United Arab Emirates
Geographically, the United Arab Emirates (Dubai) lies at a crossroads in the world diamond trade. At the eastern end of the Arabian Peninsula, it straddles the divide between southern producing countries, the Western “old world” diamond centres of Antwerp and London, and the “new world” promise of Mumbai and Shanghai.
Since 2003, Dubai has emerged from obscurity to be the third largest diamond trading centre in the world, trading almost $40 billion worth of stones in 2012--11.5 billion of which were rough.
Location is not the only reason for the UAE’s success. Faced with declining oil reserves, Dubai successfully set out to reinvent itself as a regional trading hub, guided by laissez-faire regulations, minimal scrutiny, and generous 50-year tax holidays for companies. Its dual role as a transit hub where diamonds can be revalued – and have their origins disguised – makes Dubai extremely attractive to those seeking to give illegitimate diamonds a new lease on life, or to cheat African producing countries out of taxes which they would otherwise have to pay.
Mixed origins – According to the Kimberley Process, all rough diamonds traded in the world are to be accompanied by certificates detailing the value and origins of the stones. Operating properly, the system should be able to stop stones with questionable origins or values that do not match the geological footprint of the country of export. Unfortunately, those seeking to cover their tracks can easily circumvent this system through the use of certificates of mixed origin, gained by routing such diamonds through trading hubs such as Dubai.
Companies, individuals or criminal networks seeking to disguise problematic diamonds will initially ship their stones to Dubai, where the parcels can then be mixed with other shipments. From there, stones are shipped on to other jurisdictions for cutting and polishing, only this time they are accompanied by a KP certificate from Dubai, rather than the initial country of origin. By repeating this process such diamonds become extremely difficult, if not impossible, to trace. This practice is problematic not only because it can be used to disguise purchases from legal, yet reputationally challenged sources (like Zimbabwe’s Marange diamond fields); it can also be used to hide the origins of diamonds which do not meet KP certification requirements.
Undervaluation of diamond exports – Prior to the advent of the KP, African diamonds were routinely bought at bargain prices, and re-priced more accurately as they passed through the diamond supply chain. Doing so minimized export taxes and disguised the margins between the purchase and market price of the stones. The KP’s requirement that diamonds be accompanied by certificates stating the price of a given parcel and issued at the point of origin was intended to make this practice more difficult. In reality, however, the problem continues.
UAE’s biggest draw is its tax free status. Diamonds imported to the UAE from the country of origin can be revalued closer to market price, and re-exported without tax consequences. KP statistics from 2013, for example, show that the average per carat value of diamonds entering the UAE was $74.40, yet the average re-export was $107.05 per carat – a 43.8% increase. The difference was even more dramatic in 2011, reaching 74%, according to a ground-breaking study by the Financial Action Task Force and the Egmont Group looking at the intersection between diamonds, money laundering and terrorism.
In theory, part of the higher valuation can be attributed to washing diamonds and mixing parcels to make them more attractive to onward buyers. Generally this process can result in as much as a 15% increase. However, in practice the “trades” taking place in Dubai are effectively just revaluations occurring within the same family of companies. For example, one company exports a shipment from Africa to Dubai, where another company takes receipt of the diamonds and ships them on to another affiliated company in a manufacturing centre, most often India. Often this re-evaluation comes with little or no value addition being done to the diamonds themselves. In 2013 alone, this price manipulation generated in excess of $1.6 billion in profits in the UAE, and represents a major deprivation for African treasuries which lose much needed tax revenues. Perhaps one of the worst affected countries is Zimbabwe, which lost an estimated $770 million in taxable revenues on exports to UAE between 2008 and 2012 due to an average 50% undervaluation of its diamonds. Several African countries, notably the Democratic Republic of Congo when it was the 2011 KP Chair, have raised this issue within the KP, but face stiff resistance from industry groups.
