PAC Calls on Foreign Banks to Stop Enabling Violence in Marange

140 95 Rapaport News

Press Release: Human rights groups called today on foreign financial institutions invested in Zimbabwean banks to use their influence to stop violence and corruption in the diamond fields of Marange.

The call follows the release of a leaked document that shows the Mineral Marketing Corporation of Zimbabwe (MMCZ), a government parastatal, offered over $200 million worth of illicit Marange diamonds for sale earlier this year, in blatant contravention of the Kimberley Process. Marange diamonds have been subject to international export restrictions since November 2009.
 
The MMCZ letter to potential buyers also counseled them to make the financial transactions through three banks—the Commercial Bank of Zimbabwe (CBZ), BancABC and Premier Banking Group—which count among their major shareholders several well-known foreign banks.

Barclays Zimbabwe, a subsidiary of Barclays UK, is a 3.72 percent shareholder, while Standard Bank, trading under the name Stanbic, holds 2.12 percent, according to the CBZ’s 2010 annual report. BancABC’s most recent annual report lists a $89 million loan from the International Finance Corporation, a “member of the World Bank Group.” BancABC records also show 62 unnamed shareholders in North America and Europe comprise almost 24 percent of the company’s stock.

“These banks subscribe to a higher ethical bar than those who are trafficking these dirty diamonds,” said Alan Martin, research director for Partnership Africa Canada, noting that they are all signatories to the Equator Principles or the International Financial Corporations Performance Standards, voluntary benchmarks aimed at promoting more ethical and socially responsible banking.

“By facilitating these transactions Barclays, Stanbic and the IFC could be not only exposing themselves to reputational harm, they could be putting themselves offside with international sanctions regimes in place against Zimbabwe.”

The MMCZ document also notes that while exports will be issued a “local” Kimberley Process Certificate, an “internationally recognized…certificate will have to be arranged by the buyer.

“The illegality of these trades is not in doubt,” said Tiseke Kasambala of Human Rights Watch. “It really begs the question: What legitimate diamond buyer would touch stones advertised as such?”

“Whether you purchase these stones, or help facilitate banking transactions, your actions are contributing to the continuation of the worst case of diamond related violence since Charles Taylor and Jonas Savimbi,” added Martin. “Helping corrupt parastatals circumvent the Kimberley Process and international sanctions could pose great financial risks to these banks.”

Martin and Kasambala offered a three-step plan the foreign banks should follow to remedy the situation:

• Undertake an audit of your investment in these Zimbabwean banks and the facilitation of these diamond transactions to determine if they breach your IFC commitments. Make the findings of your audits public;

• Should an audit determine that involvement with these banks compromises your commitments to ethical banking, commit to using your shareholder influence to stop illicit diamond related transactions;

• Should Zimbabwean banks refuse your requests for better financial governance, disinvest yourself from these banks.

Partnership Africa Canada (PAC) undertakes investigative research, advocacy and policy dialogue on issues relating to natural resources, conflict, governance and human rights in Africa.

PAC is internationally recognized for its efforts to halt the trade in conflict diamonds. In 2003 PAC was jointly nominated by U.S. House of Representatives and Senate members for the Nobel Peace Prize for its work exposing links between conflict and diamonds in several African countries.

PAC works on a number of global initiatives aimed at regulating the trade of high value and conflict prone resources. While PAC is best known for the leadership role it played in establishing the Kimberley Process (KP) —a UN mandated system initiated in 2000 to break the link between the trade in rough diamonds and armed conflict—it is also active in the Extractive Industries Transparency Initiative and Publish What You Pay, two other international mechanisms aimed at promoting accountability and revenue transparency in the natural resource sector. PAC currently serves as an adviser to the International Conference on the Great Lakes Region and its efforts to create a mineral tracking and certification scheme.

Human Rights Watch (HRW) is one of the world’s leading independent organizations dedicated to defending and protecting human rights. By focusing international attention where human rights are violated, we give voice to the oppressed and hold oppressors accountable for their crimes.

