Anti-money-laundering (AML) legislation has been on the rise
in recent years, in an ongoing global effort to enforce transparency in the
diamond trade. Among the main parties to benefit from such measures are the
banks, as the increased compliance from their clients helps them better assess
lending risks. And when banks are happy, diamantaires who need accounts are
likely to be happy, too.
The new Belgian AML laws, which passed in September 2017,
are expected to go into effect by Royal Decree within the next few months. In
the diamond trade, the legislation will particularly affect
customer-verification and data-protection practices, as well as regulations
limiting cash transactions.
Constant vigilance
When it comes to due diligence, the standard Know Your Customer
(KYC) approach has entailed merely identifying and verifying who your clients
are. From now on, however, diamantaires will also have to gather more specific
information about their customers, including the nature and goal of the
business relationship, explained Tricia Stavropoulos of the Antwerp World
Diamond Centre (AWDC). They’ll also have to monitor and update that information
regularly.
“This means that, for example, if there’s a client you’ve
been doing business with for three to four years, and who suddenly does an
atypical transaction [that] may be illegal in Belgium, you’ll have to ask why
and update your files according to his answers,” she said. “Possibly, you may
have to terminate the relationship.”
Nonetheless, she continued, “the new legislation also leaves
more room for each individual company to choose the extent of the investigation
required, as they better know their risk factors.”
Reconciling regulations with realities
While diamantaires will have to do more work on the customer
side, the good news is, they’ll no longer need to vet their suppliers; the new
verification rules shift the burden downstream. Also, the AWDC is negotiating
to allow exceptions to the KYC obligation, particularly when it could cause
disproportionate damage. During trade fairs, for instance, buyers are less
inclined to supply paperwork before entering business dealings, making it
difficult to vet them properly.
Another issue is storing the information companies gather,
since Europe’s general data protection regulations (GDPR) say one can’t keep
information about someone without their consent and without giving them access
to it. Considering the new AML laws require diamantaires to hold on to the
verification data for 10 years after the business relationship ends — compared
with the current five — there may be conflicts with GDPR provisions. In order
to respect both, diamantaires must inform their clients that they’re keeping
the data.
International cooperation, or lack thereof
Increased transparency also has a cost, as several players
have confirmed. In some cases, the whole process can easily amount to a
full-time job. And even with KYC procedures becoming smoother across Europe,
they can be rockier elsewhere: AML laws require companies to get the IDs of their
clients’ ultimate beneficiary owners (UBOs) — not just the CEOs or managers,
but anyone who owns more than 25% of the company — and some locales have more
cooperative businesses than others.
“The response [varies] from country to country,”
said Annemie De Scheemaecker of IGC Group, a De Beers sightholder. “In Belgium,
no problem. Across Europe, it’s improving to a certain extent. In India, our
clients are now [subject] to the same kind of regulations, so working with them
is also getting smoother. Still, there are countries with no similar
legislation, and [places] where it’s a little tougher, such as the US and most
of the Asian countries.”
Article from the Rapaport Magazine - April 2018. To subscribe click here.