Kimberley Conference Review

150 150 Rapaport News

By Hilton Ashton

BOE securities

Technical Forum on the Issue of “Conflict Diamonds”

No simple solution to complex political/social problem.

INTRODUCTION

A forum was held in Kimberley on 11 & 12 May 2000, to discuss the issues surrounding conflict diamonds. The forum was a SA government initiative to get as many interested and involved parties together to formulate proposals for consideration by OAU ministers when they meet in July. The aim is to provide proposals for implementation either by legislation or self regulation.

CONCLUSION

Our impression about the proceedings is that the tail is wagging the dog. Global Witness and Fatal Transactions have got hold of a sensitive issue of people being butchered by rebel forces in (mostly) African countries and, because these forces are being financed by diamonds (as well as oil and agricultural products), is blaming the industry for not doing anything about it. We believe that the actions of these organizations are nothing less than irresponsible and dangerous to the well-being of the diamond industry. The industry is being held to ransom over issues, which are essentially political.

WHAT ARE “CONFLICT DIAMONDS”

Global Witness defines the following:

“Diamonds that originate from areas under the control of forces that are in opposition to elected and internationally recognised governments, or are in any way connected to those groups should be considered as conflict diamonds”.

SPEAKER PRESENTATIONS

A number of speakers presented papers on related issues in order for delegates to get a “feel” for the problems. We got the impression that government officials had a hidden agenda in trying to lay the foundation of promoting the South African cutting industry.

1. Ms I. Zamwaani (Namdeb):

Presentation On Behalf Of Diamond Producing States Of Southern Africa

  • We are deadly serious about protecting our industry from the scourge of smuggled or tainted diamonds.
  • The question of “conflict diamonds” must be put into perspective. The principal blame for the human tragedies must lie with the rebels who started the wars, and the arms merchants who supplied them with weapons and fuel. Diamonds must not become the scapegoat for the world’s failure to stop the atrocities.
  • The diamond industry is not the cause of the conflict and therefore cannot be its solution either.

    2. Ms Charmain Gooch (Global Witness):

    “Conflict Diamonds” – Maintaining Consumer Confidence

  • Producer countries should be an integral part of the control system to curb the trade in conflict diamonds. These are the first point of any effective control system. Both government and industry should institute reform.
  • All goods extracted, bought or exported should be routed through a government run office. Countercheck paperwork is required on extraction licenses and applications for export.
  • A government run Diamond Office should be responsible for registering and quantifying the traders active in the informal buying market.
  • Importation regulations should be amended so that the country of extraction appears on import documents. Further work is required to ascertain the quantities of mixed parcels of rough.
  • There should be physical inspection of parcels. Diamond expertise needs to be improved amongst those countries that operate a policy of parcel inspection.
  • Customs should have access to an international database that details the production capacity of diamond producing countries, and profiles each country’s different goods, possibly with images.
  • A taskforce should be set up by industry. It should give serious consideration to and carry out research on existing marking technologies that can be applied to both rough and polished. Diamonds could be marked with bar codes.
  • A rigorous system of penalties needs to be developed.

    BoE Comment: Ms Gooch has identified and used the sensitive issue of human suffering in African countries contrasted against profits made by “glamorous” companies such as De Beers. We think that it is extremely unfortunate and irresponsible that the phrase “conflict diamonds” was invented because it suggests that diamonds are the root cause of the murder, maiming, rape and emotional suffering of the African people affected in the conflict areas. This is a political problem and political leaders should resolve the conflict. Companies can only assist by making it difficult for the rebels to trade in diamonds. Global Witness must be careful that the 96% of the industry not associated with civil strife in diamond mining areas is not destroyed by their efforts.