Our rigorous, objective investigations and strategic, targeted advocacy build intense pressure for action and raise the cost of human rights abuse. For more than 30 years, Human Rights Watch has worked tenaciously to lay the legal and moral groundwork for deep-rooted change and has fought to bring greater justice and security to people around the world.

Background Information

Mineral Marketing Corporation of Zimbabwe Sells Illegal Marange Diamonds

At Issue:

• In August 2011, PAC received a document purporting to be an offering of Marange diamonds from the Mineral Marketing Corporation of Zimbabwe (MMCZ) to unspecified buyers.

• The sale offered 1.651,828 carats at a value of $201,196,957.

• Average carat value was $121, almost three times higher than the average price quoted by former Kimberley Process monitor, Abbey Chikane.

• Despite the high quantity of industrial stones (listed as ”boart” in the document) this indicates there is a focus by ZANU elites who control Marange to unload the higher value, gem quality diamonds, to maximize profits.

• The document is dated March 17, 2011, two days before the Kimberley Process chair, Mathieu Yamba, issued his controversial and unilateral notice in favor of allowing exports of non-compliant Marange diamonds.

• This is significant as it provides more evidence of Zimbabwe’s bad faith in dealing with the Kimberley Process. It shows Zimbabwe, and those that bought these stones, were willfully in breach of a universally respected ban on Marange stones.

• The document also notes that while exports will be issued a “local” Kimberley Process Certificate, an “internationally recognized Kimberley Process certificate will have to be arranged by the buyer.” What legitimate diamond buyer would touch stones advertised as such?

• The document lists three banks into which funds are recommended to be deposited—the Commercial Bank of Zimbabwe (CBZ), BancABC, and Premier Banking Corporation.

• While all three banks are Zimbabwe-based, their shareholders include well-known financial companies such as Barclay’s Bank, Stanbic, Old Mutual and the International Finance Corporation, which lists itself as a “member of the World Bank Group.”

• The CBZ’s Equity and Reserves were valued at $89.5 million, according to the CBZ’s 2010 annual report. This would mean Barclays Zimbabwe, a subsidiary of Barclays U.K., holds shares worth almost $3.2 million (3.72 percent), while investments by Standard Bank, trading under the name Stanbic, are worth $1.8 million (2.12 percent).

• The CBZ also counts a Libyan bank listed on international sanctions as its second largest shareholder, raising possibilities all transactions made since March run afoul of UN sanctions passed unanimously by the UN General Assembly.  As a member of the UN Security Council, South Africa took a lead in drafting and approving those sanctions.

The Kimberley Process and Marange diamonds:

• Marange stones have been subject to export restrictions since November 2009, following an incident in which the Zimbabwean military gunned down over 200 diamond panners in November 2008.

• In November 2009, the Zimbabwean government agreed to a Joint Work Plan (JWP), a 12-point roadmap to bring Marange diamonds back into compliance with KP minimum requirements.

• While there has been some positive movement in how some of the mines have managed activities within their concessions, there has been little progress in meeting the overall goals of the JWP.

• This is particularly true in the following areas:
o Illegal smuggling remains rife;
o Violence, although down from 2008 levels, remains chronic;
o There has been no effort to register and legalize informal panners;
o The government remains hostile to working with civil society groups despite commitments to work collaboratively.

• Since November 2009 there have been six Kimberley Process meetings aimed at finding a resolution to the Marange issue—Tel Aviv, Israel (June 2010), St. Petersburg, Russia (July 2010), Jerusalem, Israel (November 2010), Brussels, Belgium (November 2010), Dubai, UAE (April 2011) and Kinshasa, Democratic Republic of Congo (June 2011).

• All have ended in deadlock after failing to find the consensus upon which the Kimberley Process is governed.

• While South Africa, Zimbabwe and DRC publicly recognized Yamba’s notice, the major trading and consumer markets did not, including India, the United Arab Emirates, Israel, the European Union, Switzerland, Canada and the United States.

The Banks:

CBZ:

• Almost all financial transactions related to official Marange exports have been handled by the Commercial Bank of Zimbabwe.

• Its most recent annual report (2010) lists Barclays Zimbabwe, a subsidiary of Barclays UK, as a 3.72 percent shareholder. Standard Bank, trading under the name Stanbic, holds 2.12 percent. The value of these shares is approximately $3.2million and $1.8 million respectively.

