Friday, February 12, 2010

Libya's oily numbers

Commentary, Executive magazine

When sanctions against Libya were lifted in 2004, international oil companies (IOCs) viewed the former rogue state as the El Dorado of black gold, and clamored to be the first to exploit the country’s riches after a 30-year hiatus. But five years later, IOCs are reining in their enthusiasm as doubts arise over how much oil Libya really has.

As international relations thawed, Libya’s National Oil Corporation (NOC) embarked on a global campaign to attract IOCs, offering competitive bidding rounds to explore and develop the country’s energy reserves. Part of the enticement was an oft repeated statement that 70 percent of the country was yet to be explored for oil and that Libya had 39 billion barrels in proven reserves.

These ‘facts’ are still doing the rounds, with the “BP Statistical Review of World Energy 2009” and the United States’ International Energy Agency (IEA) stating Libya has 43.7 billion barrels of proven oil reserves. At face value, this would mean Libya has the fourteenth largest reserves in the world and the largest in Africa, ahead of Nigeria’s 36.2 billion barrels.

But Libya, like the majority of oil producing countries, has been playing it thick and fast with their figures. A leading petroleum geologist familiar with Libya, who asked for anonymity so he could still work in the country, told me: “[The reserve] is nothing like that, it is a third to half of that figure.”

That would mean anywhere between 14 to 21 billion barrels, placing Libya second in reserves in Africa, ahead of Algeria’s 12.2 billion barrels. And as for 70 percent of the country being unexplored, that figure is “nonsense; it is very well explored,” said the source.

The geologist added that the amount of reserves that Libya actually has are evident at the NOC’s technical conferences, where diagrams are shown that indicate less than half of the official government figure — if you know what you are looking for. When the presenters are questioned in public, “they squirm,” the source said, but when queried in private on a technical basis they agree that Libya doesn’t have the reserves it claims.

There was further indication that Libya has been inflating the figures when the NOC last year revised their production capacity target of 3 million barrels per day by 2015 down to 2.3 million barrels per day.

The exploration licenses Libya granted to IOCs are also indicative of there being less in the ground than hoped. Out of the 90 wells drilled after the country’s most recent exploration and production sharing arrangements — the EPSA-4 acreage, launched in 2004 — only five discoveries have been made. International oil and gas exploration and production company Occidental has had a zero success rate, drilling 18 dry wells.

IOCs are now banking on the Sirt, Ghadames and Kufra fields to turn up trumps, but even if there are sizable finds they are unlikely to boost the reserve’s figure to 43 billion barrels. The NOC’s current policy is to focus on developing existing fields — there are an estimated 60 to be tapped — rather than offer IOCs expensive tenders to explore territory that may well draw a blank.

So why is Libya cooking the books? One reason is that it attracts more foreign direct investment (FDI) and interest from IOCs, similar to how countries like to boast of huge FDI inflows yet fail to mention that however-many billions of dollars is over 10 years or has been ‘pledged’ in investment — very different from actual annual inflows. Secondly, it puts Libya in a better bargaining position within the Organization of Petroleum Exporting Countries (OPEC) when it comes to oil quotas.

“It isn’t acceptable within the NOC to question [the] numbers because [they are] given for political reasons, for political advantage within OPEC,” said the source.

But why would BP and the IEA back up the Libyan figures? Well, the British oil giant is operating in Libya and presumably doesn’t want to ruffle any feathers. As for the IEA, its credibility came under fire last November when a whistleblower said the agency was deliberately underplaying an impending global shortage over “fears that panic could spread on the financial markets if the figures were brought down further.”

The game that Libya is playing is dangerous and, alas, one that it is not playing alone. Saudi Arabia, the world’s largest oil producer, has never been transparent with its reserve figures, nor are the majority of OPEC producers.

