Smuggling from other African Mines

The smuggling routes lead from the diamond mines and diggings in Southern and Western Africa to entry spots such as Monroevia, Brazzaville, Burundi and Beirut. The Belgian and other European markets are often flooded with smuggled diamonds. The native sorters at the African mines who are no paid well by De Beers are paid better to smuggle them out by swallowing or palming them. Some Lebanese gangs like Janil Mohammed's run this operation in Sierra Leone. The African governments did not have either the techniques or resources at their disposal to interdict the diamond smugglers.

In Sierra Loene, Spread across the muddy, cratered moonscapes, hundreds of hunched men still break their backs day after day sifting through wet gravel with crude shovels and sieves. "Smuggling is still happening across West Africa and as a consumer you still can't be sure of what you're getting," says Annie Dunnebacke, a campaigner at the London-based advocacy group Global Witness.

In 2005, experts estimated that up to 20 percent of the country's diamond production was being smuggled. Although the weight of diamonds and precious stones imported into the United States is never given in the official reports for New York and for the entire country, yet the gems smuggled into this are worth as country much as those coming through lawful channels.

 

De Beers however has taken the matter into its own hands and recruited their own diamond soldiers to curb smuggling.

Diamonds from New Sources

The Oppenheimers using all colonial connections of the British Empire, succeeded in weaving all the later discoveries in Africa, the colonial administrators in Angola, the Congo, Sierra Leone and with Dr. Williamson in Tanganyika. It was fully backed the Belgian and French governments, and it was recognized by every other government concerned as the official channel for the diamond trade. New diamonds mines in Russia, Australia and new flood of smuggled diamonds from African countries is threatening De Beers' century-old grip on the world diamond trade.

Russia

A flood from new sources like Russia is threatening to finally crack the De Beers cartel. Thousands of kilometers from Moscow in the new autonomous republic of Sakha (formerly known as Yakutia) lies a huge open pit in the Siberian permafrost, called Mirny (peaceful). With Russia's large output of high quality diamonds that is second to the South African company's. De Beers is struggling to control the world diamond market by making payments to the Russian mining industry. It has lent billions of dollars against a collateral held in London (Read - International: South Africa's De Beers To Open Moscow Office, Wall Street Journal, January 23, 1992). Russian mines at least 20 million carats of diamonds each year in Yakutia on the kola peninsula. A few years ago, it would have been unthinkable that the Russians and South Africans - the two largest producers of gold and diamonds would be openly doing business together. In July 1990, De Beers announced $5 billion agreement to sell the former Soviet diamonds over the next 5 year period. Since the collapse of Moscow's central control, rumors tell that smuggled diamonds from Russia are leaking into the open market. The disarray engulfing the Russian diamond industry poses a long term threat to the flow of gems that the cartel ultimately wants to protect. Russian officials both inside and outside the Kremlin harbor suspicions that the country's current contract with De Beers favors the South Africans. Though De Beers claimed that it charges only 10% markup as its sales fee for other nations diamonds, many Russians suspect that its fee is 30% or higher. The Russian government is sure to demand a bigger piece of the action next year when it is expected to begin negotiations on a new contract. Moscow's dominance over the its diamonds is also being boldly challenged by the newly assertive republics. Local leaders in Sakha have tussled with Moscow over control of the region's mines since the 1991 Kremlin putsch. Some Russians are talking about creating their own cartel to better enforce terms upon outside buyers (Read - Precious No More, A Global Diamond Glut Rattles the De Beers Cartel - Newsweek, November 9, 1992).

Throughout its history, the company has been committed to keeping diamond prices as stratospheric levels. More than anything, it feared that if prices began to fall, diamond owners around the world would start unloading tons of gems and the market would not be able t bear the price fall and would collapse. So De Beers made sure that gems remained secure. It could do this because of the tremendous leverage it had over the world's diamond miners, who had a very few other outlets. As Ernest Oppenheimer established it, one of the cardinal principles behind the diamond inventories was that the demand for diamonds was fixed each year and waived only with the number of engagements (Read - Can De Beers its Hammerlock? by Richard A. Mechler and Deborah Stead, Business Week, September 21, 1992). Any sudden increases in the production of diamonds would therefore be added to De Beers stockpile rather than its profit...

