Blood Diamonds

by Greg Campbell

  But suddenly, within the last two years, diamonds were becoming synonymous in some circles with death and mayhem, the precise opposite of the stones’ carefully marketed image as symbols of love, peace, and devotion. Most consumers have no idea where diamonds come from, either physically or geologically, and for the most part that was fine with the people who sold and marketed their jewelry to them. But now the lines between the rebel groups in Sierra Leone, Angola, and the Democratic Republic of Congo; their barbarous tactics; and how they manage to fund their long-running insurgencies were being drawn with a good deal of precision. Without quick action and a skillful public-relations response, diamonds would be facing the same consumer backlash that fur suffered in the 1980s.

  Civil wars are nothing new in Africa, but in Sierra Leone in particular the carnage was numbing and the direct involvement of diamonds was a serious threat to the business of romance. Images of civilians whose arms have been crudely hacked off with rusty blades didn’t mesh well with television commercials featuring hand-shadows proudly displaying expensive jewelry. One diamond industry leader is said to have had nightmares in which the tag line at the end of such commercials reads: “Amputation is forever.”

  Therefore, the international representatives embarked on a roundtable discussion that floated from country to country throughout the year, discussing how they could certify that diamonds offered to retailers and consumers come from “clean” sources. The procedure was dubbed the Kimberley Process, after the famous De Beers mine in South Africa, and was designed to hammer out a united front, a game plan for cutting off the flow from the rebel groups that, even if most of them knew it was practically impossible, would at least give the impression of a positive, pro-active response to the mounting criticism of the industry.

  Bone himself had left the meeting to talk with me about conflict diamonds and summarize the concerns of its participants. As he noted, the potential financial impacts were “enormous” and therefore everyone involved was sincere about ending the trade.

  As cold as the company’s response to publicity about conflict diamonds sounds—the potential commercial loss is “enormous,” but the moral dimension is merely “big,” as if it were an afterthought—De Beers is at least consistent in its thinking. Very little, if anything, has been done in the company’s lifetime that didn’t further its commercial potential, even if it meant funding warfare to do it. Before the conflict-diamond issue gathered steam, it made economic sense to continue to trade with killers since no one was paying attention and it didn’t threaten the demand for the goods; after the issue began attracting the attention of human-rights organizations and people started whispering the dreaded “B” word (boycott), it made economic sense for the industry to condemn the trade and to wash its hands for good. Since De Beers is the world’s largest dealer in rough diamonds, not only was a great deal of responsibility placed at its feet in early 2000, but so were many expectations that the company would act swiftly to end the practice.

  The De Beers reaction to the mounting crisis could have come from a handbook on corporate disaster management, but to understand the reaction, it’s first necessary to understand the structure of what some diamond insiders still call “the syndicate.”

  If the name evokes images of the Mafia, it’s not surprising. The world of diamond brokers, traders, smugglers, and sellers is unique unto itself, operating by rules that it sets and accountable to very few but its shareholders. There are rarely any lawyers involved, no contracts, and multimillion-dollar deals hinge on a handshake. De Beers itself is treated almost as an organized crime operation in the United States; it’s barred from doing any business in America because it’s considered to be in violation of U.S. antitrust laws, which seek to prevent price-fixing. In fact, the U.S. Department of Justice leveled charges against De Beers of conspiring to set prices in 1994, but the company didn’t respond to them, leaving the charges in limbo until executives can be subpoenaed. As a result, De Beers executives usually don’t travel to the United States, the diamond industry’s largest market, because they may face a subpoena if they’re tracked down. It’s actually illegal for the company to have more than three executives in the United States at a time.

  Because of a loophole in U.S. antitrust laws, De Beers executives can only be detained in the United States if they’re in the country on “ongoing business,” which is defined in the statutes as requiring three or more officers to conduct. Therefore, De Beers bosses wishing to take a vacation to Aspen, for example, must phone Johannesburg for clearance and a head count is taken of employees in the States at the time.

  Most diamond houses are family-run or concentrated in the hands of a few tightly knit business associates who pass the firm down through the generations. Vast amounts of wealth flow through the 2,600 small diamond shops on 47th Street in New York, Charterhouse Street in London, and the claustrophobic cutting and polishing bazaar on Antwerp’s Hoveniersstraat. Rough sales averaged $6 billion per year, and in 1999 the world’s retailers sold it back to the public for $11 billion.6 In New York City, casually dressed Russian and Hasidic men stand their posts near garbage cans keeping an eye out for window shoppers. What are you looking for? they ask quietly. Gold, diamonds? Right this way. And you’re hustled into a turn-of-the-century stairwell and escorted into the narrow veins of a merchant’s office, plunked in a vinyl chair and told to wait for the boss, who’s either a slickly dressed Russian, a Jew with half-moon glasses, or a Lebanese chomping the stub of a cigar like he’s trying to open a beer bottle with his teeth.

  Like the Mafia, once you’re inside the diamond syndicate, you’re part of a family, one that values its privacy and jealously—even insidiously—protects the family business. De Beers has used agents to spy on competitors in Canada and in the 1950s hired a man named Sir Percy Sillitoe to run antismuggling interdiction in Sierra Leone. Sillitoe was the former head of MI-5, the British intelligence agency.

