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29 Oct 2009

Dirty Diamonds in Panama

diamonds, courtesy of Swamibu /flickr
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Poised to become a hub for the Latin American diamond market, Panama may also become a funnel for smuggling illegal diamonds abroad, writes Samuel Logan for ISN Security Watch.

By Samuel Logan for ISN

Leaders from the global diamond trade met in Panama City on 13 October to persuade President Ricardo Martinelli to establish a tax-free zone for Latin America’s first regional diamond exchange. The lobbyists won over Martinelli, who by 19 October had publicly committed to support legislation in the Panamanian National Assembly designed to give free trade zone status to the Panamanian Diamond Exchange (PDE).

Panama will also work to pass the necessary legislation to join an international diamond trading regulatory regime known as the Kimberley Process, Martinelli said.

But observers worry that Panama’s role in laundering illegal diamonds mined in South America might only grow as the Central American country becomes a regional hub of the Latin American diamond trade.

The PDE, established in 2006 and officially accepted into the World Federation of Diamond Bourses (WFDB) in 2008, broke ground in mid-2009 on a US$200 million complex that PDE President Erez Akerman hopes will become the offices that oversee a regional diamond market that annually moves millions of dollars in diamonds from Latin America into markets in Hong Kong, New York and Antwerp, Belgium, among other demand centers.

The PDE, however, has at least indirect ties to a somewhat murky past.

Haviv Aviad, executive director of the PDE, was allegedly involved with his brother-in-law, Shimon Yelinek, an Israeli weapons smuggler, in a case investigated by the Organization of American States.

OAS documents show that Aviad and Yelinek traveled to Nicaragua in April 2000 to inspect a load of AK-47 rifles that were part of a shipment of weapons received by then members of Colombia’s notorious AUC paramilitary forces.

In a separate case, Akerman denounced the activity of Venezuelan diamond trader Kobi Kamhaji, who has allegedly smuggled Venezuelan diamonds for over 10 years, according to DIB Online.

Akerman wrote a letter to the WFDB explaining that Kamhaji had moved from Venezuela to Panama in 2007, where he continued to illegally export Venezuelan diamonds into the global market. His main concern was that Kamhaji had falsely acted on behalf of the PDE while laundering illegal Venezuelan diamonds through Panama.

“Given Panama's rich history as a center for both money laundering and smuggling on a very large scale, coupled with Venezuela's demonstrated unwillingness to be transparent in its diamond exports and withdrawal from the Kimberley Process, I am very concerned about the smuggling of diamonds through Panama,” Doug Farah, a senior fellow with the International Assessment and Strategy Center, told ISN Security Watch,

“Because diamonds are so easy to smuggle, opening a virtually unregulated diamond center in Panama is a recipe for smuggling on a large scale, not just for the relatively small Latin American production, but for other producers as well,” Farah said.

Venezuelan diamonds

Venezuela, a founding member of the Kimberley Process, is today a pariah state in the international diamond trade. Since 2005, the country has not reported diamond exports – estimated at between 150,000 and 300,000 carats earning some US$30 million a year - to the Kimberley Process, raising concern that Venezuela’s rough stones, already on the black market, might be used to fund organized criminal activity such as drugs or gun smuggling or terrorism, or used to launder money earned from illicit sales.

“Venezuela explained [its removal from the Kimberley Process] as a bureaucratic oversight - a glitch from the ministerial shakeup when they separated energy from other mining portfolios,” Shawn Blore, a South American investigator with international diamond market watchdog, Partnership Africa Canada, told ISN Security Watch.

“However, the glitch explanation was soon replaced by a claim that the government wanted to stop issuing [Kimberley Process certifications] as a way of forcing miners to stop working,” Blore said, adding, “that's still the most likely explanation - given that the Venezuelan government has now largely given up efforts to put an end to mining, the whole thing may now be simple inertia - or bloody-minded stubbornness.”

In January 2009, the Venezuelan Minister for Basic Industries and Mining said that the government would open Venezuela’s diamond-rich areas in the Guaniamo region for diamond mining.

