5

THE SYNDICATE: A Diamond Is Forever

London

No diamonds in this box have been purchased in breach of UN Resolution 1173. The intake of diamonds being purchased by De Beers and its associated companies and being sold into the market through the Sight system does not include any diamonds which have come from any area in Africa controlled by forces rebelling against the legitimate and internationally recognized government of the relevant country.

—NOTICE TO SIGHTHOLDERS

placed in parcels sold by De Beers’s Diamond Trading Company as of March 2000

 

THERE IS NO QUESTION that De Beers abhors conflict diamonds. Perhaps more to the point, the company abhors what public outcry over conflict diamonds could do to its empire, a point that was being made to me at teatime in London on September 11, 2001. Neither I nor the men to whom I was speaking was aware that at that very minute thousands of people were dying at the hands of Osama bin Laden across the Atlantic Ocean in New York City, Washington, D.C., and rural Pennsylvania. Even further from our imaginations was that bin Laden’s African operatives had been buying millions of dollars worth of Sierra Leone diamonds for the past three years in preparation for that day. In our ignorance of real-time events, we were perfectly comfortable discussing in frank terms why diamonds sold by ruthless killers were bad from De Beers’s perspective: Like all else in the hermetic world of diamonds, it came down to economics.

“No one in this industry is going to hide behind wringing hands, or a hearts-on-your-sleeves kind of thing,” said Andy Bone, chief media officer of De Beers’s Diamond Trading Company. “There is a big moral dimension to this, but we’re very happy to talk about the enormous commercial loss and gain potential of this as well. And the enormous long-term benefit for West Africa if the industry remains unharmed. . . . Yes, let’s get rid of conflict diamonds. We’ve got more to gain than anyone else on this, apart from the victims. The next big prize is for the industry if we can get rid of this.”

Like most of that week in London, September 11 was chilly and fogbound. We were in a conference room on the second floor of the Diamond Trading Company (DTC) on Charterhouse Street in east London, a building through which 65 percent of the world production of rough diamonds flows, some $500 million worth of rough sold every five weeks to the same cadre of handpicked buyers. Located next to a fresh food market that smells like fish and attracts seagulls, the DTC operates out of an austere building, a huge cement block that looks like it could have been designed by the U.S. Department of Corrections. Indeed, it is probably more secure than most prisons. Visitors are greeted by a man sealed in a bulletproof cabinet who will, assuming your name is on a list, buzz you through ballistic glass doors that are so thick they seem like they’d be impossible to see through. Only then are you allowed to speak face to face with a receptionist, who then ushers you into another room. Sitting there, amid mismatched furniture and oddly arranged desks, I wondered if this was the same room the prospective buyers—called “sightholders”—are required to wait in.

The second-floor conference room, though, was comfortable and was clearly designed to impress first-time visitors. Giant maps of De Beers’s diamond holdings were built into the walls, and behind more bulletproof glass were models of famous diamonds, including the 986.6-carat Star of Sierra Leone, the third largest ever found. It was the size of a small brick and even the model is considered priceless. Samples of rough diamonds were displayed at lighted kiosks along the walls, as if in a museum. Tea and cucumber sandwiches were served on a silver tray, and a slickly produced video about conflict diamonds was eternally poised inside the VCR to explain the official stance. I was assigned two handlers, Bone and Tim Weekes, perfectly attired gentlemen whose first duty was to impress upon me the gravity of what I was there to talk about. Conflict diamonds are terrible, they agreed, but they represent a very small portion of rough stones found around the world and sloppy or sensationalistic reportage about them—dwelling on amputated civilians, for instance—could have dire consequences on their industry. There was no threat in their disclaimer—not even a hint of one—but it was clear that their jobs were to juggle acknowledgment of the horrors caused by conflict diamonds within the context of all the good that diamond mining does for some countries and more than a million employees worldwide.

None of us could have known that, at the very moment Bone was downplaying the spin-off horrors of the policies pursued by his industry, policies that have been exploited by rebels and terrorists from Sierra Leone to Lebanon to Afghanistan and that have generated vast profits for De Beers and others throughout the industry, horrors worse than our collective nightmares were happening in America.

 

THE INCORPORATION of what was to become the undisputed world behemoth of diamond buying, selling, and marketing came only twenty-two years after the first discovery of the jeweled wealth in South Africa; the time frame alone is testament to the exploding nature of the boom in that country. In 1866, a 15-year-old boy named Erasmus Jacobs found a pretty-looking rock on the banks of South Africa’s Orange River, and he pocketed it to give to his little sister, who collected interesting stones. A short time later, while the children were playing with the pebbles in the street, the glittering one caught the eye of a passerby, a local politician. Suspecting that it may be a diamond, he liberated it from the children and passed it on to a local peddler, who in turn mailed it to the government mineralogist. The stone turned out to be a 21.25-carat diamond, and it was sold to the governor of Cape Colony for 500 pounds sterling. The following year, it was displayed at the Paris Exhibition, mainly as an oddity. At the time, no one knew of the wealth to be had in South Africa.

Until diamond mining took permanent hold in South Africa in the 1870s, most diamonds were found in India and Brazil; in fact, the discovery of Jacobs’s stone did little to change anyone’s opinion that those two countries were the only places to find diamonds. The find in Africa was written off as a fluke initially—at least until more were plucked from the riverbank: The second find was a magnificent 85-carat white diamond. The discovery was so awe-inspiring that Cape Town’s colonial secretary, Sir Richard Southey, laid it on the table at the South African Parliament and proclaimed proudly, “Gentlemen, this is the rock on which the future of South Africa will be built.” The diamond was named the Star of South Africa.