Lack of enforcement cooperation – Diamonds fuelling conflict is not the only ethical and criminal challenge facing the diamond industry. A lack of enforcement cooperation often allows criminal networks, particularly in politically unstable areas, to launder ill-gotten gains into the legitimate banking system—a practice that accounts for an estimated 2-5% of global GDP, or $800 billion to $2 trillion a year. More rigid banking practices that came into effect after 9/11 have also made international enforcement and intelligence communities increasingly concerned about the role diamonds and other precious minerals play in terrorism financing.
On several occasions American and European enforcement agencies have formally, yet unsuccessfully, requested information and investigative cooperation from UAE on diamond-related cases. PAC is aware of one precedent setting case involving a Belgian based diamantaire believed to be funnelling laundered money to Hezbollah. Despite repeated and high level requests for cooperation, the Belgian authorities were consistently ignored by the authorities in Dubai. The UAE is also known to have temporarily provided safe haven to Viktor Bout, the notorious Russian gunrunner subject to an international arrest warrant for supplying weapons to a litany of African rebels, including those responsible for the destructive diamond fuelled wars of the late 1990s.
Doing business at whatever costs may also explain part of Dubai’s meteoric rise to prominence. In keeping with its status as an offshore tax haven, Dubai ranks as one of the most secretive jurisdictions in the world, scoring 79 out of a possible 100 on the Financial Secrecy Index in 2013. Rules, including those of the Kimberley Process, can also find themselves open to interpretation. Take for example Noora Jamsheer, the former head of the Dubai Diamond Exchange. Jamsheer resigned her position in 2007 because she was “unwilling to make compromises and overlook suspicious shipments of diamonds”. She cited at least two cases where suspicious shipments of rough diamonds were released by executives despite her objections. She also claimed to have been frequently offered “commissions” to overlook problematic shipments. During the height of the KP embargo against Marange diamonds from Zimbabwe, the UAE was also the preferred destination of illegal or smuggled goods. This included a $157 million shipment which Dubai was forced to seize but later lobbied KP members to release in June 2011, over the objections of many countries.
Because of these factors, PAC gives the UAE a High risk rating.
- The DMCC should publicly explain what accounts for the difference in values between original imports and re-exports.
- All diamond shipments must be opened and revalued upon entry to verify their true value. Those with gross valuation differences should be sent back to the country of origin so authorities there can appropriately tax them. Exporters who consistently engage in undervaluation should have their names shared with authorities in the country of origin.
- The government of the UAE should commit to cooperating with outside enforcement requests, including sharing relevant information and assisting in investigations related to illegality in the diamond sector
- Considering the growing concern about the intersection between diamonds, money laundering and terrorism financing, the UAE needs to put greater safeguards into its system. This should include discontinuing the current practice that permits diamond transactions to be made in cash, rather than through formal banking channels.
Denial. Obfuscation. Silence. Indifference.
These are some of the adjectives to describe Venezuela’s approach to the Kimberley Process since a PAC report uncovered widespread evidence of mismanagement in its diamond sector in 2006.
Faced with the facts of our report, Venezuela chose to disengage from the KP rather than fix its shortcomings. It “self-suspended” itself and subsequently ignored further inconvenient questions from the KP.
Seven years later, at the November 2013 Plenary in Johannesburg, the KP belatedly took action and formally placed Venezuela on a list of countries that cannot trade diamonds.
Venezuela’s diamond production is exclusively alluvial, with rich deposits located south of the Orinoco River in the southeast of the country. As with other countries in the region, small teams of miners use portable motorized dredges and resumidors which suck up the slurry and separate out the rough stones. Scoping done by larger companies interested in exploiting Venezuela’s deposits have either determined that the sites were not economically viable, or ran afoul of the country’s regulatory system. Relations between the government and artisanal miners have been difficult.
Even prior to its self-suspension, little of Venezuela’s diamond production made it into legitimate export channels. Production statistics have been nonexistent since 2005, despite ongoing mining activity. What has happened to those diamonds remains a mystery, since Venezuela has not issued any Kimberley certificates since 2006. In 2005, Venezuela officially produced 55,153.71 carats of rough stones, valued at nearly $3.2 million US according to KP statistics. For the same period, PAC estimates that unofficial production was some three times higher than this figure, with some 150,000 carats produced.
