Diamonds Are A Sanctions Violation

On four separate occasions, an individual purchased jewelry from one of the Cartier boutiques located in California or Nevada for shipment to Shuen Wai Holding Limited in Hong
Kong. I’m sure the store routinely ships purchases around the world. The problem is that Shuen Wai Holding Limited is named as a Specially Designated Narcotics Trafficker pursuant to the Foreign Narcotics Kingpin Designation Act. Shuen Wai Holding Limited is associated with Wei Hsueh Kang and the United Wa State Army that produce opium out of Golden Triangle in Burma.

If a person is on the sanctions list, you can’t do business with them in the United States.

I had never thought about the sanctions list in the context of consumer transactions. It did bring to mind a story I heard while attending the FBI’s Corporate Compliance Officer Outreach Event several years ago. An agent told the story of a border guard who flagged through a car with a suitcase full of gift cards. The border guard was looking for cash and didn’t think twice about the gift cards. Of course the gift cards, have some limitations, but are just as good as cash in most instances.

The same could be true of Cartier. They many never have thought that their customers would be drug kinpin associates trying to launder money.

There is no background in the sanctions notice about the circumstances of the purchases, so I used my imagination to think of scenarios that I thought likely.

The first scenario that came to mind would be one of mistaken name. Cartier was audited and the shipping to Shuen Wai Holding Limited was a false positive. Cartier should have resolved it and did not. Assuming Cartier even checks shipments against the SDN list. That seems unlikely given that there was an enforcement action.

The second scenario was a foolish associate of Wei Hsueh Kang spending time in the US and looking for some fancy jewelry. The associate foolishly uses a real address instead of an anonymous one.

The third scenario is Wei Hsueh Kang actively used a weakness in Cartier’s shipping policies to launder money. The Cartier boutiques were located in California or Nevada. I assume that means Las Vegas, the home of gambling and lots of cash transactions. The casinos are going to check off-shore wires against the SDN list. With that path blocked, the associate chose instead to walk into the Cartier in the casino. There is one in the Wynn hotel. Or the associate could have walked down the street to the Las Vegas Forum or the The Shops at Crystals. The associate purchases a suitcase full of jewelry that can easily be resold. Or perhaps its unset diamonds or other precious items.

That looks like some a soft spot that money laundering syndicates could take advantage of. The Office of Foreign Assets Control points that out in the enforcement press release:

This enforcement action highlights the risks for companies with retail operations that engage in international transactions, specifically including businesses that ship their products directly to customers located outside of the United States. OFAC encourages companies to develop, implement, and maintain a risk-based approach to sanctions compliance, and to implement processes and procedures to identify and mitigate areas of risks. Some of the multitude of factors that a company could consider with respect to its compliance program is an assessment of its products and services, frequency and volume of international transactions and shipments, client base, and size and geographic location(s).