Similar in many ways to the California Gold Rush, the South African diamond rush lured hundreds, then thousands of prospectors to South Africa’s scrappy farmland, usually men and families with few other viable opportunities who were enticed by the dream of instant wealth that, for many, turned out not to be dreams at all.

Southey’s comment to legislators would have been equally accurate if he’d said the stone would also be the foundation for the world diamond industry. But he couldn’t possibly have guessed that the serendipitous discovery would lead, over the course of the next century, to the creation of one of the most successful commodities monopolies in world history and, as a result, to brutal warfare over natural resources that would plunge at least three African states into chaos, poverty, and destruction at the end of the twentieth century.

The harbinger of that course of history came marching across the South African scrub flats that were quickly vanishing beneath the swiss-cheese landscape of diamond pits in 1871 in the form of an 18-year-old boy in cricket flannels carrying a bucket and a shovel. When Cecil Rhodes arrived in Africa from England, the rush was already on, not only along the Orange River but also in the Vaal River valley farther north, at the end of a torturous 700-mile overland journey from Cape Town. He found a chaotic, disorganized chain of tent communities populated by vagabond diggers, many of whom didn’t even know what a diamond looked like, but who had been lured to the fields by tales of vast riches. They scratched away the land with the fervent hope that eternal wealth lay just below the next crust of earth. Indeed, sometimes it did. In his book The World of Diamonds: The Inside Story of the Miners, Cutters, Smugglers, Lovers and Investors, Timothy Green writes: “‘An English gentleman,’ reported one visitor to the diggings, ‘having worked a claim for six months and found nothing, went home disgusted, giving away his claim. The man who got it found on the same day a fine diamond of 29½ carats before he had gone six inches deeper than his predecessor. I believe he was offered 2,500 [pounds] for it.’”

Rhodes pitched his tent at a site called New Rush, a diamondiferous hillock near a farm that was purchased by diggers for 6,000 pounds from local farmers Johannes and Diedrich De Beer. The brothers were disgusted by the mining activity that was wrecking the farmland and wanted to move to more peaceful environs. This little knot of land would achieve everlasting fame over the course of the next century as Kimberley Mine, also called the Big Hole—the deepest open pit mine ever dug by human hands. The mine eventually reached into the earth over 1,300 feet, following a snaking kimberlite pipe that has yielded some of the best and most valuable diamonds ever discovered. The mine was named after the British colonial secretary of the day—not for the kimberlite that produced the diamond wealth—because he couldn’t pronounce either Colesburg Kopje, the name of the hill, or Vooruitzigt, the name of the estate where it was located. And he refused to call it De Beers New Rush, as it was known locally among the diggers, because he deemed the name wholly undignified for a community under the dominion of Queen Victoria.

By 1880, South Africa had far surpassed the annual diamond production of Brazil, churning out over 3 million carats per year. Diamond production, whether it’s done legally or illicitly, seems to always have global ripple effects, and at the close of the nineteenth century most of them were positive. The surge of diamonds on the world market spurred industrial growth in the United States and Germany, who were huge customers for industrial-quality diamonds. The European cutting and polishing industry was pulled out of a slump caused by declining Brazilian production, and Antwerp, Belgium, became as much of a boomtown as Kimberley, quickly boasting of forty businesses that specialized in cutting and polishing stones. The price of diamonds during the early years of the rush remained surprisingly stable.

But Rhodes knew that this economic stability wouldn’t last forever. He was clearly different from the majority of other prospectors, whose definitions of “wealth” often didn’t extend beyond the scopes of their own lifetimes. Rhodes wanted an empire.

He quickly realized that there was a lot of wealth in the South African soil to go around, too much in fact. He was smart enough to know that if all the claims that were producing good finds continued to do so, it wouldn’t be long before there were too many diamonds in circulation, hurting everyone by dragging down prices. Therefore, his goal became not to just find as many high-quality rocks as possible in his lifetime—which was essentially the goal of 90 percent of those digging in South Africa at the time—but to buy as many claims as possible that may contain those diamonds. By controlling the land, he could control the production. And by controlling the production, he could ensure that there were just enough diamonds on the market to meet demand, thereby keeping prices high and stable.

Over the course of the next decade, he did just that, trading and consolidating his holdings through dozens, then hundreds of arrangements with miners who didn’t have his patience or forethought. By the early 1880s, he was a majority stakeholder in the De Beers Mine, one of the area’s most prolific.

Keeping pace with the growing number of acres under Rhodes’s control was his obsession with power and market dominance. “When I am in Kimberley, I often go and sit on the edge of the [nearby] De Beers Mine and I reckon up the value of the diamonds in the blue and the power conferred by them,” he once wrote of the blue kimberlite that seemed to be under every acre of dirt in Kimberley. “Every foot of the blue ground means so much power.”

It’s hardly surprising, given his admission that he often communed with the pit in the way many people commune with their lovers, that he named his empire De Beers after the mine in which he owned a majority stake.