A PAC investigation in 2006 found direct evidence that much of this excess production was being smuggled into Guyana. Not only had official production in that country soared as Venezuelan production officially decreased, there was strong anecdotal evidence of smuggling activity. Miners acknowledged the smuggling, and diamond dealers admitted funneling “tens and even hundreds of thousands of carats a year” to Georgetown via Boa Vista in Brazil. In more recent years, others have uncovered direct evidence of this smuggling activity. In a 2012 article, Time magazine identified a number of diamond buyers in Guyana who openly admitted to purchasing stones from Venezuela despite not being able to verify their origins. These stones are then issued Kimberley certificates and can enter the global market.
Nearly two years after the KP first threatened Venezuela with expulsion if it didn’t invite a Review Mission, a KP delegation finally traveled to Caracas in October 2008. Ultimately, the visit proved to be one of the most ineffectual in KP history. The KP allowed Venezuela to dictate the composition of the team, resulting in the government refusing civil society participation, and threatening to place other members under police guard in their hotel. If that were not bad enough the team spent more time visiting hydro-electric projects than assessing the country’s diamond sector. No mines were visited, no miners interviewed, and somehow completely overlooked the MIBAM headquarters in the state capital, where the KP is supposedly administered. A failure to take tough action in 2008 resulted in Venezuela dictating terms to the KP, while 100% of its production is smuggled into the legitimate market.
Venezuela’s KP authorities are not meeting minimum KPCS requirements. No legal exports have taken place since 2005, yet artisanal diamond miners remain actively digging in the diamond areas. The confirmed presence of significant smuggling activity and the lack of official production statistics represent a significant barrier to the country achieving KP compliance. In an effort to appease critics, Venezuela provided documents with official production and export statistics in 2012, however as the figures were all listed as zero, they were entirely useless. While Venezuelan diamonds cannot be characterized as “blood diamonds”, its unilateralist and isolationist approach sets a dangerous precedent and may give other poorly-compliant countries reason to ignore their own compliance issues.
Because of these factors, PAC gives Venezuela a High risk rating.
- There is documentary evidence that Venezuela’s ongoing diamond production is being smuggled out of the country, with a large portion going to neighbouring Guyana. Increased vigilance on the part of Venezuela’s neighbours is needed to prevent the entry of illicit stones into their supply chains. This is particularly the case for Brazil, Guyana and Panama, all of which are known exit points for Venezuelan diamonds.
- At the KP Plenary in Johannesburg, 2013, the final Communique asserted that Venezuela should invite a technical assistance visit in preparation for a mandatory review mission before being re-admitted to the KP. PAC has long advocated for such an approach and continues to stress the need for both as prerequisites to Venezuela’s reintegration into the KP.
- At the same Plenary it was agreed to add Venezuela to a list of countries that KP members cannot trade with. Participants and industry members should practice greater vigilance with an intention to protect the legitimate diamond supply chain and to thwart the illicit trade.
What people are saying
"If Venezuela can flout the rules, why should anyone else bother?"
- Ian Smillie speaking to Reuters, Dec 6th, 2012
“You’d have to be blind to believe [that the KP is doing its job in Venezuela]. It’s a little bit more difficult now [since the KP was established] to smuggle and certify the diamonds. But we do.”
- Unnamed Santa Elena diamond trader, August 2012
 PAC (2006) The Lost World: Diamond mining and smuggling in Venezuela http://www.pacweb.org/images/PUBLICATIONS/Conflict_Diamonds_and_KP/16_TheLostWorld_Nov2006.pdf
 Time (2012) Not Just out of Africa: South America’s “Blood Diamonds” Network. http://world.time.com/2012/08/20/not-just-out-of-africa-south-americas-blood-diamonds-network/
 Reuters (2012) Diamond smuggling in lawless Amazon mocks international pact. http://www.reuters.com/article/2012/12/06/venezuela-mining-idUSL1E8N126M20121206
Central African Republic
Exports from CAR have been suspended since May 23rd, 2013, when the Kimberley Process intervened following the overthrow of the government in March which saw an opposition coalition led by the Seleka rebel group take control of all diamond trade and production. This suspension was upheld at the KP Intersessional meeting in June in Kimberley, South Africa, and will remain effective pending a review mission by the KP.
