The old adage goes “diamonds are forever”, and such has been the case with respect to the relationship between the precious gems market and financial crime. The laundering of ill-gotten proceeds through the purchases and sales of physical goods has been a practice that dates back over a century, and jewelry in particular lends itself very well to financial criminals, political figures and others seeking ways to conveniently and expeditiously move large quantities of money – both domestically and across international borders – without stirring up significant fanfare. Aside from sheer portability, further contributing to this allure is the ease of conversion of metals and gems into cash and other assets given their universal desirability. What remains most concerning is the fact that those perpetrating these efforts conduct their business under limited oversight, as the monitoring of the jewelry industry remains an uphill battle at the international level. This is due in large part to a lack of standardization across the globe with respect to regulation of these markets, culminating in new challenges consistently being posed to financial authorities and government agencies on the frontlines in the fight against illicit finance.
While the market itself has changed over time, the aesthetic attraction of certain stones and metals over others have remained much the same. Given these factors, much of the laundering through this front centers on gold, silver, and diamonds – the latter of which shining above the rest due to their growing value in spite of their relatively small size. As such these rare stones are often used for international smuggling efforts, trading, or for purposes of filing fraudulent invoices to make illicit activity appear legitimate or exaggerate the worth of their assets. Criminals will also often structure their transactions, or stack them, in order to stay underneath government reporting thresholds, while also mixing in their illegally purchased jewelry with their legitimately purchased variety as to further obfuscate the sources of their nefarious activity.
Section 352 of the USA PATRIOT Act dictates that anti-money laundering (AML) protocols are required for all U.S. dealers and retailers working in the realm of precious metals, gemstones, and jewelry containing these products if their purchases and sales of these goods account for more than $50,000 in total value annually, yet one must consider that while frowned upon by regulators, cash-based transactions remain very practical for retailers and individual dealers alike (and also contribute to tax evasion efforts which remain a major issue domestically). Furthermore, much like the sales/trade of fine art, many of these deals for jewelry can be made anonymously on the black market, further shrouding money trails and hindering enforcement efforts. Each of these factors has in part contributed to the development of the jewelry/precious stones and metals industry as arguably the top vehicle for international money laundering seen today.
Given that many of these practices have been successful for decades, authorities in the United States are well aware of both the threats posed, and many of the tactics utilized, by criminals using jewelry to wash their dirty money. Over the past decade, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), the Drug Enforcement Administration (DEA), and other federal agencies have brought about a growing number of successful enforcement actions against dealers and individuals alike. Many of these parties have also improved with respect to inter-agency and international cooperation and information sharing practices which have lead to a growing number of forfeitures on behalf of financial criminals, drug traffickers and even terror organizations – each of which pose respective threats to national security and the integrity of the international financial system. Just this week for example, U.S. prosecutors levied sanctions evasion charges against an international businessman who was alleged to be a major financier of the U.S.-designated terror group Hezbollah. The individual in question, a Lebanese-Belgian dual citizen named Nazem Ahmad, had been previously blacklisted by the U.S. Office of Foreign Assets Control (OFAC) in 2019 (along with 11 of his business associates) and barred from doing business with any U.S. citizens or entities because of his ties to high-level members of Hezbollah.
U.S. prosecutors now allege that Ahmad had set up a complex network of shell companies to hide behind as he committed acts of fraud and money laundering over the past four years. He reportedly used these entities to engage in transactions with Americans for art and jewelry in an effort to evade his blacklisted status, while moving hundreds of millions of dollars worth of ‘blood diamonds’ and art as his primary fundraising method. Ahmad and his associates/co-defendants are accused of importing hundreds of diamonds into the United States for grading, including a 45-carat diamond valued at $80 million.2 So far, only one of the co-defendants in this case, Indian National Sundar Nagarajan, has been arrested as the rest, Ahmad included, remain fugitives of the law. While these men are being tracked down, the U.S. has continued to seize assets related to the case, including more than 450 diamonds and 100 pieces of art that have ties to the defendants. All told as part of OFAC’s current investigation, a total of 52 individuals and entities have also been sanctioned for alleged dealings in diamonds, precious gems, art and other luxury goods and cash tied to Ahmad.
The U.S. government and its international allies have urged financial institutions acting within their respective jurisdictions to remain vigilant for suspicious financial activity with potential ties to terror groups that are currently desperate for cash. Countries synonymous with terrorism exploits such as Iran have felt the economic squeeze of American sanctions and can no longer provide funding to Hezbollah and other groups, and as such outside parties are looking for ways to diversify their revenue streams and will likely become more creative as time goes on.
Citations
- Bates, Rob. “U.S. Sanctions Diamond Companies for Ties to Hezbollah Financier.” JCK, 19 Apr. 2023.
- Hackman, Michelle, and James Fanelli. “U.S. Charges Alleged Hezbollah Financier with Illegally Shipping Fine Art, Diamonds.” The Wall Street Journal, Dow Jones & Company, 18 Apr. 2023.