The government also announced plans to install a diamond processing plant, likely part of a little known public policy called the “Plan Para la Explotación del Distrito Diamantífero de Guaniamo.”

President Hugo Chavez has also expressed interest in creating a 'diamond city' in Guaniamo region, which would imply further government oversight. And in June 2009, Chavez said he was seeking a loan to develop Venezuela’s gold and diamond mining sector.

In April 2009, Iranian President Mahmoud Ahmadinejad and Chavez agreed to create a joint venture company designed to recover Venezuelan minerals and gems, including gold, quartz and diamonds. And in July 2009, Chavez signed investment accords with Russian Deputy Prime Minister Igor Sechin which focused on many areas, including nuclear development and diamond mining.

Yet a BBC Mundo reporter, who has recently visited Venezuela’s diamond production centers in Bolivar state and on the Venezuelan-Brazil border, told ISN Security Watch that diamond production in the area is neither regulated nor in any way undermined by government efforts to regulate mining activity.

Diamond mining in the region, the reporter said, remains robust and under the control of a loosely networked layer of individuals who purchase rough stones from artisan miners before selling them into markets abroad, including Panama, Guyana and Brazil.

'Operation Carbon'

Another member of the Kimberley Process, Brazil, removed itself for a brief time from the regime in 2006, promising to return once it was able to establish internal controls to monitor the mining and export of its diamonds.

The Brazilian government’s decision occurred on the heels of Operation Carbon, which by early 2006 had netted one of Brazil’s busiest diamond smugglers, Hassan Ahmad.

Ahmad’s diamond smuggling operation, working under the legal cover of a company known as Primeira Gema, used falsified documents to obtain legitimate Kimberley Certificates to obscure, or launder, the origin of his rough stones.

In 2004, Ahmad’s business exported some 54 percent of all Brazilian diamonds registered that year, according to Brazilian Federal Police documents.

In a report published by PAC, the author noted that two of Ahmad’s sources of rough stones were not even close to the diamond business, nor aware that their identity had been stolen. One man had died two years prior to the conclusion of Operation Carbon, and the other was a homeless man living in the Brazilian city of Sao Paulo.

Investigators also discovered that among Ahmad’s regular purchasers of the illegal stones was a diamond dealer in Dubai.

By the conclusion of the investigation, observers noted that almost half of all Kimberley Certificates in Brazil had been obtained using falsified documents, a problem that has also manifested itself in Guyana, currently considered the principle route for illegal Venezuelan diamond exports.

The Guyana connection

“Guyana is particularly vulnerable as a member of the Kimberley Process, as are diamond centers in the United Arab Emirates and elsewhere,” Farah said.

A large of legal diamond traders are listed in Georgetown, Guyana. While most appear to adhere to the legal process of registering and exporting their rough stones, a couple of cases suggest that illegal activity is afoot.

In 2005, the Guyanese government caught Battle Green Mineral & General Trading while attempting to export 8,500 carats of rough stones with allegedly illegal origins. Given the owner’s Venezuelan connections, discovered by investigators, the stones were believed to have originated in Venezuela and laundered through Battle Green for legal export out of Georgetown.

The Guyanese government investigated in 2007 another company, Explorer Trade and Commerce Limited, over a 4,000-carat batch of diamonds with nefarious origins, presumably from Venezuela, Brazil, or even West Africa, according to government documents.

“The bulk of Venezuelan diamonds are channeled through Guyana, and to a lesser extent Panama, that’s pretty clear,” Andy Webb-Vidal, CEO of Latin IQ, told ISN Security Watch.

“Panama would make it easier and less costly,” Farah said.

Webb-Vidal added, “where [Venezuelan diamonds] go from Guyana or Panama is where the trail gets murky.”

Samuel Logan is an investigative journalist, and author. He is the director of Southern Pulse | Networked Intelligence, a decentralized, field-based security consultancy, and has reported on security, energy, politics, economics, organized crime, terrorism and black markets in Latin America since 1999.

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