My Bonnie Lies Over the Ocean
January 25, 07During the past few days, Antwerp and New York have demonstrated something about the ocean-sized gap that exists between the respective diamond and jewelry industries and their regulators who enforce anti-money laundering laws.
In Antwerp, in the so-called Monstrey Worldwide Services courier case, a dozen diamond offices were raided, close to 10 people were arrested, and goods and records were seized; some 40 detectives participated in the action. According to newspaper reports, “the anti-money laundering authorities believe that between 80 and 200 diamantaires profited from the fraud perpetrated by the courier companies… the raids of this week are most likely not the last.”
It may be recalled that during a previous raid connected to the same investigation, an Indian diamantaire died of a heart attack. The diamond business is concerned about the “timing”; this raid coincided with the premi?re of the Blood Diamond movie in Belgium. That being said, as painful as it may be, the law is the law. Those who violate the rules will have to be prosecuted and be held responsible. No one will argue with this.
What we find disturbing, however, is that one repeatedly gets the sense that there is a total breakdown of cooperation between the industry bodies and the regulatory authorities in Belgium. An official Diamond High Council (HRD) spokesman expressed regret about the “show of force” of the investigators. He also noted that “old historic judicial cases” come up again and again, which makes it more difficult for the world to see that Antwerp now has good laws, has changed its ways, and is a fully transparent center.
The history of Belgium’s anti-money laundering laws (AML) in respect to industry-government cooperation fluctuates more than the price of rough diamonds. In December 2004, AML laws where enacted without prior consultation, participation, or even the knowledge of the industry or the government ministry responsible for overseeing the diamond sector. Consequently, the industry petitioned to get changes in the law. This was followed by a close industry-government consultation, which led to reforms within the HRD that settled various social-economic industry issues, including a one-time inventory reassessment (tax amnesty is a phrase the Belgians don’t use). The AML rules, however, weren’t changed. The prohibition on cash transactions above a €15,000 threshold remains in force as well.
In New York, it is quite a different world. Laws are being enforced – as they should. However, the connections between industry and its regulators appear, at times, so cozy that, from an overseas perspective, one wonders where the line is drawn. The Jewelers Vigilance Committee, the 90-year-old not-for-profit legal trade association committed to maintaining the jewelry industry’s highest ethical standards, also serves as industry representative before government agencies.
As industry lobbyist, the organization has played – and is still playing – a powerful role in drafting FinCEN’s Jewelry Rule, the anti-money laundering and the combat of financing of terrorism regulations applicable to the diamond and jewelry industries. Our industry is regulated; FinCEN is the regulator. At FinCEN one of the more able and capable civil servants is Josh Kaptur. Kaptur is presently finalizing the Final Jewelry Rule, which should be promulgated within the next few weeks or months.
Kaptur, who is a regulatory policy specialist, has recently been awarded JVC’s coveted Stanley Schechter Award for distinguished service for “helping JVC to educate the jewelry industry about legal compliance and anti-money laundering (AML) issues pertaining to the manufacture, sale and advertising of fine jewelry.”
In a press release, JVC says it continues, “To enjoy positive working partnerships with government agencies concerned with our industry. Our annual luncheon highlights JVC’s work on behalf of the industry.”
The award ceremony took place in the presence of 150 prominent jewelry industry leaders, including principals from top retailers, manufacturers, wholesalers, distributors, designers and trade industry publications. From the other side of the ocean, it seems that JVC and the industry have built a relationship with their regulators in an enviable way, even though it may be hard to understand.
At the Waldorf Astoria ceremony, Kaptur lightheartedly recounted the details of the ethics rules that nearly prevented him from receiving the award. He stressed that "although the ethics hoops we needed to jump through to be here were frustratingly complex, I’m thankful we painstakingly followed them in light of the obvious irony there would have been had they been skirted to receive an award named in honor of someone who ceaselessly promoted ethical conduct in your industry.
