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India’s diamond trade being used for money laundering: Report

In cases of suspicious money laundering instances of diamond trade, funds transfer occurred from India, Israel and Switzerland to UAE.

New Delhi |
February 3, 2014 2:48:02 am

India is one of the five countries where instances have been found that trade accounts of diamond business are being used to launder illegal funds to the tune of millions of dollars, according to a report by a global financial crimes combating body.

The report by the Financial Action Task Force (FATF), a Paris-based global body to set standards to combat money laundering and terrorist financing, says that India has reported instances where diamond prices were overvalued for purposes of laundering and suspected financing.

The report said as there were no set standards of diamond pricing in the country, agents were overvaluing the costly and prized gemstones, and even one such big instance is under the scanner of financial enforcement agencies.

The report has been brought out with the aim to provide a general overview of the diamond industry, the way it works and the characteristics of diamonds as merchandise, “through an anti-money laundering and combating financing terror lens”.

“The case presented by India exposes how through over-valuation diamonds were shipped at a value that was tens of millions of USD higher than the real value. This kind of over-valuation cannot be done in goods with a fixed or even relatively fixed price,” the FATF report stated.

These instances were also reported from Israel, Belgium, Canada and the US. China and India are major markets where diamond trade is done on a large scale, the report said. The report cited an unidentified case where some Indian importers, based in Surat and Mumbai, imported diamonds from Hong Kong and China by “grossly overvaluing these diamonds to $544.8631 per carat”.

This case shows the level of manipulation which may be conducted through the diamond trade due to its specific characteristics, such as the very high value and the lack of known and stable prices which allow for the manipulation of price, the report stated in the Indian context.

The report states that in a number of suspected cases of diamond smuggling, a majority of funds was transferred to Belgium from accounts in Hong Kong, China, Israel, UAE, the US and India.

In cases of suspicious money laundering instances of diamond trade, the funds transfer occurred from India, Israel and Switzerland to the UAE.

“India reported a relatively large number of sanitised cases (12) in which suspicious transaction reports were received (in connection with diamond trade). In these specific cases, Hong Kong, China is a destination for illicit cash flows…,” the report said.
Belgium, Brazil, China, Canada, the US, the United Kingdom and Switzerland also feature alongside India in this report.

The report also puts forth its findings which comprises enhancement of regulatory mechanism to combat and control laundering and financial crimes in this trade worldwide.

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