Part II: Inclusions and Blemishes

The Kimberly Powerless: Rebels, Marange, Dubai, Surat-cetera

That Was Then

There has been much written about the fortuitous evil genius through which the highly ambitious Cecil Rhodes and the Oppenheimer family built De Beers and I am not going to detail it here. What is essential to know is that throughout almost the entirety of the 20th century, De Beers held a near-complete monopoly (~90%) on the supply of rough diamonds, strictly controlling the price and who could buy (in 2014 only 82 selected business — called sightholders — can do so), which had both good and bad consequences.
Seeking to control the entire supply of rough diamonds even outside of that coming from its own mines lead De Beers, through its outside buying offices and some of its sightholders to mop up any rough diamonds on the open market. Diamond purchases from some less-than-scintillating sources helped keep conflicts in diamond-producing countries like Sierra Leone, Liberia, DRC and Angola going (though diamonds were neither the reason for the conflicts, nor the sole funding source of rebel movements), and the estimated percentage of “conflict diamonds” in global production ran up to between 4 and 15% [1. I got this number from PAC. The exact percentage, which is difficult to estimate anyway, depends on when specifically you want to look. The number of 15% is an estimate for when the Angolan Civil War was at its height, and prior to the UN embargo. As Angola then became less of a problem in the late 90’s, Sierra Leone started to become more so. 4%-7% is a common range of figures, which is even accepted by NGO’s.]
In December 1998, The NGO Global Witness published “A Rough Trade“, a report detailing the role that diamonds played in the decades long Angolan Civil War. In January 2000, Partnership Africa Canada (PAC) published “Heart of the Matter“, detailing the role of diamonds in fuelling civil wars in both Sierra Leone and Liberia. The intense public relations disaster for De Beers and the diamond industry at large eventually resulted in the creation of The Kimberley Process Certification System (KPCS), a system of self-regulation which seeks to address the problem of rough diamonds being used to fund rebel groups.
At its most basic, the system requires that every time a shipment of rough diamonds is packaged for export or crosses an international border, it must “be transported in a tamper-resistant container”, and accompanied by a certificate, certifying that the diamonds are “conflict free”. Shipments “can only be exported to a co-participant country”, and “no uncertified shipments of rough diamonds will be permitted to enter a participant’s country.” Additionally, KPCS imposes on participant countries requirements of internal controls, reporting, a commitment to transparency, and a System of Warranties on all companies doing business in rough diamonds.
Because of this system, The World Diamond Council (the industry’s representative group to the KP) claims that 99+% of the world’s diamonds are guaranteed “conflict-free”.


Extraordinary claims require extraordinary evidence. How does one arrive at that 99% figure, and what does it really mean? Both the UN and the KP define “conflict diamonds” as “rough diamonds used by rebel movements or their allies to finance conflict aimed at undermining legitimate governments”. Polished diamonds are beyond the KP’s scope, as are diamonds benefitting legitimate governments accused of human rights abuses. That the diamonds are ethically sourced, that their production is free of human rights abuses, or that they have not been used to assist in money laundering is unaddressed and beyond its scope. “99% accounted for” or “99% rebel-free… we think” may be a more accurate summation.
But when the less-technocratic public hear the terms “conflict diamonds” or “blood diamonds” we, understandably, don’t consider rebels or the overthrow of legitimate governments. Ignoring semantics and strict equivalency, what is the share of global diamond production that is connected to violence regardless of the actor? An industry insider I spoke with guessed that the real share may be “6 – 7%, maybe higher, maybe lower. It’s certainly not zero, but not 25 percent either”.
How well is this system really working according to people that know diamonds the best? Rough diamond buyers and rough diamond geologists operating out of the very West African countries where the “blood diamond” furor erupted are doubtful of its effectiveness, to put it mildly. Civil society groups and key individuals responsible for the very creation of the KPCS have also soured on it, leaving the process entirely.

