Countries will benefit financially by cracking down on illicit trade in diamonds and precious minerals (Photo: Corbis)
IMF Technical Assistance
The technical assistance project—the first by the International Monetary Fund to tackle the issue—targets countries where precious mineral exports account for a high share of GDP or total exports and formal financial systems are underdeveloped.
Africa produces an estimated $19 billion in gold per year and $6 billion in diamonds. But an unknown amount is laundered or siphoned each year for criminal purposes.
“The trade in precious minerals has been linked to illicit financial flows, corruption, drug trafficking, arms smuggling and the financing of terrorism,” explained Emmanuel Mathias, an IMF Senior Financial Sector Expert.
“Better regulation and oversight of the precious minerals sector will not only help these countries combat these phenomena, but also boost revenues and improve their fiscal situation.”
Two-stage project
The project is funded by $500,000 from the IMF’s anti-money laundering (AML) and combating the financing of terrorism (CFT) Topical Trust Fund (TTF) that was launched early last year as the first in a series of topical trust funds at the Fund. Twelve countries are providing financial support for the TTF. Through this, over the next five years, a total of $31 million will be spent on improving AML/CFT systems around the globe.
The technical assistance will be conducted in two stages. For the first stage, two awareness-raising regional workshops are being organized in Tunis, Tunisia, featuring representatives from the four relevant government departments (financial intelligence, customs, finance, and mining) of each country. The first workshop is on March 8–12 for eight French-speaking countries. The second is planned for June 14–18, with participants from eight English-speaking countries.
For the second stage, the project will help interested countries further develop their national strategies for improving AML/CFT controls related to precious minerals.
“By the third quarter of 2010, we expect countries to have prepared national strategies,” Mathias said. “We then expect a number of countries to engage in longer term technical assistance relationships with the IMF or with other relevant organizations.”
A number of countries have faced issues such as corruption, internal and regional conflicts, arms smuggling and other similar problems, he added.
“Such issues often prey on and are fueled by the unregulated trade in rough diamonds and gold,” Mathias said. “We have to consider that for some of these countries, diamonds or gold constitute their main economic resources. Improving the regulation and transparency of the precious minerals sector supports our core mandate of strengthening macroeconomic stability.”
Developing international standards
Dealers in precious metals and stones are a relatively recent addition to the list of designated professions to be incorporated into a country’s AML/CFT regime, as designated by the Financial Action Task Force (FATF).
FATF is an intergovernmental body created by the G-7 in 1989 and housed at the Organization for Economic Cooperation and Development in Paris. FATF currently comprises 33 member jurisdictions and 2 regional organizations, representing most major financial centers in all parts of the globe.
It has developed the international standard for recommendations in the area of AML/CFT. The FATF standard calls for countries to require precious metals and stone dealers to identify the customer in any cash transaction equal to or above US$/EUR 15,000. In addition, dealers in precious metals and stones should be prohibited from completing a transaction if they are unable to identify and verify the client’s identity. They have to maintain records on transactions for at least five years, and suspicious transactions should be reported to the national financial intelligence unit.
The primary objective of implementing an AML/CFT framework is to detect and deter the proceeds of predicate crimes such as fraud, drug trafficking, arms smuggling or corruption. But better regulations and oversight of the precious metals sector should also result in revenue increases for governments and have a positive impact on their fiscal situation.
“The lack of transparency of transactions in the precious metals and stones sector has been identified as a major obstacle to tax collection,” said Matthew Byrne, an IMF Senior Counsel. “The implementation of the FATF standard enhances the transparency of transactions and should be beneficial to the general supervision of dealers in precious stones and metals, including for tax audit.”
Developing partnerships
IMF has developed the project in consultation with institutions working on AML/CFT issues such as the World Bank as well as in the precious minerals sphere (EITI, Kimberley Process, professional associations, and nongovernmental organizations). The IMF will be seeking to attract these partners’ participation in the workshops and beyond.
“We hope that as a result of this project, a number of countries will follow up concretely, and we expect some of them to engage in longer-term technical assistance relationships with the IMF or other organizations with expertise in this field,” added Joseph Myers, IMF Assistant General Counsel. “If the project proves to be successful, we will consider introducing similar programs in other parts of the world.”