If we can’t take oil reserves at face value and trust them, then how much oil is there? If you subtract 20 odd billion barrels from Libya’s ‘proven’ reserves, and so many billion barrels from, say, Saudi, Algerian and the United Arab Emirates’ reserves, among others, then the total global oil reserves would be substantially less than claimed. It’s time Libya — and everyone else — starts telling it like it really is or the financial markets could be in for yet another turbulent ride.

PAUL COCHRANE is the Middle East correspondent for International News Services and writes for Petroleum Review


Thursday, February 04, 2010

Secrets of the stones

An investigation into the murky world of Lebanon's jewelry sector
Executive magazine
By Paul Cochrane in Beirut

Lebanon's jewelry trade

It is easier to walk into the Lebanese Parliament than gain access to the higher echelons of Lebanon’s jewelers, given the amount of security, how frequently top jewelers travel and their secretive nature.

To visit the offices of a jeweler is akin to entering Fort Knox: beyond the usual security to an office block there are multiple bulletproof doors to be buzzed through — including a holding room — until you’re sat in a padded leather arm chair of the ‘old world’ style.

When you keep merchandise worth up to $80 million on the premises, as some of the top jewelers do, such security measures are understandable. Yet while carrying out a heist on these jewelry fortresses would be difficult, just as challenging is getting interviews with members of what is arguably the country’s most secretive industry.

The sector, which by dollar value accounts for an estimated 30 percent of Lebanon’s total trade and exports, is so devoid of transparency that accurate figures are hard to come by and no companies are willing to open their books to external scrutiny.

“Around 90 percent of sales are not declared,” said one jeweler in a rare off-the-record disclosure.

Getting jewelers to talk is like getting blood out of a stone; they tend to clam up when it comes to figures, market variables and projections. Indeed, some jewelers are so tight lipped that half-hour interviews yielded just a few lines of useful information and usable quotes.

While Lebanon is well known for its banking secrecy, the jewelry sector should be equally — if not as infamously — renowned, particularly given its economic significance and export clout. According to the Syndicate of Expert Goldsmiths and Jewelers in Lebanon (SEGJL), Lebanon is the leader in jewelry and gold production in the Middle East (excluding Turkey), employing 8,000 people with 2,000 qualified jewelers and experts at some 60 major workshops.

According to the country’s other jewelry-related body, the Syndicate of Lebanese Jewelers, the sector employs 5,000 people. By comparison, the banking sector employs some 20,000 people.

Judging by the Lebanese Customs’ records, jewelry exports were valued at $707 million from January to September 2009, equivalent to 28.8 percent of the country’s total exports. Imports on the other hand were 4.2 percent of total imports, valued at $505 million in the same period.

Exports and imports of jewelry in Lebanon

However, domestic sales are not reported or listed by the Ministry of Economy and, as stated, much of what is sold and exported is not declared. According to SEGJL, approximately 80 to 90 percent of Lebanese jewelry is exported to the Gulf, Europe and North America. But the syndicate did not make clear whether that amount includes undeclared exports or not, and presumably much of what is actually exported is not disclosed, either by customers or by jewelers themselves travelling on sales trips.

When a single four-part set of jewels can sell for $4 million, “clients don’t want the value [of their jewelry] to be mentioned because of thieves and ransom threats,” said Gerard Tufenkjian, managing director of Beirut-based jeweler Tufenkjian.

One jeweler recounted that when he goes abroad for exhibitions he may take $3 million to $4 million worth of merchandise, but may only sell $2 million, so he will not declare the amount on arrival or departure. As Tufenkjian related, “Our business is in a bag, we come and go with one or two Samsonites [suitcases] to do our business.”

Patrick el-Khoury, head of publishing and events at Arabian Watches and Jewellery magazine, said he had heard rumors circulating within the industry that the sector was worth some $4.5 billion, which would be equivalent to a staggering 16 percent of Lebanon’s gross domestic product. “But this figure is not confirmed,” he stressed. Neither the syndicates nor jewelry companies would offer another figure.