Unfortunately for Rhodes, the De Beers Mine wasn’t the only treasure trove in the region. Nor was Rhodes the only prospector staring into the gravel with visions of titanic fortunes. Once South Africa began producing its superb diamonds, gem houses all across Europe dispatched their best men to the country to claim a bit of it for themselves. Among the competitors was a treacherous man known as The Buccaneer, who often tried to sabotage Rhodes; Alfred Beit, a quirky financial wizard who soon joined Rhodes’s burgeoning company; and Francis Gould, a majority stakeholder in the Kimberley Mine with excellent financial contacts in London. And there was Barney Barnato, a Cockney odd-jobber who rushed to South Africa to sell cigars once word of the good times reached him in London.

There are few historical clues regarding the fate of Barnato’s cigar business, other than that it obviously didn’t last long. He soon began buying and selling diamonds, aided immensely by his working-man image and his generally good demeanor. He and his brother used the proceeds from their sales to buy up small kimberlite claims and began digging like crazy, under the auspices of the Barnato Diamond Mining Co. The blue ground was good to them and they wisely kept investing their returns in more and more claims, finally buying into Francis Gould’s Kimberley Central Mining Co., a purchase that instantly gave them as much clout as Rhodes. Barnato owned as much of the Kimberley Mine as Rhodes did of the De Beers Mine. In ten years, Barnato had morphed from a hustler hawking smokes to one of the richest diamond entrepreneurs in Africa.

Rhodes took this development as any fanatical businessman bent on market domination would—as an act of economic war. His goal became to own the Kimberley shares of Barnato’s company and Kimberley’s other major stakeholder, Compaigne Francaise des Mines de Diamant de Cap de Bon Esperance (otherwise shortened locally to a far simpler moniker: The French Company). What followed was one of the most astute and far-reaching corporate takeovers in the history of business. In the mid-1880s Rhodes made an offer to buy The French Company’s stake in the Kimberley Mine that Barnato quickly countered. A compromise was worked out; Rhodes would buy The French Company’s claims and immediately sell them to Barnato in exchange for a one-fifth stake in the Kimberley Mine. With a foot in the door at the region’s best mine, Rhodes then furiously began buying every other Kimberley Central share that he could find, a buying frenzy that spurred Barnato to follow suit, ratcheting up prices to obscene levels. But Rhodes was more astute than Barnato: He was offering Barnato’s own shareholders lucrative holdings in a new company that he promised would control the world’s diamond supply—and by extension, the world’s diamond prices.

Like African rains that eventually pounded powerful volcanoes down to mere scrub flats, Rhodes systematically hammered away at Barnato’s resolve until he saw that surrender was imminent. Barnato, now the largest shareholder, put Kimberley Central into voluntary liquidation and Rhodes bought all the company’s assets with one check, the largest ever written at that time: $12.8 million. In exchange, Barnato was given the largest shareholding and a lifetime governorship in Rhodes’s new company, De Beers Consolidated Mines, Ltd., incorporated on March 13, 1888.

At age 35, Rhodes now controlled 90 percent of the world’s diamond production.¹

 

OVER THE COURSE of the twentieth century, De Beers pursued a plan that was as simple as it was ruthless: Buy as much of the world production as possible and tightly control global distribution through its London offices. Since diamonds suddenly became far less rare as a result of the South Africa boom, price controls were needed to maintain their value. The trick, in other words, was to turn something that should have been relatively cheap into something verging on priceless. Doing that meant controlling the supply and creating a demand. The company could control the prices of the stones during economic downturns—such as in the wake of both world wars—by curtailing either production or distribution, carefully keeping the supply of stones on the market in line with demand.

De Beers had a hand in nearly every diamond mine in the world and agreements with all the major producers and brokers to sell their stones only to them. What developed was a cartel of diamond producers, buyers, and sellers overseen by De Beers, which took on the role of “market custodian” for rough goods bought and sold throughout the world. That way, De Beers could sell the stones to a small clique of hand-selected “sightholders,” or preferred customers, at regular “sights” held ten times a year. Amazingly, the sightholders agreed to buy the gems at a price set by De Beers without ever laying eyes on the stones. Sometimes, sightholders got a real gem of a package, so to speak; other times they got diamond chips not worth the price they paid. Of course, they could refuse to pay, but they’d never be invited back to another sight.

This business plan meant that the company had to keep up with where diamonds were being discovered. If diamonds were making their way to the retail market outside their channels, it would play havoc with the price controls. A few times, De Beers narrowly averted economic disaster; in 1902, tales began to circulate about a rich find near Kimberley being mined, but the early reports were dismissed as inaccurate or outright lies. Scam artists often “salted” their claims with real diamonds in the hopes that someone like De Beers would swoop in and pay a huge sum for what would turn out to be a worthless field. But the talk persisted about this particular mine and finally De Beers’s governor Alfred Beit went to investigate. When he arrived at Premier Mine, he is reported to have been so shocked by the quality of the diamonds being pulled out of the ground in front of his eyes that he suffered a stroke on the spot.²

Naturally, De Beers ended up owning the mine.

Over the decades, it ended up owning a lot of mines, so many in fact that their combined production would have toppled the gems’ price years ago. De Beers solved that problem by simply limiting the amount of stones sold to its sightholders, amassing over the course of the past 100 years a stockpile of diamonds in a vault at the DTC worth $4 billion. At the artificial price, of course.³

The other economic sleight of hand the corporation had to simultaneously perform was to manufacture a need and desire for its products. After all, owning the vast majority of a commodity is only good if that commodity is worth something, and aside from their limited manufacturing applications, diamonds are good for next to nothing. Their only intrinsic value is that they’re very hard and well suited to cutting other very hard things, a characteristic that translates into a mere $30 per carat. Therefore, another pillar of De Beers’s price-control system was manufacturing a demand for a product that is essentially worthless to retail consumers. Part of that strategy was to generate and maintain the myth that diamonds are both rare and necessary for people who fall in love.

