Mideast Nations Launch MENAFATF

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The events of 9/11 ushered in a zero-tolerance, antiterrorist ideology among the world’s leading countries — countries with enough joint-economic muscle to redefine the way industries conduct business. Diamond-trading and producing nations have no choice but to comply with rigorous new regulations to combat terrorist financing and money laundering.

USA PATRIOT Act

A decision by the U.S. Treasury department to extend its antimoney-laundering (AML) and terrorist-financing rules to include dealers in precious metals, stones and jewels, along with the publicity and scrutiny that accompanies the decision, poses a tangible and prevalent risk to the industry’s reputation.

On December 8, 2004, the department stated in new guidelines that the U.S. financial services providers that use foreign agents or counterparties in their operations — especially significant for the diamond industry — have six months to establish procedures to prevent money laundering and the financing of terrorism.

In a document explaining the guidelines, the department’s Financial Crimes Enforcement Network (FinCen) says it has discovered “several instances of suspected criminal activity” involving the use of U.S. travelers’ checks or blocks of money orders to pay for diamonds, gems or precious metals.

Other governments and organizations have also implemented AML regulations governing the diamond industry. Diamond industry leaders have even expressed concern that the different nomenclature of all these regulations will cause confusion, especially since most diamantaires operate in more than one country.

Middle East

Despite their efforts to comply, some governments in the Middle East and North African (MENA) region — a hotbed for terrorism, diamond smuggling and money laundering — might face an uphill battle as new laws and increased transparency conflict with cultural, political and religious principles. As relations between diamond industries and the MENA region develop these issues cannot be ignored, especially considering the pace at which the region is coming into its own in the diamond world.

The Middle East is currently one of the largest-growing international consumer markets with strength in the retail side of the business. Dubai, located in the United Arab Emirates (UAE), is fast becoming a rough diamond-trading center of choice partly due to its free-trade zone status. Diamond jewelry sales from the UAE to the Middle East and Asia rose 15 percent in 2004 compared to 2003. During the October World Diamond Congress (WDC), the Dubai Diamond Exchange (DDE) became the first World Federation of Diamond Bourses (WFDB)-affiliated bourse in the Arab world.

The FATF

The Paris–based Financial Action Task Force (FATF), which was created to tackle money laundering, expanded its mission after 9/11 to combat terrorist financing. The FATF’s Forty Recommendations and special recommendations against terrorist financing have been widely adopted by some, including several countries in the Middle East, FATF-style regional bodies and international organizations such as the European Commission (EC), the United Nations(UN), the International Monetary Fund (IMF) and the World Bank.

Despite this and the pending USA PATRIOT Act regulations, diamonds are still being smuggled out of African-producing countries into the world’s major diamond centers. While there is no consensus that a link between diamonds and terror exists, terrorist organizations like al-Qaeda need untraceable cash to buy weapons and diamonds are an easy target.

Middle East and North African FATF

The Kingdom of Bahrain, one of the leading financial centers in the Middle East and a region that has implemented FATF recommendations, was chosen as the headquarters of the FATF-style regional body for the Middle East and North Africa Financial Action Task Force (MENAFATF). Bahrain hosted the inaugural MENAFATF ministerial meeting, which took place on November 29 and 30, 2004.

The decision to form MENAFATF was made by the governments of Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, the UAE and Yemen. Membership is voluntary.

A Memorandum of Understanding (MOU) among member states defines the scope of cooperation. As an independent body MENAFATF sets its own work program as

well as rules and procedures by consensus among its members.

Dr. Muhammad Baasiri, MENAFATF president and secretary, Special Investigation Commission, Lebanon, saysthat MENAFATF objectives include raising compliance with international standards and best practices aimed to fight money laundering and terrorist financing, identifying these issues at a regional level and developing regional solutions. The organization will also raise awareness in the region on related issues and provide technical assistance to member countries to meet international standards. In this way the group will help fight diamond smuggling too, explains Baasiri.

Baasiri says that as far as diamond smuggling is concerned, many MENA countries have subscribed to the Kimberley Process Certification Scheme (KPCS) while others are expected to follow suit. However, he believes that diamond smuggling is a worldwide phenomenon to which the KP was a suitable response. Baasiri did not deny that terrorists might use diamonds, “I think terrorists will make use of any means to finance their activities, including conflict diamonds.”

Lebanon is not a KP member, but still a MENAFATF member. Baasiri says that members are committed to MENAFATF objectives and applicants must “commit to participate in mutual evaluation programs.” Members and observers will be admitted to the group by unanimous vote.

Religious Twist

Cultural and religious incongruence between international antiterrorism efforts and those proposed by MENAFATF will have to be addressed. In its mission statement the group states that it aims to “build effective arrangements throughout the region to combat effectively money laundering and terrorist financing in accordance with the particular cultural values, constitutional framework and legal systems in the member countries.”

After the inaugural meeting, Juan Carlos Zarate, U.S. Treasury assistant secretary for terrorist financing and financial crimes, told reporters that since 9/11 over 27 charities had been identified as involved in misusing their charity funds. Three of these charities are based in the U.S. The FATF now has specific rules to prevent terrorists from siphoning off charity proceeds.

“We do respect charity as one of the main pillars of Islam and other religions, but the unfortunate incidents of 9/11 and consequent links of some charity organizations have prompted the global community to take immediate measures to stop financing channels to terrorist groups,” says Zarate.

Zarate acknowledges that major initiatives have been taken by various countries including Saudi Arabia, which had been a victim of terrorists’ activities recently, and that the UAE is bringing in new charity laws to cope with the issue.

H.E. Abdulla Hassan Saif, Bahrain’s minister of finance and national economy, who chaired the meeting says that Bahrain’s charity organizations’ financial transactions are subject to an audit and scrutiny process, “Being a Muslim society we cannot ignore the benevolence and charity aspects of our belief, but strict laws are there to check any illegal activities. The amount of money laundering–related cases is not significant in the MENA region and the establishment of MENAFATF in Bahrain will help to further tighten the noose around criminals.”

In regard to Islamic banks and financial institutions, Zarate stresses that the U.S. has never blamed them for being the only source of terrorist financing, “The Islamic banking system is an important segment of the global financial community, even in the U.S., Bahrain and Malaysia — the fastest-growing markets for Islamic institutions.” He suggests, however, that common accounting standards would help minimize the risk of these banks and institutions being used for criminal purposes. He says that the U.S. Treasury will continue to work closely with the international community to ensure the development of a healthy global financial system, adding, “In this region we are working with our allies to stop the flow of money to terrorists’ organizations, including al-Qaeda.”

Baasiri, on the other hand, sees no gap between the cultural and socioeconomics of the MENA countries and global rules for transparency, “The fact that member countries succeeded in the creation of MENAFATF in record time informal discussions preceded the inauguration of this body by just one year is a clear reflection of their willingness to play a well-deserved role on an international scale in the fight against money laundering and terrorist financing.”

Globalization

Globalization is the key for industry survival today and no industry can operate in a vacuum. Business leaders in pursuit of the greenback and countries looking to develop their economies will have to take heed of the new developments, implement transparent trading and accounting rules and might even have to veil their political views to fit in with global trends in order to survive.

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