(Rapaport…February 16, 2005) It is time to address back-door systems and misuse of trade to combat terrorism, said Juan Carlos Zarate, at his testimony before the House Financial Services Committee. Zarate is assistant secretary of terrorist financing and financial crimes for the U.S. Department of the Treasury, and he addressed the hearing on February 16, to discuss abuses and non-traditional means by which terrorists finance their campaigns.
Zarate said, that in an ongoing effort to combat and isolate terrorism at the core of financing concerns the United States has shut flows of money to terrorist groups, making it more difficult for these groups to fund attacks through traditional means.
Financing is “not a monolithic force, but part and parcel of a nexus comprised of adept financial criminals, corruptible financial institutions, and complex ideological and financial networks,” he said. Financiers are adjusting to international efforts to obstruct combative efforts and depend upon new ways to bankroll infrastructure.
Under the radar of traditional banking institutions, “trafficking in precious gems and laundering diamonds are gaining increased recognition,” he said. The networks in which diamonds are used require trust of the highest degree, based upon “long-standing ethnic, family, clan, or tribal ties,” which obstructs investigators and countermeasures.
Through laws and outreach, Zarate said and with the a help of appropriate agencies, “laws and regulations ensure a culture of compliance with record keeping, due diligence, and broad anti-money laundering controls.
“The illicit diamond trade provides an instructive illustration of how terrorists could abuse the precious commodities industry to fund their efforts.” Legitimate diamond processing steps of mining, trading, cutting, polishing, and retailing can still be abused by corrupt regimes and organizations, he said.
In order to combat these risks, “we must improve the oversight and transparency of the diamond and precious commodity industries through the development of effective international standards and domestic regulation, and we must identify and disrupt illicit actors within the system through targeted actions.”
Zarate used the Kimberley Process as an excellent example for industry, government, and NGO partnerships, which help to counter conflict diamonds. The process defines guidelines to document movement of rough stones through the chain and to limit trade to those countries participating in the Kimberley Process.
“Implementation of the Kimberley Process Certification scheme now encompasses the overwhelming majority of the producers and traders in rough diamonds,” he said.
Although the Kimberley Process has made notable progress in counteracting the trade in conflict diamonds, the procedures were not designed specifically to combat diamond laundering or other financial crimes associated with diamonds. “For example, the trade in rough diamonds and the mixing of parcels before being imported into a country for finishing and sale is a recognized vulnerability. There are reports that in some locations that Kimberley certificates can be purchased on the black market.” He said the trade in polished stones is not subject to the Kimberley Process.
FinCEN published a notice of proposed rulemaking in the Federal Register to set minimum anti-money laundering programmatic requirements applicable to dealers in precious metals, stones, or jewels to prevent money laundering or terrorist financing. Zarate encouraged dealers to voluntarily adopt these procedures and to file Suspicious Activity Reports with FinCEN.
“The U.S. Treasury is also working with the interagency community to identify and shut down illicit financiers who have penetrated the diamond and precious commodity industries in support of criminal activities,” he said.
“Arguably the largest private arms dealer in the world today, [Viktor] Bout uses his fleet of Soviet-era cargo aircraft to supply guns and bullets by the ton, as well as advanced equipment such as attack helicopters to anyone willing to pay his price,” Zarate said. In Liberia and elsewhere, Bout has been accepting payment “in diamonds which can be easily and profitably unloaded in the Middle East or Europe.”