If you live and work in the Western Hemisphere, and think that my recent article* about criminal activity in the UAE, in Ras Al-Khaimah (RAK), is not relevant to your bank or NBFI, you may be wrong. RAK has a state-of-the-art diamond processing center, and you will never guess where a large portion of its suspect diamonds come from.
The answer is Venezuela, a member of the Kimberly Process, but which annually declares that it has not exported one carat, notwithstanding that illegal diamond mines, located in the southern and eastern frontier of the country, are known to extract at least 150,000 annually. The Kimberly organization, which seeks to block so-called "conflict diamonds," those originating illegally in war zones, has long threatened to expel Venezuela, but, unfortunately, it has no enforcement powers.
The Venezuelan diamonds are generally smuggled into neighboring Guyana, where regulations are notoriously lax, and illegally certified there as Guyanese in origin. Thereafter, they are shipped to RAK for processing, and onward transport to the diamond centers of the world. In this manner, the identities of the owners of the diamonds are hidden, and final payment, which is made from reputable companies in the industry, completes the cycle.
It is believed that the groups behind the illicit Venezuelan gem industry are criminal organizations, supported by powerful Venezuelan PEPs, who insure that the illegal mining operations are protected from local law enforcement. Since a number of Venezuelan PEPs are OFAC-sanctioned, there is a genuine risk that any financial institution that participates in the movement of these diamond sale proceeds could be exposed. Also, any member of a criminal organization who is arrested, by an American law enforcement agency in the future, may disclose his banking relationships, in order to reduce his sentence.
Therefore, it is important that compliance officers sensitize their staff to the fact that financial transactions from RAK, or transactions of global gem dealers that are connected to RAK, could potentially increase risk for the bank, and should be subject to enhanced due diligence. The possibility that you have have some exposure from RAK is not so remote as you think.
*RAK Emerges as new Money Laundering Threat in the Gulf