  As the world’s largest diamond buyer and seller, De Beers also enjoys the monopolistic perk of both buying a commodity and placing a value on it, a fact of business life that members of the cartel simply have to accept. That doesn’t mean that there haven’t been dissenters, however. One famous tale involves Sierra Leone and the miner who ran Selection Trust’s West African operations for De Beers. In the 1950s, Edward Wharton-Tigar had his suspicions that De Beers could fairly value the diamonds he was shipping to the Central Selling Organization in London since it was the stones’ sole buyer. As a test, he had 1,000 carats of his best Sierra Leone products valued by the CSO and then sent the same package to the Accra, Ghana, market for valuation. As he suspected, in Accra the parcel was valued at twice what De Beers offered.

  Wharton-Tigar flew into a rage and wrote a sharp letter to Philip Oppenheimer, the nephew of Sir Ernest Oppenheimer, who had been running De Beers since 1929 and was the most powerful mining tycoon in the world. Philip told Wharton-Tigar to mind his own business, and even his friends at Selection Trust began to turn on him, warning him not to complain about the functions of the cartel.

  But he was unswayed and ordered De Beers to release his Sierra Leone master sample, the cache of rough that acted as a marker for price setting. He had the diamonds independently evaluated and was told that the prices were outdated and should be raised. De Beers agreed to this, but when no increase in price was forthcoming, Wharton-Tigar stopped sending diamonds to London from Sierra Leone altogether, the equivalent of an act of mutiny.

  De Beers did all it could to jerk the rug out from under the upstart miner, including threatening to remove him from his position and ban him forever from the world of diamonds, but Wharton-Tigar held his ground and was eventually invited to South Africa to discuss the problem with Harry Oppenheimer, Sir Ernest’s son. The men battled it out for days, but in the end De Beers agreed on a higher price for West African goods and when Wharton-Tigar returned to Sierra Leone, the shipments to London resumed.

  But De Beers isn’t easily bullied and it s
till had one trick up its sleeve. Suddenly, Wharton-Tigar’s shipments seemed to consistently contain more and more industrial-quality diamonds, according to the CSO valuators. The supposed decline of valuable gemstones in the packages neutralized the price increases. Again, Wharton-Tigar tested the system, ordering that 1,000 carats of the best gemstones be removed from the packages sent to London. The percentage of gems reported back to him barely changed, remaining stable at about 18 percent of the package. He then ordered that all of the gems be removed from one package and paid a visit to the official who sorted and valuated his stones. He told the man to pay particularly close attention to the gem-count in his specially prepared package and, again, it was duly reported that it contained 18.4 percent cuttable diamonds. Wharton-Tigar then plucked a bottle of gems from his pocket that had been removed from the package and denounced the scam.

  Harry Oppenheimer agreed to reevaluate all of Wharton-Tigar’s shipments from the previous two years and sheepishly paid him 250,000 pounds sterling in adjustments.7

  DE BEERS EVEN KEEPS close tabs on the doings of its customers, the 120 sightholders who buy its rough once every five weeks.

  Being a De Beers sightholder is a strange thing—it’s a pedigree that all diamond dealers want, but at the same time it can be quite humiliating. As mentioned, the sightholders buy their goods at sights in London held every five weeks, the most important sales in the diamond world. Because different sightholders have different needs for their clients, they’re required to deal with intermediary brokers—there are only six, and all have close ties to the company as their livelihood depends on staying in its favor—to try and get more of what they want in their parcels and less of what they don’t. This works about as well as can be imagined. Obviously, De Beers is interested in selling its goods whether or not the sightholder wants certain types of stones, and sightholders have to rely on a combination of their broker’s skill, the mood of the person preparing the parcels on their behalf, and the whims of the overall De Beers structure.

  On week five of the sight cycle, brokers from all over the world fly to London and march through the same Charterhouse Street doors that I did on September 11. They’re herded through mazes of guards and bulletproof glass and into a viewing room, where they’re given attaché cases containing their goods. There, they inspect the diamonds and see how well they made out. De Beers calls this “feeding the ducks,” a cute term for the only situation in the world where a person will pay up to $20 million—in advance—for something he hasn’t even seen and be thankful for the opportunity.

  To balk or refuse the parcel is to risk being kicked out of the club, forced to tramp for rough in Antwerp, Bombay, or Tel Aviv or, worse, buy resold DTC rough from another sightholder. Five of the largest of the 120 sightholders are owned by De Beers itself, making the company one of its own biggest customers. This is a means of tracking what sightholders make off their sights, allowing the company to measure their complaints about quality against their in-house earnings. The company also owns a London cutting and polishing business, which receives the same type of parcel as the sightholders so that De Beers can test-market the goods and set sight prices. Sightholders who toe the line are rewarded. Richard Wake-Walker, a former De Beers employee whose jobs included preparing selling mixtures, client selection, and “deselection,” said, “We didn’t hand out envelopes stuffed with cash, but there was a Christmas allocation of specials and they went to valued clients.

