BELGIUM: FEDERAL POLICE DIAMOND OFFICERS SAY DUBAI

C O N F I D E N T I A L SECTION 01 OF 02 BRUSSELS 000578

SIPDIS

EEB FOR B BROOKS-RUBIN

E.O. 12958: DECL: 04/07/2019
TAGS: PREL ETRD ECON EFIN ASEC ZI BE
SUBJECT: BELGIUM: FEDERAL POLICE DIAMOND OFFICERS SAY DUBAI
COOPERATION KEY FOR KIMBERLEY PROCESS

BRUSSELS 00000578 001.2 OF 002


Classified By: P/E COUNSELOR RICHARD EASON, REASON 1.4 (B) (D)

Summary
--------------


1. (C) Federal Judicial Police working on diamond-related
cases in Belgium's diamond center, Antwerp, told econoff
April 8 that the lack of law enforcement cooperation from
Dubai officials to Belgian police information requests
seriously hampers their ability to successfully prosecute in
Belgium any diamond-trade malefactors who run afoul of
Belgian money-laundering, tax, or other laws. The police
allege that in Dubai new Kimberley Process certificates and
invoices are being created that facilitate illicit activities
in the diamond trade--money laundering, tax evasion,
smuggling--even if they do not involve conflict diamonds,
Kimberley's raison d'etre. The policemen asked for U.S.
pressure on Dubai through the Kimberley Process to try to
boost Dubai's cooperation. End summary.

Dubai is "Key"
--------------


2. (C) Federal Judicial Police (FJP) officers covering the
diamond beat told econoff in an April 8 introductory meeting
that, in their opinion, Dubai's lack of assistance on
information-sharing requests seriously harms the FJP's
ability to bring cases to court in Belgium. In order to
advance cases that can be successfully prosecuted, the police
said, they need to be able to obtain documents that link
diamond movements from source countries through Dubai into
Belgium, proving that Kimberley Process certificates and
invoices leaving Dubai were significantly higher than
shipments leaving the source country.


3. (C) FJP officials believed the Kimberley Process (KP)
also has been indirectly weakened by the inaction of Dubai
officials in sharing information on importing of diamonds
from Africa (and elsewhere). They said they believed Dubai
issued new KP certificates and invoices for shipments to
Antwerp (and elsewhere). At the least, Belgian police
believe diamond traders are using Dubai to avoid paying
taxes. But Belgian police worry that Dubai diamond activity
could also hide other activities such as terrorism (given the
heavy involvement of Lebanese in Hezbollah) or organized
crime. Illegal diamonds from Cote d'Ivoire or other areas
such as Zimbabwe could be routed through Dubai and
legitimized, they posited. (Note: the Belgian diamond police
see the untoward use of Kimberley certificates as a problem
in fighting diamond-related crimes, even though Kimberley
itself is designed to deal only with conflict diamonds and
not with other ills involving the diamond trade, such as
fraud, money-laundering or tax evasion.)


4. (C) The police officers said they had "toned down" their
original requests--originally they had asked Dubai
authorities for detailed information on financial activities
of diamond firms or to take particular actions (e.g.,
interrogate suspects or perform house searches). But then
they theorized that Dubai did not have the capacity to do
many of those things, so for some time the FJP have limited
their requests to asking for Kimberley Process import
certificates and the accompanying invoices, but they still
have had no luck. "Dubai is key" for the Belgian authorities
to create winnable cases. But they have had no response from
Dubai authorities, they said. "It's like our fax machine is
connected to a shredder (in Dubai)." one policeman said.


5. (C) Since Dubai's role as a middle-man in the diamond
process is so important, the diamond police asked that the
USG consider using its position within the Kimberley Process
to try to gain better cooperation by Dubai authorities on
information sharing. The FJP officers said this was an
instance where KP's voluntary nature is a weakness, since it
lacks the authority to enforce information sharing.
Cooperation from Dubai officials would make life much more
difficult for diamond traders trying to circumvent not only

BRUSSELS 00000578 002.2 OF 002


the KP process but also tax, custom and money laundering
rules. Traders currently operating in Dubai could not move
to Israel, or Mumbai, or Hong Kong, the police said. The
police said the United Nations could perhaps also be helpful,
but believed that since the creation of the Kimberley Process
the UN was more in the habit of referring diamond-related
issues to the KP group to deal with. This meant that the UN
Security Council was much less apt to pass a diamond-related
resolution that countries might use to fight problems of the
trade, the policemen felt.


6. (C) Police contacts indicated that while they are
limited in ability to follow leads, they have had a good
record of winning cases that do make it to court, with a good
and aggressive prosecutor in Antwerp ready to take on
diamond-related cases. To build a solid legal case, they
need a paper trail to help prove the "intellectual fraud"
that is prosecutable, for example, providing false
information for a Kimberley Certificate (on the value of the
shipment or its provenance). The FJP said other kinds of
intellectual fraud are tax evasion, smuggling (contravening
customs law),money laundering, involvement in criminal
organizations (i.e., organized crime),and terrorist
financing. But with no paper trail, the information they
receive about bad actors is "just stories" -- interesting,
FJP contacts say, but useless in deterring or punishing
criminal activity in the diamond trade. While the FJP has
concerns about possible Hezbellah involvement in the diamond
trade via Lebanese traders throughout the world, it has had
no success in getting diamond-related information from
Lebanese authorities, either.


7. (C) The police described for econoff how diamonds moved
to market both pre- and post-Kimberley Process. Before
Kimberley (and anti-money laundering and other controls)
existed, a Belgian buyer would purchase diamonds directly
from an African source country supplier. The supplier would
invoice at a low price so export taxes are reduced. The
Belgian purchaser would then, upon receipt, simply create a
new invoice, showing a much higher price, thereby showing a
higher cost of doing business and reducing taxes paid. The
buyer would then move the undeclared profits outside the
country. Under the Kimberley Process, now the African seller
prepares the KP certificate, listing the shipment's value and
origin, and, in their example, sends the shipment on to
Dubai. The declared value is still low to avoid export
taxes. In Dubai, a new KP certificate listing a higher
invoice value and "mixed" country of origin is created.
Again the new invoice's higher value enables the purchaser to
show higher costs and reduce the tax bite. The FJP said that
now Dubai traders are starting to pay the suppliers directly,
so that no payments coming from Belgium (where the police can
track them) can be traced to the African supplier.


8. (C) Despite their focus on Dubai, the police officers
said the fact is that weaknesses exist elsewhere in the
system, with exporters being able to send diamonds to
countries such as Guinea where KP certificates could be
created, easing the entry of diamonds, which although
non-conflict were still of suspicious provenance, into the
legitimate trade.
BUSH
.