NEVER MINED: ILLEGAL TRAFFICKING ARRESTS ROCK KIMBERLEY

UNCLAS SECTION 01 OF 03 BRASILIA 000410 SIPDIS SENSITIVE SIPDIS DEPARTMENT FOR EB/ESC SUE SAARNIO TREASURY FOR OFAC E.O. 12958: N/A TAGS: SNAR ETTC EMIN EFIN PTER BR SUBJECT: NEVER MINED: ILLEGAL TRAFFICKING ARRESTS ROCK KIMBERLEY PROCESS ¶1. (SBU) Summary: Six people, including one GoB official, were arrested February 10 in a sting operation to stop the trafficking of illegally certified diamonds in Brazil. The gang is accused of illegal mining, document fraud, money laundering, tax evasion, and possible blood diamond trade. The Brazilian authorities are still pursuing a number of others including their primary target, Hassan Ahmad, a naturalized Brazilian of Lebanese descent, reported by the press to have links to international terror groups, including Al-Qaeda. In response to the arrests, the Ministry of Mines and Energy, which certifies Brazilian diamonds for export under the Kimberley Process, has suspended all exports, revoked the previously issued certificates for three companies involved, and replaced the arrested official Luiz Eduardo Machado de Castro. MME will also review the issuance of Kimberley Certificate number 64, which was the focus of a damning indictment by a watchdog NGO of the entire Kimberley Process in Brazil. Despite assurances to us by the General Coordinator for International Affairs at MME, Samir Nahass, that the Kimberly Review scheduled for the week of April 24 will not be postponed, Post believes the GoB ultimately will do so when the investigation forces it to face up to its broken Kimberley certification mechanism. End Summary. ¶2. (SBU) On February 10, after an extensive sting operation, the Federal Police arrested 6 people under suspicion of trafficking in illegal diamonds. Prominent among the arrested parties were Luiz Eduardo Machado de Castro, the state of Minas Gerais' Superintendent of the National Department of Mineral Production (DNPM) and Viviane Albertino Santos. Castro was responsible for the Kimberley certification process in that state, including issuance of origin certificates and verification of licenses. Santos is the owner/operator of Viviane Santos Classificacao de Pedras Ltda., one of the largest diamond export companies in the state of Minas Gerais. The arrested persons are accused of participating in a fake certification scheme that included falsification of public and environmental documents, tax evasion, money laundering, exchange rate fraud, gang activity and corruption. The one-and-a-half year sting operation was a taskforce effort of the Federal Police (the equivalent of the FBI),the tax authority and the Federal Public Ministry (i.e. prosecutor's office). The Federal Police is seeking cooperation from overseas financial institutions (in the US and Europe, primarily) since there is evidence that the parties involved laundered their money through international banks. The Ones That Got Away -------------- ¶3. (SBU) The task force is troubled by the escape of its primary target Hassan Ahmad, owner of Minas Gerais' largest diamond exporter, Primeira Gema Comercio Importacao e Exportacao Ltda. Ahmad is thought to be the head of the illegal diamond cartel. In 2004 Ahmad was responsible for a reported 83% of Minas Gerais diamond exports, but as of the end of 2004, Primeira Gema had all but disappeared in the legal diamond trade, and has not filed any export license applications since that time. Brazilian authorities have openly appealed to international authorities, banks, law enforcement to help capture Ahmad, a naturalized Brazilian citizen of Lebanese descent, born in Sierra Leone and bearer of a Belgian passport. Ahmad's father, Said Ali, and his brother Ali Ahmad, were implicated by a 2003 U.N. Security Council report as money launderers and traders in conflict diamonds from Sierra Leone and the Congo. Ali Ahmad (the brother) manages the Belgian diamond house Asa Diam, the primary importer of the Primeira Gema exports and a company also implicated in the UN report. Belgian police and European intelligence agencies have accused Asa Diam as having ties to Al-Qaeda and the Lebanese mafia, according to some press reports. ¶4. (SBU) Another escaped target of the investigation is Paulo BRASILIA 00000410 002 OF 003 Traven, owner of Mato Grosso-based Traven Comercio Importacao e Exportacao Ltda. Traven stands accused of trading in illegally mined diamonds from the interior of Mato Grosso, Minas Gerais and the Cinta Larga Roosevelt Indian Reserve in Rondonia. Notably, in April 2004 the Cinta Larga people killed 29 illegal miners on their 230,000 hectare reserve. Traven is thought to have laundered much of his earnings through real estate deals throughout Brazil. A Reckoning: The Kimberley Process in Brazil? -------------- ¶5. (SBU) As a result of the arrests, the Ministry of Mines and Energy (MME) suspended exports of all diamonds from Brazil and has no immediate plans to recommence exports. MME has also cancelled certificates previously issued to Primeira Gema Comercio Importacao e Exportacao Ltda. and Vivianne Santos Classificacao de Pedras Ltda., the first and second largest exporters of raw diamonds in Minas Gerais, and to Traven Comercio Importacao e Exportacao Ltda. It does not plan to issue any new certificates in the near future, according to Nahass. Meanwhile, Jose Eduardo Alves Martins has taken over as the DNPM superintendent for Minas Gerais. Nahass also said that while the MME is proceeding with planning for its Kimberley Review the week of April 24, a final date has not yet been confirmed. Econoff asked whether the Kimberley Process in Brazil would change as a result. Nahass, clearly bothered by the implication, adamantly characterized the Kimberley Process as working just fine, though in need of minor adjustments. Nahass could/would not elaborate on what shape those minor adjustments should take. Kimberley Certificate Number 64 to be Re-verified -------------- -------------- ¶6. (SBU) Nahass admitted that the MME will review the process by which Brazilian Kimberley Certificate Number 64 was issued, since it was certified by Luiz Eduardo Machada de Castro, the recently arrested ex-DPNM chief. This particular Kimberley Certificate was the focus of controversy when watchdog group Partnership Africa Canada (PAC) enumerated irregularities with the certification of the 6876.92 carats worth of diamonds. Their report questioned, based on geological limitations, how 100 hectares could yield such a large weight of diamonds over the course of a reported seven days. The PAC investigators concluded that the diamonds exported were not from the Brazilian concessions, which they said were not operational and had not ever been, but rather were from a completely unknown source. Many of the actors involved, including Hassan Ahmad, were participants in the deal. If any irregularities are revealed, said Nahass, Brazil will issue an abject apology and assume full responsibility. Luiz Eduardo Machado de Castro authorized and certified a report refuting the PAC allegations. COMMENT -------------- ¶7. (SBU) Despite Nahass' statement that the review will go forward, Post fully expects the MME ultimately will postpone the April Kimberley Review. Despite evidence to the contrary, MME appears to be blind to the serious holes in its Kimberley Process system. With reported links to international terror groups, implications of blood diamond trading, exploitation of Indian reserve land, and money laundering, the recent arrests reveal a systemic corruption that cannot be handled by unspecified small adjustments. Revealing, however, is the review of Certificate number 64, which indicates that the GoB is more than a little suspicious that its (and the international community's) worst fears about their Kimberley Process are true. The involvement of a GoB official only adds fuel to a highly political fire. Post also expects that the GoB will soon make specific requests through law enforcement channels for information BRASILIA 00000410 003 OF 003 from U.S. and European banks to further pursue investigation of the money laundering aspect of this case. End Comment. LINEHAN