Flawless

by Scott Selby

  53 a smash-and-grab in 2003: The visiting exhibit was “Art Deco Diamond Jewelry 1920–39.” Eight and a half months after the Diamond Center heist, these two robbers bought tickets and entered as normal visitors. Once inside, they used sledgehammers to bash open the display cases and take off with the goods within a matter of minutes. In 2004, police made arrests based on DNA evidence left behind at the scene. Paul Geitner, “Belgian Authorities Catch Two Suspects in Last Year’s Diamond Museum Heist,” Associated Press, August 16, 2004.

  54 When you stepped off the elevators: The description of IDH Diamonds’ office in the Diamond Center is based on a visit by author on October 1, 2008.

  55 “Belgium is great for beer, but not for anything else”: Antonino Falleti, interview with author, Turin, September 19, 2008.

  56 Notarbartolo’s house was nearly hidden: The description of Notarbartolo’s former house in Trana is based on a visit there by authors on September 18, 2008.

  59 Sans armes, sans haine, et sans violence, . . . “Without guns, without hatred, and without violence”: Rene L. Maurice and Ken Follett, Under the Streets of Nice: The Bank Heist of the Century (New York: Knightsbridge Publishing, 1990), 21.

  Chapter Four: Where the Diamonds Are

  61 “What do I know about diamonds? Don’t they come from Antwerp?”: This line is spoken by the character Turkish, played by Jason Statham. Snatch, written and directed by Guy Ritchie, (2000).

  62 as insurance investigator Denice Oliver tells the story: Denice Oliver, interview with author, in her office, Antwerp, September, 29, 2008.

  62 with an Israeli named Amos Aviv: A second Israeli and a Brazilian were also working with Aviv. “Part of Diamond Heist Returned,” The Victoria Advocate (Victoria, Texas), February 4, 1995. The second Israeli was Alberto Shabao and the Brazilian was Baruch Torenheim.

  62 10.3 pounds of diamonds worth $4.7 million: “Diamonds Returned from Antwerp Heist,” Akron Beacon Journal (Ohio), February 5, 1995.

  62 the equivalent of half a million dollars: Ibid.

  63 names of the accomplices from him: This would not have happened in the United States where clergy members, including rabbis, generally have a privilege so their congregants can freely confess to them without fear that their religious advisor will be forced to reveal this confession to the police. This is known as the “clergy-penitent privilege” or the “clergy testimonial privilege.” Also note that the Belgian authorities appear to have pressured this rabbi into violating Jewish law, which holds that a rabbi in a situation such as this one should hand over the stolen goods but keep the confidence of those who have confessed to him as doing so does not place anyone else in danger. See, e.g., Magen Avraham, Orach Chaim, 156:2 and Babylonian Talmud, Tractate Yoma, 4b.

  63 “The rabbi was about to get his nails pulled out”: Denice Oliver, interview with author, in her office, Antwerp, September, 29, 2008.

  63 diamonds are used to pay spies: For example, Robert Hanssen, the FBI agent, was paid in part with diamonds by the Russians to give them information. “It was a further part of the conspiracy that defendant HANSSEN would and did ask the KGB/SVR for additional payment in the form of diamonds, and that the KGB/SVR would and did pay him in diamonds on several occasions.” USA v. Robert Philip Hanssen Indictment, Count 1(b)19 (E.D. Va.), May 16, 2001.

  64 they were a threat to the reputation of the whole industry: Members of the Antwerp diamond community were not just worried about the reputation of the diamond industry as a whole, but also of Antwerp’s reputation as a safe, good place to deal diamonds. At the beginning of the twenty-first century, Antwerp was feeling its reputation as the center of the diamond world slip, as new markets such as Mumbai and Dubai courted diamond companies with lavish perks. Dubai even offered a fifty-year moratorium on taxes. “Antwerp’s Pre-Eminence Threatened,” The Financial Express (Delhi, India), April 3, 2005.

  64 Industry titan De Beers: “De Beers” is often used in this book to refer to all of the De Beers Group’s subsidiaries, affiliated companies, and prior incarnations. As such, this term sometimes encompasses De Beers Consolidated Mines, De Beers Mining Company Ltd., the Diamond Trading Company, the Central Selling Organization, De Beers Société Anonyme (DBsa), Namdeb, Element Six, Forevermark, Debswana, Diamdel, and the entire “Family of Companies.”