An intricate diamond studded piece comes together in Yessayan’s workshops above their Beirut showroom

The annual exhibition Joaillerie Liban 2009, however, stated on its website that “Lebanon has become one of the top five jewelry producers in the world,” with “60 percent of [the country’s] $1 billion production in jewelry and designer jewelry sold in Lebanon to visitors or importers from the region, Europe, the Far East and the Americas.”

Given the discrepancies of up to 90 percent between the SEGJL’s export figures, Khoury’s and Joaillerie Liban’s figures, the true value of the sector and the size of exports is essentially anyone’s guess. It is certainly one of Lebanon’s more successful sectors, but given its lack of transparency, a sizeable amount of money is not being disclosed and consequently, minimal revenues are going into government coffers.

Taxation is one reason the sector is opaque. Under Lebanese law, jewelers pay the standard income tax on employees’ salaries, but not on the value of precious metals or stones. For sales, taxation is 0.8 percent — a policy introduced in 2004 by the late Prime Minister Rafiq Hariri.

“We don’t impose this tax on the customer,” said Hovig Yessayan, marketing manager of Yessayan, adding that 95 percent of his firm’s sales go abroad to the Gulf and Lebanese expatriates.

Diamonds are deception’s best friend

Another reason for the sector’s secretive nature is the diamond trade (see page 31). Lebanon exported 2.45 million carats in 2008, estimated at $48.47 million, according to the latest figures from the global regulator, known as the Kimberly Process Certification Scheme (KPCS) (see chart below).

But according to Partnership Africa Canada’s “Diamonds and Human Security Annual Review 2009,” more than 97 percent of all diamonds leave Lebanon soon after they arrive, with 85 percent arriving in the country certified as industrial diamonds — used in drill-bits, saw blades and abrasives. Curiously, however, “some 250,000 more carats leave as gem quality diamonds than arrive — worth 36 times their import value,” the report stated.

With the average diamond imported into Lebanon at $19.67 per carat (among the lowest rates in the world), if exported at 36 times this value they would be worth some $708 per carat; carry this over 250,000 carats and there would be a $177 million differential between the value of diamonds entering and exiting Lebanon.

This math is only a guesstimate, however, as the value of diamonds per carat can vary widely depending on the specific stone; the global average price per carat stands at around $95, while the highest quality diamonds can reach up to $4,000 per carat.

Diamond exports, selected countries

According to KPCS figures, there is a difference of just $1.6 million between Lebanese diamond imports and exports.

“The most common explanation of where diamonds are misclassified is tax avoidance, or some kind of [money] laundering scheme within a trading company,” said Annie Dunnebacke, a campaigner at the natural resource focused rights group Global Witness, based in London.

Quite clearly there are a lot of diamonds knocking around that are not being declared — at least in true worth — and so far, the KPCS has not investigated such discrepancies in Lebanon (see facing page).

When asked about why the sector is not better regulated, Hovig Yessayan said: “When [you are] making money for the country, no one cares.”

Keep it in the family

Among the factors allowing the sector to remain so hidden from scrutiny is that it is dominated by family run firms.

Leading companies such as Tufenkjian, Nsouli, Antoine Hakim, George Hakim, Azar and Gemayel have been in the business for more than 100 years. And families tend to not like their laundry — clean or dirty — aired in public.

“It is a closed sector, much like banking,” said Yessayan.

The cutthroat competition between the high-end jewelers over designs also emphasizes secrecy.

“Secrecy is very important in this business, there are lots of designers and outsourcing cannot be recorded,” said Khoury.

As Lebanese jewelers’ reputations continue to grow around the world, the opaque nature of the sector is only likely to increase. Lebanese jewelers can export to the United States tax free, and are expanding their presence in Europe, the Gulf and Asia, whether through showrooms or attending exhibitions and fairs.

Setting standards

Competition comes from the Far East, but Lebanon has the upper hand on design and quality for regional sales.