Diamonds themselves do a good amount of the work in this regard: The gems are beautiful. What make them so precious are the hardness, clarity, and ability to absorb and recast light in sparkling tones. But diamonds aren’t born beautiful. Most rough is less attractive than dime-store marbles. It takes the talent of the world’s cutters and polishers to produce stones worthy of the empire they represent. Once walked out of the DTC’s Charterhouse Street doors, the diamonds are dispersed around the world to have their values exponentially increased during each remaining step leading to the final consumer.

Before any diamond is worthy of any bride—to say nothing of the price the groom will pay for it—it must first be cut, and the first and most important cut is called the cleave. Diamonds are composed of layers, which make up a stone’s grain. Although they are indeed the hardest known substance in nature, it’s a mistake to think that they can’t be broken because they can be cleaved along their planes. In the 1500s, French King François, a sponsor of navigator Jacques Cartier, devised a disastrous method of testing stones sent back by the explorer and thought to be diamonds: He smashed them against an anvil to see if they could withstand the blow, and it’s not unlikely that many good stones were shattered and kicked away as quartz. Cleavers now use lasers and high-speed diamond-dusted saws to create the “cleavage cut,” but before the advent of modern technology, cleavers would rub one diamond against another to produce a groove on the diamond to be cut wide enough to fit the blade of a cleaving knife. The person performing the surgery would give the knife a good rap and the stone would either break in two or be destroyed.

“The tale is told of Joseph Asscher, the greatest cleaver of his day,” wrote Michael Hart in his book Diamond: A Journey to the Heart of an Obsession, “that when he prepared to cleave the largest diamond ever known, the 3,160-carat Cullinan, he had a doctor and nurse standing by and when he finally struck the diamond and it broke perfectly in two, he fainted dead away.”

Cutters may take weeks to decide on a strategy for cutting diamonds, and the largest ones can take years to polish. Their internal flaws and fractures often determine not only their eventual weight, but their design as well. In general, it’s up to the diamond whether or not it will eventually be emerald-, brilliant-, or heart-cut. Cutters aren’t just producing a pretty geometric shape; they’re also manipulating it so that light will enter where the cutter wants it to, bounce around inside properly, and emerge from the top, creating brilliance. Also, cutting diamonds isn’t like sawing wood; only diamonds can cut diamonds and it can take hours for a saw to create a fissure in a stone. Diamonds can lose a lot of weight during the process and it’s not unusual for a cutter to grind off up to 50 percent of a diamond’s weight to achieve a higher degree of brilliance.

The skill, hard work, and stress of the cutting and polishing side of the industry reveal clearly enough why diamonds shoot up in price as they travel from being rough to finished. It’s demanding and exacting work and it’s not cheap. The diamonds are eventually sold to customers at up to ten times the price paid for them from De Beers, which, of course, can be up to a hundred times the price paid for them at the source.

Like practically every other facet of the industry, the cutters and those who employ them rely on De Beers to ensure that diamonds keep their value, and De Beers has more than kept up its end of the bargain.

One of the most successful advertising campaigns in history can be recounted in four words: “A diamond is forever.” Generations of future diamond buyers have grown up believing that love equals diamonds; this simple declaration is drilled into our heads thanks to De Beers’s relentless marketing and advertising campaigns. Much less expensive cubic zirconias don’t have the same chemical properties as diamonds, but they can be just as beautiful—but try giving one to your girlfriend when you ask for her hand in marriage. When shopping for a ring for future brides, grooms throughout the United States—who, along with male spouses preparing for an anniversary, buy 80 percent of all diamonds sold in the world—are told very gravely that the standard price to pay for a diamond engagement ring is two months’ salary. Anyone who stops to think about it for even a minute realizes the peculiarity of such a thing—after all, who could have started that “tradition” other than people selling diamonds? But we’re a nation built on traditions and giving your bride a diamond ring has become one of them. Another De Beers’s slogan helps fuel this need: “Show her that you’ll love her for another thousand years.” This ad illustrates the market perfectly: Men buy diamonds for women. Period. Little do those future grooms know that they’re falling into a trap laid more than 100 years ago. De Beers’s founder Cecil Rhodes said that the future of his fledgling empire was guaranteed as long as “men and women continued to fall in love.”⁴

If every diamond ever found had been sold on the open market instead of hoarded in London, they’d probably be less expensive than emeralds, rubies, and sapphires. And the fact that some of the world’s best diamonds come from killing fields and hellholes unbeknownst to anyone outside the hallowed halls of the diamond world for so long, well . . . so much the better in the thinking of the De Beers’s marketers. There’s nothing that can ruin a carefully crafted mystique better than the stink of reality.

And the reality is that if the century-old price controls and policies were to be honored for the sake of keeping diamonds valuable and avoiding a glut on the market, they would be bought from whomever was selling them. That included the RUF, UNITA, and any one of the dozens of factions fighting in the Democratic Republic of Congo, another war-torn diamond-rich African country. Those in the international diamond industry—revered throughout the world as merchants of love, honor, and faith—did not want it known that they actively and knowingly funded some of the world’s most vicious wars simply for the sake of ensuring that jewelry stayed expensive. A close-knit, cloistered business, the diamond world felt so insulated from criticism that De Beers even boasted of its buying practices in its 1996 annual report, the year in which the RUF began its amputation campaign.