K1mberl3y (hacking the 5y5tem)

At the heart of the KP lies the certificates themselves. They are often basicunique to a countryand thereforealso have the potential to be forged. Many countries print their certificates with bank-level security features and on security paper, but in Guinea (a destination for diamonds from previously-suspended Côte d’Ivoire), they are printed on normal paper on a standard printer. As early as 2004, The U.S. State Department had intercepted fake Kimberley certificates claiming origin of DRC, Ghana, Namibia, Guinea and Sierra Leone. In March of 2012, certificates declaring origin of Cameroon were found, even though Cameroon wasn’t even a member of the KPCS until August of 2012Used certificates with generous expiration dates can also be smuggled out of diamond factories and in to diamond-producing regions, where they are re-used to accompany rough diamond shipments from conflict zones, or wherever else legitimate documentation is needed.
Any participant country at all has the authority to issue KP certificates; a country needn’t have diamond mines, bourses or manufacturing capabilities. A rough diamond buyer I contacted named Sofus Michelson — author of a spectacular book on Guinea — told me that: “rough diamonds from the Ivory Coast are smuggled into Sierra Leone, conflict diamonds can end up in Mali and Ghana and we all know that Mali has no diamonds and Ghana has only small melee and industrial goods.” Diamonds from dubious origins in Angola, DRC and CAR can end up in Dubai, where a KP certificate can be issued marking the diamonds as being of “mixed origin”, before they continue on towards polishing and retailing.
How could one circumvent KPCS if they needed to? Easy: An individual or company in Country A makes an arrangement with a mining company in Country B to smuggle the stones from Countries A to B and mix them with the mined goods there. Basically, you take a parcel of conflict diamonds from the Central African Republic, drop them in a field in Sierra Leone, and (optionally) shout “Eureka! Conflict-free Sierra Leone diamonds!”. The government of Country B collects taxes on export (so they have ample reason to nod approvingly), the true origin of the stones being from A is disguised, and everybody lives happily ever after (except for of course, the government and people of Country A).
In fact, the KP’s own public statistics and their mismatch with known geology illustrate its circumvention in this manner. Backed by known geology, with an overwhelmingly high share of gem-quality goods, and a long history of incredible findsNamibia and Lesotho produce the world’s highest-priced rough diamonds, at an astounding average of $805/ct and $584/ct respectively. Sierra Leone also produces some of the world’s highest-priced rough diamonds, at $302/ct. How exactly then, is neighboring Liberia, with little production and a historical average price of about $25/ct., reporting a high average of $366/ct., besting all countries except for Lesotho and Namibia? Because, “these are diamonds smuggled from Sierra Leone”, as chairman of the Diamond Development Initiative (DDI), and former KP-participant Ian Smillie explained to me. (Mr. Smillie was also witness #1 at Charles Taylor’s war crimes trial, making him one of the most fascinating men on the entire planet) In fairness, while simultaneously highlighting its own easy circumvention, it is a tremendous compliment to the KP and a significant accomplishment that we have this helpful data at all.

