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Al Jazeera English ... Opinion
'Blood diamond' regulation system broken

The recent regulatory approval of Zimbabwean diamonds for sale reveals deep flaws in the system.

IMAGE China, now the world's fastest-growing diamond market, has allowed the sale of diamonds from the Marange fields in Zimbabwe [EPA]

The recent approval of Zimbabwean diamonds mined from the $800bn Marange fields by the Kimberley Process (KP) chair, the DRC's Mathieu Yamba Lapfa Lambang, has prompted a global 'human rights' outcry with KP members such as Canada, the EU, and the US claiming there was 'no consensus'.

Meanwhile, other countries like China (the world's fastest growing diamond consumer market), and India (which cuts and polishes 11 of 12 stones) have all given the green light to Zimbabwe, removing any potential problems of surplus minerals from Marange, which has been described by Zimbabwean Finance Minister Tendai Biti as 'the biggest find of alluvial diamonds in the history of mankind'.

With potential revenues pegged at $1-1.7bn annually, the support of neighbouring governments like South Africa, another major diamond producer, and 'host' country to 3 million Zimbabwean political and economic 'refugees', is not surprising. Nor is the potential KP rupture being shaped as a battle between politically 'interfering' Western nations and cash-starved developing nations.

That Zimbabwe's diamonds are mined under the direct surveillance of the country's vicious military and controlled by brutal lifetime dictator Robert Mugabe is not in question. Since the discovery of Marange's diamonds in 2006, the military has largely supervised mining; mass looting by political, corporate and military elites has occurred, accompanied by violent displacement and human rights violations; companies based in secret jurisdictions such as Mauritius and Hong Kong have been granted 'due diligence' approval; and there exists complete opacity over volumes extracted, exported and sold.

But to what extent does the vehement opposition stem from political objections to a nation controlled by the blatantly anti-Western Mugabe? More broadly, was the KP system - propagating that less than one per cent of global diamonds constitute 'blood' minerals - built for the purposes of eliminating corporate and state-sanctioned exploitation, or normalising and sanitising it?

Governments given a free pass

Arguably the best thing about the much-lauded and oft-applauded KP system, an international initiative created and backed by governments, multinationals, and civil society organisations to diminish the trade in conflict or 'blood' diamonds, is that the KP's very definition of blood diamonds, by default, excludes the world's primary agents of 'conflict': governments. It also excludes the private mining corporations that partner with the governments in developing countries to extract the diamonds.

By default, the KP's definition excludes Zimbabwe as a 'conflict' agent.

According to the KP, 'Conflict diamonds means rough diamonds used by rebel movements or their allies to finance conflict aimed at undermining legitimate governments'.

This definition, spurred by the investigative research of two NGOs, Global Witness and Partnership Africa Canada, was largely structured around two cases: Angola's brutal opposition movement UNITA under Jonas Savimbi, which used resources as 'portable wealth' to fuel the 27-year conflict with the MPLA government; and Sierra Leone's civil war-for-resources, facilitated and backed by neighbouring Liberian warlord Charles Taylor. Both cases, which saw violent exploitation of alluvial diamond fields, were identified as rebel movements striving to undermine the governments of Angola and Sierra Leone through the control of key mines.

Marginalised were the key roles that governments played in initiating and sustaining both conflicts: as much as 70 per cent of Taylor's official war-chest, which financed the rebel movement in Sierra Leone, was supplied by major Western multinationals, with the assistance and blessing of the US government.

This was done via Liberia's maritime 'tax haven' registry, which operates from the US state of Virginia, just outside of Washington. The registry, known as the LISCR, peddles Liberia's flag (i.e. corporate registration) for a small fee ($713), in exchange for zero tax and a host of other secrecy services. Liberia, through its US base, hosts over 11 per cent of global maritime trade and represents one of the world's top two 'flags of convenience' (FOC).

During a lawsuit brought before the US Supreme Court, it was stated,

'Taylor's oversight of LISCR is so tight he acts in effect as one of LISCR's senior partners, and is intimately involved in all aspects of management, personal assignments [and] distribution of funds, salaries and foreign offices....Taylor received a substantial piece of LISCR's revenue—up to one-third.'