  64 funding wars in Africa: De Beers stopped buying diamonds from the open market in 1999. De Beers, Report to Stakeholders 2005/6, 47. Confirmed by Lynette Gould, Media Relations Manager, De Beers Group, e-mail to author, May 1, 2009.

  64 certified by the company to be conflict free: Before this, De Beers sold diamonds not only from mines that it controlled, but also diamonds from mining companies that it had distribution deals with and diamonds that it bought on the open market through its Outside Buying Office. After this, it likely had conflict diamonds still in its stockpiles, but as the term had not yet been defined and agreed upon by international authorities at the time they were purchased, De Beers could claim with a straight face that the diamonds in its stockpile were conflict free no matter if they had blood on them. De Beers’s managing director Gary Ralfe admitted the day before he retired that “I look back and think it is awful that we were buying diamonds that might have fueled conflict in the 1990s. It didn’t seem wrong at the time but with hindsight it probably was wrong.” Rebecca Bream and Nicol Degli Innocenti, “Diamond Profits Are Not Forever,” Financial Times (London), February 27, 2006.

  64 Washington Post investigation in late 2001: Douglas Farah, “Al Qaeda Cash Tied to Diamond Trade: Sale of Gems From Sierra Leone Rebels Raised Millions, Sources Say,” Washington Post, November 2, 2001, A01. See also Douglas Farah, Blood from Stones: The Secret Financial Network of Terror (New York: Broadway Books, 2004).

  66 “Some of them wish we’d all drop dead”: Patrick Peys, interview with author, in his office, Antwerp, September 26, 2008.

  66 you cannot trace a diamond backward: There are a few exceptions to this rule: if a thief does not have access to a polisher, then the diamond could be traced if it has a laser inscription or if a retail customer has used a service like Gemprint, which is a noninvasive diamond identification and registration system. Gemprint uses “low-powered laser to capture the unique sparkle pattern of each diamond and registers this image in its database,” according to their Web site. The problem would be that in either case someone would have to look it up and this would likely happen only if the police happened upon suspicious stones.

  Another exception would be a highly unusual stone such as a large, fancy diamond with a rare color. A bit of polishing could do the trick with any but the most famous stone. A famous stone could require the thief to break it up into parts. For example, the Hope Diamond turned out to have been cut from the stolen French Blue.

  66 the hardest substance found in nature: “In nature” is the key phrase here. Aggregated diamond nanorods, which are man-made, are harder. As this book was going to press, research came out that two natural substances, wurtzite BN and lonsdaleit, appear to be harder than diamonds as well. However, these substances are just simulations, as both are too rare in nature for this research to be tested at this time. Zicheng Pan et al., “Harder than Diamond: Superior Indentation Strength of Wurtzite BN and Lonsdaleite,” Physical Review Letters (February 6, 2009), 102(5).

  66 almost a billion . . . 4.25 billion years: “About Diamonds—The De Beers Group,” available online at [http://www.debeersgroup.com/en/About-diamonds/] http://www.debeersgroup.com/en/About-diamonds/ (accessed October 2, 2009).

  66 Other carbon materials aren’t nearly as strong: In 1812, Friedrich Mohs came up with a scale of relative mineral hardness, so any minerals could be compared. If one mineral can scratch another, then it is higher on the scale. While one form of carbon, graphite, scores near the bottom of this scale, another form, diamond, scores a ten for most hard. Jessica Elzea Kogel, Industrial Minerals & Rocks: Commodities, Markets, and Uses, 7th Edition, (Littleton, Colorado: Society for Mining, Metallurgy,
and Exploration, 2006), 508, 1175.

  66 be broken by another diamond: Diamonds can still easily shatter or burn. They are not indestructible, just impossible to scratch or polish with any natural material other than another diamond. It’s important to remember that hardness is not the same as toughness; this is why diamond polishers can cleave a diamond but if they drop one, it could break into pieces.

  67 For thousands of years . . . source of diamonds: Borneo also had a small number of diamonds, but there is no evidence that any of these stones ever reached Europe. George E. Harlow, ed., “Following the History of Diamonds,” The Nature of Diamonds (Cambridge: Cambridge University Press, 1997), 139.