    3. Andrew Coxon (De Beers):

    The Diamond Pipeline and the current regulatory framework

  • De Beers no longer buys African diamonds on any outside market.
  • De Beers guarantees the source of its rough. Each box sold is issued with a warranty certificate: “No diamonds in this box have been purchased in breach of UN resolution 1173”
  • In Angola and Sierra Leone >70% of diamonds mined are >2ct/stone.
  • Estimate that UNITA produces $150 million per year.
  • Sierra Leone “conflict diamonds” max. is $120mpa, min. is $35mpa, estimate is $70 million.
  • In D.R. of Congo only Kisangani is in rebel hands. Buyers estimate production at 50% of max. of $50mpa, that is, $25mpa but we estimate $35 million per annum.
  • Total from these countries is $255m, which is less than 4% of world production of $6.8 billion.
  • Wish-list of what should be done:

    1. Increase government support with new laws. Empower import control ofices.

    2. Increase the cost of getting caught.

    3. Tighten the financial restraints on conflict diamond dealing. Cutting centre banks should have standard “non conflict” diamond declaration.

    4. Make trade more aware of the volumes. Require mandatory publication of import/export figures.

    5. Publish which diamond regions are out of bounds. Publish position of rebel troops in relation to each diamond region. Trade can spot the difference between Cuango and Lucapa productions if it uses samples.

    6. Exchange of experts between Africa and the cutting centres. Experts to spend time in cutting centre import/export offices.

    7. Improve diamond recognition ability as much as possible. Samples of diamonds to be put at each cutting centre’s import/export office.

    8. Build a “reference library” of alluvial production. International controlling bodies to acquire run-of-mine alluvial samples.

    9. Distinguish between origin and provenance. All diamonds should have a birth certificate.

    De Beers offers the following assistance:

  • To help design new import/export document.
  • To assist banks in creating “conflict diamond declaration form”
  • To help facilitate purchase of rough samples.
  • To send experienced staff to work alongside cutting centre authorities.
  • To assist in diamond recognition training using run-of-mine samples.

    BoE Comment: We were surprised at the level of co-operation that De Beers displayed. Could this be due to a feeling of guilt that it did buy diamonds in the past that probably emanated from UNITA held mines? What transactions were made by De Beers that may be construed as “dealing with the enemy”? At one stage there were rumours that De Beers even assisted UNITA. These stories abounded and clearly laid suspicions at the company’s door. Unfortunately the system of mopping up “excess” diamonds in order to maintain its control of rough supply was turning to bite the company from behind. The company is clearly concerned about the issue, and correctly so. Although there has been no evidence of negative effect on retail diamond jewellery sales this could still happen. It is correct that every person and company should assist politicians where they can to eradicate civil strife and human suffering throughout the world. However, there are practical limitations. There is disagreement in the industry on the level and accuracy of identification of the source of diamonds.

    4. John Gurney (UCT):

    Technical Overview; Geochemical fingerprinting of diamonds.

    Dr Gurney gave an interesting insight into work that has been done into identifying diamonds. The presentation was technical and concluded that to positively identify the source of a diamond would require intense laser work that would destroy the value of the diamond being tested.

    5. Sean Cohen (IDMA):

    Ethical Issues

  • We need legislation within countries that produce diamonds.

    6. Martin Rapaport (Rapaport Corporation):

    Diamonds and economic beneficiation; working together to provide practical solutions.

  • Implement international controls over the flow of rough diamonds. Regulate rough imports to cutting centres. Certify sale of polished diamonds.
  • Control rough entering cutting centres. Register all firms allowed to import rough. Rough imports must have certificate of origin.
  • Promote beneficiation of diamond resources in developing producer countries.
  • Diamonds are not providing economic benefit to local population. Create a virtuous cycle of economic beneficiation at the village level.
  • Provide diamond trading services to specific village/chiefdom area.
  • Local NGO’s in coordination with international NGO’s should monitor all aspects of the diamond trading operation.
  • Legislation to provide regulatory environment that assures trading company will be able to compete favorably against illicit diamond trading. Trading company not allowed to enter into any agreement with officials or third parties.
  • NGO and government must receive full sales result information. Trading company profits limited to fixed commission.
  • NGO’s identify villages and individuals from whom trading company can buy to ensure that conflict diamonds are not bought.

    7. Lindani Mtwa:

    Perceptions of a small scale miner.