Australia

De Beers did brilliant efforts to bring African and Russian sources under its control. However, it did not end their nightmare. In the late 1970s, vast diamond deposits were discovered in the Argyle region of Western Australia near the town of Kimberly (coincidently had been named after Kimberly, South Africa). Test drillings in 1981 showed that a staggering quantity could be produced surpassing the entire production of De Beers in 1981 and it was enough to change the world geography of diamonds. De Beers moved rapidly to get a stranglehold on these new Australian diamonds. It began acquiring mining interests in CRA, the Australia company which controlled most of the mining rights to its venture and started to cut a secret deal with CRA. However, Northern Mines, the majority shareholder did not accept the deal and charged De Beers and charged De Beers of cheating Australians causing a public furor and a government action to stop De Beers. De Beers had to stop there realizing it could no longer control the world supply.

Angola

A surge in illicit mining (as De Beers calls activities outside its control) in Angola has unleashed a flood of uncut stones onto the world market forcing De Beers to sop up hundreds of millions of dollar' worth of rough diamonds it has no hope of selling anytime soon. In Angola, thousands of diamond prospectors have poured into Luanda province in a frenzy recalling the California gold rush which require vast, expensive mining operations. Angolan alluvial diamond deposits are relatively easy to exploit. The rush caught De Beers normally on-their-toes executives flat-footed. The smuggling chains in Angola connect at least three clandestine trading houses in Luanda to the open air gravel pitts where shirtless prospectors dig for rocks on the bands of the Kwango river. From the Angolan capital, the gems will find their way to Belgium where De Beers representatives will spend millions of dollars each year just to keep them off the market.

De Beers is pressuring the Angolan government to do something about the prospectors. At one time, the head of De Beers publicly blasted what he termed officials' "total passivity". In De Beers 1991 annual report, the then chairman Julian Ogilvie Thompson expressed cautious optimism that the central government in Luanda would curb illegal mining more effectively following the presidential elections. But those hope were again dashed by the rigged elections and the failure of the U.N.'s peace process.

De Beers' Competition - The History

De Beers has left no avenues to control, stop, take over, make friends with or bulldoze its competitors when necessary. In 1971, it crushed Sammy Collin's Marine Diamond Corporation in Namibia by forcing it into bankruptcy. It threatened its customers that their supply from De Beers would be completely cut off they bought from MDC.

In the mid '70s, Albert Jolis of Israel tried to buy mining rights in Angola, Tanganyika, Ubangi and Luanda and had in fact completed pacts with the respective governments. De Beers kept close watch on the unstable political situation and managed to support the successful revolutionary factions at the right time and use British diplomacy to make new deals with the new governments and cut Albert Jolis off!

Harry Winston of New York also tried to buy mining rights in these countries and in Portugal. He too was stopped by De Beers by cutting off his supply and forcing the Portuguese government through the British embassy in Portugal to severe his ties with Harry Winston.

Thanks to the new competition from the new mines and new owners in Russia, Australia and also the new trends that have challenged the diamonds cartel of over 100 years. De Beers market share has come down to 60% from over 89% in the past.

The Diamond Cartel

De Beers, the South African colossus that dominates the business, stretches an intricate and close-knit worldwide diamond network that operates in some respects on a vast industrial scale and in others like a medieval guild. The torrent of stones that circulates through the network moves along a path referred to as "the pipeline" from mines to dealers to polishing factories to jewelers to the necks and fingers of customers—a journey that takes somewhere between one and two years. There are many inlets to this pipeline: vast open pits in the Arctic Circle and the Kalahari Desert, deep underground tunnels, even floating mines out in the South Atlantic.

For more than 100 years, the name De Beers has evoked all glamour and mystery radiated by a diamond. Through shrewd marketing and careful manipulation of the market, the South African company. For more than 100 years, the name De Beers has evoked all glamour and mystery radiated by a diamond. Through shrewd marketing and careful manipulation of the market, the South African company has parlayed these pieces of crystallized carbon into multi-billion-dollar-a-year business empire.

When a gang of thieves with a stolen bulldozer plowed into London's Millennium Dome in November 2000 to steal a 203-carat diamond from a display sponsored by De Beers, Nicky Oppenheimer, De Beers's chairman, hailed the botched heist as wonderful publicity. "If only we could do this once every six months. We could do away with the advertising department altogether."

De Beers has truly a family affair. Built around the twin pillars of De Beers Consolidated Mines Ltd. and Angelo American Corporation of South Africa, the Oppenheimer dynasty controls most of the world's diamond mining and trade and is one of the biggest multi-nationals. They are the world's leading diamond producers and virtually control diamond mining and diamond supply to the world to date. The De Beers company has been a power unto itself since its founding in 1888. In the decades since, it has left no borders 0 geopolitical or ideological - stand in its way of profit. De Beers mines and markets gem-quality and industrial diamonds. We will describe its operations of the gem-quality diamonds here...