“The CSO [De Beers’s Central Selling Organization] buys diamonds in substantial volumes on the open market, both in Africa and in the diamond centres, through its extensive network of buying offices, staffed by young diamond buyers often working in difficult conditions,” the report reads, in a statement penned by then chairman Julian Thompson. “Purchases in 1996 reached record levels largely owing to the increased Angolan production. Angolan diamonds tend to be in the categories that are in demand, although in the main these buying activities are a mechanism to support the market.”⁵

Those record levels were achieved during the height of rebel/government fighting in Angola, when UNITA controlled 70 percent of the country’s diamond production.

 

AT THE SAME TIME that Al Qaeda–piloted airplanes were crashing into the Twin Towers of the World Trade Center—and I was being told of the huge economic impact that bad publicity about conflict diamonds could have on sales—representatives from thirty-five countries were meeting privately about 45 miles outside of London, in the suburb of Twickenham. It was their fourth meeting that year, held September 11 in a rugby stadium to figure out the best way to handle the same blooming public relations nightmare that Bone described.

They were an odd mix, representing the United States, Russia, Canada, England, South Africa, Botswana, Egypt, Australia, and Bangladesh, among others, and diamond industry leaders, all members of the so-called Kimberley Process. I intended to go there later in the week to witness the rare and historic public discussion by diamond countries and industry representatives about rebel groups in Africa and the unwanted publicity that had been generated by buying diamonds from them. But the events of the day threw everyone’s schedule into turmoil. I missed the opportunity to see the dirty laundry of the diamond world publicly aired. The practice of selling rough stones outside the boundaries of established taxing and exporting structures for the sake of funding insurgencies against legitimate African governments was well established and accepted by the diamond-producing and -importing countries of the world, but it was never, ever discussed in public. It was tolerated for one simple, economic reason: Taking the moral high ground was bad business. After more than a century in the making, the industry had its price controls, and in the diamond business price is everything, more important and valuable even than the life and death of entire countries.

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 still 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. You’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.

Such obvious anomalies are the result of the Diamond High Council’s lenient import requirements that importers list only the diamonds’ country of “province,” that is, where they were last located before entering Belgium. That’s why the Swiss can claim that 97 percent of their imported stones are “British,” and the British can claim, if those same stones are shipped back to them, that 97 percent of theirs are “Swiss.” This brazenly dishonest shell game is simply a way to launder illicit diamonds and render them acceptable to the industry.

At the end of the 1990s, the Diamond High Council took steps to correct this weakness and provide some transparency to the process by requiring that importers list both a diamond’s province as well as its origin, the place where it was mined. This turned out to be a laughable failure, however. When a UN panel of experts reviewed import licenses for one company shuttling goods between Liberia and Belgium, they discovered that “diamonds far in excess of the quality or quantity available in Liberia had been imported as Liberian in province and in origin” (original emphasis).¹⁰

 

ALTHOUGH THERE’S NO EVIDENCE that De Beers was directly involved in schemes such as these, the company had an obligation to move quickly to distance the industry from such practices for the sake of its reputation and that of its goods, especially after the conflict-diamond issue broke. That’s the problem with having a big name in an industry known to have a disreputable side; the sins of the few are multiplied to encompass the many. Economics dictated that De Beers react and that it do so precisely, quickly, and according to a disaster-management plan that could have been scripted by a politician caught in a sex scandal.

The first order of business was to vacate the scene of the crime, and within a year of the Global Witness report, the company shut down its Conakry, Guinea, buying office because diamonds from Sierra Leone were almost certainly trading hands there. Tim Weekes of the Diamond Trading Company admitted as much to me. The company had cleared out of Freetown and Monrovia in 1985, a fact that’s quickly stated in any conversation about conflict diamonds with a De Beers representative. The hope is that anyone who hears that will assume that the company receives no diamonds from Sierra Leone.

But Partnership Africa Canada, an organization that has been particularly vocal about the blood-diamonds issue, has said that it’s “virtually inconceivable” that this is true. The De Beers shop in Guinea was kept open because it had been relatively quiet on that front, because RUF-smuggled diamonds had to travel farther to reach Conakry. With the breakdown in diplomatic relations between the governments of Sierra Leone and Liberia—which led to the border being closed in 2001—Conakry stepped into the vacuum and has begun filling Monrovia’s laundering role. Yet the border closing didn’t exactly create a new phenomenon, as Kamajor fighters had been trading their own ill-gotten diamonds in Conakry since the mid-1990s, and it’s a much shorter trip to the Guinean capital from Freetown for fringe buyers like Jacob Singer. Once Monrovia became off-limits for everyone but the top RUF traders, however, the trip to Conakry looked more appealing.

The next step for De Beers was to wheel 180 degrees from its chairman’s 1996 statements to shareholders and vituperate madly about conflict diamonds, but in the same breath defend the diamond industry and its profits by qualifying that the trade accounted for only four or five percent of world diamond output. True or not, and it likely is true, this self-serving defense seemed more like spin control and did little to redeem the tarnishing reputation of diamonds. Four or five percent still killed a lot of Africans and made the industry hundreds of millions in profits. The same is true of De Beers’s lame excuse of hiding behind their definition of conflict diamonds, which sounds accurate enough, but provided the company with linguistic wiggle room. According to De Beers, conflict diamonds are “mined or stolen by rebels who are in opposition to the legitimate government of a country.”