No matter. 'LISCR has always cooperated with, and received support from, the US State Department,' stated key LISCR figure Yoram Cohen.

Meanwhile, the US' political, financial and military support for Angola's Savimbi - described by US President Ronald Reagan as a 'freedom fighter' (though a US diplomat countered that he was 'pure evil') - was not only in partnership with South Africa's apartheid regime, which also financed Savimbi as well as military strikes on the MPLA government, but continued long after the MPLA was globally recognised as Angola's legitimate ruling party. The three decade-long conflict, which resulted in the deaths of 330,000 children from 1980 to 1988 and cost $30bn during the same period, was directly fueled by Angola's vast diamond wealth. The landmark Fowler Report (2000) claimed that UNITA could easily wash diamonds through official channels.

De Beers funds African conflicts

While the KP definition of 'conflict' diamonds makes no mention of state-sanctioned human rights violations and conflict waged by 'legitimate' governments - in both cases, the US government played a key role undermining legitimate governments - so too does it elide the role of corporations, chiefly De Beers, which controls 70 per cent of the rough diamond market, in facilitating and sustaining the conflict as buyers.

Between 1992 and 1993 alone, De Beers was known to have purchased between $300-500m in diamonds from UNITA. The Fowler Report claimed that in 1999, around the time Global Witness began drawing attention to the subject, De Beers ceased purchasing diamonds directly from Savimbi (labeled by the AU as an 'agent of apartheid South Africa') or via potential third parties. The combination of a democratic South Africa and the loss of De Beers' direct support destroyed UNITA's political and financial foundation.

Savimbi himself would be killed soon after, in the same year that the Kimberley Process certification system was formally adopted.

For their part, African governments, including many tinpot regimes, are all too happy with the KP system primarily requiring self-regulation on the part of governments. The deliberate simplification of 'conflict' resources as non-state, apolitical, and marginal to the global architecture intentionally locates it against a specific backdrop delinked from the forces of supply- and demand-side corruption.

Life in Angola under the helm of lifetime dictator Dos Santos, for instance, is militaristic, brutal and grossly corrupt. As soon as the billions from diamonds and oil, which constitute 99 per cent of exports, are generated, a significant portion is looted.

Yet the KP's narrow definition of conflict diamonds, and the system of compliance, enables the regime to 'self-regulate' what constitutes the taking and spilling of 'blood', be it an economic, political, or physical conflict. It also enables corporate buyers, such as De Beers, and the company's main Africa rival, the Lev Leviev Group, also connected to the CIF, to purchase diamonds produced under Angola's dictatorship, with a clean and clear KPCS certificate.

Resource-rich Namibia, overflowing with diamonds and ruled by a single party, SWAPO, since liberation, is corrupt, underdeveloped and anti-democratic. Botswana, too, billed as a shining democracy, has been controlled by one political party for more than four decades, and shares the same characteristics with Namibia.

For the KPCS system, coming into effect in 2003, a forced peace is no different from a democracy.

But while the KP system compliments the undermining of democracy and widespread looting in African nations by allocating the right of identification to regimes, the marginalisation of Zimbabwe is perceived as motivated by decisions unrelated to human rights violations. Moreover, the KP system does not even explicitly articulate a human rights provision, preferring to focus on, and protect, the rights of governments.

But not all governments are equal.

Though the US, for instance, switched sides from Savimbi to Dos Santos with apparent ease, the MPLA government - one of China's largest oil suppliers, also partnered with a private Chinese entity - the China International Fund (CIF), mining diamonds in Zimbabwe, does not seem to have forgotten the 'Western' tendency to undermine 'legitimate' governments for 'political' reasons. Nor, perhaps, has the ANC ruling party in South Africa, described by the US, the apartheid government's primary backer, as 'terrorists'.

Both remember all too well that human rights have nothing to do with foreign policy, especially when it comes to resources.

Proponents vigorously state that, since the 1990s, 'blood' diamonds have decreased from 15 per cent to just 1 per cent, informed by the KP's claim that 99.8 per cent of production is mined in member countries, establishing - in theory at least - compliance on the part of diamond-producing and -trading nations. This includes countries like Angola, Namibia, Botswana, the DRC and South Africa, contributing the bulk of Africa's global exports, estimated at 65 per cent of global rough diamonds.