  We might charge them $20,000 for a stone worth, say, $200,000.”8

  To fall out of favor with De Beers means finding another line of work for many diamond merchants.

  All of this ruthlessness, espionage, and secrecy serves two purposes: protecting value and wielding control, which are more or less the same thing in the diamond business. It’s a curious symbiosis—diamonds wouldn’t be what they are today without De Beers and De Beers would be nothing without diamonds. And over the century, De Beers’s policies have become critical to governments, nearly a million employees the world over, and thousands of retailers, all dependent on the continued marketability of diamonds.

  It’s ironic that men who give themselves names like Rambo, Superman, and Mosquito—and whose greatest achievements are measured in body counts—can pull the rug out from under such an organization. By chopping off civilian arms and legs, they’ve managed to do the one thing that all the syndicate’s policies, henchmen, and founding fathers have worked so hard to avoid over the past 120 years: crack the carefully polished façade of the hardest substance known to man.

  THE DIAMOND INDUSTRY knew all along where some of its stones were coming from, but that’s not to say that midstream processors like cutters, importers, and resellers actually bought the gems from someone with a pistol in one hand and a bag of rough in the other. In this close-knit world, the vast majority of diamond deals are based on trust and a person’s word. In a world as small as that of the diamond industry, that’s usually enough to foster long-term relationships. A long-time buyer of polish from a shop in Antwerp, for example, wouldn’t dream of asking to see the paper trail for the diamonds he’s buying. If a dealer says they’re clean, they take their word for it. Once cut, it’s almost impossible for anyone to tell where a diamond originated.

  “It is a known fact that if you take a diamond out of the blue and you give it to any expert, they cannot tell where the goddamned thing came from,” said Tom Shane, the owner of jewelry retailer The Shane Company, one of the largest U. S. importers of polish. “You take a diamond that’s been cut and polished and there’s no human being on earth who can tell with certainty where that stone came from.”

  Like most jewelry companies, The Shane Company doesn’t deal in rough at all. Such businesses are the final link between the sightholder stage, the manufacturing stage, and the consumer. To get the diamonds that his company sets in jewelry, Shane employs full-time diamond buyers in Antwerp and Tel Aviv and often visits shops in Bombay. He pays cash on the spot to a network of thirty or forty long-time suppliers who produce the type of stones that Shane’s U.S. customers buy: under 5 carats in weight with high quality and high color.

  Like everyone else in the diamond industry, Shane is worried about what conflict diamonds could do to his livelihood and he therefore requires the polish houses to provide an affidavit that the stones he’s buying haven’t come from war zones. Needless to say, this gives him little control on his pipeline. Outside of taking the dealer’s word, Shane has no way of independently knowing where exactly the diamonds originated. The rough that his suppliers work with likely passed through dozens of hands and perhaps as many countries before ending up on the cutting wheel. Even the polisher may not know for sure where they come from.

  But Shane considers the affidavit good enough for two reasons. One, he has specific needs from the suppliers, stones of a particular size and quality, and if they’re unable to produce a consistent yield to meet his weekly—and sometimes daily—orders, he’ll find another supplier. Conflict diamonds, he said, are about as reliable in their supply as stolen diamonds. The Shane Company doesn’t need one or two good diamonds once in a while, it needs a lot of the same type of diamond regularly.

  And the second reason is that, given the intimacy of the industry and the amount of money circulating through it, Shane doesn’t believe any of his suppliers would risk getting caught with an RUF or UNITA diamond.

  “We have affidavits from the owners of these firms, and if they ever were caught dealing in one single conflict diamond, they would be thrown out of the entire community,” Shane said. “They wouldn’t jeopardize themselves. They’re not going to fraudulently sign an affidavit and risk what would be their destruction. There’s no way they’re going to knowingly violate that trust, they’ve got nowhere to run and hide.

  “The industry as a whole is truthfully outraged, and you can also say scared to death,” he continued. “We’re outraged that these wars are being funded in Africa and possibly some ties to terrorism. Yo
u’re dealing with basically several hundred multimillionaires and none of us are so stupid as to risk what we’ve got for what is only two or three or four percent of the business. We have much more to lose and we have so much at stake if the public were to turn against purchases of diamonds because of this three or four percent. No one is that greedy or that dumb.”9

  Although it’s obvious that no one wants to be associated with diamonds from people named Colonel Backblast or Queen Chop Hands, it’s inevitable that many are indeed unwittingly selling such stones to an equally unsuspecting public. A mere glance at the glaring anomalies between Belgium’s import statistics compared to the records of the exporting countries shows that there is a very high volume of questionable stones floating throughout Antwerp. The Gambia, Guinea, Liberia, and Ivory Coast sent volumes of diamonds well beyond their production capacity into Belgium throughout the 1990s, while legal exports from Sierra Leone—the only country that could account for the crush of diamonds coming out of West Africa—were only a fraction of its suspected reserves. And none of them were thrown away because they were suspicious. It’s apparently no big deal to show up in Antwerp with a box of rough and proclaim that it’s from anywhere you can think of because it will be duly recorded as an import, even if it exceeds the known annual output of the originating country.