The CAR has been a concern for the KP since June 2010 when Seleka fighters established control over mining areas around the north-eastern towns of N'Délé and Bria. Subsequent reports from those areas suggested the presence of Janjaweed militia members, notorious for their activities in the Darfur region of Sudan, and the Ugandan Lord’s Resistance Army. The presence of the former gave rise to concerns that illicit diamonds are being smuggled between the two countries. Sudan is not a participant in the Kimberley Process which only adds to the complication of stemming this trade.[i] Months after the overthrow a general sense of lawlessness and impunity remains in all parts of CAR, according to media[ii] and humanitarian agencies[iii].
Even prior to the 2013 seizure of power, the country faced chronic mismanagement in its diamond resources. A 2010 report by the International Crisis Group (ICG) identified a history of extremely personalized rule of the diamond industry. Ousted President François Bozizé represented a slight departure from this model, however “his regime maintain[ed] tight control of mining revenues by means of a strict legal and fiscal framework and centralized, opaque management”.[iv]
The CAR’s total annual diamond production, estimated at slightly over US$62 million, is derived from a handful of mine sites along two veins of alluvial diamond deposits in eastern and western portions of the country. While Seleka rebels have been in control of mining areas in the east since 2010, analysts have noted that the fall of the government has led to instability in mining zones in the West as well, indicating continued contestation of diamond resources by armed groups including Seleka.
Diamonds are CAR’s second largest export, and its economy remains one of the poorest in the world according to the UNDP.[v] Despite significant reserves of almost 40 million carats, industrial-scale diamond extraction is limited, with the majority of deposits being alluvial in nature. The majority of the CAR’s diamond production is driven by 80,000–100,000 artisanal and small scale miners who sell their stones to West African middlemen. Even before the 2013 political crisis, expensive licensing fees and a 12% export tax on diamonds both contributed to a lucrative, illicit trade of diamonds.[vi]
Because of these factors, PAC gives the CAR a High risk rating.
- Review Mission
PAC supports the decision of the KP to suspend the CAR, including the recommended establishment of a KP review mission. The primary goal of this mission will be to ensure that all diamond production utilizes legitimate channels to market, and that revenues are not being used to further the aims of armed groups. In order to adequately and accurately assess CAR’s compliance, the review team must be given full, unfettered and secure access to all diamond producing zones, something that was not possible during a KP review visit in 2011.
- Political Legitimacy
The forcible seizure of Bangui in March 2013 by a rebel group amounts to a coup d’état. As such CAR is at odds with the Kimberley Process and its efforts to break the link between civil war funded through the illicit trade of rough diamonds. The new government of Michel Djotodia has yet to be recognized by the African Union or the wider international community. Before it can be accepted back into the KP, the Djotodia government must demonstrate its legitimacy by securing broad international recognition, including but not limited to conducting free and fair elections.
- Increased Vigilance
In light of the KP suspension, neighboring countries and trading centers are advised to use increased vigilance regarding the possible smuggling of diamonds from the CAR. This is particularly the case for the Democratic Republic of Congo and Cameroon, both of which have weak internal controls; and Belgium and the United Arab Emirates (Dubai) through which most of CAR’s trade previously passed and which could be used to launder illicit shipments from third countries.
- Transparent Ministry
When an internationally recognized government assumes power in the CAR, the power to award licenses and mining contracts must be transferred away from the presidency to the mines ministry. The ministry must further publicly disclose all mining contracts and licenses, and open said contracts to democratic debate and public scrutiny.
- Encouraging demobilization
The CAR should establish incentives to encourage members of rebel movement to voluntarily disarm. This should involve the creation of a model for reintegration into civilian life while providing alternative livelihoods to the participation in the illegal diamond trade.