“The quality of the jewelry that is [made] in Hong Kong or China is not as good as Lebanon’s, it is thinner; Arabs are used to bulky jewelry,” said Yessayan. He added that jewelry is 15 to 20 percent cheaper in Lebanon than in the Gulf. “So if you are buying a set of jewels for $500,000, it is worth flying over; even Sheikhas take a private jet here and we close the whole building down as we want total privacy for royal clients.”

Lebanon’s designs and highly skilled craftsmen have also placed the sector on equal footing with Europe.

“The standards we have here are comparable to Swiss or French jewelry, and we’re very picky about our staff,” said Karim Hakim, one of the four brothers who run George Hakim, based in downtown Beirut.

“The designs, the model making, the execution of the casting process in all its five stages, the setting, electroplating, polishing and so on, all are taught here in our country and [produced] uniquely by Lebanese craftsmen,” said Berge Arabian, a senior member of the SEGJL.

Lebanese jewelers have weathered well the financial storm of the past year and a half, particularly the high-end stores, on the back of wealthy customers moving some of their money into hard assets due to concerns about banking stability, inflation and the depreciation of the US dollar.

The regularity with which regional clientele buy jewelry, compared to Europe or the Americas is keeping sales buoyant. “In the West, people will buy [new jewelry] once every 10 years, but Arabs will buy…something new every two to three years,” Yessayan said.

Lebanon's jewelry market

There has been a slight downturn, evident in a drop in regional advertising expenditure, but this has not prevented jewelers from expanding in the region. Yessayan, which saw 20 percent growth in 2009, plans to open a showroom in Saudi Arabia, while companies are working on developing their own brands and identity by increasingly moving into retail.

Branching out

“There has been a big shift away from wholesale. You sell more and you get cash, you don’t wait for payments and it is better for the brand too,” said Yessayan. “We are heading into branding and creating an identity for ourselves, including a watch brand, Scala.”

Bejeweled watches are a growing segment for the sector, similar to how fashion and car brands started to bring out their own line of watches over the past decade. The jewelers team up with Swiss horologists to manufacture timepieces that are then imported to Lebanon to be turned into a watch.

“The Lebanese are starting to compete with international designers, and Lebanese jewelers have excellent design, execution and prices. The combination of the three is quite unique,” said Khoury.

Yessayan said the demand for such bejeweled watches predominantly comes from the Gulf, with prices reaching $100,000 for a diamond-encrusted offering. The Gulf will remain the sector’s primary export market for the foreseeable future, given the Gulf’s status as the fourth largest diamond market in the world.

Lebanon's devious diamond trade

The shady business of diamond dealing in Lebanon
Executive magazine
By Paul Cochrane in Beirut

Lebanon has as dubious a reputation on diamonds as it does for exporting hashish. Both have been linked to funding for militant groups during and after the Lebanese Civil War, while the diamond trade put Lebanon in the international spotlight when the country was removed from the Kimberly Process Certification Scheme (KPCS) in 2004, which meant other KPCS countries were barred from trading rough diamonds with Lebanon.

The KPCS’ fundamental tenant is to ensure the diamond trade does not fund violent conflict, and it does so by imposing requirements on member countries to certify shipments of rough diamonds as ‘conflict-free’. Lebanon was dropped from the KPCS for failing to enact such standards. Draft legislation that would have made Lebanon KPCS compliant was vetoed by then-President Emile Lahoud, whose justification was that parts of the bill were unclear.

“The rejection, however, follows a deal reported in the Russian media in 2003, between the Russian mining giant, Alrosa, and a hitherto unknown Beirut company called Horizon Development,” reported Other Facets, a publication of the African development forum Partnership Africa Canada, in June 2004. “Horizon, owned by Bahaeddine Hariri…reportedly struck a deal to buy $500 million worth of Russian diamonds. Lebanese press reports say that the 2004 bill may have been vetoed by Lahoud in order to foil the burgeoning Hariri diamond operation.”

