeweler have been temporarily frozen, which impacts his business, his relations with employees and suppliers. This article describes the jeweler’s predicaments; it doesn’t question his morals or ethics.

Singapore’s Financial System Vulnerable to Money Laundering

What concerns us are two issues: when the government of a FATF-member nation fails to issue specific guidelines for the high value dealers (those engaged in precious stones and metals), what yardsticks and parameters will be used by the courts?

            In countries (such as the U.S. and in Europe) that have a specific AML/CFT compliance regime, the diamantaire/jeweler knows that he has done his duty if he reported his suspicions and, most likely, he might even be able to complete the transaction – at no risk to himself. He knows what the compliance requirements are – and, provided he complies, his risks are considerably reduced. In Singapore, apparently, a jeweler doesn’t know where he stands.

            The State Department rightly notes that in Singapore “some structural gaps remain in financial regulation that may hamper efforts to control these [money laundering] crimes.” To aggravate the risks inherent in this situation: Singapore is known for relentless pursuit and persecution of narcotic related crimes. Money laundering is one of the 184 specific crimes covered by the Corruption, Drug Trafficking, and Other Serious Crimes (Confiscation of Benefits) Act of 1999 (CDSA). Singapore is also an important diamond/jewelry trading center.

            The diamond industry should be greatly concerned with the fact that Singapore’s current list of designated predicate offenses for money laundering does not include many of those in line with the FATF's recommendations.

            Even though financial institutions must report suspicious transactions and positively identify customers engaging in large currency transactions, and are required to maintain adequate records, there is no systematic reporting of large currency transactions. There are no reporting requirements on amounts of currency brought into or taken out of Singapore. There are no specific rules for diamantaires and jewelers.

            So when a money laundering case reaches the courts it must rely on the CDSA, which is very unequivocal. Unless you have made a suspicious activity report, you can be accused of “assisting another to retain benefits from criminal conduct”. What is relevant to our discussion is the definition of the potential offender, which (in Section 44 of the CDSA) is defined as “person who enters into, or is otherwise concerned, in an arrangement, knowing or having reasonable grounds to believe that, by the arrangement,” a third party (the customer in the store) used the benefits of crime (i.e. the embezzled funds) “to acquire property by way of investment or otherwise.”

            The bottom line is that a jeweler “knowing or having reasonable grounds to believe that that other person [i.e. the customer] is a person who engages in or has engaged in criminal conduct or has benefited from criminal conduct shall be guilty of an offence.”

            That gets us back to jeweler “D”, who unwittingly got involved in this ongoing money laundering case and who has now been pursued in court by a private party to have his assets frozen until additional information on the case is available (some flexibility is typically allowed for normal course business transactions) for having failed to be alert and not having done the required due diligence – not having alerted the authorities. This is quite unprecedented. We are familiar with instances in which governments freeze assets or bank accounts in money laundering cases. It is quite unusual that a third party does so.

What Actually Happened?

            Let’s look at the case in question. A Singapore couple deposited a reported US$8 million (newspaper accounts differ on the precise amount) in a so-called “client’s account” (escrow account) at the bank account of their lawyer, David Rasif, of David Rasif & Partners, a local legal firm with offices on Carpenter Street in Singapore. The deposit was made pending the completion of a real estate transaction. Shortly thereafter, the lawyer defrauded his clients, stole the money, and disappeared. His whereabouts are unknown. So far this is not an unusual story. Lawyers do dupe clients - it shouldn’t happen, but it does.

            Now comes the diamond part. Before fleeing Singapore, Rasif bought some a sizeable amount of jewelry for a few million Singapore dollars from a local jeweler with whom he had no apparently prior dealings.

The immediate question that arises given the extensive Know Your Client (KYC) and client due diligence requirements imposed by FATF on high value dealers’ customers, is what would suffice as a sufficient KYC exercise given the size of the purchase.

            Sales staff at the jeweler noted that Rasif was going on a vacation with his family at the end of the week (2 June) and he needed the jewelry for investment purposes. A Singapore police Advisory Notice issued by the Commercial Affairs Department and circulated to participants in the diamond market in Singapore indicates that between May 31 and June 2, Rasif ended up buying a handful of diamonds (mostly VS2s or VVS2s), many pieces of jewelry, and two large blue sapphires. He allegedly asked for, and received, a total price for the whole lot and then bargained on the total price. We understand from industry contacts that the invoices don’t provide the individual price for the loose and certificated diamonds. According to unconfirmed trade talk, apparently, some of the fancy yellow diamonds were bought without even being seen.

            Are these investment types of goods? If there is no single price for a stone, how can one ascertain whether there was profit or loss when the investment materialized? The earlier mentioned large fancy yellow 10 caraters (which in the trade would sell for between $8,500 to $12,500 per carat, depending on the specific hue in the fancy yellow range, were apparently sold by the jeweler based on faxed copies of GIA certificates before the goods were actually seen by either the jeweler or the client (or shipped from Hong Kong or Israel, or elsewhere).

Investing in Diamonds – Not a Rushed Business

            The key is whether certain behavior is consistent with the expected or normal business of the individual client or type of client. Is it normal for a lawyer to walk into a jeweler he doesn’t know, saying I need to buy for investments and need all the goods within two to three days because I am going on vacation? Investment in diamonds on a retail level is a long-term proposition that requires considerable skills - especially on the part of the jeweler – what will he suggest make a good investment? Should “the hurry” be a warning sign?

