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RUEHSO/AMCONSUL SAO PAULO 6469
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RUEHQT/AMEMBASSY QUITO 1745
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RUEHSG/AMEMBASSY SANTIAGO 5370
RUEHKI/AMEMBASSY KINSHASA 0015

UNCLAS SECTION 01 OF 03 BRASILIA 000410 
 
SIPDIS 
 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EB/ESC SUE SAARNIO 
TREASURY FOR OFAC 
 
E.O. 12958: N/A 
TAGS: SNAR ETTC EMIN EFIN PTER BR
SUBJECT: NEVER MINED: ILLEGAL TRAFFICKING ARRESTS ROCK KIMBERLEY 
PROCESS 
 
¶1. (SBU) Summary: Six people, including one GoB official, were 
arrested February 10 in a sting operation to stop the trafficking of 
illegally certified diamonds in Brazil. The gang is accused of 
illegal mining, document fraud, money laundering, tax evasion, and 
possible blood diamond trade. The Brazilian authorities are still 
pursuing a number of others including their primary target, Hassan 
Ahmad, a naturalized Brazilian of Lebanese descent, reported by the 
press to have links to international terror groups, including 
Al-Qaeda. In response to the arrests, the Ministry of Mines and 
Energy, which certifies Brazilian diamonds for export under the 
Kimberley Process, has suspended all exports, revoked the previously 
issued certificates for three companies involved, and replaced the 
arrested official Luiz Eduardo Machado de Castro. MME will also 
review the issuance of Kimberley Certificate number 64, which was 
the focus of a damning indictment by a watchdog NGO of the entire 
Kimberley Process in Brazil. Despite assurances to us by the General 
Coordinator for International Affairs at MME, Samir Nahass, that the 
Kimberly Review scheduled for the week of April 24 will not be 
postponed, Post believes the GoB ultimately will do so when the 
investigation forces it to face up to its broken Kimberley 
certification mechanism. End Summary. 
 
¶2. (SBU) On February 10, after an extensive sting operation, the 
Federal Police arrested 6 people under suspicion of trafficking in 
illegal diamonds. Prominent among the arrested parties were Luiz 
Eduardo Machado de Castro, the state of Minas Gerais' Superintendent 
of the National Department of Mineral Production (DNPM) and Viviane 
Albertino Santos. Castro was responsible for the Kimberley 
certification process in that state, including issuance of origin 
certificates and verification of licenses. Santos is the 
owner/operator of Viviane Santos Classificacao de Pedras Ltda., one 
of the largest diamond export companies in the state of Minas 
Gerais. The arrested persons are accused of participating in a fake 
certification scheme that included falsification of public and 
environmental documents, tax evasion, money laundering, exchange 
rate fraud, gang activity and corruption.  The one-and-a-half year 
sting operation was a taskforce effort of the Federal Police (the 
equivalent of the FBI), the tax authority and the Federal Public 
Ministry (i.e. prosecutor's office).  The Federal Police is seeking 
cooperation from overseas financial institutions (in the US and 
Europe, primarily) since there is evidence that the parties involved 
laundered their money through international banks. 
 
The Ones That Got Away 
--------------------- 
 
¶3. (SBU) The task force is troubled by the escape of its primary 
target Hassan Ahmad, owner of Minas Gerais' largest diamond 
exporter, Primeira Gema Comercio Importacao e Exportacao Ltda. 
Ahmad is thought to be the head of the illegal diamond cartel.  In 
2004 Ahmad was responsible for a reported 83% of Minas Gerais 
diamond exports, but as of the end of 2004, Primeira Gema had all 
but disappeared in the legal diamond trade, and has not filed any 
export license applications since that time.  Brazilian authorities 
have openly appealed to international authorities, banks, law 
enforcement to help capture Ahmad, a naturalized Brazilian citizen 
of Lebanese descent, born in Sierra Leone and bearer of a Belgian 
passport. Ahmad's father, Said Ali, and his brother Ali Ahmad, were 
implicated by a 2003 U.N. Security Council report as money 
launderers and traders in conflict diamonds from Sierra Leone and 
the Congo.  Ali Ahmad (the brother) manages the Belgian diamond 
house Asa Diam, the primary importer of the Primeira Gema exports 
and a company also implicated in the UN report. Belgian police and 
European intelligence agencies have accused Asa Diam as having ties 
to Al-Qaeda and the Lebanese mafia, according to some press reports. 
 