According to that definition, De Beers didn’t buy rebel diamonds from Angola at all from 1990 to 1998 since a UN-brokered peace process was in effect and UNITA was technically part of the government as a recognized political party under the agreement, even though it engaged in diamond-funded combat with its MLPA “colleagues” almost the entire time.

Aside from self-preservation, De Beers’s desire to cushion the industry from a fatal blow from blood-diamond publicity has a number of legitimate arguments. The industry, after all, is bigger than the company alone and in fact is critical to the economies of at least four nations. Botswana, the largest gem-diamond producer in the world, exported $1.7 billion worth of diamonds in 1999 and had an economic growth rate of 9 percent that year, making it the fastest-growing economy in the world. Botswana has a stable, democratic government and diamond exports account for 75 percent of the country’s annual foreign exchange earnings, 65 percent of the government’s revenue, and 35 percent of its gross domestic product. Likewise, the diamond industry in Namibia is the country’s largest employer and its annual $400 million in diamond exports accounts for 40 percent of its foreign exchange earnings. South Africa would not be the economic powerhouse that it is today without the diamond industry: Fifty percent of De Beers’s mining profits in South Africa go to the government in the form of taxes and more than 11,000 people are employed in the diamond industry there. South Africa also has a large cutting and polishing industry, a rarity among diamond-producing countries. Farther afield, in India, home to the largest diamond-cutting and -polishing sector in the world, nearly a million people are employed in the industry.¹¹

The fact that De Beers’s profits are tied directly to the production of all three African countries—it has a 50 percent stake in the production of both Namibia and Botswana—doesn’t dilute the fact that a diamond boycott would have disastrous economic and geopolitical effects in these countries.

But arguments on the merits of the diamond industry’s contribution to economic development in African countries wasn’t enough to stem criticism. The potential for mounting outcry demanded tangible action, so the company vowed to expel any diamond bourser—a diamond house that deals in rough and polished stones—caught dealing with rebels, a threat that’s on par with excommunication from the Catholic Church or having a hit put on you by the mob. De Beers took the first step in that direction by ending all trade on the open market, a move that included refusing to buy diamonds at all from Angola even if they are purportedly from clean channels. This action delivered a resounding blow, instantly wiping out $15 million a week from the market, demonstrating that when it comes to abolishing war goods, De Beers holds the most sway. In early 2000, De Beers began placing notices in each of its sightholders’ parcels promising that the rough they were sold was squeaky clean.

Few people believed that. As mentioned, De Beers is what it is because of its aggressive buying policy, a corporate strategy meant to keep the diamond market in tune with its wishes. Since diamond prices would have crashed a long time ago if every stone ever discovered had been allowed to make it to market, the strategy resulted in a massive stockpile of stones in London, gathered over decades from sources around the world, and valued by the company at $4 billion (the actual value is probably much less because if De Beers attempted to sell the stockpile, the price of rough would plummet). Open-market buying didn’t end until 2000, so it is impossible that De Beers can certify that 100 percent of its diamonds in the stockpile are from clean trading streams. Furthermore, the certification is only good for the sightholder. Many De Beers clients buy rough from sources other than the DTC, most of which are unsheltered by such guarantees, and so the De Beers warranty can be used to mask the presence of conflict goods if the unwarrantied stones are mixed with the De Beers goods.

 

SO IN THE WAKE of the campaign by Global Witness, it was widely agreed that conflict diamonds are bad, both for the countries in which the conflicts are occurring and for the future health of the industry, as well as, by extension, the health of some of the few successful and peaceful countries in Africa.

Now the question was what to do about it.

Underlying any talk of further actions is a slew of legislation: In 1998, the Security Council passed Resolution 1173, a sanction against diamonds from Angolan rebels, and 1176, one against diamonds from the RUF. In 2000, it passed Resolution 1306, which banned all countries from importing any rough from Sierra Leone until a certification process could be designed with the help of the Diamond High Council in Antwerp. In the United States, Congressman Tony Hall and Senator Judd Gregg introduced the Clean Diamond Act in 2001, a law that seeks to ensure that all diamonds imported into the United States are verifiably from clean sources.

None of those laws did much in a real-world sense to stop the flow from Sierra Leone; the RUF and those who helped them were smugglers, after all, and not deterred by legal restrictions. Even the Diamond High Council’s introduction of the Sierra Leone authenticity certificate didn’t seem to do a whole lot of good. Men like Jacob Singer barely noticed that there was a new system in place for the exportation of legitimate goods. After all, he was in the business of smuggling illicit goods. More drastic measures were also implemented, including the formation of the World Diamond Council in Belgium in 2001, an organization meant to speak for the industry as a whole, from mine to retail, and to liaise with the UN on the issue of conflict diamonds. The World Diamond Council’s only purpose is to handle PR and spin control for the conflict-diamond issue.

And of course, there’s the Kimberley Process, which was organized by the South African government and held its first meeting in Kimberley in May 2000. The issue the group tackled seemed simple but in fact was frustratingly complicated: How to ensure that diamonds sold around the world by legitimate houses, retail stores, and producers are not from African rebel groups. Coming up with a solution would prove nearly impossible.

Suggestions have ranged from the impossible to the simply unworkable, and there’s no magic bullet in sight. Some groups have proposed branding the rough with a laser at its on-site origin so that it can be monitored and verified as it makes its way to the cutting houses and eventually the consumers, who could rely on the mark as proof that their gem was clean. In written testimony before Congress in 2000, De Beers torpedoed this idea as “completely impractical.” Diamonds can lose up to half of their weight during cutting and would almost certainly lose their identifying marks. In addition, the cost of branding small stones wouldn’t be worth what the producers could recoup on their sale.

