Canada is among a handful of countries where the diamond industry is being used for money laundering and terrorist financing, according to a report by a global financial crime body.
The report by the Financial Action Task Force, a Paris-based global body that sets standards to combat money laundering and terrorist financing, says that Canada has reported to it that its diamond industry is vulnerable to diamond smuggling and illicit diamond trades by drug traffickers.
According the report, 80% of the world’s diamond mining is mainly centered in Canada, Russia, Botswana, Congo and Zimbabwe and in Canada, despite high levels of supervision and control of mining operations, diamond mines are susceptible to infiltration by organized crime and to the trading of stolen and smuggled diamonds.
Diamonds used for drug trafficking
The report says that in Canada, drug dealers use diamonds to pay drug suppliers which are then sold to urban jewellery stores in small increments to avoid detection. Jewelry stores pay the drug dealers by cheque or with expensive watches. Street level drug dealers are sometimes paid with diamonds from buyers instead of cash, and they then exchange the diamonds for gold bars at jewelry stores.
Canada also has a growing problem of illegal diamond trafficking with other countries, although the transactions occur primarily with the U.S. Much of the diamond trafficking trade is connected to drug trafficking. Members of organized crime use diamonds as a substitute for currency to pay for cross-border shipments of drugs, or to settle drug debts.
Illegal trade allegedly funded by banks
According to the Report, the illegal diamond trade is funded by banks (although the report does not say so, the funding by banks is no doubt unwitting) and other financial firms that fail to apply special client ID procedures to business people who own diamond businesses.
The report said that Canada has identified cases of diamond trading being used not just for money laundering but also to finance terrorism through jewelry businesses in Canada. Diamonds smuggled to terrorist organizations are easily sold for currency to fund terrorism globally. Pursuant to global anti-terrorism laws, dealing in property that benefits terrorist organizations, even indirectly, is prohibited.