- External monitoring
PAC encourages the government of the CAR to request external assistance for peacekeeping purposes from regional and international bodies such as the African Union and UN, to ensure that the diamond fields cease to be under the direct control of any armed faction.
Should a future KP review mission determine that CAR meet minimum KP standards, the authorities should demonstrate a commitment to good mineral governance by disclosing all shipping data, including shipment value, destination and names of exporters, on a monthly basis to the Kimberley Process for review.
What people are saying
“The developments in the Central African Republic inform us that there are still situations where conflict diamonds continue to fuel rebel activities to remove elected official governments”
- KP Chair Welile Nhlapo, May 6th, 2013[vii]
The World Diamond Council supports the KP’s decision to temporarily suspend the CAR “without reservation”.
- WDC Annual General Meeting, May 6th, 2013
“"We totally reject the act that has been taken by Seleka, that of course, includes the illegal decision by the head of Seleka to proclaim himself as president of the republic, to remain in power and to usher in a so-called transitional period."
- El-Ghassim Wane, spokesman for the African Union Peace and Security Commission, April 1st, 2013[viii]
The AU Peace and Security Council announced on 19 July that some 2,600 troops are to be deployed to the region to augment the existing 1,100 already in the country in order to move to “a different kind of engagement on the part of the international community.”
- Ramtane Lamamra, Commissioner, Peace and Security Council, July 19th, 2013[ix]
[i] Huffington Post, In Central African Republic, Diamonds are Seleka Rebels’ Best Friend, 6 May, 2013 - http://www.huffingtonpost.com/2013/05/06/central-african-republic-diamonds-rebels_n_3225410.html
[ii] “RCA: flambée de violence dans plusieurs localités du pays,” Radio France Internationale, August 15, 2013, http://www.rfi.fr/afrique/20130815-rca-flambee-violence-pays-seleka-onu-Bangui
[iii] Central African Republic: Abanoned to its Fate? MSF, July 2013 - http://www.msf.org.uk/sites/uk/files/car_july_2013.pdf
[iv] The International Crisis Group published their report Dangerous Little Stones: Diamonds in the Central African Republic in 2010 outlining a number of broader reforms for the diamond industry in the CAR. While the political landscape of the country has changed since the report was released, many recommendations are still relevant. The report can be found here - http://www.crisisgroup.org/en/regions/africa/central-africa/central-african-republic/167-dangerous-little-stones-diamonds-in-the-central-african-republic.aspx
[vi] International Crisis Group, Dangerous Little Stones, 16 December, 2010 - http://www.crisisgroup.org/en/regions/africa/central-africa/central-african-republic/167-dangerous-little-stones-diamonds-in-the-central-african-republic.aspx
[vii] Huffington Post, In Central African Republic, Diamonds are Seleka Rebels’ Best Friend, 6 May, 2013 - http://www.huffingtonpost.com/2013/05/06/central-african-republic-diamonds-rebels_n_3225410.html
[viii] Voice of America, African Union Rejects New Central African Republic Leader, 01 April, 2013 - http://www.voanews.com/content/african-union-rejects-new-central-african-republic-leader/1632857.html
[ix] Reuters, African Union Plans Bigger Peacekeeping Force for Central African Republic, July 19, 2013 - http://www.reuters.com/article/2013/07/19/us-centralafrica-au-idUSBRE96I0VA20130719
In recent years, Lebanon’s diamond industry was known for its “miracle diamonds”. Despite lacking any domestic diamond production, the country regularly managed to export many more gem-quality diamonds than it imported. In 2009 the difference amounted to 386,000 carats – a figure roughly equivalent to half of Lebanon’s annual diamond exports. Its trading anomalies demonstrated major failings in the country’s internal controls aimed at counteracting diamond smuggling, as well as systematic manipulation of diamond valuations by Lebanese industry members.
Government of Lebanon
- Given the positioning of Lebanon and the role its diaspora plays in the global diamond industry, Lebanese authorities need to demonstrate a proactive safeguarding of their country’s diamond reputation. Enforcement agencies should undertake investigations and prosecutions, where applicable, of those known to be undermining the domestic and international integrity of the diamond industry.
