The Panama Papers and the Diamond Business

A journalist working on the Mossack Fonseca leak says diamonds will come up “again and again”

This week saw the release of the largest leak of confidential data in world history: the Panama Papers, a treasure trove of more than 11 million documents from Panamanian law firm Mossack Fonseca.

According to the International Consortium of Investigative Journalists (ICIJ), which has enlisted a worldwide team to plow through the documents, the leaked papers shine a light on “the shadowy world of offshore financing,” with revelations about everyone from world leaders to—perhaps, inevitably—diamond dealers.

(The law firm has called the news coverage “inaccurate” in a statement.)

One article on the ICIJ site (which links to JCK) takes an in-depth look at Koidu Holdings, the Sierra Leone diamond miner owned by BSG Resources—Israeli billionaire Beny Steinmetz’s company.

According to the article:

The data leak from Mossack Fonseca confirms a secretive financial structure connecting Koidu Holdings and [BSG subsidiary] Octea to wholly owned Steinmetz entities in Liechtenstein, the British Virgin Islands and Switzerland. Some of these entities hold a great deal of money, especially when compared to Koidu Holdings, which had only US$5,401 in its HSBC account in 2007.

BSG’s spokesperson tells JCK:

BSG uses offshore companies and related structures as part of its legitimate and fiscally responsible tax planning. When relevant disclosure of these arrangements is required by law or regulators it is always provided accordingly. With regards to the Panama Papers, BSG has nothing to say about such speculation.

The article also reports that Koidu owes money a number of creditors, including the government of Sierra Leone, Standard Chartered Bank, and Tiffany & Co., which in 2013 loaned Koidu $50 million in exchange for access to approximately 60 percent of the mine’s output.  In Tiffany’s annual report filed last week, the retailer said:

In 2015, the Company recorded $37.9 million of impairment charges, and related valuation allowances, associated with a $43.8 million financing arrangement with Koidu Limited (previously Koidu Holdings S.A.). Management will continue to evaluate the collectability of the financing arrangement.

BSG’s spokesperson did not respond to an inquiry about Koidu’s current status. But she told the piece’s author Khadija Sharife that

Octea has the financial and technical resources for the scheduled underground mining operations and work will start as soon as the Sierra Leone Government issues the necessary permits for this stage of the operations. Octea has been and will continue to be one of the largest contributors to Sierra Leone’s private sector GDP.  

This recent spate of articles marks another public controversy for Koidu, which has touted itself as a source of ethically produced diamonds from Sierra Leone, the former blood diamond poster child. An article in Vice last month charged that both NGOs and locals felt that the mine had not delivered on its promises.

Steinmetz is not the only diamond-industry figure to appear in the Panama Papers. Israeli diamond dealer Dan Gertler—like Steinmetz, active in Africa—appeared in stories in Haaretz and Le Monde, and Rosy Blue was spotlighted in an Indian newspaper report, which the company disputes

Sharife tells JCK she is working on more diamond-related pieces, including one involving the industry in Botswana.

“Diamonds are going to come up again and again,” she says. “I think it’s due to the nature of diamonds, where pricing is very subjective, and companies can underestimate their profits by undervaluing their exports.

“We have to make sure that, as important as diamonds are for the economies of Africa, tax havens are not used,” she continues. “Governments in the major diamond countries need to publish their resource contracts, they need to publish diamond valuation formulas, and ensure that companies do not use tax havens. These are public resources. These should not be things that are private.”

JCK News Director