FINANCIAL Action
Task Force (FATF) and Egmont Group of Financial Intelligence Units have advised
diamond-trading countries to subject diamond business to appropriate anti-money
laundering (AML) and countering the financing of terrorism (CFT) safeguards
and thus prevent tax evasion.
In a joint report captioned ‘Money Laundering and Terrorist Financing
Through Trade in Diamonds’, the two agencies say that transactions in
diamond trade should be closely monitored as they may facilitate ML/TF
activity and tax evasion through transfer pricing.
The report says: "With
respect to jurisdictions where diamonds trade is a significant part of
the economy or where trade volumes are high, relevant national
authorities should incorporate the diamonds trade as part of their
national risk assessment and impose proportionate AML/CFT measures."
The report, which was issued on 31st January 2014, has pitched for
creation of level-playing field for AML/CFT regulations across the
countries as diamond business is an international business.
It notes "Where
there are major discrepancies between jurisdictions, this may attract
criminals to conduct their transactions in jurisdictions with low or no
AML/CFT regulation on the diamonds trade."
The report says: "For
a sector which is mainly based on trust and long-lasting partnerships,
the application and enforcement of the AML/CFT legislation and the
obligation of diamond dealers to collect identification documents from
each client and report suspicious transactions, has a large impact on
the competitiveness vis-à-vis diamond dealers in other countries who
are not subject to similar obligations. This may have the adverse
effect of diverting the diamonds trade to less regulated jurisdictions,
generating higher levels of ML/TF risks associated with the diamonds
trade. When analysing the over-all level of risk associated with a
particular jurisdiction the FATF may consider the level of risk posed by
the local diamond industry."
It has concluded that different and unique characteristics of
diamonds and the diamond trade make the industry vulnerable to ML and
TF. The diamond supply chain in all of its stages, from production to
consumption, can be the gateway to profitability, for laundering
proceeds of crime, for ML and for moving proceeds of crime into the
financial system.
The report, which has identified gaps in FATF’s AML/CFT guidelines
relating to diamond, is based 64 cases reported by different countries
including India.
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