• The second single biggest investor after the Government of Zimbabwe is the Libyan Foreign Bank, with 14.12 percent of shares (valued at over $12 million). The LFB is better known as the Libyan Arab Foreign Bank Ltd and is a listed entity on the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). 

• Since March 15, 2011, the Libyan Arab Foreign Bank has been subject to OFAC sanctions (pursuant to Executive Order 13566) for being owned or controlled by the government of Libya. U.S. persons are generally prohibited from engaging in any transactions involving a Libyan state-owned entity or in which any Libyan state-owned entity has an interest.

• This raises questions that in addition to Marange diamonds running afoul of OFAC through their links to the ZMDC and MMCZ, greater scrutiny should be given to the banks that are facilitating these financial transactions.

BancAbc:

• The Group’s shareholders include, Old Mutual, Botswana Insurance Fund and the International Finance Corporation.

• The latter currently has an outstanding loan (“convertible loan”) of $89 million to BancAbc, according to its 2010 Annual Report  

• The IFC lists itself a “member of the World Bank Group.” Its “vision is that people should have the opportunity to escape poverty and improve their lives.”

• Company documents list 10 shareholders in the “Americas” holding 16.68 percent of stocks, the third highest concentration after Zimbabwe (49 percent) and Botswana (28 percent). Europe had 52 shareholders, holding just over 5 percent.

Premier Banking Corporation:

• In December 2010, Ecobank Transnational Incorporated (based in Lome, Togo) announced its move into Zimbabwe, by acquiring 70 percent stake in Premier Finance Group of Zimbabwe for $10 million.  The remaining 30 percent is held by a consortium of individuals.

• Premier rebranded itself as Ecobank Zimbabwe in May 2011.

• Ecobank is a “portfolio company” of the African Development Corporation.

The Asks:

• To foreign banks investing in the CBZ, BancAbc and Premier Banking Corporation:

o With the exception of the Libyan Foreign Bank, all are signatories to the Equator Principles  and the International Financial Corporations Performance Standards , voluntary benchmarks aimed at promoting more ethical and socially responsible banking:

o With this in mind, undertake an audit of your investment in these Zimbabwean banks and the facilitation of these diamond transactions to determine if they breach your IFC commitments;

o Make the findings of your audits public;

o Commit to using your shareholder influence to stop illicit diamond related transactions.

o Should Zimbabwean banks refuse your requests for better financial governance, disinvest yourself from these banks

• To the diamond industry, particularly in South Africa, India and UAE:

o These documents show members of your industry were willing to buy sizeable quantities of illicit diamonds that did not have proper Kimberley Process certification.

o By purchasing illicit Marange diamonds you are contributing to poor governance, violence and corruption in Zimbabwe.

o By circumventing the Kimberley Process, powerful elements of your industry are signaling to Western consumers markets that diamantaires have no interest in human rights or ethical sourcing of diamonds.

o Individually and collectively, the diamond industry needs to state publicly and unequivocally that they reject any criminality and brutality in Marange.

o Do not trade Marange diamonds.

The Equator Principles:

• The Equator Principles (EPs) are a voluntary set of standards for determining, assessing and managing social and environmental risk in project financing.

• Equator Principles Financial Institutions (EPFIs) commit to not providing loans to projects where the borrower will not or is unable to comply with their respective social and environmental policies and procedures that implement the EPs.

• The Equator Principles were developed by private sector banks – led by Citigroup, ABN AMRO, Barclays and WestLB – and were launched in June 2003.

• Barclays and Standard Bank (Stanbic) are members. The World Bank is not, but all adherents to the Equator Principles implicitly support the International Finance Corporation’s Performance Standards, voluntary benchmarks aimed at promoting more ethical and socially responsible banking.

For further information:

A list of Partnership Africa Canada reports on the Marange diamond fields is attached overleaf. Or visit our website:  www.pacweb.org  

Rapaport News is not responsible for, and does not endorse, the content of any press release. Press releases are not written by us and are provided only as additional information for our clients.

 

 

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