Illegal funds raised in India through diamond trade

The Paris-based Financial Action Task Force (FATF), which sets standards to combat money laundering and terrorist financing, recently issued a new report that lists India as one of five countries in which accounts of diamond businesses are used to launder illegal funds worth millions of dollars. Such instances were also reported to have occurred in Israel, Belgium, Canada and the United States.

The report issued said that India has reported instances where diamond prices were over-valued for purposes of laundering and suspect financing. The case presented by India exposes how through over-valuation diamonds were shipped at a value that was tens of millions of dollars 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 on ‘Money laundering and terrorist financing through trade in diamonds’ said.

These instances were also reported from four other countries - Israel, Belgium, Canada and the U.S.

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

The report has cited an unidentified case where some Indian importers of diamonds, based in Surat and Mumbai, imported from Hong Kong and China by “grossly over-valuing these diamonds to $544.8631 per carat.” The report states that in a number of suspect cases of diamond trafficking, a majority of funds were transferred internationally to Belgium from accounts of Hong Kong, China, Israel, the UAE, the U.S. and also 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 related to the diamond trade,” the report said.