    PERCEPTIONS

  • The government has begged enough now, it is time to take and give to the disadvantaged.
  • Small scale miners believe they are self sustainable. United we stand and divided we fall.
  • Business is a lotto. Reality is that this can be a calculated risk.
  • Returns are acceptable. False thinking when you compare inputs in terms of health, risk, labour, own savings to the outputs received.

    REALITIES

  • Lack of funding by private institutions.
  • Lack of access to geological info.
  • Lack of access to juicy mineral rights.
  • Lack of technical skills
  • Lack of business skills.

    PROPOSALS

    Revive the marketing of the available resources such as NSC.

    Legislate the inclusion of the disadvantaged.

    Use the Development Agency to develop and train larger numbers of artisanal miners.

    Request international community to assist in binational relations with sharing of information.

    Invite international communities to bring their financial institutions to boost our junior sector.

    Involve manufacturing industry to design semi-mechanised equipment to assist the artisanal sector.

    Encourage partnerships amongst the artisanal miners.

  • It is crucial that the wars need to stop for African Renaissance to be a total success.

    BoE Comment: There is a real problem in getting small scale mining off the ground. The very nature of the risk involved scares off banks and investors. We fear that lobby groups will persuade government to legislate procedures that prejudice shareholders of listed and (unlisted) companies in favour of local communities and small miners. In fact, this procedure has already started in terms of issuing mineral rights.

    No company will be issued any mining right to new mineral deposits in South Africa unless it has an element of Black Empowerment. We fear that export duties will be introduced to assist in the expansion of the South African cutting industry beyond its capability to compete internationally.

    8. Stanlake Samkange (UN)

    Analysis of the drivers of conflict.

    Mr Samkange reported on the UN findings on Angola.

  • UNITA uses slaves to mine its diamonds.
  • UNITA keeps its wealth in diamonds not cash.
  • UNITA stocks are still substantial.
  • Diamonds provide political support because they can be used to buy arms.
  • UNITA used Burkino Faso extensively to sell its diamonds to dealers from Antwerp.
  • The Presidents of Burkino Faso and Togo assisted Savimbi.
  • Arms dealers were named in the report. Some South Africans were involved (De Dekker brothers)
  • UNITA had a transport network going. Operators were paid in diamonds.
  • 99% of diamonds traded by UNITA ended up in Antwerp. Could be easily filtered into market due to the volume traded there.
  • Togo provided the conduit for arms from Bulgaria. Next leader of the OAU is from Togo.

    SUGGESTIONS ON WHAT CAN BE DONE

    A. Political leaders must address the problem of states and Government leaders that are actively engaged in efforts to circumvent international sanctions.

  • For example, Belgium should now closely monitor the activities of any diamond industry personnel who travel to Burkina Faso.
  • Also, African countries for whom the diamond business is important would consider whether a country such as Togo whose Head of State has been receiving and laundering UNITA diamonds should be the next OAU Chairman.

    B. Arms brokers and dealers

  • Countries that export weapons should be made responsible for who uses them.

    C. Transport providers

  • Seize the planes and all other associated assets.

    D.Diamond dealers

    Belgium has recently instituted a number of new measures and these are welcome and positive steps in the right direction. However, additional measures need to be implemented. In particular:

  • Diamonds do not move themselves, and practical progress could be made by focusing on the individuals and the companies involved in moving UNITA stones. Some of these have now been identified by the UN Panel.
  • The diamond industry in Antwerp should help in exposing the illicit activities of those dealing in UNITA stones. Nothing has been heard from the industry regarding the individuals and companies named in the report of the Panel of Experts, and no investigative or disciplinary action appears to have been taken by the industry.
  • The Government of Belgium and the diamond industry in Antwerp should monitor the activities of dealers known to be involved with UNITA, and especially persons in the diamond industry travelling to Burkina Faso.
  • Prohibit entry into Belgium and other diamond trading centres of persons convicted of diamond related offences elsewhere.

    9. Ralph Hazelton

    The role of civil society; the case of Sierra Leone

  • The point of war in Sierra Leone may not be to win it, but to engage in profitable crime under the cover of warfare.
  • Diamonds have fuelled Sierra Leone’s conflict. Over the years the informal mining sector became increasingly influenced by organized crime.
  • The realities of the diamond industry make any possible solution complicated. This because the diamond industry is highly secretive, and because profits from diamonds attract a large and diverse group of outside interests including legitimate companies as well as criminals.

