Blood Diamonds (19 page)

The next step for De Beers was to wheel 180 degrees from its chairman's 1996 statements to shareholders and vituperate madly about conflict diamonds, but in the same breath defend the diamond
industry and its profits by qualifying that the trade accounted for only four or five percent of world diamond output. True or not, and it likely is true, this self-serving defense seemed more like spin control and did little to redeem the tarnishing reputation of diamonds. Four or five percent still killed a lot of Africans and made the industry hundreds of millions in profits. The same is true of De Beers's lame excuse of hiding behind their definition of conflict diamonds, which sounds accurate enough, but provided the company with linguistic wiggle room. According to De Beers, conflict diamonds are “mined or stolen by rebels who are in opposition to the legitimate government of a country.”

According to that definition, De Beers didn't buy rebel diamonds from Angola at all from 1990 to 1998 since a UN-brokered peace process was in effect and UNITA was technically part of the government as a recognized political party under the agreement, even though it engaged in diamond-funded combat with its MLPA “colleagues” almost the entire time.

Aside from self-preservation, De Beers's desire to cushion the industry from a fatal blow from blood-diamond publicity has a number of legitimate arguments. The industry, after all, is bigger than the company alone and in fact is critical to the economies of at least four nations. Botswana, the largest gem-diamond producer in the world, exported $1.7 billion worth of diamonds in 1999 and had an economic growth rate of 9 percent that year, making it the fastest-growing economy in the world. Botswana has a stable, democratic government and diamond exports account for 75 percent of the country's annual foreign exchange earnings, 65 percent of the government's revenue, and 35 percent of its gross domestic product. Likewise, the diamond industry in Namibia is the country's largest employer and its annual $400 million in diamond exports
accounts for 40 percent of its foreign exchange earnings. South Africa would not be the economic powerhouse that it is today without the diamond industry: Fifty percent of De Beers's mining profits in South Africa go to the government in the form of taxes and more than 11,000 people are employed in the diamond industry there. South Africa also has a large cutting and polishing industry, a rarity among diamond-producing countries. Farther afield, in India, home to the largest diamond-cutting and -polishing sector in the world, nearly a million people are employed in the industry.
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The fact that De Beers's profits are tied directly to the production of all three African countries—it has a 50 percent stake in the production of both Namibia and Botswana—doesn't dilute the fact that a diamond boycott would have disastrous economic and geopolitical effects in these countries.

But arguments on the merits of the diamond industry's contribution to economic development in African countries wasn't enough to stem criticism. The potential for mounting outcry demanded tangible action, so the company vowed to expel any diamond bourser—a diamond house that deals in rough and polished stones—caught dealing with rebels, a threat that's on par with excommunication from the Catholic Church or having a hit put on you by the mob. De Beers took the first step in that direction by ending all trade on the open market, a move that included refusing to buy diamonds at all from Angola even if they are purportedly from clean channels. This action delivered a resounding blow, instantly wiping out $15 million a week from the market, demonstrating that when it comes to abolishing war goods, De Beers holds the most sway. In early 2000, De Beers began placing notices in each of its sightholders' parcels promising that the rough they were sold was squeaky clean.

Few people believed that. As mentioned, De Beers is what it is because of its aggressive buying policy, a corporate strategy meant to keep the diamond market in tune with its wishes. Since diamond prices would have crashed a long time ago if every stone ever discovered had been allowed to make it to market, the strategy resulted in a massive stockpile of stones in London, gathered over decades from sources around the world, and valued by the company at $4 billion (the actual value is probably much less because if De Beers attempted to sell the stockpile, the price of rough would plummet). Open-market buying didn't end until 2000, so it is impossible that De Beers can certify that 100 percent of its diamonds in the stockpile are from clean trading streams. Furthermore, the certification is only good for the sightholder. Many De Beers clients buy rough from sources other than the DTC, most of which are unsheltered by such guarantees, and so the De Beers warranty can be used to mask the presence of conflict goods if the unwarrantied stones are mixed with the De Beers goods.

 

SO IN THE WAKE of the campaign by Global Witness, it was widely agreed that conflict diamonds are bad, both for the countries in which the conflicts are occurring and for the future health of the industry, as well as, by extension, the health of some of the few successful and peaceful countries in Africa.

Now the question was what to do about it.

Underlying any talk of further actions is a slew of legislation: In 1998, the Security Council passed Resolution 1173, a sanction against diamonds from Angolan rebels, and 1176, one against diamonds from the RUF. In 2000, it passed Resolution 1306, which banned all countries from importing any rough from Sierra Leone until a certification process could be designed with the help of the
Diamond High Council in Antwerp. In the United States, Congressman Tony Hall and Senator Judd Gregg introduced the Clean Diamond Act in 2001, a law that seeks to ensure that all diamonds imported into the United States are verifiably from clean sources.

None of those laws did much in a real-world sense to stop the flow from Sierra Leone; the RUF and those who helped them were smugglers, after all, and not deterred by legal restrictions. Even the Diamond High Council's introduction of the Sierra Leone authenticity certificate didn't seem to do a whole lot of good. Men like Jacob Singer barely noticed that there was a new system in place for the exportation of legitimate goods. After all, he was in the business of smuggling illicit goods. More drastic measures were also implemented, including the formation of the World Diamond Council in Belgium in 2001, an organization meant to speak for the industry as a whole, from mine to retail, and to liaise with the UN on the issue of conflict diamonds. The World Diamond Council's only purpose is to handle PR and spin control for the conflict-diamond issue.