Another idea was to create an international database of chemical and physical characteristics of diamonds from all the locations where they are found in the world. Diamonds could then be identified by source through mass spectrometry. With this system, a laser would vaporize a tiny portion of a sample diamond and the vapor would be analyzed for impurities. The ratio of these impurities—which can contain up to fifty different elements—varies from mine to mine, because the kimberlite they erupted from ages ago was composed differently from pipe to pipe. Analysts would, in theory, be able to identify which pipe a rough diamond had come from (although that may not necessarily help figure out the source country; erosion can carry diamonds for miles and what started in one country might get picked up in another after being washed downriver).

The difficulty with this plan lies in data collection. There are hundreds of diamond-producing kimberlite pipes in the world and those being worked are highly guarded. Why would a company want to share with the world the chemical makeup of its claim? Such information is treated as trade secrets and competing geologists could use the information to sniff out unclaimed diamond fields in the region.

The solution that seems to have the most support within the Kimberley Process is also the easiest to implement, although it may never work. It’s simply an extension of the certification process of the type used by the Sierra Leone government. The idea is that anyone wishing to sell diamonds on the international market would be required to provide a uniform, unforgeable paper trail for all the goods being sold. What that means is that anywhere diamonds are sold legitimately—whether in Kenema or Freetown or Tel Aviv or London—a potential buyer or customs investigator can ask to see the documentation and from it ascertain exactly where the diamonds were discovered and whose hands they’ve flowed through. Customs inspectors can follow the trail if there are questions and levy proposed sanctions against the diamond house selling the goods if they prove to be fraudulent. De Beers suggested that anyone caught dealing in conflict diamonds be banned forever from all professional diamond organizations worldwide, which would be the financial equivalent of the guillotine, a fitting metaphor considering the actions of the RUF gem-producers.

The problem is that diamonds are not timber or ore. They’re so easily mobile that there’s very little that this plan can do to address the mixing of legitimately purchased diamonds with those bought from rebel groups. For example, representatives of the Diamond High Council, as a final step in developing Sierra Leone’s certification program, visited upcountry mining towns to inspect goods and ensure that they were from state-licensed mines. But since they weren’t there when the diamonds were actually mined, how can they say for sure?

This approach would also require an as-yet-unseen level of both organization and honesty on the part of customs officials and government overseers in developing nations. In a place like Sierra Leone, where the average monthly income for a customs official is less than the daily earnings of a minimum-wage employee in the United States, why not take a cut of the action in exchange for a certificate? And lastly, diamonds are passed from hand to hand dozens if not hundreds of times before wending their way into the mainstream, often in jungles and deserts where it might not be convenient to produce a certificate. Complete uniformity in a $6 billion-a-year industry involving pebbles—where transactions take place in some of the world’s most desolate areas—seems a remote possibility.

Diamonds are so portable—and their value so enticing—that no system of certificates will ever be able to answer, for certain, whether or not the diamonds in an engagement ring came from perfectly legitimate sources in South Africa or from under the tongue of an RUF rebel called Colonel Poison.

 

IN SPITE OF THE BAD PRESS and evasive solutions, public awareness about conflict diamonds couldn’t have come at a better time for De Beers. Even though it still dominated the diamond industry, its once iron grip was slipping, thanks in no small part to new Canadian fields in the Barren Lands that were turning out stunning gems and selling them largely outside De Beers’s channels. The company’s control over rough had slipped from 90 percent in the time of Rhodes to 65 percent at the end of the twentieth century. The company’s manipulation of diamond prices was actually benefiting its competitors as well as itself.

Earlier in the same year that Global Witness delivered its roundhouse punch to the industry, De Beers hired an outside analyst to review its finances, the first time in its history this had been done. The Boston consulting firm that did the review suggested that De Beers abandon its self-appointed role as “market custodian” and let diamond prices take care of themselves in true market fashion. Again, timing was critical. The suggestion came at a time when demand from American consumers was at an all-time high. According to author Matthew Hart, “In response to strong demand, De Beers shoveled its stockpile out of Charterhouse Street as if it were clearing the driveway of snow. In the first half of 2000, compared to the same period the year before, De Beers profits rose by 226 percent, to $887 million.”¹²

With the stockpile reduced by a fourth, De Beers planned to make up any potential profit losses from deflating global prices by getting into the downstream business for the first time: the retail market. In early 2001, the company announced a joint business venture with French luxury retailer LVMH, the company that sells TAG Hauer watches and Moet & Chandon champagne.

Thus, in an industry already largely identified with its name, for the first time the company began selling cut and polished De Beers brand diamonds. It is now the only company that sells both rough and finished stones, stones that—once the stockpile is depleted—have been in its possession from the time they’re found in its private mines in Africa to the time they walk out the door on the finger of a customer. The conflict-diamond PR “disaster” will actually do nothing but benefit De Beers. Now that it has officially ended its policy of buying on the open market, it will be the only company in the world that can guarantee that its finished jewelry comes from clean sources.

In the words of Israeli diamond writer Chaim Even-Zohar, “The brave man would write that the whole issue of war diamonds can only benefit De Beers.”¹³

 

DE BEERS’S OVERHAUL of its business plan included another massive change that effectively draws the curtain around the diamond giant’s operations once and for all. The entire De Beers Group—which is composed of both the original De Beers Consolidated Mines, Ltd. and De Beers Centenary AG, which operates all the company’s mining interests outside South Africa—was purchased off the London and South African stock exchanges by insiders in 2001, rendering the company’s operations invisible to the public. Events in Canada made such a move necessary.