The diamond industry, via the World Diamond Council - of which diamond giant De Beers was a founding member - collaborated with the NGOs driving the issue (as well as the UN and governments globally) to develop and introduce the certification procedure of rough diamonds, governing the trade, known as the Kimberley Process Certification System (KPCS). In 2002, 52 governments adopted and ratified the KPCS which quickly entered into force.

How the system works

So long as a regime - whether producing diamonds, or trading in it - holds 'sovereign' state power (and is not classified as a pariah by systemically important governments such as the US - think Iran), that regime qualifies as a participating member.

Participating governments agree to oversight of the diamond trade within their borders through 'internal controls' such as tamper-resistant containers, collecting and maintaining official production, import and export data, and running importing and exporting authorities.

Participants must ensure that diamond containers are accompanied by KP certificates stating, 'The rough diamonds in this shipment have been handled in accordance with the provisions of the Kimberley Process Certification Scheme for rough diamonds'.

In addition to the narrow definition, the KP has no independent mandatory scrutiny and is therefore governed by the very corporate and political forces that stand to benefit most from looted resources.

De Beers, the company that opaquely controls about 70 per cent of the world's rough diamond supply, is largely based in Africa and has partnered with many African governments such as South Africa, Botswana, Namibia and Angola. De Beers seized the initiative as a means of distancing the company's diamonds, which adorn engagement rings, from association with the images of drugged-up child-soldiers trained to use pangas or bush knives to hack off the arms and legs of terrorised people.

Manufacturing demand

For starters, while people may want diamonds, nobody actually needs diamonds. This much was admitted by the advertising firm NW Ayers, retained by De Beers, who created perhaps the world's most potent luxury goods slogan: 'Diamonds Are Forever'. According to Ayers, 'We are dealing with a problem in mass psychology. We seek to ... strengthen the tradition of the diamond engagement ring - to make it a psychological necessity'.

But the biggest secret of all is that diamonds are quite plentiful, and to manufacture value, 'price stability' is crucial for maintaining market value through artificial scarcity.

Russia's 90 per cent state-owned entity, Alrosa, supplies 25 per cent of the world's rough diamond market. Said Andrei Polyakov of Alrosa, 'If you don't support the price, a diamond becomes a mere piece of carbon.' To this end, Russia's state-owned stockpiling agency, Gokhran, is allocated an annual budget to vault millions of gem quality carats each month. In 2009, over 3m carats were stockpiled monthly. In 2010, the agency was allocated a budget of $1bn.

But you'd be mistaken in thinking that the diamond industry giants are rivals to one another. Rather, they are collaborators coordinating on crucial issues. Alrosa, created in 1992, is the collective product of the Soviet Union state-owned diamond industy, and has a long history with De Beers.

Fast forward to 2002, when new contracts were negotiated providing De Beers with $3.8bn in diamonds over a period of five years. But EU anti-trust laws - fearing the cumulative global power - 95 per cent, struck the companies, citing monopolistic behaviour. Similarly, the US has cracked down on De Beers for monopolistic behaviour.

Zimbabwe's $800bn Marange diamond fields may collapse the market if not soon brought within official channels. Supa Mandiwanzira, a representative of Zimbabwe's Diamond Consortium, stated that 'we have the potential to destroy the whole industry' by flooding the markets. This was echoed by Zimbabwean Mines Minister Obert Mpofu, who catalysed a 'walkout' by NGOs like PAC from the KP in June when he stated that diamonds would be sold with or without KP certification.

So, while for Western governments Zimbabwe presents a political problem, for the diamond industry (and diamond-producing nations) Zimbabwe presents a dangerous economic crisis in the making.

Zimbabwe may yet receive KP approval. Or it ultimately may not. But whatever the case, Zimbabwe is not the crisis facing the KP, but the product of its own innate fault lines.

Khadija Sharife is a journalist and visiting scholar at the Center for Civil Society (CCS) based in South Africa, and a contributor to the Tax Justice Network. She is the Southern Africa correspondent for The Africa Report magazine, assistant editor of the Harvard 'World Poverty and Human Rights' journal and author of 'Tax Us If You Can Africa'.

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.

Source: Al Jazeera

Khadija Sharife
Last Modified: 25 Jul 2011 10:02
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