Diamond and jewelry industry crime.

The criminal world is changing. Technology, international commerce, and globalization have allowed lawless individuals to broaden the scope of their activities and the sophistication of their operations. Unfettered by internal policy or bureaucracy, they can morph from one criminal enterprise into another faster than law enforcement can keep pace. The activities normally associated with criminals have expanded beyond national borders and--adding to the usual drugs, weapons, contraband, and sex trade--have become modalities to serve the criminal finances generated. In this respect, diamonds and similar commodities, such as gemstones, jewelry, and gold, regularly appear as facilities to gather, store, and move proceeds of crime undetected by authorities. Street-level illegal activity in diamonds and jewelry has increased, and the criminal and terrorist use of diamonds and gemstones has become the subject of many books and intelligence reports.

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This growing problem presents new challenges to all law enforcement agencies. Understanding the criminal use of diamonds and jewelry, recognizing the issues facing law enforcement, and seeking proactive countermeasures represent the first steps to finding a solution.

Understanding the Criminal Use of Diamonds and Jewelry

No doubt, the relative high values, ease of concealment, and untraceable attributes of diamonds, gemstones, and jewelry prove quite appealing to criminals. Street-level perpetrators involved in residential and retail jewelry store burglaries and robberies favor these items. Moreover, increasing evidence points to the gravitation of the more sophisticated offender, organized crime member, and terrorist toward the use of diamonds, gemstones, and jewelry for criminal financing or as a facility for money laundering, international movement, or storage of crime proceeds. (1) The tracking of currency nationally and internationally through government agencies corrals criminals into the use of alternate currencies, such as diamonds, gemstones, and gold. Law enforcement authorities have identified gemstone and jewelry smuggling operations run by organized crime, and jewelry store thefts linked to organized crime are not uncommon. (2) Further evidence has shown a strong link between street-level criminal activity regarding diamonds and jewelry and organized crime.

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Statistics reflect this criminal use of jewelry and precious metals. From 1999 to 2003, jewelry was among the fastest growing categories of stolen property in the United States and now ranks second only to automobiles by value. (3) This is not surprising as the United States, with approximately 5 percent of the world's population, consumes 48 percent of the annual world production of diamond jewelry, totaling approximately 30 billion U.S. dollars. (4) Similar per capita spending on diamond jewelry could be expected in Canada. Within this North American "diamond culture," an enormous number of jewelry outlets, manufacturers, and suppliers exist to quench the thirst for diamond jewelry. This results in a greater opportunity for criminals to acquire such items and corresponding occasions to insert them back into the legitimate jewelry market. In terms of criminal exploitation of diamonds and jewelry, no other continent has such favorable conditions for product acquisition and for converting the proceeds of crime.

Recognizing the Issues Facing Law Enforcement

Identifying the stolen products, something the police and the public both have difficulties with, contributes to the problem. Another limiting factor involves the lack of knowledge and awareness of diamonds, gemstones, and the jewelry industry at all levels. This translates into a poor understanding of the criminal activity that surrounds these products, specifically the "what, why, and how" of the criminal use of diamonds and jewelry. Many officers who have purchased diamond jewelry would have difficulty describing it in any detail more than its approximate carat weight. They probably could not relate the characteristics that determine a diamond's value: the four C's of carat, color, clarity, and cut. This would be similar to investigating the theft of a $7,000 motorcycle without a description of its make, color, engine size, or accessories. Lacking accurate identifiable characteristics of the vehicle, officers would have little chance of recovering it. Diamonds and jewelry, even under the best circumstances, are extremely difficult to track and rank among the lowest of police recovery rates. (5)

Additionally, the dearth of diamond-specific laws does not help matters. In Canada, diamonds, gemstones, and jewelry are indirectly controlled by several acts of parliament. The most common of these include the Criminal Code, the Customs Act, the Competition Act, the Export and Import of Rough Diamonds Act, and the Cultural Property Export and Import Act. The only one of these laws specific to diamonds is the Export and Import of Rough Diamonds Act (EIRDA). The remainder control diamonds and gemstones indirectly in the same way they do other material items. For instance, the Criminal Code contains several sections, such as theft, robbery, and fraud, that could be used relative to criminal activity that surrounds diamonds and gemstones. EIRDA controls the export and import of rough diamonds from and to Canada in compliance with the international Kimberley Process protocols. (6) Several other countries, including the United States, have joined this endeavor and also have enacted their own similar legislation. The spirit of EIRDA is genuine in its efforts to control international sales of conflict diamonds; however, at present, the basic training and awareness of law enforcement may not be sufficient, nationally or globally, to meet the demands of this worldwide initiative. Further, those criminals who have operated in an unscrupulous manner prior to the 2001 launch of the Kimberley Process would have no reason to change their modus operandi. If they have successfully moved rough diamonds surreptitiously without detection prior to the Kimberley Process initiative, they probably will continue.

Finally, the emergence of the diamond production industry in Canada and the corresponding new opportunities for criminals have become the harbinger of new policing challenges. At present, the annual production of rough diamonds from Canada is valued at 1.24 billion U.S. dollars. (7) Yet, even a small percentage of mine-site loss due to criminal activity could translate into large dollar values. If Canadian mines experienced the estimated 12 percent losses per year that occur in South African diamond mining operations, the results would amount to a 180-million Canadian dollar loss to the industry and a 25-million Canadian dollar loss of government royalties. (8) Canadian diamond production, estimated as the world's third largest by value, is expected to expand at the production level and at several of the intervening steps from the mine to market. (9) Slowly but surely, the Canadian diamond industry will become more stratified, with new cutting and sorting facilities and distribution networks that will afford both new and, perhaps, the greatest opportunities for organized criminal exploitation. (10)

Seeking Proactive Countermeasures

Uncovering these criminal networks can prove difficult; however, implementing proactive countermeasures against those who exploit the lack of knowledge of frontline officers regarding diamonds and jewelry could pay dividends. Such action could assist with tackling issues of tax evasion through undervaluation, money laundering through overvaluation, and gemstone smuggling through misdescription, all mechanisms employed by transnational organized criminals, that well-informed frontline officers could truncate or disrupt.