  67 geological debris of kimberlite: The rest of the chapter talks primarily in terms of kimberlite pipes, as the vast majority of gem-quality diamonds originate from kimberlite. Lamproite pipes containing diamonds deemed worth mining commercially are found only at the Argyle Mine in Western Australia. The Crater of Diamonds State Park in Arkansas also has a lamproite source.

  67 not all kimberlite contains diamonds: Around one out of two hundred kimberlite pipes contain gem-quality diamonds. Scientists have learned ways to determine which kimberlite pipes likely contain diamonds without having to mine the pipes, by focusing on certain indicator minerals that are known to accompany diamondiferous kimberlite pipes. See, e.g., Matthew Hart, Diamond: The History of a Cold-Blooded Love Affair (New York: Plume, 2002).

  67 as far down as men can dig: Diamonds contained beneath the surface in their original pipes are known as primary sources. The elements eroded away the above-surface parts of the ancient volcano so that what once was a mighty volcano could now be a flat field with its diamond pipes covered by surface dirt.

  68 80 percent of all diamonds pulled out of the ground: Microsoft Encarta Online Encyclopedia, s.v. “Diamond, VI: Industrial Uses,” available online at [http://encarta.msn.com/encyclopedia_761557986_2/Diamond.html] http://encarta.msn.com/encyclopedia_761557986_2/Diamond.html (accessed on July 29, 2009).

  68 a diamond-mining boom there: In 1866, a fifteen-year-old Boer shepherd found a pretty yellow rock along the banks of the Orange River, and thought it would make a nice gift for his younger sister. The little girl didn’t own it long; while she was playing with it in the street, it caught the eye of a passerby who thought it might be a diamond. The children’s mother gave it to him and learned only later that it was a spectacular 21.25-carat yellow diamond; it was appropriately called the Eureka.

  The stone, however, was dismissed as an oddity. Some even proposed that it had been carried from far away by ostriches. No one suspected that the South African soil was practically exploding with diamonds. A second find of nearly 9 carats generated some interest and prompted the discovery of other, smaller stones.

  Three years later, they found a whopper, an 83.5-carat diamond the size of a lump of coal that was dubbed the Star of South Africa. That discovery opened the floodgates, as prospectors from around the world stampeded to stake their claims along the Orange and Vaal river valleys.

  68 the foundation of De Beers Mining Company: Rhodes cofounded this with the lesser-known Charles Rudd. The name “De Beers” came from the farmers Johannes Nicholaas De Beer and Diederik Arnoldus De Beer, who used to own the land that was ground zero for the diamond rush. They sold their property early on for £6,300. Although they no longer had ownership of the land, one of the two main mines dug out of the property was named after them. The De Beers Company in turn took its name from this mine—these two Afrikaners had nothing to with the business itself. In 1888, De Beers Consolidated Mines Limited was formed when Rhodes and his main competitor, Barney Barnato, merged their interests. See, e.g. Martin Meredith, Diamonds, Gold, and War: The British, the Boers, and the Making of South Africa, (New York: PublicAffairs, 2008), and Stefan Kanfer, The Last Empire: De Beers, Diamonds, and the World, (New York: Farrar, Straus, and Giroux, 1995).

  69 almost three metric tons of diamonds: This open-pit mine, known as “the Big Hole,” had 2,722 kilograms of diamonds recovered by miners using only picks and shovels, starting in 1871 with individual claims and ending in 1914 under the united control of De Beers. Twenty two and a half million metric tons of dirt and rocks were excavated in the process. “Welcome to the Big Hole, Kimberly,” available online at [http://www.thebighole.co.za/VisitorsCentre.htm] http://www.thebighole.co.za/VisitorsCentre.htm (accessed October 2, 2009).

  69 from $14 to $3.75 by 1885: Interestingly, as noted in the same article, “this fall in price is not only due to overproduction. It is estimated that 10 to 15 percent of the fall is due to the sale of stolen diamonds.” “Diamonds in South Africa,” Manufacturer and Builder: A Practical Journal of Industrial Progress no. 9 (September 1, 1885), 17:204.

  69 increase the price of diamonds by 50 percent: Hart, Diamond: The History of a Cold-Blooded Love Affair, 46.

