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CISC National Monitored Issues

Organized Crime and the Diamond Industry

National Overview

Since the discovery of diamonds at Lac de Gras in the Northwest Territories (NWT) in 1991, Canada has developed to become one of the six largest producers of rough diamonds in the world. The potential criminal exploitation of diamonds, as observed in other countries, requires law enforcement to address this emerging industry by monitoring it proactively.

Diamonds are attractive commodity to organized crime because they are an easily portable and convertible form of wealth. Once diamonds are smuggled, they can be a means to launder money. Worldwide, criminal activities associated to the diamond industry include manipulating diamond valuations to distort the amount of taxes to be paid, trading illegal rough diamonds, or embedding illicit diamonds into legitimate diamond markets.

The diamond industry is relatively new in Canada, with the Ekati Diamond Mine in operation since 1998, and production at Diavik Diamond Mine beginning in early 2003. Ekati and Diavik are both located in the NWT, approximately 300 km northeast of Yellowknife. Despite the fact that the diamond industry is concentrated in the NWT, diamond exploration is ongoing in several other provinces including Alberta, Saskatchewan, Ontario and Quebec. The next two diamond mines scheduled to begin production will be Tahera Corporation's Jericho Project in Nunavut, which is expected to be operational within the next two years, and DeBeer's Snap Lake Project in the NWT by 2006. This is a highly lucrative industry, and brings about many economic benefits in royalties and subsidiary industries, such as marketing "Canadian" diamonds, diamond exploration companies and cutting and polishing firms.

The many stages and aspects of the diamond industry can be understood through what is termed the diamond pipeline: mining, production, rough trading, cutting and polishing, polished trading and the wholesale or retail phase. The value of rough diamonds increases as it progresses through the pipeline, so that world rough diamond production in 2001 was estimated at U.S. $7.9 billion, but translated into U.S. $56 billion by the retail phase.

The development of a Canadian cutting and polishing industry in the NWT is continuing. Within the next year, it is expected that there will be four cutting and polishing firms operating in Yellowknife, NWT.

To safeguard the integrity and financial potential of this industry, the RCMP's Diamond Protection Service, other law enforcement agencies, Criminal Intelligence Service Canada and the diamond industry, are proactively monitoring the industry to detect and prevent illegal activities that could have a negative impact.

In addition to law enforcement efforts, it has been recognized that the enactment of legislation is also necessary to protect Canada's reputation for mining "clean" diamonds, by keeping track of imports and exports of rough diamonds to ensure they do not originate from countries tied to "conflict diamonds". As a result, Canada is now one amongst 51 countries to have implemented the Kimberley Process Certification Scheme (KPCS). This international initiative began in an effort to curtail the trade in conflict or blood diamonds in order to maintain the integrity of the majority of trade in rough diamonds that is considered to be legitimate (or "clean"). ¹ To be compliant with the KPCS, Canada implemented the Export and Import of Rough Diamonds Act and Regulations on January 1, 2003.

A National Roundtable on Canada's Diamond Industry: Economic and Social Contribution to 2015 was held in May 2003, led by the Minister of Natural Resources Canada. This first Roundtable involved representatives from the diamond industry, federal, provincial and territorial governments, law enforcement, Aboriginal groups, academia and non-governmental organizations. Recommendations included initiatives to increase a skilled labour force, the development of systems to maintain the credibility/integrity of the industry, and taking advantage of opportunities to market Canadian diamonds. The recommendations stemming from this Roundtable will become part of a report to be presented to the annual meeting of the federal, provincial and territorial ministers in September 2003.

¹Conflict or blood diamonds refer to diamonds associated to the violent conflict in West Africa. Diamonds mined in this region have been known to be sold on the black market to raise money to support the continuance of regional conflicts.