Lebanon

In recent years, Lebanon’s diamond industry was known for its “miracle diamonds”. Despite lacking any domestic diamond production, the country regularly managed to export many more gem-quality diamonds than it imported. In 2009 the difference amounted to 386,000 carats – a figure roughly equivalent to half of Lebanon’s annual diamond exports. Its trading anomalies demonstrated major failings in the country’s internal controls aimed at counteracting diamond smuggling, as well as systematic manipulation of diamond valuations by Lebanese industry members.

The undervaluing of imported diamonds is a major vulnerability of the international diamond industry, and Lebanon’s past experience points to a sophisticated effort by domestic industry members to evade taxes in African producing countries and launder profits from other illicit activities. Lebanon has been widely considered to be a major player in international diamond laundering. A 2009 report by industry consultants Tacy Ltd. brought attention to what it called “a major diamond laundering route” between Guinea and Lebanon. The report highlighted large volumes of grossly undervalued Guinean diamonds flowing into Lebanon.
 
The high levels of criminality associated with Lebanon’s diamond industry further taint its image. Elements in the vast Lebanese diamond diaspora in Africa, South America and elsewhere in the Middle East are frequently apprehended by police and customs authorities in connection with smuggling and fraud. In 2011, the United States government uncovered several international criminal networks involved in money laundering and terrorist financing; at the centre of each was a Lebanese diamond company. Lebanese dealers also played a central role in the illegal trafficking of Marange goods from Zimbabwe, via Mozambique, during a KP embargo on those diamonds.
 
The true gravity of Lebanon’s failings are underscored by its re-export of possible illicit diamonds to other jurisdictions, most notably the European Union and United Arab Emirates (UAE) which are its top trading partners. The inability to effectively deal with Lebanon undermines the credibility of the KP’s certification scheme and highlights the vulnerabilities of the global diamond industry, particularly the World Diamond Council’s System of Warranties, an honour system that promises diamond shipments are untainted by violence and in keeping with KP standards.
 
Because of these factors, PAC gives Lebanon a HIGH risk rating.
 
Recommendations
 
PAC recommends the following remedial actions:
 

Government of Lebanon

  • Given the positioning of Lebanon and the role its diaspora plays in the global diamond industry, Lebanese authorities need to demonstrate a proactive safeguarding of their country’s diamond reputation. Enforcement agencies should undertake investigations and prosecutions, where applicable, of those known to be undermining the domestic and international integrity of the diamond industry.
  • Government officials, particularly customs authorities, must improve their scrutiny of imported diamonds with respect to value and origin of all shipments. Greater due diligence should be taken beyond that offered by the Kimberley Process Certification Scheme.
  • The government should crack down on the criminal elements within its diamond industry. Capacity building of the financial intelligence unit would help to identify money laundering by Lebanese individuals. Greater international cooperation with other law enforcement and intelligence agencies would also help thwart Lebanese participation in organized crime.

Kimberley Process

  • The Kimberley Process should increase pressure on Lebanon’s diamond industry. Its lack of interest only weakens the credibility of the diamond industry, both in Lebanon and abroad.
  • Until such time as Lebanon commits to rectify the suspicious features of its diamond industry, countries that receive Lebanese exports, particularly the European Union and UAE, should treat their diamonds with extreme caution. Greater vigilance by international enforcement agencies of companies that receive Lebanese diamonds should also be considered.

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