  70 most successful monopolies in the history of human commerce: The history of De Beers can be broken down into four main periods. The first one was a true monopoly when the company controlled all of South Africa’s production, and thus the vast majority of world diamond production. In its second stage it was a monopsony (single buyer) combined with a cartel structure. De Beers no longer controlled all of the world’s major diamond mines; instead it set up exclusive deals with those who did. Such outsiders sold their rough to the Central Selling Office, which in turn carefully controlled the supply of stones to the cartel of major diamond polishers and traders who made up its Sightholders. The third stage involved a shift from deals with private companies to the equivalent of treaties with nations. For example, when the Soviet Union discovered diamonds in Eastern Siberia, the CSO had an agreement with them in place within a year of the start of their mining operations. The fourth stage began with the hiring of outside management consultants for the first time in the company’s history. De Beers retained Bain & Co. to help them adjust to the new realities the company faced coming into the twenty-first century. De Beers is still a major player in the world diamond market and is making adjustments to its business practices—away from a “custodial” role to one of “preferred supplier.”

  As De Beers increasingly lost control of the world’s diamond supply, it came to realize that its old ways of doing business no longer worked. Large quantities of diamonds now come out of areas beyond their direct control such as Australia, Canada, Siberia, and countries in Africa no longer beholden to them. Its own mines now produce only 40 percent of the world’s rough diamonds by value, although through distribution deals the DTC “currently sorts and values about two-thirds of the world’s annual supply of rough diamonds by value” according to their official Web site.

  Even without outright agreements, other diamond producers may understand that their interests now dovetail with De Beers—to maintain a stable, high price for diamonds. As such, they would be foolish to flood the markets and watch their own product’s value fall. It helps that only five diamond-mining companies control between 85 and 90 percent of the market, making this an oligopoly. These are Alrosa, BHP Billiton, De Beers, the Lev Leviev Group, and the Rio Tinto Group. Even with all the changes in the industry, the DTC still managed to raise prices twice in 2005—altogether increasing them 9.5 percent over the year before. “DTC Reports Sales of $6.54 Billion in 2005,” Israel Diamonds Magazine (Ramat Gan, Israel), April 1, 2006.

  70 “I am [the] chairman . . . in the business”: De Beers Chairman Nicky Oppenheimer’s Speech at the Harvard Business School Global Alumni Conference, Capetown, South Africa, March 1999. De Beers later issued a disclaimer to accompany copies of this speech stating that it was “an off-the-record speech prepared for a closed audience of HBS alumni. Speaking as a private citizen, Mr. Oppenheimer made his opening remarks intentionally dramatic and provocative, as suitable for a keynote address. This speech should in no way be construed as an official statement of the De Beers Group.” Debora L. Spar, “Forever: De Beers and U.S. Antitrust Law,” Managing International Trade and Inves
tment, (London: Imperial College Press, 2003), 220.

  70 market-driven supply-and-demand model: After World War II, the U.S. Justice Department took a strong interest in De Beers’s activities and their potential violations of our antitrust laws. The Justice Department filed criminal indictments against De Beers in 1945, 1957, 1974, and 1994 for price-fixing and anti-competitive practices.

  As a result, De Beers’s executives avoided travel to the United States and did their business there indirectly. The company was careful to avoid having assets in the United States for the government to go after. These cases did not go anywhere until De Beers decided to change its business strategy. The issue was not whether the company was in violation of our antitrust laws—it clearly was—the problem was whether they were subject to the jurisdiction of the courts here. This came down to the question of whether De Beers did business in the United States as the legal system then understood it. Because of the company’s careful dealings, it did not.

  When De Beers came to understand that its custodial role, as it euphemistically referred to its control of the diamond market, had come to an end and it needed to change its business tactics, the growing strength of European antitrust enforcement may have had something to do with this. While De Beers was beyond the reach of U.S. law enforcement, it was vulnerable to the EC Competition Commissioner, Mario Monti, with his increasing aggressive enforcement of competition law. Reportedly, when the De Beers managing director entered the commissioner’s office, Mr. Monti told him that “it was very wise of you to come and see me; it would have been a matter of a few months and we would have come to you!” Chaim Even-Zohar, “An Industry Facing Uncertainties,” IDEX Magazine, no. 195, July 1, 2006.