Lebanon was reinstated into the KPCS in 2007, but was since designated “a major diamond laundering route” for Guinean diamonds in 2009. An estimated 60 percent of the West African country’s diamonds leave destined for Lebanon, yet they are exported at less than 10 percent of their actual value by being certified as “industrial” rather than “gem-quality” stones, according to Annie Dunnebacke, a campaigner at non-governmental organization Global Witness in London. At the same time, “some 250,000 more carats leave [Lebanon] as gem-quality diamonds than arrive — worth 36 times their import value,” noted Partnership Africa Canada’s “Diamonds and Human Security Annual Review 2009.”

“The pre-carat value of diamonds leaving Guinea is vastly lower going to Lebanon than to other places, which is very odd,” added Dunnebacke. Furthermore, 72,632 more carats were exported than imported in 2008, according to the KPCS’ latest figures (see page 29).

“A member of [KPCS] should do spot checks on stock piles of traders, but that is something not always done,” said Dunnebacke. “The confusion over figures in Lebanon is a prime example of why certification needs to be done, of how diamonds come in illicitly and are then exported legally, [with traders] saying it is from their stock pile.”

But a year after the reports surfaced that Lebanon is flouting certification rules, the KPCS is still only asking “polite questions and getting very little from Beirut in return,” according to Partnership Africa Canada, a non profit organization that focuses on African development..

No questions asked

The Lebanese have been a fixture of the diamond trade in Ghana and Sierra Leone for decades, but as the trade changes and the KPCS tries to tighten regulations — particularly over conflict diamonds — a number of Lebanese traders have moved to places such as Guinea, the Republic of Congo, and more recently Zimbabwe, which is flouting the Kimberly Process.

With Zimbabwean diamond exports being monitored, the rough diamonds are smuggled across the border to neighboring Mozambique where they are then transported to the major diamond hubs.

“Zimbabwean diamonds have a brown base, and people with experience know they’re from Zimbabwe, so they send these diamonds illegally to Dubai, Thailand or Lebanon, and re-certify them in Antwerp to make them legal, turning black into white,” a Lebanese-Armenian diamond merchant in Antwerp told Executive under condition of anonymity.

“Zimbabwean diamonds are diamonds not to touch. All diamonds can be traced if still in their rough structure and they are known from the density of the color,” he explained.

However, while a diamond’s origins can be traced, getting around the KPCS is not a difficult task.

“You give diamonds in an empty slip to the diamond organizations here in Antwerp and say, ‘Can you please certify them.’ You need membership and an office so they know who you are. They certify them no questions asked — not where they come from, that’s it. It is easy, and they put a price on them,” the source said.

With diamonds much smaller than other precious commodities like gold, stones are a common way to launder money for organized crime, drug dealers and, according to the United States authorities, for funding groups such as Hezbollah. Unsubstantiated reports have also linked part of the illicit trade in diamonds to Lebanese honorary consuls, who use diplomatic channels to bypass customs in West Africa and Lebanon. However, given the levels of corruption in places such as Guinea, greasing a few palms gives any carrier VIP status.

“There are some things in this business which make me think twice about being in the diamond trade,” said the Antwerp diamond trader. “But while Lebanon was a big hub, and [one] could pay off people, now Dubai is and the authorities there are closing their eyes to a lot of things. Lebanon is a relatively small player on the global diamond scene.”

Wednesday, February 03, 2010

Israel – financial insecurity

Money Laundering Bulletin

Following the September 11, 2001 terrorist attacks on the United States, Israel was quick to come out and identify itself with the ensuing US-led 'war on terror'. This was not surprising, given the Arab-Israeli conflict and the attacks Israel has sustained from militant Palestinian groups. But while the US ramped up its counter terrorist financing and anti-money laundering legislation through the Patriot Act, Israel has been rather lackadaisical in applying international regulations and domestic compliance in the financial sector, despite MONEYVAL saying the threat of terrorist financing and money laundering is 'considerable', writes Paul Cochrane.