 
¶4. (SBU) Another escaped target of the investigation is Paulo 
 
BRASILIA 00000410  002 OF 003 
 
 
Traven, owner of Mato Grosso-based Traven Comercio Importacao e 
Exportacao Ltda. Traven stands accused of trading in illegally mined 
diamonds from the interior of Mato Grosso, Minas Gerais and the 
Cinta Larga Roosevelt Indian Reserve in Rondonia.  Notably, in April 
2004 the Cinta Larga people killed 29 illegal miners on their 
230,000 hectare reserve. Traven is thought to have laundered much of 
his earnings through real estate deals throughout Brazil. 
 
A Reckoning: The Kimberley Process in Brazil? 
--------------------------------------------- 
 
¶5. (SBU) As a result of the arrests, the Ministry of Mines and 
Energy (MME) suspended exports of all diamonds from Brazil and has 
no immediate plans to recommence exports.  MME has also cancelled 
certificates previously issued to Primeira Gema Comercio Importacao 
e Exportacao Ltda. and Vivianne Santos Classificacao de Pedras 
Ltda., the first and second largest exporters of raw diamonds in 
Minas Gerais, and to Traven Comercio Importacao e Exportacao Ltda. 
It does not plan to issue any new certificates in the near future, 
according to Nahass. Meanwhile, Jose Eduardo Alves Martins has taken 
over as the DNPM superintendent for Minas Gerais.  Nahass also said 
that while the MME is proceeding with planning for its Kimberley 
Review the week of April 24, a final date has not yet been 
confirmed. Econoff asked whether the Kimberley Process in Brazil 
would change as a result. Nahass, clearly bothered by the 
implication, adamantly characterized the Kimberley Process as 
working just fine, though in need of minor adjustments.  Nahass 
could/would not elaborate on what shape those minor adjustments 
should take. 
 
Kimberley Certificate Number 64 to be Re-verified 
--------------------------------------------- ---- 
 
¶6. (SBU) Nahass admitted that the MME will review the process by 
which Brazilian Kimberley Certificate Number 64 was issued, since it 
was certified by Luiz Eduardo Machada de Castro, the recently 
arrested ex-DPNM chief. This particular Kimberley Certificate was 
the focus of controversy when watchdog group Partnership Africa 
Canada (PAC) enumerated irregularities with the certification of the 
6876.92 carats worth of diamonds. Their report questioned, based on 
geological limitations, how 100 hectares could yield such a large 
weight of diamonds over the course of a reported seven days. The PAC 
investigators concluded that the diamonds exported were not from the 
Brazilian concessions, which they said were not operational and had 
not ever been, but rather were from a completely unknown source. 
Many of the actors involved, including Hassan Ahmad, were 
participants in the deal. If any irregularities are revealed, said 
Nahass, Brazil will issue an abject apology and assume full 
responsibility. Luiz Eduardo Machado de Castro authorized and 
certified a report refuting the PAC allegations. 
 
COMMENT 
------- 
 
¶7. (SBU) Despite Nahass' statement that the review will go forward, 
Post fully expects the MME ultimately will postpone the April 
Kimberley Review. Despite evidence to the contrary, MME appears to 
be blind to the serious holes in its Kimberley Process system.  With 
reported links to international terror groups, implications of blood 
diamond trading, exploitation of Indian reserve land, and money 
laundering, the recent arrests reveal a systemic corruption that 
cannot be handled by unspecified small adjustments. Revealing, 
however, is the review of Certificate number 64, which indicates 
that the GoB is more than a little suspicious that its (and the 
international community's) worst fears about their Kimberley Process 
are true. The involvement of a GoB official only adds fuel to a 
highly political fire. Post also expects that the GoB will soon make 
specific requests through law enforcement channels for information 
 
BRASILIA 00000410  003 OF 003 
 
 
from U.S. and European banks to further pursue investigation of the 
money laundering aspect of this case. End Comment. 
 
LINEHAN