Kimberley Schmimberley: Surat, Dubai

Every point in the value chain from mining and polishing to retailing is vulnerable to the introduction of conflict or illicit stones into the legit supply, but some locations are global standouts as weak links in the chain. As detailed in this Foreign Policy article, Surat, India, is where 90% of the world’s diamonds get cut and polished, yet “fewer than two-thirds arrive by the legal channels”. This combined with a lack of formal documentation and amidst a frenzy of activity make Surat an ideal location for suspect diamonds to enter the legit supply chain, and for re-usable KP certificates to be smuggled out. In the rare circumstances where suspect diamonds are seized by the government, they are auctioned and then re-enter the “conflict-free” supply chain.
Perhaps concern about the integrity of the diamond pipeline is not even valid or worthwhile. After all, as Peter Meeus, CEO of the Dubai Diamond Exchange (DDE) confidently notes, “in 2014, diamonds are the most strictly checked raw material in the world. With the exception of uranium, no other raw material is so strictly controlled and observed as is the case of rough diamonds. Problem countries, such as the CAR, Côte d’Ivoire, Guinea and Venezuela do not even represent 0.2 percent of the world production”.
It may indeed be a small percentage, but as recently as June, 2014 (and 3 short months after Mr. Meeus’s statement above), a shipment of likely conflict diamonds from CAR was seized in Antwerp, and those diamonds entered the supply chain through DubaiThe UN’s April 2014 report on Côte d’Ivoire made pains to mention a “lack of vigilance” in Dubai, and, State Department cables from 2007 revealed that the former CEO of the DDE, Noora Jamsheer, resigned her position “rather than ignore suspicious diamond shipments”, and in fact was “offered ‘commissions’  to overlook shipments that otherwise might be of KP concern”.
What Mr. Meeus’ confident statement also conveniently omits, is that less-sparkling aspects of the diamond industry that consumers might find disturbing are not confined to mining and to “conflict diamonds”, but can extend downstream as well, and inconveniently through his own backyard. Like all natural resources, diamonds are taxed on export by their respective countries of origin based on their assessed value. Perhaps I’d like to “optimize” (wink wink) those taxes by under-invoicing their value upon export, splitting some of the savings with corrupt local officials before forwarding on to a new destination at a fair market price? The KP’s own statistics for 2012 state that the value of rough diamonds per carat exported from the UAE is 74% higher than the value of the same imported rough, even though the volume of imported and exported rough was nearly the same, and neither sorting nor creation of new parcels of rough can explain this jump in price. (Alan Martin of PAC notes that, “by comparison, the average in other trading centers is between 6 and 8 percent.”) Indeed, here in the KP’s own figures is evidence suggesting the wholesale looting of African natural resources by way of Dubai, depriving governments of poverty-stricken countries from which some diamonds come, of very needed revenue.
Dubai has also become a destination for conflict gold (a major factor driving instability in DRC), and in January 2014, a parter at Ernst & Young in charge of auditing Kaloti Jewellery International — the largest processor in the middle east, with potential to become the largest in the world — resigned from his post over objections that his team’s findings (such as $5.2BN cash transactions and gold bars painted silver to avoid taxationwould not be made public.

Marange, Zimbabwe: The Wild Wild East; A National Opportunity Squandered

It is tempting to devote an entire essay to the brief and sad history of diamonds in Marange, eastern Zimbabwe. Following the discovery of gem-quality diamonds, the company responsible for the find was booted from its own concessions and the land was turned over to the people, creating a diamond rush and frenzied free-for-allThe government later announced the reversal of this decision by chasing the previously-invited diggers out of the diamond areas by means of a hail of bullets from helicopters. Subsequent highlights of the endlessly-savage, prepetually-worsening saga include extreme corruptionbribery and a string of documented human rights abuses such as torture, mock drowningsbeatingsforced labourforced relocationdog attacksmurder, and more than a few mysterious deathslike that of a Zanu PF MP after delivering a speech to Parliament critical of diamond operations in Marange. Companies have been required to pay a bribe in order to import mining equipmentsecret airstrips operated by the secret police have been discovered built near the diamond fields1.3 million carats have simply gone missing and $2 billion in revenues is reported missing from the Zimbabwean treasury.
There’s more to it than just that. In 2013, reports surfaced of workers going unpaid for 10 months at Gye Nyame, an Israeli pilot was caught at Harare airport trying to smuggle 1,400 diamonds out of the country, and in August 2010, while under suspension by the KP, Chairman Abbey Chikane presided over the auction of 900,000 carats of Marange diamonds, without a guarantee that diamonds from areas of Marange controlled by the military hadn’t made their way into the legitimate supply. Even the dear leader himself hasn’t been spared a bit of embarrassment, as a $50 million fund apparently promised to the communities of Marange has been almost entirely unpaid, and was probably never even promisedBut the real losers in this fight are the almost completely uncompensated Marange villagers that were forced to relocate to non-arable lands.
There’s more. Mines and Mining Development Minister Walter Chidhakwa (coincidentally Robert Mugabe’s nephew), recently announced that Zimbabwe is seeking to end concessions to the existing 7 companies and consolidate its count of mining companies into 1 or 2, similar to the Botswana model, the announcement of which set off a round of diamond looting from company employeesand a fresh wave of illegal panning. One of the companies most likely to remain is Mbada Diamondswhich is allegedly 50% owned by Grace Mugabe and her three sons. The company is chaired by a man named Dr. Robert Mhlanga, (long rumored to be Robert Mugabe’s former personal helicopter pilot), and until very recentlycounted Dr. Mhlanga’s daughter as CEODr. Mhlanga has been busy buying mansions in Ballito and Johannesburg at up to six times the market price, and mere weeks after joining the Board of Directors at Mr. Meeus’ Dubai Diamond Exchangenew accusations submitted to the IMF from whistleblowers surfaced accusing him of directing diamond revenue through shelf companies to benefit himself and other human jackals. In late March 2014, new revelations surfaced of Mbada staffers facilitating illegal diamond sales, receiving cars in exchange, though perhaps those confessions came about through torture by police (which is worse?).
The stones (which are mostly of poor quality, recognizable by their green tint and better suited for industrial purposes) may be KP-approved, but even if they were of gem quality and likely to end up behind a jewelry case, all the headlines just don’t amount to “love”, do they? Rio Tinto’s mine at Murowa is entirely headline-free, but pity I can’t request a polished diamond from which the rough comes from a certain mine.