In 2000, Israel enacted a Prohibition of Money Laundering Law (PMLL), but for being uncooperative in the fight against money laundering the Financial Action Task Force (FATF) placed Israel on its blacklist. By 2002, Israel was off the blacklist and on the FATF monitoring list until 2003.

For many years, Israel was the last Western country which wasn’t fighting money laundering,” Hebrew University law academic Guy Harpaz was quoted as saying in Forward magazine in July, 2009.

The PMLL enacted the establishment of the Israeli Money Laundering Prohibition Authority (IMPA) under the Ministry of Justice as the country’s financial intelligence unit (FIU) in 2002.

In the years since, Israel has amended, updated and added to regulations on anti-money laundering (AML) and counter terrorist financing (CTF). In 2004, the prohibition on terrorist financing (TF) law 5765-2004 was adopted and went into effect in August 2005. Under Israeli law, the Israel Security Agency (more commonly known as Shin Bet) is responsible for investigating TF offenses, while the Israel Tax Authority handles investigations originating in customs offenses. To ensure cooperation between Israeli government bodies, a ruling was put in place to transmit information between the IMPA, the Israeli National Police and Shin Bet.

But despite tighter regulations, a 2008 report by MONEYVAL stated that the overall threat of ML and TF in Israel is “considerable,” with more than USD$5 billion in illicit proceeds generated through illegal drugs, gambling, extortion, fraud, and human trafficking. The report estimated illegal gambling profits at over USD$2 billion per year and domestic narcotics profits at USD$1.5 billion per year. Political corruption is a further area of concern, with several high profile cases probed over the years. Indeed, Israel has not ratified the UN Convention against Corruption and last year, Israel ranked 33 out of 180 countries in the Transparency International (TI) 2008 Corruption Perceptions Index, a lower ranking than 2007's 30 out of 180 countries. Meanwhile, 82 percent of Israelis believe the public sector to be extremely corrupt, according to a study by TI published June, 2009.

Israel is affected by its fair share of corruption,” said Robert Mitchell of World-Check, a British company that maintains a database on politically exposed persons (PEPs) and high and heightened risk individuals and entities. “There is always another ML probe and corruption probe. Whether it is merely a change of government and a backlash against incumbents or knives out for politicians, it is difficult to tell.”

It is a similar case when it comes to money laundering. “There seems to be no domestic policy regarding ML. Very few individuals are sentenced,” said a banking source familiar with Israel that wanted to remain anonymous.

The Israelis are very good at saying US and British banks finance terrorism, that's bad, but they don't look at their own patch. They are on the front line for TF but need to do so much more in terms of education. The amount of fines the US government has given of late is unbelievable,” he said.

One of the biggest cases involved Israel Discount Bank (IDB) in 2006. The US Treasury, the Federal Deposit Insurance Corporation and the New York State Banking Department penalized the bank for USD$12 million to settle charges that its AML procedures were lax, specifically the transfer of billions of dollars of illicit funds from Brazil to IDB’s New York offices. The IDB was also fined by the New York District Attorney's Office, in December, 2005, this time USD$8.5 million for failing to adhere to Bank Secrecy Act requirements and filing suspicious activity reports.

In mid-July, the FBI arrested 44 people in New Jersey on charges of laundering millions of dollars through charities controlled by rabbis that were linked to Israeli charities.

According to court documents obtained by The Jerusalem Post, one of the rabbis used a source in Israel to supply money through “cash houses” in exchange for a 1.5 percent fee. The FBI stated that the rabbis earned between five to 10 percent per transaction. Prosecutors also charged a rabbi for acquiring and trading human organs that were 'donated' in Israel for $10,000 and sold in the US for up to $160,000.

In a separate incident in August, Israeli police broke up an Israeli-American crime ring specializing in tax fraud and ML. According to the police report, the US internal revenue was defrauded of tens of millions of dollars that were deposited in Israeli bank accounts.

