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 arrested four businessmen in Hong Kong last week. Yeung said they were the directors of five companies in the city involved in money-laundering activities, with two of them being the alleged ringleaders of the syndicate.
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During raids on offices of the firms, officers seized HK$1 million in foreign currency along with natural diamonds weighing about 290 carats and worth HK$8 million, more than 1,000 synthetic diamonds and related documents.
The syndicate sent synthetic diamonds to India instead of natural ones in preparation for random inspections by the Indian authorities.
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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 officials in India also arrested four people in connection with the case earlier this year.
According to Hong Kong’s Customs and Excise Department, the syndicate used a scheme involving fictitious trading of high-value natural diamonds between the five companies in Hong Kong 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. Subsequently, the “buyer” in India transferred suspected crime proceeds into 13 bank accounts belonging to the five companies in Hong Kong.
Yeung said the illegal funds were then transferred out of the accounts and laundered through third-party business accounts, and stressed that officers were investigating the final destinations of the money and the types of activities that generated the illicit cash.
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He revealed that the synthetic diamonds were used in shipments in the trade-based money-laundering scheme to avoid detection during random inspections by the Indian authorities.
“The synthetic diamonds appear to be as real as natural diamonds and require expert help to differentiate,” the superintendent said.
“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.”
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 companies 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 in the country, he said.
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Hong Kong customs launched an investigation into the money-laundering syndicate about six months ago after an intelligence exchange with its counterpart in India.
After gathering evidence, Hong Kong customs officers arrested the four men in raids on December 18. 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.
More from South China Morning Post:
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