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Is Your Engagement Ring Funding a Civil War?

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posted on Jul, 1 2003 @ 12:16 PM
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Is Your Engagement Ring Funding a Civil War?

Last month women across the country dreamed of the perfect Valentine's Day gift – a diamond ring. After all, what better way is there to make two months' salary last forever?

So asks the omnipresent ads of the world's largest diamond company, De Beers. A worldwide cartel based in South Africa that controls approximately 70 percent of the diamond trade, De Beers has been touting its diamonds in the United States for 30 years. This year the company hawked "millennium" diamonds and launched an interactive website where users can design their own engagement ring.

For a company whose directors can't even set foot in the United States without fear of being prosecuted for being a monopoly, De Beers sure spends a lot of money here – $60 million on Valentine's Day advertising alone, according to The New York Times.

Why? It doesn't need to sell the brand – it already controls the market. And it's not like consumers can flock to a De Beers store – the company mines diamonds in Africa for sale to jewelry retailers throughout the world. And De Beers, which stopped doing business in the United States in 1945 when the Justice Department initiated anti-trust proceedings against it, can't sell diamonds here directly. It has to sell them to dealers in London, who turn around and sell them to the United States. So why swamp the states with so much pro-diamond advertising in the weeks before Valentine's Day?

"Why do you think?" asks De Beers spokesman Andrew Lamont. "Advertising helps to sell diamonds." De Beers, a publicly traded company, has been run by the Oppenheimer family since 1902 – and before that by Cecil Rhodes, a British imperialist who made a fortune consolidating diamond mines.

But Lamont adds that by operating mines in Africa, De Beers helps transfer funds from first-world customers to underdeveloped countries desperate to get a piece of the global economy. "De Beers sees itself as something akin to Robin Hood. We persuade those people who can afford luxury goods to purchase those goods to help build schools in Africa."


Smuggled Diamonds

But diamonds can also help build an army – and that's just what this luxury good has been doing for the past 10 years. Rebel armies in Angola, the Congo, and Sierra Leone wage brutal civil wars funded by an extensive, smuggled diamond trade. The rebels take control of a diamond mine, falsify a few documents, and then sell the diamonds in the international markets in Antwerp and Tel Aviv. And guess who's there to buy up the majority of these smuggled diamonds? According to the Congolese diamond mining executives at JFPI Corporation, it's De Beers.

De Beers does mine some of it's own diamonds, but it also routinely buys up all available diamonds on the market in an attempt to control the price of the gems. Human Rights Watch reported that in 1996 the Angola rebels received $760 million from the sale of their stolen gems – the majority sold to De Beers. Rebels in Sierra Leone used their diamond money, funneled through dealers in Liberia, to build an army that started with just 400 volunteers, into a fighting force with more than 20,000 paid soldiers.

And those soldiers are as heavily armed as Congolese diamond kingpin Andr้ Action Jackson’s elite private army. In Sierra Leone, rebels use machetes to hack off the hands and feet of civilians who attempt to vote in democratic elections. And Angola, despite having signed the international Mine Ban Treaty in 1997, is contaminated from its 25-year civil war – during which many of the country's six million land mines were placed around diamond fields by rebels anxious to protect their funding source.

"The human cost for this trade is simply unacceptable," says Alex Yearsley of Global Witness, a British-based coalition of human rights groups that published a report on the illicit diamond trade in 1998. "When peace initiatives consistently fail due to rebel factions being heavily armed with sophisticated weaponry, and those weapons have been paid for by diamonds which end up as jewelry in the international markets, it's evident that there are some problems to address."

The United Nations attempted to address the Angola problem in July of 1998, when it placed an embargo on all diamonds sold by Angola's rebel army, UNITA. Under the conditions of the embargo, the Angolan government could continue to sell diamonds from its own mines, as long as it provided certificates of origin for each gem. The sanctions on UNITA's diamond mines, however, proved difficult to enforce. The rebel army simply falsified the required certificates of origin.

De Beers admitted to the U.N. in 1999 that it may have unknowingly bought diamonds from UNITA. Last October, the company announced that it would no longer purchase any diamonds from Angola.

"We were concerned that loopholes in the sanctions were being exploited," Lamont says. "We wanted to be able to put our hands on our hearts and reassure our customers that our diamonds were not coming from areas where the rebels would profit from them."

But some people question De Beers' sincerity.

"They're making a lot of noises as if they are responding," says Deborah DeYoung, an aide to Rep. Tony Hall (D-OH). DeYoung points out that De Beers didn't stop purchasing diamonds from UNITA until the U.N. imposed the sanctions in 1998, several years after it became apparent that rebels in African countries were profiting from the diamond trade.