            Before continuing with this story we want to stress that, prima facie, the jeweler seems to have been acting in good faith. The amounts involved were enormous for the size of the jewelry store. Based on official Singapore records, the purchase of Mr. Rasif was the equivalent of the store turnover for a normal half a year. That certainly makes it an unusual transaction for the jeweler (lucky for him).

             A store employee who was interviewed after the incident indicated that “D”’s owner was at no stage involved in the negotiations with Rasif. We have been told that all the professional negotiations were done through sales assistants. This all occurred in a very short time period from late on May 31 with final delivery on June 2. Multiple payments were made, including a wire transfer for an amount greater than the value of what was purchased. Why the overpayment?

Should the Bank Have Acted?

            The bank instructions may well become an issue before the High Court. According to sources interviewed for this article, a wire transfer was made from the law offices’ Client’s Account to the jeweler. Should this have alerted the jeweler or his bank? Does it make sense that a lawyer buying jewelry for investment would pay with money that is clearly not the lawyer’s own money? Would a jeweler be expected to know about such things?

            What is odd is that payments were “split up”. First an overpayment. Then there was an additional payment (for additional goods) by a check made out to ‘cash’ and also drawn from the Client’s Account, as stated at the bottom of the check. The amount is reported to be in excess of S$200,000. The owner of the store himself cashed the check. This would undoubtedly be impossible in Europe or the United States. This amount of cash would have required reporting and why would a lawyer buying jewelry not simply make out a check to the order of the jeweler? Why cash? That of course, is unusual, in Europe and the United States but probably more common in the Far East. Again, should this have aroused suspicion from the jeweler?

What Exactly Constitutes a Suspicious Transaction?

            This is something that has concerned me for quite a while. Belgian, Israeli and American diamantaires must conduct due diligence on suppliers and customers. Some of these are geographically located in regions with different norms and standards. What constitutes a “suspicious activity” in the diamond industry? This question was actually posed by IDMA President Jeffrey Fischer at the recent World Diamond Congress. Some things are probably universal – but others aren’t.

            In the Singapore story there are some universal “red flags.” The client overpaid. And he then asked the jeweler to give him back the overpaid amount in cash. The amount apparently wasn’t enormous (S$20,000). But this is a classic scheme. In Europe or the U.S., the jeweler would have simply repaid through a check or a money transfer. Never in cash.

            Again there is a total setting – a lawyer coming in for the stated purpose of buying jewelry for investment purposes. Investments require or imply at some point that the owner wants to sell the goods back into the market. He should also be able to see later from his item how much profit it generated. That wasn’t the way the deal went. The lawyer asked for a total packaged price of all the items. Twenty different items – mostly cheaper jewelry. Is the purchase consistent with the information known about the client? Does the purchase make economic sense?

            There are many aspects that raise questions. According to our sources, the principal of the store was never involved, didn’t meet the client. Would sales staff not make an effort to get the boss involved, especially since “investment advice” was clearly needed?   

            We are concerned about the situation of the jeweler – and it could be “any jeweler,” for that matter. When a “business” walks into your store and it all sounds “too good to be true” – then it normally is. There is, however, also the temptation – a unique chance to make a bundle. How often can you sell “unseen” goods to a total stranger? Terms like “willful blindness” or “willful ignorance” come to mind. Why risk the loss of business? Especially as the diamond/jewelry sector is not specifically regulated in your location?

                        In any western country, a retailer would have conducted a more thorough due diligence. There are too many red flags – and just a single red flag would normally be sufficient. Most likely, they wouldn’t take chances. To play it safe, they would have reported the transaction. Also, under Singapore law, if a suspicious activity would have been reported, the jeweler could not be held liable any more for any of the consequences of the transaction. He could also not be accused of having committed an offense. The difference between “a good deal” and “a good deal of trouble” would have been a simple phone call.

            We assume the Singapore jeweler is a good, decent and honest man – and nothing said in this article implies anything different. We don’t like the situation in which the court will have to decide what is or is not suspicious behavior. I would prefer greater clarity – it affords all of us greater protection.

            “Reasonable grounds to suspect” imposes an “objective test” whether the person failed to report a suspicious occurrence. The Singapore High Court will have to look at the facts and circumstances at hand and decide whether they would have caused a reasonable person to surmise knowledge or develop a suspicion that someone was engaging in money laundering. In an AML/CFT compliant environment, this places the onus on the jeweler and his employees to show that they took all reasonable steps to know the client and the rationale for the business conducted with the walk-in customer. This involves judgment calls on the part of employees – and that is the reason all the diamond/jewelry AML/CFT compliance rules have an education, training, and auditing dimension.

            During a recent meeting of the Asia/Pacific Group on Money Laundering (APG), which provides an autonomous regional body to work together against money laundering and the financing of terrorism – jewelry and high-value goods such as precious metals and stones were listed as avenues for dirty money to be laundered.

Since its establishment in 1997, the APG has undertaken typologies work to develop a better understanding of the money laundering and terrorist financing environment in the Asia/Pacific region. One of the typologies listed is the purchase of portable valuable commodities (such as gems) to conceal ownership, or to move value without detection and avoid financial sector AML/CFT measures (e.g. the movement of diamonds to another jurisdiction.)

We wish the jeweler well. We like to think that his predicament will cause the Singapore government to consider a better implementation of the FATF’s 40+9 Recommendations. If the government prefers to leave the interpretation to the courts then let’s hope that the latter have the wisdom to consider the international context. At some point international diamond and jewelry suppliers will cease to deal with non-compliant jurisdictions. As this case shows – compliance does not impede our business; it advances and protect it.