“In addition to being thankful for having my legitimate efforts to provide ear-to-the-ground regulation and outreach in a context of new regulatory oversight – new both for us and for you – I am truly humbled to receive this award. Inasmuch as anything I have done has been recognized as going above and beyond, I assure you that it was consistent with FinCEN culture and supported by FinCEN management from the top down: as an organization, we are committed to supporting your industry in any way possible with anti-money laundering compliance. In that sense, even though my name is on the plaque, I’m proud to accept the award on behalf of my agency.”
Kaptur concluded by stressing FinCEN’s commitment “to working effectively with the jewelry industry to safeguard them, and thereby our country, from the vulnerabilities for abuse faced by dealers in high value goods.”
Assisting the IRS
What widens the ocean of understanding even further is JVC’s next mission: the Internal Revenue Services in the United States are going to check whether individual companies have implemented the anti-money laundering rules and are compliant in reporting cash transactions above $10,000 (from one customer over a 24-hour period) to the IRS. The IRS has asked the JVC to help write the audit manual for IRS officers.
IRS Compliance Policy Program Analyst F. Kim Buggs, speaking at the JA Show in New York this week, said that the IRS will begin to examine jewelry-industry AML programs in the fourth quarter of 2007, and that the IRS cannot conduct an AML audit and 8300 form audit at the same time. Buggs, citing JVC’s input during the drafting of the USA PATRIOT Act, asked
Buggs noted that the IRS will want to see what jewelers are doing to identify, detour and report possible money-laundering activities. She also stressed the importance of filing an SAR (Suspicious Activity Report) with the IRS to describe suspicious activities by a customer or vendor, particularly new ones. Suspicious activities include: a customer or vendor repeatedly paying in large sums of cash; evasive behavior or falsified phone numbers or identification; and customer/vendor requests that raise concerns that they may be trying to hide transactions from the IRS or are attempting to break the law. The IRS official stressed in his presentation the need to trust one’s instincts when confronted with situations that that do not sound (or feel) correct.
In respect to the IRS request for JVC’s input, Gardner agreed to assist the IRS.
From overseas, this seems the equivalent of Antwerp’s Diamond High Council writing the manual for the detectives that raid companies in the search of AML violations. In Belgium, the federal government has a team of six detectives, called the “diamond team.” This “team” is connected to judicial branch, which is responsible for monitoring and discovering money-laundering violations among the 1500 companies active in the Antwerp diamond sector. The team is headed by Agim De Brucker.
It would be inconceivable for the HRD to award De Brucker an award for excellence in public service. Or would it?
A year ago, I reported in this column that the JVC has prepared a comprehensive, user-friendly, and in-depth AML Program Compliance Kit, which has one enormous advantage: its acceptance from coast to coast as the “final word” on compliance programs has created a level playing field. It de facto harmonizes the programs in use throughout the United States – something we cannot say about Europe, where cash-diamond transactions that are prohibited in Brussels are allowed to the north in the Netherlands. There is something awesome, almost unreal, about the implications of the compliance exercise, and it evokes a myriad of startling thoughts.
I wrote then that “though the law is clear, the ‘customary trade usage’ will be set by the JVC’s compliance kit, which will basically set the industry standards. The JVC and its President
Now, after having established and set the standard, the JVC will ensure that the IRS inspector’s manual, to be used when checking on the compliance of diamond and jewelry companies, will be fully synchronized with these standards.
To me, the following actions are all utterly amazing: assisting regulators in writing the laws, lobbying regulators to have the best interests of her industry members reflected in the laws, honoring the government partners who write the laws, setting the standards for compliance within the industry, and then writing the inspector’s manual for conducting audits.
Back to Antwerp: this week or last week, apparently, a new AML law for the diamond sector has gone into effect, with tightened rules on the identification of the ultimate beneficiary of the overseas corporate clients, etc. I couldn’t find anyone that really knows the status of the law. Apparently, the industry was again excluded from its drafting…
To paraphrase on the Scottish folksong “My Bonnie Lies Over the Ocean”
If there would be a
Have a Nice Weekend – Cecilia and the rest of us.