In July, 2009, the Federal Reserve Board and a Florida financial regulator ordered a Miami branch of Bank Hapoalim to overhaul its AML program within 60 days, particularly due diligence. In 2005, some USD$400 million was frozen and 22 employees arrested at a Bank Hapoalim branch in Tel Aviv for failing to report irregular multi-million dollar money transfers.

Other Israeli banks have been fined, this time by Israel's Banking Sanctions Commission (BSC) for lax ML compliance. In 2007, Bank Leumi was fined USD$98,000 for violations of ML regulations, including the know-your-customer (KYC) process, lack of protocol regarding beneficiary statements and the maintaining of identification documents. In 2008, the BSC fined the First International Bank of Israel USD$936,000, and the Poalei Agudat Israel Bank USD$535,000 for infringing ML regulations.

In December, 2008 the BSC ordered IDB to pay nearly USD$1 million in fines over the institution’s inadequate ML controls. The BSC can fine financial institutions up to NIS 2 million (USD$535,000) for every violation it finds.

There are three things Israeli banks don't want to have an issue with: the US Treasury, US Department of Justice (DOJ) and the Israeli Ministry of Defence (IMOD). Those three in that order. How many screen against the Office of Financial Assets and Control (OFAC) list, nearly all now, but how many screen against US DOJ lists? Only one Israeli bank I am aware of,” said Mitchell.

A lot of the larger banks have adopted FATF's 40+9 Recommendations. However, some are woefully unprepared. In Israel the regulation is to screen against an IMOD list, say supplying the Palestinians. World-Check had entities like InterPal for six or seven years before hitting the IMOD list, and there are loads of groups and front companies listed by World-Check before getting on the IMOD list,” he added.

In the European Committee on Crime Problems' 2008 MONEYVAL country report, Israel was advised to apply Article 12 of the European Union AML Second Council Directive on the Extension of AML Obligations, similar to FATF Recommendation 20. “Israel has so far not taken steps to meet this obligation of the Directive,” the report states.

In terms of compliance with FATF Recommendations, the report noted that for legal systems, ML offenses were 'largely compliant', ML offense mental element and corporate liability 'compliant', and confiscation and provisional measures, 'partially compliant'. In preventative measures, Israel was 'compliant' and 'largely compliant' in all fields bar customer due diligence (CDD) obligations for real estate agents, dealers in precious metals and stones, trust and company service providers, and independent legal professionals and accountants. Notably, CDD, PEPs, and unusual transactions were rated 'partially compliant'.

While AML oversight of Israel's precious stones sector is still lacking, particularly in the sizable diamond sector,with USD$6.24 billion of polished diamonds exported in 2008, an amendment to the PMLL has been proposed that will extend the AML regime to cover the sector. The amendment, drafted in 2007, is still awaiting approval by the Knesset, the country's legislative body.

But while Israeli institutions clearly needs to ramp up AML and CTF compliance, there has been progress. According to the Tax Authority, 28 decisions taken in the first half of 2008 resulted in NIS 744,000 (USD$199,000) in fines. Total criminal assets seized by the police in 2008 were reportedly USD$3.2 million, although this was a marked decrease from previous years, according to the US State Department's International Narcotics Control Strategy Report 2009. In 2008, IMPA reported approximately 100 arrests and 10 prosecutions relating to ML and/or TF. In 2008, IMPA received 17,152 suspicious transaction reports, and some NIS 7.7 million ($2 million) was frozen or forfeited in AML/CTF-related actions.

However, the source questioned the number of STRs the FIU had received. “It is defensive reporting, the FIU jumping up and down about reports being low, and not enough done about it. You can read a lot into STRs. Banks were just flagging transactions above a certain amount. 'What about buying a house?' I asked bankers. 'There you go',” said the source. The IMLPA did not reply to questions sent by Money Laundering Bulletin.