DUBAI - UAE, which recently launched Dubai Diamond Exchange, will likely have to make amendments to its existing anti-money laundering law to ensure that diamonds traded through Dubai are not used by terrorist groups to transfer funds, following latest allegations that diamond industry is helping finance militants linked to terrorism networks.

In an exclusive interview with Khaleej Times, Peter Gross, Global Head International Diamond & Jewellery Group, ABN-Amro Bank, who recently visited Dubai, said that since 9/11 terror attacks in New York, financial institutions have been forced to tighten controls against money-laundering by terrorist groups. The US has launched the Patriot Act declaring war on the financing of terrorist activities.

Special rules for the diamond and jewellery industry took effect in the US on April 1, while Europe is in a transitory process. The UK anti-money laundering and anti-terrorist financing laws applicable to the diamond industry took effect on March 1, while the Belgian diamond industry must be fully compliant by January 24, 2005. "I do not see why the UAE cannot take the similar steps," he said.

International efforts to establish a standard response against money laundering and the financing of terrorism have been led by the Financial Action Task Force on Money Laundering (FATF), a body established by the G-7 Summit in Paris in 1989 that jointly established minimum standards to guide anti-money laundering legislative efforts. Currently FATF counts 33 member states and/or regional bodies. India is expected to become the 34th member and this is certainly good news for the diamond industry.

In its last year's National Money Laundering Report, the US Treasury said that the use of precious metals and stones will become a likely method for terrorists to transfer funds. It also said that the underworld of gold and other precious metals and gems may increasingly be used as an alternative method of laundering illicit proceeds or moving terrorist-related funds. Diamonds are an easily portable commodity and can be carried across the borders and transferred into cash almost effortlessly.

Although there is no evidence linking the diamond trade to terrorist networks and the accuser has yet to deliver proofs, the industry was put in a higher alert because there is a huge reputation issue with diamond trade. Gross said: "The moment the integrity of a diamond is tarnished, there is a problem. A diamond is only worth the emotional attachment a consumer places on it. Once it is gone, it is just a three billion year old stone dug out of the ground."

He said ABN-Amro, which is the world's biggest financier of diamonds, wants the market to be above suspicion, adding that diamond industry participants, including financiers, retailers, polishers and cutters, have to tighten supervision to ensure the sector remains unblemished.

Dealers worldwide, mainly diamond hubs like India need to establish tracking systems to determine who their buyers are, and deal with clients using 'know your customer' procedures like in banks. "We demand that new clients have two references from other players in the diamond field, three years of financial records and bank references and also monitor so-called "unusual" transactions, those worth more than $5 million," he said.

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