In 1999, a diamond rush in Canada made history not only by locating a fresh field of superb gem-quality diamonds—a yield that will amount to 15 percent by value of the world market once fully on line—but by thwarting De Beers’s attempts to corral the find. If any place in the world represented Sierra Leone’s spectral opposite in terms of hellish mining environments, it’s clearly the Barren Lands in the extreme northern reaches of Canada. In November, three-quarters of the day is darkness and temperatures average 30 degrees below zero without wind. And there’s always wind.

This was the situation in 1991 when miners Chris Jennings and Gren Thomas boarded a Twin Otter airplane in one of Canada’s hinterland cities, Yellowknife in the Northwest Territories, and flew 200 miles farther north, in a desperate race to stake claims before De Beers. When the men arrived in Yellowknife, they learned that De Beers was already there, chartering helicopters for a big push into the north.

In such an environment, locating diamonds is rather different from in places like Sierra Leone. Frozen tundra, nine months of nonstop snowfall, and glacial movements require astute geological surveys, not just blind luck. Therefore, in the early days the Barren Lands explorers were hunched over in the land of caribou and bears, digging holes and lugging around sacks of dirt and rocks, the only humans for hundreds of miles amid the eskers and frozen lakes. Their samples would be flown to laboratories and examined for kimberlite indicators, traces of minerals that can be expected to be found in diamond-rich kimberlite. If you find red pyrope garnets, green chrome diopsides, or black ilmenites, you might be sniffing in the right place. From that point, it’s just a matter of detective work, intuition, and good luck.

What made Canada such a threat to De Beers wasn’t its harsh mining environment or the high quality of goods being discovered, but the fact that Canada is home to most of the diamond industry’s pilot-fish—small, publicly traded exploration companies known in the business as the “juniors.” Usually comprising little more than a few close friends and exploration experts, the juniors had the ability to track down rumors and move quickly to stake claims. De Beers’s mode of operation has usually been to allow these companies to find diamonds and then buy out their claims once the hard exploratory work has been done and the discovery has proven its worth.

And that might have been the scenario again if the major find hadn’t been discovered by BHP Minerals, a subsidiary of Broken Hill Proprietary Company, an Australian mining company. BHP’s North American headquarters was in San Francisco and the company owned several coalfields in the U.S. Southwest, a fact that scuttled any possibility of a De Beers partnership: The conglomerate’s antitrust troubles in the United States would likely jeopardize any arrangement. The fact that BHP already had a solid presence in the United States was equally worrisome. The belief was that arctic diamonds would flow almost exclusively south, into the maw of the world’s hungriest diamond consumer, America. Therefore, one of the most valuable diamond discoveries of the twentieth century seemed likely to be out of reach of the company that had made diamonds what they are in the first place.

De Beers was facing similar challenges on other fronts. Once his work in Canada was finished, Chris Jennings boldly began looking for diamonds on De Beers’s doorstep, in Kimberley—and he found them.

Not 200 miles from the conglomerate’s stomping ground in Kimberley, Jennings used old cartographical information, gumshoe footwork, and modern exploration methods to discover a 25-mile-long kimberlite fissure and a micropipe on a farm called Marsfrontien. Although De Beers eventually was awarded the claim in court, after the heirs to the farm sold it the mineral rights, Jennings wasn’t finished pounding on the giant. He moved to Angola, where his company won the right to explore one of the largest diamond-producing kimberlites in the world, in Camafuca. Under the deal, Jennings’s company paid the MPFL mineral and exploration fees and shared the profits with the government.¹⁴

This trio of blows, all delivered within a few short years in the 1990s, knocked De Beers off balance. In 1999, it took the advice of its financial consultant and agreed to quit its role as “market custodian” of the global diamond market, selling a quarter of its London stockpile. The timing couldn’t have been better; in 2000, economic prosperity in the United States was at an all-time high. The company ended the year selling a record $5.7 billion worth of diamonds. Profits exceeded $1.2 billion.¹⁵

The new business strategy for the company was retail selling. It’s such an obvious move that it’s a wonder it hadn’t been pursued earlier. The De Beers name is synonymous with diamonds, luxury, romance, and commitment. Every other retailer in the world will now have to compete with “A Diamond Is Forever,” one of the most recognized advertising slogans in the history of marketing. As these companies attempt to stir up demand for their product, they will fill that demand—where else?—from De Beers, the only diamond retailer in the world that will also sell millions of carats of rough a year to its competitors. It’s estimated that retail sales could account for $500 million a year to De Beers.¹⁶

On June 8, 2001, De Beers officially disappeared from the radar. All publicly owned shares of the company and its subsidiaries were purchased by a consortium of buyers collectively called DB Investments. The buyers were the Oppenheimer family, which has controlled the company since the 1920s; Anglo-American Corporation of South Africa, De Beers’s sister corporation that focuses on gold exploration; and Debswana, the diamond exploration company owned jointly by De Beers and the government of Botswana.

The absorption of the company from the South African and London stock exchanges into private hands means that De Beers no longer has to make detailed public financial reports to securities organizations or shareholders. According to the script drafted by Cecil Rhodes more than 100 years ago, De Beers is officially accountable to no one.