Canada's newly emerging diamond industry is a potential source of criminal activity that could be attractive to both foreign and domestic organized crime groups, a federal agency warns.

In its annual report, Criminal Intelligence Service Canada (CISC) -- a network of federal, provincial, regional and municipal law enforcement agencies -- says it's monitoring the industry for possible criminal infiltration.

"Organized crime could potentially infiltrate the diamond industry through co-opted or wholly owned mining, exploration and cutting and polishing firms," the report says.

According to CISC, co-option could occur if organized crime groups were to place individuals in jobs that could gain access to important industry information or to acquire an illicit supply of rough stones.

Potential threats from organized crime that could impact on the Canadian diamond industry include:

• misrepresentation of high-quality fake stones as real diamonds
• non-Canadian diamonds being misrepresented as being from one of the Canadian diamond mines
• use of polished stones as a means of currency for transport
• increase in smuggling of rough stones
• opportunistic theft at mine sites or while in transit

The report also warns that the exploitation of the Canadian diamond industry by organized crime could negatively impact the integrity of Canadian-mined diamonds, resulting in financial loss to consumers and investors.

"For instance, smuggled diamonds could not only negatively impact the integrity of diamonds mined in Canada, but governments could also lose potential tax revenues from their sale," the report says.

"Moreover, a loss in confidence of the diamond industry in Canada could have negative repercussions on consumers and investors domestically and in other diamond producing countries."

Diamond exploration throughout Canada has expanded significantly over the past couple of years with the discovery of diamond-bearing kimberlite pipes in Alberta, Saskatchewan, Ontario and Quebec.

The next three mines to open in Canada, De Beers' Victor Project in Ontario, Snap Lake in the Northwest Territories and the Tahera Jericho Project in Nunavut, are expected to begin production over the next couple of years.

Additional criminal markets highlighted in the annual report include contraband tobacco and firearms trade, money laundering and human trafficking.

Overall, all Canadians are at risk of being prey for organized crime groups, the agency warns.

"Organized crime groups prey on many segments of society, from individuals to investors to financial institutions," Sureté du Québec Chief Normand Proulx said in a statement.

"The intelligence on organized and serious crime gathered and shared through CISC helps law enforcement to reduce illicit profit- making opportunities, and to protect citizens from being victimized."

The scope of criminal activity in Canada is wide-ranging and includes everything from marijuana grow operations to identity theft and money laundering, according to the report.

"Recent events involving the seizure of counterfeit prescription drugs demonstrate how every Canadian is a possible target for organized criminals," said Deputy Commissioner Martin, CISC Executive Committee Co-Vice Chair.

"Criminals threaten the very fabric of our society and we can only counter that threat by partnering to combat organized crime."