    THE SOLUTION

  • Law and order and good government has to prevail in Sierra Leone.
  • A global regulatory body that can monitor the volume and value of international diamond traffic is long overdue.
  • Criminal enterprises that flourish in countries like Liberia must be halted. Criminality is blatant in that country. Liberia has become a major centre for massive diamond-related criminal activity, with connections to guns, drugs, and money laundering throughout Africa and further afield.
  • Major reform of the Belgium diamond trade , as well as Belgian laws and oversight, is urgently required.

    Noe Baltazar (Ascorp): Presentation on Angola

  • UNITA took $3 bn from the Cuango Valley but it is now substantially reduced.
  • Only production now is from Catoca (110 000 ct/month, @ $90-$110 per ct.), Cuango Valley and Lunda Norte.
  • Total Angolan production is 3.6 million ct/yr, $600 million per year.
  • Smuggling remains a problem.
  • Ascorp does all the marketing.

    Presentation on D.R. of Congo

  • Production is 23 m.ct/yr, $450 million per year.
  • MIBA produces 7 m.ct/yr, artisanal mining 16 m.ct./yr.
  • The figure of $450 million per year does not include $200 million per year of illicit buying per year.
  • MIBA sells on a tender system in Kinshasa since 1997.
  • Before tender system they got $11/ct, since then their receipt has risen to $20/ct. April 2000 got $24/ct.
  • Production from small artisanal diggings spread throughout the country.
  • Foreign forces control a small part of the country where diamonds are produced. Their production amounts to about $25 million per year, which is used to fight government forces.
  • MIBA has plans to invest $300 million between 2000 to 2004 to increase production to 10 million ct/year.
  • The conflict is also financed by oil and agricultural products.
  • To improve trading of diamonds we need to enforce the certification of diamonds.

    Recommendations (in broad outline)

    After debating the issues three break-away discussion groups came back with recommendations for discussion at the Minister’s meeting.

    GROUP 1: Regulations, policy and capacity to implement and monitor. How can the industry regulate itself? Promoting international co-operation against illicit trade.

  • A new global system of transparency should be established under which no country would permit the importation of rough diamonds unless accompanied by a forgery-proof Certificate of Legitimacy issued by industry authority. That authority should keep record of imports and exports.
  • A diamond code should be established in each diamond producing, processing or consuming country which punishes any person who knowingly trades in or processes illicit diamonds.
  • There be established an International Diamond Ethical Standards Committee representative in each country empowered to approve the promulgation, implementation and revision of standards for the Certificate of Legitimacy. The representative should publish country statistics on production, exports and imports.

    GROUP 2: How can the Diamond Industry contribute to development, including conflict areas.

    Their conclusions:

  • Create a transparent environment for the mining and marketing of diamonds. Governments must deal with corruption.
  • Communities affected by mining operations to be considered as stakeholders in operations.
  • Diamonds are a national asset, which should be efficiently taxed for optimum benefit for the whole population.
  • Increase the participation of women in the sector.
  • Add value to diamonds mined in producing countries. Create profitable cutting industry.
  • Find legitimate ways of ensuring that diamonds entering the market are not funding conflict.
  • Promote the role that diamonds have in prosperity.
  • Good governance is a pre-requisite.
  • Promote the principle and practise of sustainable development in the sector.
  • The role that diamonds play in the restoration of law and order and development should be recognised.

    GROUP 3: Creating Functional Societies.

    The following resolutions were arrived at

  • Structures. Political stability is imperative.
  • Investment. The mining industry should invest 1% of its dividend towards the development within societies.
  • Beneficiation. Minerals should be beneficiated in the countries where they are mined.
  • Training. Identify training needs that will lead to capacity building.
  • The role of the NGO should be within a framework developed jointly by communities and other stakeholders.
  • A working committee should be established to investigate the feasibility of the above.
  • Causes of conflict. The following causes of conflict were identified: Political power, taking control of natural resources, unemployment and hegemony.