World Diamond Council Proposes ‘Conflict’ Law

The World Diamond Council has put its stamp on proposed legislation in the United States that would bar conflict diamonds from entering the country and serve as a model for similar legislation in other diamond-consuming countries. The WDC action, taken at its second full meeting Jan. 17 and 18 in London, is not binding but does represent the diamond industry’s primary policy initiatives on the issue.

The WDC plans to work with industry-friendly members of Congress to introduce the legislation-which was prepared by Washington law firm Akin, Gump, Strauss, Hauer & Feld-during this session of Congress. The bill serves two purposes: to have the United States, “the world’s leading diamond consuming nation, lead by example”; and to replace an earlier bill, sponsored by Rep. Tony Hall (D-Ohio), that would have required retailers to certify the origin of virtually every diamond they sold.

The proposed legislation would implement some of the rough-diamond certification schemes drawn up by the WDC last September as well as a similar proposal-termed the Kimberley Process-advanced by 23 governmental ministers in meetings held in Kimberley, South Africa. It would “bar the import of diamonds from countries which are under U.N. sanctions unless they are certified as legitimate by internationally recognized governments which are exempt from sanctions.”

The original draft specifically mentioned Angola and Sierra Leone, but those references were removed after some delegates objected to naming them as the chief sources of conflict diamonds. Noe Balthazar, who heads Angola’s Escorp, the state-run outlet for its official diamond production, asked the Council to omit his country’s name and substitute “countries under U.N. sanctions.” Other delegates asked to remove the names of seven intermediary nations through which rebels “launder” conflict diamonds, because some have legitimate diamond activities that could be harmed. These include Liberia, Burkina Faso, the Democratic Republic of Congo, Guinea, Ivory Coast, and the Ukraine.

The bill’s provisions require that “rough diamonds, when exported from the country of extraction, must be sealed in secure, transparent containers by government agents.

“Each sealed container must carry an authenticated document citing the country of extraction. The document must be fully visible to inspectors and must contain a unique registration number along with the carat weight of the rough diamonds.

“Each exporting country, including those engaged in transshipping of diamonds, must contain a database containing information on each parcel of rough diamonds.

“No country subscribing to the tracking system may import diamonds if the criteria cited above are not met.”

The bill states that effective control of conflict diamonds “depends upon international cooperative efforts involving governments, the private sector, civil society, and appropriate international organizations,” similar to that which formed the groundwork for the system in Kimberley.

The bill gives the U.S. President authority to prohibit import of diamonds from countries in which “there are reasonable grounds to believe that particular shipments circumvent U.N. resolutions.” This provision is designed to halt “laundering” of conflict diamonds through countries neighboring Angola and Sierra Leone.

The bill sets a deadline of Aug. 1 for the U.S. Treasury Department-which administers the U.S. Customs Service-to compile a list of countries that have signed on to the rough-diamond certification system. It also asks the President to negotiate an international agreement to eliminate the trade in conflict diamonds along the lines of the Kimberley process by Aug. 31.

The bill also calls for civil penalties of up to $250,000 for those who knowingly import conflict diamonds and refers to a “fraudulent importation” statute that imposes a maximum criminal penalty of two years in prison.

Matt Runci, president of Jewelers of America and head of the WDC’s legislation committee, said in an interview after the meeting that his committee “is building support for the bill from varied committees in Congress to develop broad, bipartisan support.” Runci is optimistic that Congress will consider the bill in a timely manner because it “transcends the issues of our industry and touches on many interests.” No sponsors have signed on yet, he said, but “we’re working with key committees in both houses and, of course, the New York members of Congress.”

Runci acknowledged that the bill seeks short deadlines but stressed that the court of public opinion is demanding swift action on this issue. Turning public opinion is crucial, said WDC chairman Eli Izhakoff, because a number of upcoming TV news reports “are certain to be negative toward our industry.” Such stories are expected from 60 Minutes and Dateline NBC, as well as Fortune and National Geographic magazines.

WDC members complained that much press coverage of the issue was still biased and inaccurate. Alhaji Muhammed Deen, Sierra Leone’s Minister of Mines, complained that Western journalists “come to my country with preconceived ideas, [and] the end result is that stories are distorted and inaccurate.” He singled out The New York Times “Diamond Wars” series as a major example.

