Yellowknife (Jan 28/05) - Canadian diamond manufacturers and polishers headquartered in Yellowknife have been targeted by organized crime syndicates from Eastern Europe to Asia looking to gain a foothold in the multi-billion dollar industry, according to intelligence officials.

RCMP Cpl. Darrell Robertson, who specializes in the diamond trade, said members of organized crime syndicates have their eyes on the Canadian diamond industry.

While the Canadian Security Intelligence Service (CSIS) highlighted the possibility of organized crime infiltrating the industry in a de-classified report from 2004, Yellowknife-based police revealed this week that gang operatives have visited the capital during reconnaissance missions.

"We know they have been here," said Cpl. Darrell Robertson, an investigator specializing in the diamond trade with the Royal Canadian Mounted Police.

Yellowknife is an ideal location for crime syndicates looking to get involved in the fledgling diamond industry, Robertson said. The capital has four polishing houses within city limits and the only producing diamond mines in the country are just hours away.

"If people think this only happens in third world countries, they are mistaken," said Robertson.

The CSIS intelligence report said groups from Eastern Europe and Asia, along with outlaw motorcycle gangs, pose the most immediate threat to the Canadian diamond industry.

"The industry is not immune to penetration by organized crime," reads the report. "Diamonds are small, durable, easy to smuggle, are easily exchanged for cash and, importantly, practically untraceable once polished."

According to a joint report issued in 2004 by the RCMP and several provincial police forces, the Hell's Angels have tried to infiltrate the secondary diamond industry - primarily through jobs in the transportation, construction and polishing sectors.

While motorcycle gangs are already involved in Yellowknife's underground drug trade, Robertson does not believe their reach - or that of the Asian and Eastern European syndicates - extends to the diamond sector.

"To the best of our knowledge, they have not infiltrated the industry," Robertson said. "But the potential is there."

According to the CSIS report, crime syndicates could use the Canadian manufacturing process to launder so-called conflict diamonds - gems used to fund bloody civil wars in African countries such as Sierra Leone and Angola.

While an international agreement known as the Kimberley Process prohibits the trade of conflict diamonds, the stones could be slipped into the Canadian chain where they would be cut, polished, branded and marketed as legitimate gems.

"Should conflict diamonds enter the Canadian production line, this would threaten the integrity and stability of the industry," the report warns.

Mike Botha, interim manager of Sirius Diamonds, a Yellowknife polishing house, believes that while conflict diamonds are not being laundered in Canada, the potential is there.

During his time at Sirius, Botha has received at least one "suspicious" request to polish diamonds - rough stones he suspects may have come from warn-torn Sierra Leone.

Botha reported the incident to police.

"We want to keep the industry clean," Botha said from his office on Diamond Row, a cluster of four polishing houses near the Yellowknife Airport.

"Otherwise, people will lose confidence in Canadian diamonds."

With hundreds of thousands of dollars in diamonds circulating Yellowknife each day, companies have implemented rigorous screening procedures designed to keep track of gems from the moment they are mined to the moment they leave the polishing house, Botha said.

Employers are not only guarding against the introduction of conflict diamonds into the production line, but also a scam known as "substitution" where high quality diamonds are replaced by lower quality diamonds of the same weight.

Security measures

"Internal security is our first and foremost concern," Botha said. "Each diamond undergoes colour, clarity and dimensional checks."

Sometimes though, the most rigorous security measures are not enough to prevent monumental diamond thefts, said Robertson.

In 2003, thieves made away with nearly $100 million in diamonds from a company in Antwerp, Belgium, after posing as employees for nearly three years.

"The plan was elaborate, but the return was much higher than the investment," Robertson said.

The impact of organized crime on the diamond industry is not restricted to private industry and the government, however.

Syndicates often engage in a process known as "salting" where exploration results are exaggerated or completely fabricated to artificially inflate stock values, Robertson said.

When prices come crashing down, regular investors are left holding the bag, much like the infamous Bre-X scandal of the late 1990s.

Organized crime is already widespread in established diamond mining countries like South Africa and Russia. CSIS officials estimate nearly 30 per cent of diamonds in the latter country are lost to crime.

Two billion dollars a year

Robertson has been working closely with private industry, the territorial government, CSIS, the American Federal Bureau of Investigation and Belgian authorities - to name a few - in an effort to ensure the same criminal elements don't infiltrate the fledgling Canadian diamond industry, which is already worth nearly two billion dollars a year.

"We have a unique opportunity to be proactive instead of reactive," said Robertson, who has been tracking the diamonds for three years.

With two more Northern diamond mines scheduled to come on line within the year and significant discoveries being made everywhere from Alberta to Quebec, the task of protecting the sector will require additional manpower, Robertson warned.

"There will be a necessity for our unit to grow," he said.

There are currently two investigators in Canada - including Robertson - who monitor the industry full-time. Roughly a dozen other officers handle the portfolio part-time. By contrast, South Africa has 475 investigators who work solely in diamonds.

Botha, who witnessed first-hand the effects of organized crime in his native South Africa, said once crime syndicates become established, they are extremely difficult to purge from the industry.

"This is not a problem yet, as far as I can see," he said. "But it is not something we want to see here."