Hong Kong, Indian customs arrest 8 in joint crackdown on syndicate that laundered HK$500 million in bogus diamond trading scheme
- Four businessmen, directors of five firms allegedly involved in money-laundering activities, were arrested in Hong Kong on December 18
- Indian authorities arrested another four in connection with case earlier this year
Hong Kong and Indian authorities have arrested eight people in an unprecedented joint operation to crack down on a criminal syndicate that fabricated cross-border diamond trading to launder HK$500 million (US$64 million) in alleged crime proceeds via the city, a senior customs official has revealed.
Superintendent Ben Yeung Yuk-man of customs’ financial investigation bureau on Thursday said the case was the first time such a trade-based money-laundering scheme had been discovered in the city.
Customs officers detained four businessmen, aged 30 to 56, in Hong Kong in an operation codenamed “Gem Crusher” on Tuesday and Wednesday last week.
The men were arrested on suspicion of dealing with property known or reasonably believed to represent proceeds of an indictable offence, commonly called money laundering, under the Organised and Serious Crimes Ordinance.
Yeung said they were directors of five companies in the city involved in money-laundering activities, with two of them the syndicate’s alleged ringleaders.
During raids on the firms’ offices, officers seized HK$1 million in foreign currencies, natural diamonds weighing about 290 carats and worth HK$8 million, more than 1,000 synthetic diamonds and related documents.
Customs said eight premises – four flats and four commercial units – were searched.
The syndicate sent synthetic diamonds to India instead of natural ones in preparation for random inspections by Indian authorities.
A synthetic diamond typically costs about 1 per cent of the value of a natural one with equivalent carat weight, according to sources.
Officers froze HK$5.7 million in the personal and business bank accounts of the four suspects and seized a Tsim Sha Tsui commercial property valued at HK$2.5 million, allegedly bought with crime proceeds.
Customs is considering applying for a court order to confiscate the combined HK$8.2 million in assets, after consulting the Department of Justice.
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Chan King-wai, divisional commander of customs’ financial investigation bureau, told a press conference on Thursday the two suspected ringleaders, aged 28 and 36, were of non-Chinese origin.
“Both were responsible for exporting the synthetic diamonds and submitting false declarations as well as receiving the alleged crime proceeds from India,” Chan said.
Another arrested core member was a 30-year-old non-Chinese man who managed one of the companies. He set up the stooge accounts and handled the alleged crime proceeds, Chan said.
The trio all live in Hong Kong and have local identity cards.
Chan said the fourth man arrested was a 56-year-old resident who worked as an office assistant and was responsible for setting up shell companies and laundering the alleged crime proceeds.
Customs officials in India also arrested four people in connection with the case earlier this year.
Hong Kong’s Customs and Excise Department said it had exchanged intelligence with its counterparts in India as part of the operation.
According to Hong Kong customs, the syndicate used a scheme involving fictitious trading of high-value natural diamonds between the five companies in the city and another in India. All five companies were allegedly set up by the syndicate.
In these transactions, the Hong Kong companies falsely sold synthetic diamonds as high-value natural ones to the firm in India. The “buyer” in India transferred suspected crime proceeds into 13 bank accounts belonging to the five companies in Hong Kong.
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“The syndicate saw that diamonds could be easily transported at low cost, while being of high value,” Chan said.
Yeung said the illegal funds were then transferred out of the accounts and laundered through third-party business accounts, adding officers were investigating the final destinations of the money and the types of activities that generated the illicit cash.
He said the synthetic diamonds used in shipments appeared to be as real as natural ones and required expert help to differentiate them.
“The transactions were employed as a cover for laundering illegal funds, involving layering of funds through the transactions and jurisdictions, which obscured the money trail,” Yeung said.
He said the five companies in Hong Kong had carried out about 130 transactions with the firm in India in 2021, laundering HK$500 million in suspected crime proceeds.
Yeung added that investigations showed the 13 bank accounts of the five city firms handled more than 2,000 suspicious transactions, with one involving up to HK$7 million.
The companies involved halted their illegal transactions in the past two years, amid a probe into the firm in India by authorities there, he said.
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Hong Kong customs launched an investigation into the money-laundering syndicate about six months ago after exchanging intelligence with Indian counterparts.
After gathering evidence, customs officers arrested the four men in raids last week. They have been released on bail pending further investigation.
In Hong Kong, money laundering is an offence punishable by up to 14 years in jail and a HK$5 million fine.
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In 2012, the city recorded its largest money-laundering case involving HK$13.1 billion when a 22-year-old man from mainland China was arrested for bulk cash smuggling operations using air couriers.
The Joint Financial Intelligence Unit, comprising police and customs officers, reported an increase in suspicious financial activity cases from 51,588 in 2019 to 68,538 in 2022. Officers handled 87,385 reports in the first 11 months of this year.
Entities including banks, securities and insurance firms, legal and accounting professionals, dealers in precious metals and stones, money service operators, money lenders and property agents must report suspicious transactions.
Additional reporting by William Yiu