De Beers’ managing director Gary Ralfe criticized a BBC Newsnight report that claimed large quantities of illicit diamonds were being smuggled through Switzerland and that “well-known clients of De Beers are knowingly buying rough diamonds from UNITA (the Angolan rebel group that is the subject of the U.N. embargo) along the Angolan-Congolese border.”

Ralfe said the diamonds coming from Switzerland were from De Beers mines and contracted sources in Botswana, South Africa, Canada, Namibia, and other “conflict free” locales. He also noted that none of the company’s sightholders operates near the border areas described in the report. Ralfe pointed out that the accusation “defies logic, because failure to abide by [De Beers’] Best Practice Principles would result in the severance of our relationship [with the source].”

Joan Parker, who heads the Diamond Information Center in New York, said that while negative press reports continue, surveys show they haven’t affected consumer attitudes. She also said that, given a choice, consumers would prefer diamonds free of conflict origins. She told the WDC that the DIC would conduct additional surveys following the 60 Minutes broadcast and other TV reports.

Peter Hain, who heads the British Foreign Office’s Africa desk, reiterated that all 189 members of the U.N. General Assembly “have accepted the need for an international diamond certification scheme that is ambitious but achievable.” He also told the WDC that the “Kimberley Process must now go forward with governments negotiating detailed proposals” for the rough-diamond certification scheme. He called this “phase two of the Kimberley Process,” which will begin at the next intergovernmental meeting in Namibia next month.

Behind the show of unity, there remain some serious issues, particularly between the affluent diamond-consuming nations and the developing diamond producers. Producers see the proposed rough-diamond certification system as a major threat to their economies, and some-like Russia-have actively opposed it.

Sergei Oulin, vice president of Alrosa, last summer denounced the proposal as interference in his country’s internal affairs and a threat to its economy. Oulin declined comment at the WDC meeting, but Inge Zaamwani, managing director of Namdeb, Namibia’s diamond mining partnership with De Beers, said in an interview that she has reservations about being subject “to the long arm of the American Justice Department.”

Hain acknowledged that some countries “will fear the introduction of new and unwieldy bureaucratic requirements and will be wary of the associated costs” and said such fears must be addressed.

Runci believes the legislation will be an effective model because “it is the process of an international consensus agreed to in the Kimberley Process which can achieve the desired result without damaging the economies of legitimate African diamond-producing nations.”

The WDC session followed a special technical meeting hosted by the White House shortly before President Clinton left office. At that meeting, officials explored methods of marking diamonds to facilitate mine-to-market tracking. (See “Where Do Diamonds Come From?” p. 100.) Representatives of the diamond industry warned that any such system, even if it worked properly, would be costly and hinder the free trade of diamonds.

Deputy Assistant Secretary of State Anna Marie Borg assured the WDC that the U.S. government regards diamonds as “vital to the stable market democracies of South Africa, Botswana, and Namibia and the legitimate diamond trade in Sierra Leone and Angola that will be necessary to rebuilding those countries. We cannot have procedures that will harm them.”

The controversy over conflict diamonds from Angola and Sierra Leone surfaced two years ago but has its roots in the 26-year-long Angolan civil war. The Angolan rebel group UNITA began targeting that country’s diamond operations in the mid-1980s and quickly built a network to Antwerp through its former colonial capital of Lisbon, Portugal. As UNITA’s demand for weapons grew, the network of diamond traders that had controlled much of the trade gave way to a more sinister network of arms traders, largely from South Africa.

At the end of 1998, the U.N. adopted a formal embargo against UNITA following a campaign by Global Witness, a nongovernmental organization that investigates links between environmental exploitation and human rights abuses. Shortly after, De Beers said it would stop buying diamonds from the open market in Angola or neighboring countries.

The revolution in Sierra Leone began in the early 1990s. A coup led to the expulsion of the Lebanese who had imposed brutal-though effective-order on most of the country’s economic activities, including diamond trading. By mid-decade, a group of rebels calling itself the Revolutionary United Front began a reign of terror over the country’s interior, financed by diamonds it seized or mined from that locale. Rebel activities in both countries have been greatly reduced, but De Beers and others estimate that 4% of diamonds entering the market still come from conflict areas.

At its biannual congress last July, the diamond industry formed the World Diamond Council, composed of industry and government representatives, to draw up a plan to stop the trade in such diamonds. Alex Yearsley of Global Witness praised the industry and the WDC for its work but reiterated that “there’s still a lot of work to do before we can see an end to conflict diamonds.”

Russell Shor is a former senior editor for JCK.

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