Training these officers to identify and describe jewelry and to ask the reporting public appropriate questions to elicit accurate descriptions of stolen pieces can provide a step in the right direction. This becomes especially important in those jurisdictions, such as the province of Saskatchewan, where legislation exists that requires pawn shops to accurately record and report electronically all transactions to police. (11) In these instances, the precise descriptions of stolen jewelry obtained by officers could be more accurately searched and compared with entries found on the police electronic database of all pawn shop records. This proves important because criminals often use pawn shops to insert illicit jewelry back into the legitimate market. Moreover, encouraging the public to catalogue their jewelry with full descriptions and photos and to simply hide their valuable pieces can go a long way toward helping reduce the problem. These constitute only a few of the points where law enforcement, the jewelry industry, and perhaps even the insurance community can take proactive countermeasures.

Conclusion

Criminals who engage in money laundering and criminal financing through the use of diamonds and jewelry will seek out and exploit the weaknesses within any regulatory system. (12) Recognizing this, police have begun to act against this growing criminal threat, creating policy and dedicating more resources to the issue. As recently as August 2004, with the release of the latest Criminal Intelligence Service Canada report on organized crime, the Canadian Association of Chiefs of Police unveiled the criminal threat to the diamond industry. (13) Along with this acknowledgment, the report also called for the public's assistance in combating organized criminal activity, asserting that the police can no longer do this alone. The movement on the issue of diamond and jewelry crime comes just in time. As the illegal activity surrounding diamonds and jewelry increases on several fronts, including street-level and organized crime, and converges with the criminal element seeking to exploit the growing Canadian diamond industry, law enforcement finds itself with an even greater challenge.

Acquiring new tools in terms of knowledge and skills to effectively enforce existing laws with respect to diamonds and jewelry will serve to address current weaknesses. However, to increase effectiveness, law enforcement needs to tap into the insight and expertise of the jewelry business to achieve a greater understanding of the criminal use of diamonds and jewelry and the depth of criminal involvement within the industry. Neither the police nor the jewelry trade acting independently can eliminate the criminal use of diamonds and like commodities. What law enforcement requires beyond the basic tools and training is the full assistance and cooperation of all stakeholders in partnership to prevent crime and to uncover and dismantle existing criminal activity.

Endnotes

(1) U.S. General Accounting Office, Report to Congressional Requesters, Terrorist Financing: U.S. Agencies Should Systematically Assess Terrorists' Use of Alternative Financing Mechanisms, GOA-04-163 (Washington, DC, 2003).

(2) Criminal Intelligence Service Alberta, "Criminal Intelligence Service Alberta (CISA): Annual Report April 2002-March 2003," Alberta Justice (CISA, 2003); retrieved on November 14, 2004, from http://www.cisalberta.ca/Annual%20Report%20April%202002%20to%20March%202003.

(3) U.S. Department of Justice, Federal Bureau of Investigation, Crime in the United States, 1999 through 2003 editions (Washington, D.C.).

(4) Government of the Northwest Territories, Department of Resources, Wildlife, and Economic Development,"2004 Diamond Industry Report," Diamond Facts 2004 (Yellowknife, Canada, 2004).

(5) Supra note 1.

(6) "The Kimberley Process is a joint government, international diamond industry and civil society initiative to stem the flow of conflict diamonds--rough diamonds that are used by rebel movements to finance wars against legitimate governments"; retrieved on August 24, 2006, from http://www.kimberleyprocess.com.8080/site/.

(7) Supra note 2.

(8) J. Bronskill, "Criminal Influence Could Cost Diamond Trade Millions: RCMP," Canadian Press (Ottawa, Ontario), December 14, 2004.

(9) B. Santarossa, "Diamonds: Adding Lustre to the Canadian Economy," Statistics Canada; retrieved on November 18, 2004, from http://www.statcan.ca/english/research/11-621-MIE/11-621-MIE2004008.htm.

(10) R. Tailby, Australian Institute of Criminology, "The Illicit Market in Diamonds," Trends and Issues in Crime and Criminal Justice 218 (2002).

(11) I. Ross, "Legislation Eases Tracking of Stolen Goods," Meridian Booster, Lloydminster, Alberta, Canada, March 21, 2004; retrieved on December 14, 2004, from http://www.meridianbooster.com/story.php?id=94536.

(12) W.J. Fox, "Dubai Conference Address" at the World Diamond Council, third annual meeting, March 30, 2004; retrieved on November 18, 2004, from http://www.fincen.gov/dubaiconferenceaddress.pdf.

(13) A. Carmichael, "Organized Crime Growing in Canada: Police Chiefs Ask Public to Help," The Telegram (St. John's, Newfoundland), August 21, 2004, sec. A, p. 7.

RELATED ARTICLE: The Four Cs of Gemstones

* Carat: One-fifth of a gram

* Color: Clear, medium-tone, very intense, and saturated

* Clarity: Clear, transparent with no visible flaws

* Cut: Reflects light back evenly across the surface area

Source: http://www.jewelrycentral.com.