Police Raids in a 'Spooky Environment'
October 21, 04 by Chaim Even-Zohar
Last week various law enforcement teams, consisting of some 10 policemen each, raided half a dozen diamond companies in Antwerp. Questions were asked, documents confiscated, statements obtained, follow-up meetings scheduled – and very little was actually disclosed on what it all was about, although the impression was that it involved DRC-origin rough diamonds. No, the raids were not tax related. From some of the questions and the questioning, it appears that this particular investigation centers on the suspicion of money laundering and it might well have been triggered by one or more “suspicious activity” reports filed in accordance with the Belgian anti-money laundering (AML) laws, which imposes special obligations on the diamond sector.
It is probably fair to assume that some of the offices raided have little to do with the alleged crime(s) being investigated, but they may – unwittingly – still have violated the new anti-money laundering law, and, specifically, its diamond industry-related provisions.
There is an obligation to conduct due diligence – if you deal with a company that is involved in illegal activity, you should have known about it. And if you didn’t – then your AML compliance program, your due diligence on clients or suppliers, was faulty. You failed. As we still are in a legal “transition period” there is no need to prepare already one’s pajamas for an extended vacation in a government’s guest house, but these raids should certainly serve as a warning sign. The law does work; the law is being enforced. One violates it at one’s own peril.
My concern is with respectable, legitimate and decent companies and people that may get into trouble through no fault of their own. That’s one of the problems with the very notion of due diligence. You never know whether you are doing alright; you will only find out that you did something wrong (and thus illegal), when one of your clients or suppliers is busted – and then you hope that it is only money laundering and not the financing of missiles, etc (as happened to a New York money dealer).
Sometimes “perfect due diligence” may truly be mission impossible. This occurred to me again when perusing a book on money laundering that was published this week in South Africa. The author reports that stolen vehicles from South Africa, Botswana and Namibia are being smuggled to Angola, where they are exchanged for diamonds or paid for with cash realized from the sale of illegal diamonds or hard currency. [See: Charles Goredema, 'Profiling Money Laundering in Eastern and Southern Africa'.] Assuming that the rough diamonds arriving in Antwerp are covered by a Kimberley certificate, how can a Schupstraat or Hovenierstraat office even begin to suspect that the diamonds imported were, at some point in their (long) history, involved in money laundering? In car theft? In whatever…? [Kimberley Certificates only certify that diamonds come from a non-conflict source. It doesn’t say (or certify) anything about the sources of the money used. In a money-laundering investigation involving diamonds, having the pertinent Kimberley Certificates, unfortunately, is not much of a defense. It has nothing to do with the AML issue.]
Although the Belgian anti-money laundering and anti-terrorist financing law is in place, not all diamantaires are fully aware of either the consequences or of their obligations. In Antwerp, the introduction of anti-money laundering compliance programs in diamond offices is already a legal imperative. The Belgian diamond trader is now defined as a “financial institution” for the purposes of the law. This has many ramifications. It makes it mandatory for diamond traders to:
n Verify the identity of new clients by means of a supporting document, a copy of which must be maintained by the seller;
n Maintain a copy of an identification document in each transaction in excess of €10,000 – also in the case of long-term existing clients;
n Maintain transaction records for at least five years;
n Familiarize themselves with the nature of their clients’ business, to ascertain that the transaction is not “unusual”, and that the source of funds of the client is bona fide;
n Make sure that a client acts for himself and not as an intermediary for an unknown third party;
n Not to receive cash for the sales transaction of any goods with a value exceeding €15,000.
n Immediately inform authorities of any suspect transaction that may be linked to money laundering or terrorist financing; and other requirements.
It follows that if a customer is caught (or suspected) to be involved in money laundering, the diamantaire has failed in familiarizing himself with the source of funds of his client or supplier. As a quasi-expert on the subject, I am the very first to admit that this is mission impossible. No diamantaire has the tools to verify the source of funds of clients, etc. [This is one of the reasons that we keep writing about these subjects: only by raising awareness about its almost impossible legal obligations will the industry take the necessary steps to protect itself. At least, that is our hope.]
Now you might say: come to the point, what exactly happened in Antwerp last week – and what happened some weeks earlier [when the first raid in the investigation commenced]? Here journalists enter into uneasy waters. If the raids are the result of a “suspicious activity report”, something we assume but don’t know, then there must be someone in a diamond office, in a government agency (domestically or overseas), in a bank or money exchange office, in a stakeholder company, who may have alerted the relevant authorities. Worldwide, and Belgium is no exception, the unauthorized disclosure of Suspicious Activity Reports is not only a violation of criminal law, but it undermines the very purpose for which the suspicious activity reporting system was created - the protection of financial (and now also diamond trading) systems through the prevention, detection, and prosecution of financial crimes and terrorist financing.
Indeed, the unauthorized disclosure of Suspicious Activity Reports is universally viewed as potentially compromising national security as well as threatening the safety and security of those institutions and individuals who file such reports. In other words: no one talks – which literally presents a journalistic nightmare.
One may assume that there is a very long road between a parcel of diamonds in a diamond office and a “national security threat” – but the law is the law. For me, as a journalist, to imply that I know for sure that the Belgian raids are related to a Suspicious Activity Report, would suggest that I have a good source. By providing more details, I may be jeopardizing such a hypothetical source. Moreover, that source would be violating criminal law by disclosing this to me.
But that, by itself, is scary. One company that has been targeted by a police raid in recent weeks says it has no clue whatsoever what is behind it all. That person may not be telling the truth, or all of the truth, but it does illustrate the almost “spooky environment” created by the new laws. Those who know this writer will realize that I wouldn’t be writing this if I didn’t know what I was writing about. But, for the record, I have no source; I am conjecturing; I have no proof. It is not only diamantaires which may have to operate in a “spooky environment” due to what seems as quite an impossible legal environment – it hits journalists as well. Have an enjoyable weekend.