Now Rep. Hall is asking the U.N. Security Council to impose sanctions on Sierra Leone and the Congo, similar to those placed on Angola. Although De Beers says it does not have purchasing offices in either Liberia or Sierra Leone, it does buy diamonds in the international markets of Antwerp. And Sierra Leone's rebels have been smuggling diamonds through Liberia, apparently selling them in Antwerp: Antwerp's Diamond High Council, an industry group that doubles as a regulatory body for the Belgium diamond trade, reported that its traders were importing 30 million carats of diamonds from Liberia – although the country's diamond mines could produce only 2 percent of that amount. The other 98 percent had to come from somewhere.

"Officials in Antwerp have known about this for nearly a decade and have done absolutely nothing," Yearsley says. "In fact, they regarded it as something of a joke."
But with the United States suddenly taking an interest in the issue of smuggled diamonds, no one's laughing anymore. Especially De Beers, which itself has an interest in American consumers, who buy at least half of all commercial diamonds worldwide.


We'd Love To Help, But ...

Before the U.N. sanctions against Angola, De Beers was not interested in stopping smuggling, Yearsley says. In fact, the company "actively talked about their ability to purchase on the open market the unofficial Angolan production," he says. What changed their minds this year? "They are very keen to cooperate so that they can get back into the States," Yearsley claims.

De Beers officials cooperated last December by meeting with Rep. Hall to discuss how the proposed sanctions against Sierra Leone could be more effective than the ones passed on Angola. But the real opportunity for the company came when De Beers was approached by the U.S. State Department, seeking its cooperation to help end the smuggled diamond trade. The company agreed to the meeting because, Lamont says, "if America is looking for solutions for Africa, then we are prepared to talk with them."

But after meeting with the State Department officials and with Rep. Hall, De Beers did something it has never done in the 50 years since it first left the Unite States under threat of anti-trust prosecution: It asked for a meeting with the U.S. Justice Department.

The Justice Department has been interested in De Beers off and on since it started the anti-trust investigation more than 50 years ago. De Beers has not operated in the United States since then, and the Justice Department indicted the company in 1994 on charges of price fixing. The Justice Department accused the company of conspiring with its competitor, General Electric, to raise prices on industrial diamonds. De Beers refused to come to the United States to answer the charges. So while GE was eventually acquitted, the indictment against De Beers still stands.

Now, critics say, De Beers appears to be trying to use the promise of its cooperation in the smuggling situation in Africa as leverage to get the indictment lifted and to permit the company to return to the United States.

"The industry could do a lot more [to stop the smuggling]," DeYoung says. "They just want to get something for it first." When Rep. Hall met with De Beers officials in December, DeYoung says, the State Department asked him not to use the indictment as a bargaining chip to gain the company's cooperation.

"I'm sure it would be natural for De Beers to link their cooperation with a desire to resolve the anti-trust issue," says a former state department official, who asked not to be named. "But these are really two separate issues. It's not our responsibility to get in the middle of an anti-trust suit."

De Beers claims there was no connection between its meeting with the State Department officials and its overtures to the Justice Department. "We just thought it would be useful to look at some of the constraints put upon us," Lamont says.

The Justice Department eventually turned down the request for the meeting, and officials there refused to comment on the De Beers case.


A Diamond Boycott?

DeYoung says De Beers should forget about what it can gain from the State Department and concentrate instead on what it has to save. If the diamond industry doesn't act fast to address the problem, "it's going to be a fertile ground for a consumer boycott," she says. "If they don't want diamonds to go the way of fur – to become a symbol of butchery – then they need to do something."

But advocates around the world freeze up at the mention of a consumer boycott on diamonds.

"A general boycott of diamonds is an absolute no-no," Yearsley says. The majority of diamonds come from legitimate mines in southern Africa, he says, and those governments rely heavily on the diamond trade for a stable economy. De Beers' Lamont puts it a bit more dramatically.

"Talk like that is literally putting people's lives at risk," he says. He points out that Botswana was one of the poorest countries in the world when De Beers opened a mine there in the 1960s. Now the country is one of the richest in Africa. "Put yourself in the position of a child in Botswana. You start turning people off diamonds and what will you put in place of that resource?"

Besides, Lamont says, consumers have "only a 1 in one hundred chance" of buying a diamond that was sold by Angola rebels – not a big enough reason to be concerned. "The extraordinary thing is that the world is preoccupied with the diamond industry," he says. "Wouldn't it be easier to stop the export of a tank into Angola instead?"






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