US Official Report: “Diamonds are Odorless…”

“According to a Belgian law enforcement official, a substantial number of the diamonds traded in Antwerp, the world’s largest trading center, are sold on the black market with no transaction records.” This matter-of-fact determination was made in the latest report by the U.S. General Accounting Office to U.S. Congress, in which it bitterly complains that neither the U.S. Department of Justice nor the Treasury Department have lived up to the necessity to publish extensive data on the use of diamonds for terrorist purposes.

Reading the report on my way to Freetown, Sierra Leone, which is one of the countries which is believed to facilitate terrorist financing, I got a feeling that the United States government may well start to equate diamonds with terrorism, just as we equate the Dutch with cheese, or sport shoes with Nike. Nobody has actually yet ascertained what the cumulative effects on the diamond business will be from such publicity – and that is irrespective of what is true or not true.

The GAO states, again as a matter of fact, that “terrorist organizations have traded in precious stones such as diamonds to launder money or transfer value because it is easy to conceal these materials and transfer them. Terrorists can move their assets by converting moneys into a commodity, such as diamonds, that serves as a form of currency.”

The GAO also briefly considers gold use by terrorists, but rejects that possibility. No, the GAO believes that diamonds are a preferred terrorist currency. Says the prestigious U.S. watchdog agency: “Diamonds can be used in lieu of currency in arms deals, money laundering, and other crimes. Diamonds are also easily smuggled because they have high value and low weight and are untraceable and odorless. The international diamond industry is fragmented, with numerous small mining operations located in remote areas of Africa, in countries that have porous borders and no rule of law. There is limited transparency in diamond flows owing to the complex way in which diamonds move from mine to consumer, the existence of significant data inconsistencies, and the industry’s historical avoidance of close scrutiny. Diamonds are often traded fraudulently, and smuggling routes for rough diamonds are well established by those who have used such routes for decades to evade taxes or move stolen diamonds. Most officials and researchers we spoke with recognized a highly probable link between Hizbuallah and a part of the Lebanese diamond-trading network in West Africa.”

Though newspapers (and we also on IDEX Online) have reported on the possibility that terrorists may have used diamonds in the past, the GAO believes this is still the case today. Quoting the U.N. Special Court Chief Prosecutor and the Chief Investigator in Sierra Leone, both sources “report that the problem is current” says the GAO.

Blaming U.S. law enforcement for having been unable to substantiate reports that diamonds have a connection to the September 11 tragedy and al Qaeda, the report relies on the NGOs to support that claim as well. Moreover, it suggests that even today al Qaeda may be involved in diamond trading. The report mentions drug trafficking activities and links these also to terrorism and the New York diamond industry.

It isn’t pleasant reading. The report accuses the FBI of refusing to give out relevant information on what it calls “trade-based money laundering”. We better get used to the term. The FBI defines this “as the use of trade to legitimize, conceal, transfer, and convert large quantities of illicit cash into less conspicuous assets such as gold or diamonds. In turn, these criminal proceeds are transferred worldwide without being subject to bank secrecy laws. For example, Hawala operators reportedly use false (under- or over-) invoicing to balance books or move assets. According to the FBI, some cases of terrorist use of trade-based money laundering to move assets may exist but are too sensitive for discussion at this time.”

So if it is “too sensitive to discuss now” – then we shouldn’t, and this is certainly not a subject to raise just towards the end of the year’s most important diamond jewelry selling season. But as we are reflecting on what the next year will have in store for us, I can’t help escape the feeling that this is going to be one of the hottest topic to plague our industry.

Next year may well become the “uranium year” for diamonds – not a single diamond, rough or polished, will eventually be moved without a complete auditable trail. We better get used to the idea. The world will look at diamonds with the same suspicion as uranium. The very fact that we may have to explain that “there is quite a difference” is chilling by itself. Very chilling. Happy holidays to us all…