And of course, there's the Kimberley Process, which was organized by the South African government and held its first meeting in Kimberley in May 2000. The issue the group tackled seemed simple but in fact was frustratingly complicated: How to ensure that diamonds sold around the world by legitimate houses, retail stores, and producers are not from African rebel groups. Coming up with a solution would prove nearly impossible.

Suggestions have ranged from the impossible to the simply unworkable, and there's no magic bullet in sight. Some groups have proposed branding the rough with a laser at its on-site origin so that it can be monitored and verified as it makes its way to the
cutting houses and eventually the consumers, who could rely on the mark as proof that their gem was clean. In written testimony before Congress in 2000, De Beers torpedoed this idea as “completely impractical.” Diamonds can lose up to half of their weight during cutting and would almost certainly lose their identifying marks. In addition, the cost of branding small stones wouldn't be worth what the producers could recoup on their sale.

Another idea was to create an international database of chemical and physical characteristics of diamonds from all the locations where they are found in the world. Diamonds could then be identified by source through mass spectrometry. With this system, a laser would vaporize a tiny portion of a sample diamond and the vapor would be analyzed for impurities. The ratio of these impurities—which can contain up to fifty different elements—varies from mine to mine, because the kimberlite they erupted from ages ago was composed differently from pipe to pipe. Analysts would, in theory, be able to identify which pipe a rough diamond had come from (although that may not necessarily help figure out the source country; erosion can carry diamonds for miles and what started in one country might get picked up in another after being washed downriver).

The difficulty with this plan lies in data collection. There are hundreds of diamond-producing kimberlite pipes in the world and those being worked are highly guarded. Why would a company want to share with the world the chemical makeup of its claim? Such information is treated as trade secrets and competing geologists could use the information to sniff out unclaimed diamond fields in the region.

The solution that seems to have the most support within the Kimberley Process is also the easiest to implement, although it may
never work. It's simply an extension of the certification process of the type used by the Sierra Leone government. The idea is that anyone wishing to sell diamonds on the international market would be required to provide a uniform, unforgeable paper trail for all the goods being sold. What that means is that anywhere diamonds are sold legitimately—whether in Kenema or Freetown or Tel Aviv or London—a potential buyer or customs investigator can ask to see the documentation and from it ascertain exactly where the diamonds were discovered and whose hands they've flowed through. Customs inspectors can follow the trail if there are questions and levy proposed sanctions against the diamond house selling the goods if they prove to be fraudulent. De Beers suggested that anyone caught dealing in conflict diamonds be banned forever from all professional diamond organizations worldwide, which would be the financial equivalent of the guillotine, a fitting metaphor considering the actions of the RUF gem-producers.

The problem is that diamonds are not timber or ore. They're so easily mobile that there's very little that this plan can do to address the mixing of legitimately purchased diamonds with those bought from rebel groups. For example, representatives of the Diamond High Council, as a final step in developing Sierra Leone's certification program, visited upcountry mining towns to inspect goods and ensure that they were from state-licensed mines. But since they weren't there when the diamonds were actually mined, how can they say for sure?

This approach would also require an as-yet-unseen level of both organization and honesty on the part of customs officials and government overseers in developing nations. In a place like Sierra Leone, where the average monthly income for a customs official is less than the daily earnings of a minimum-wage employee in the United States, why not take a cut of the action in exchange for a
certificate? And lastly, diamonds are passed from hand to hand dozens if not hundreds of times before wending their way into the mainstream, often in jungles and deserts where it might not be convenient to produce a certificate. Complete uniformity in a $6 billion-a-year industry involving pebbles—where transactions take place in some of the world's most desolate areas—seems a remote possibility.

Diamonds are so portable—and their value so enticing—that no system of certificates will ever be able to answer, for certain, whether or not the diamonds in an engagement ring came from perfectly legitimate sources in South Africa or from under the tongue of an RUF rebel called Colonel Poison.

 

IN SPITE OF THE BAD PRESS and evasive solutions, public awareness about conflict diamonds couldn't have come at a better time for De Beers. Even though it still dominated the diamond industry, its once iron grip was slipping, thanks in no small part to new Canadian fields in the Barren Lands that were turning out stunning gems and selling them largely outside De Beers's channels. The company's control over rough had slipped from 90 percent in the time of Rhodes to 65 percent at the end of the twentieth century. The company's manipulation of diamond prices was actually benefiting its competitors as well as itself.

Earlier in the same year that Global Witness delivered its roundhouse punch to the industry, De Beers hired an outside analyst to review its finances, the first time in its history this had been done. The Boston consulting firm that did the review suggested that De Beers abandon its self-appointed role as “market custodian” and let diamond prices take care of themselves in true market fashion. Again, timing was critical. The suggestion came at a time when demand from American consumers was at an all-time high.
According to author Matthew Hart, “In response to strong demand, De Beers shoveled its stockpile out of Charterhouse Street as if it were clearing the driveway of snow. In the first half of 2000, compared to the same period the year before, De Beers profits rose by 226 percent, to $887 million.”
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With the stockpile reduced by a fourth, De Beers planned to make up any potential profit losses from deflating global prices by getting into the downstream business for the first time: the retail market. In early 2001, the company announced a joint business venture with French luxury retailer LVMH, the company that sells TAG Hauer watches and Moet & Chandon champagne.

Thus, in an industry already largely identified with its name, for the first time the company began selling cut and polished De Beers
brand
diamonds. It is now the only company that sells both rough and finished stones, stones that—once the stockpile is depleted—have been in its possession from the time they're found in its private mines in Africa to the time they walk out the door on the finger of a customer. The conflict-diamond PR “disaster” will actually do nothing but benefit De Beers. Now that it has officially ended its policy of buying on the open market, it will be the only company in the world that can guarantee that its finished jewelry comes from clean sources.