- Government officials, particularly customs authorities, must improve their scrutiny of imported diamonds with respect to value and origin of all shipments. Greater due diligence should be taken beyond that offered by the Kimberley Process Certification Scheme.
- The government should crack down on the criminal elements within its diamond industry. Capacity building of the financial intelligence unit would help to identify money laundering by Lebanese individuals. Greater international cooperation with other law enforcement and intelligence agencies would also help thwart Lebanese participation in organized crime.
- The Kimberley Process should increase pressure on Lebanon’s diamond industry. Its lack of interest only weakens the credibility of the diamond industry, both in Lebanon and abroad.
- Until such time as Lebanon commits to rectify the suspicious features of its diamond industry, countries that receive Lebanese exports, particularly the European Union and UAE, should treat their diamonds with extreme caution. Greater vigilance by international enforcement agencies of companies that receive Lebanese diamonds should also be considered.
What people are saying:
- This in-depth report by The New York Times from December 2011 explains how U.S. investigators uncovered a criminal network with links to both Hezbollah and a Mexican drug cartel. See how it ties in to the Lebanese diamond industry. Read more here:http://www.nytimes.com/2011/12/14/world/middleeast/beirut-bank-seen-as-a-hub-of-hezbollahs-financing.html?_r=2&pagewanted=all
- A Lebanese on-line publication, NOW, explains why the “Guinea-Lebanon Axis” is such a threat to the diamond industry, and why conflict diamonds are a plausible suspicion. Read more here: http://nowlebanon.com/NewsArchiveDetails.aspx?ID=105321
For over a decade, Partnership Africa Canada has been studying the diamond industry, the countries where diamonds are mined, traded and processed, and the Kimberley Process, which was designed to regulate the trade in rough diamonds as a way of ending the “conflict diamond” phenomenon.
The Diamond Watchlist summarizes our current concerns about diamonds, governments and Kimberley Process oversight in areas where perennial problems seem never to be solved. The list is an advisory to consumers, the retail trade, the media and others concerned that diamonds in some countries still fail to meet the tests of adequate regulation, good business practice and common decency.
This Watchlist contains information about countries that, in our estimation, pose serious problems in terms of their KP compliance, where the Kimberley Process has failed to act, where the risk of violence is strong and/or where human rights are being abused in pursuit of diamonds.
Countries listed here are ranked according to their risk, as determined by expert assessment, according to the quality of their internal diamond controls, the quality of Kimberley Process oversight, and the most current normative standards associated with ethical business practices.
PAC evaluates a number of factors in determining the risk assessment of a particular participant country. These include, but are not limited to, specific concerns around the following issues:
- documented cases, or concerns, about diamond-related rights abuses;
- poor internal controls or breaches of the KP’s closed trading system;
- corruption and loss of revenue to national treasuries;
- opaque process of awarding diamond concessions by government authorities;
- links to known criminal networks;
- lack of cooperation by a participant country with the KP or international law enforcement agencies.
In general, the greater the combinations of problems areas listed above, the worse the score. While these are the more commonly known areas of concern, PAC recognizes that criminality does not remain static and is constantly evolving. As such we rate participants according to new risks and standards as and when they emerge. While the main focus of the Watchlist is KP participant countries, industry and individuals will also be subject to scrutiny where exceptional circumstances warrant such notice.
The Diamond Watchlist is updated on a regular basis.
About the Watchlist
Partnership Africa Canada is one of the world’s leading organizations in the field of natural resource governance. In 2003, the organization was jointly nominated for the Nobel Peace Prize with Global Witness for its outstanding efforts to halt the global trade in conflict diamonds. Today, PAC continues to engage with a number of global and national efforts to regulate the trade of high value and conflict prone minerals.
The Diamond Watchlist is PAC`s way of summarizing our current concerns about diamonds, governments and Kimberley Process oversight in areas where perennial problems seem never to be solved. The list is an advisory to consumers, the retail trade, the media and others concerned that diamonds in some countries still fail to meet the tests of adequate regulation, good business practice and common decency.