- Could your new diamond engagement ring be supporting Zimbabwean dictator Robert Mugabe?
- Fake provenances of "blood" diamonds mean they could be sold anywhere, including Europe and America
- Sources in Zimbabwe believe that at least 5 million carats ($280m) have been smuggled out in the past two years
Could your new diamond engagement ring be supporting Zimbabwean dictator Robert Mugabe?
Illicit Zimbabwean diamonds worth $300 million dollars are being sold into India's vast trading system. The diamonds from Zimbabwe's Marange diamond field have been illegally smuggled to traders in Surat, on the West Coast of India. Fake provenances of these "blood" diamonds mean they could be on sale anywhere, including in engagement rings in Europe and America. Traders of these illegal diamonds are hiding behind a legal loop hole created last year.
A trained eye can tell the cut, clarity, carat and color of a diamond quickly, but it is much harder to know where it was mined. Diamonds are a useful covert currency since they are easily portable and of high value and they often mined in places run by dictators and despots. As a result there is a business in faking a "blood" diamond's provenance to pretend it was mined elsewhere and hence be deemed acceptable by the international community.
Signed by 75 nations, the Kimberley Process-- an international endeavor to outlaw diamonds either mined by slave labor, or which support corrupt and dangerous leaders-- is named after the famous diamond mining area of South Africa where negotiations first took place designed to approve locations which follow good practices.
"A trained eye can tell the cut, clarity, carat and color of a diamond quickly, but it is much harder to know where it was mined."
While the Process is a laudable exercise, it is flawed in many ways, noticeably when unanimity is broken, blood diamonds slip through legal loopholes.
According to Indian private investigator Manish Uday this is especially a problem now because there is a shortage of good quality stones with some traders turning a blind eye to stones mined by unacceptable practices.
In India's main Heera diamond market in the town of Surat, about two hundred miles north of Mumbai, local investigators tell me that blood diamonds are easy to spot. Diamonds of the same cut, clarity, color and carat sell for about 25 per cent to 30 per cent, less than identical stones which have Kimberley Process certification. Given the millions of carats of diamonds that pass through this market every week, faking certificates is a high value business. Most of the traders are entirely legitimate, some even have U.S.-domained websites, but a few undermine the reputation of the rest.
Some of those receiving fake certification come from mines controlled by the despotic leadership of Robert Mugabe, who has been President of Zimbabwe for over thirty years. Although Mugabe's autocratic ZANU PF party is in an uneasy coalition with the democratic MDC party run by Morgan Tsvangirai, the MDC has no control over the military and it is the military that control the diamonds.
When I visited the Marange diamond field in Zimbabwe in 2007, I was one of a rare group of white visitors. Most of the others were invited- a couple of specially-selected and friendly journalists and some Israeli diamond traders- but I wasn't, which made it dangerous for me to stay long and dangerous for any black Zimbabwean to talk to me.
The field was controlled by Zimbabwe's military, which according to every local I spoke with used violence and intimidation to prevent workers talking to any unauthorized foreign writers. These scared workers had to dig out the diamonds and were paid a pittance for doing so. Some workers died from infected wounds that largely went untreated, partly because access to medical care was almost non-existent across the entire country. Other workers trying to escape the fields were allegedly shot by gunmen in helicopters. From the little I was able to actually see, their living conditions were very poor.
Unsurprisingly, the EU and United States placed smart sanctions against the ZANU PF elite in Zimbabwe, and diamonds from Marange are not allowed to be sold in the West.
But there was disagreement among some of the 75 signatories to the Kimberley Process as to whether these diamonds should be approved.
The power sharing deal struck between Zanu PF and MDC gave hope that democracy would return to Zimbabwe, and hence legitimacy to Marange's diamonds. As a result, for several months in 2010, trade restrictions were lifted. It soon became obvious that Mugabe's henchmen were the only ones profiting from Marange's diamonds. But before restrictions were reinstated later in the year over one million carats of diamonds from the field at a value of $62 million had been sold in Dubai.
While this trade window means that there are legal (Zimbabwean) Marange stones on the market, far more than $62 million dollars worth have been traded. Sources in Zimbabwe believe that at least five million carats ($280m) could have been smuggled out of the country in the past two years. World Diamond Council President Eli Izakhoff has been pushing for permanent resolution to the Zimbabwe issue. The Times of India quoted him last week saying that it is "crucial to solve this problem as when diamonds found their way out illegally, it will affect the legal market."
A Mozambican trader, Felipe Munoz, whom I met in Dar Es Salaam in 2010, told me that most of the Marange diamonds are taken across the Zimbabwe border by Mozambican smugglers, who then team up with Lebanese traders who take the diamonds to the Middle East and Asia, primarily India. At Surat's bazaars, a major uncut diamond trading location, vast numbers of diamonds are traded every day, and fake provenance documents are readily available from the minority of firms trading in non-certified diamonds. These papers in turn make it much easier to export the diamonds into the rich U.S. and European markets.
India's federal authorities lose a lot of tax revenue from the $30 billion Indian diamond industry. In May, encouraged by legitimate traders they arrested two Indian traders for smuggling a cache of illegal Marange diamonds with a market value of about $1.5m. Previously in 2010, two diamond traders had been sentenced to four years each for their role in selling $880,000 of illegal Marange diamonds.
However, because of clever fake provenance documents, such successes are rare. In reality, millions of carats of Marange diamonds have hit the market and these revenues are helping the Zimbabwean ZANU-PF party elite avoid real power sharing and democratic reform. One can certainly argue that the Kimberley Process has failed when it comes to the Marange diamonds from Zimbabwe. While despots like Mugabe benefit from their trade, greater efforts are required to limit the benefit he and his cronies currently enjoy.
Roger Bate is the Legatum Fellow in Global Prosperity at AEI.