Angola: “An Unknown Dark Horse”

Birthplace of the conflict stone, and like Sierra Leone, Angola has been at peace for over a decade. The elections of 2012 saw President Jose Eduardo dos Santos finally democratically elected after 33 years in power, the constitution was rewritten in 2010as well as the Mining Code in 2011, and the country has been eager to show progress and maturity ahead of its KPCS chairmanship in 2015. Angola has also been issuing artisanal diamond mining licenses in an attempt to formalise AADM, and is a supporter of the DDI.
According to the latest KP figures, Angola is officially responsible for 9% of world production by value, though their share could increase substantially over the coming decade as a result of the planned development of a kimberlite pipe at the Lulo deposit by Lucapa. Early sampling has been yielded exceptional diamonds, and development at this site stands the possibility of replacing the country’s Catoca mine as the country’s largest. Additionally, both De Beers and Alrosa are prospecting for diamonds there.
Angola is also regarded by Transparency International to be one of the most corrupt countries in the world, and seems opposed to expanding the definition of “conflict diamonds” to include a human rights clauseAngolan journalist Rafael Marques de Morais has documented and noted extreme corruption (nearly every foreign company that has wished to do business in Angola, has done so at the price of ceding a non-insignificant share of ownership to the president’s family, most notably his daughter, Isabel dos Santos) and continuing human rights abuses, such as sexual abuse of illegal miners by PSC’s (also noted by UN High Commissioner for Human Rights Navi Pillayin addition to a long history of intimidating, torturing, jailingkilling human rights workers and protestors, and Mariah Carey. Mr. Marques de Morais argues that “diamonds being mined today in the Lundas are no less bloody than those that funded past wars… [though] instead of paying for bazookas, missiles and fighter planes, the proceeds of the sales are buying villas in Portugal and Spain, and the most expensive luxury accessories the West has to offer.”
In a superficially valiant attempt to control the export of informally-mined diamonds, in 1999, President dos Santos decreed that exclusively a company named Ascorp Ltd “would be permitted to buy and export Angolan diamonds”It is all too convenient then that Ascorp was 24.5% owned by a Switzerland-incorporated firm owned by his wife and daughter. The remainder of Ascorp was owned by former De Beers sightholder and diamond manufacturer Lev Leviev (allegedly fronting for accused weapons provider for the MPLA and poolside karate practitioner Arcadi Gaydamak), and a firm named Omega Diamonds. In 2013, Omega was wrist-slapped $195 million by Belgian authorities for tax evasion (after facing potential fines of approximately $6 billion), from a scheme involving under-invoicing diamonds from Angola and the DRC, then inflating their value in Dubai and Antwerp to make taxable profit appear smallerAscorp may no longer exist in the current day, but the first family’s influence over the country’s diamond trade still manifests itself through undisclosed partnerships with state entities through shell companies owned by none other than the president’s daughter and her husband.
A full 66% of this country’s diamonds are exported directly to tax havens and free-trade zones, with 47% going to Dubai and 19% to Switzerland, and has been described as “an unknown dark horse” by a Rapaport Magazine writer, with attendees of the Angolan Diamond Centenary Conference in 2013 wondering “how does the state sell its goods, who buys, how and when?”.