The dark side of diamonds

published 19 December 2006

What are conflict diamonds?

They are illegally mined or smuggled diamonds used by criminals or organised rebel fighters to finance serious crime or armed conflict. Most diamonds are mined from deep-shaft pipes of kimberlite in southern Africa, Russia and Canada. This is costly and involves a high level of investment and risk on the part of large multinationals, who create work for local people and pay tax on their earnings to governments. By contrast, secondary or alluvial' diamonds can be pulled from riverbeds by anyone with a shovel and sieve rich pickings for criminals and warlords desperate for cash.

The film, which opened in the US last week at the peak of the diamond-buying season and comes to Britain next month, is set in 1999 in Sierra Leone. Amid a brutal civil war that saw warlords terrorise local people into work as enslaved diamond miners or soldiers by chopping off children's arms, it tells the story of a poor Mende farmer mixed up in a conflict between a mercenary diamond smuggler (DiCaprio) and the local crime syndicate. Worryingly for the diamond industry, the film implies that (a thinly fictionalised version of) De Beers, the world's biggest diamond company, was knowingly complicit in the trade in conflict, or blood', diamonds a charge comprehensively rejected by De Beers in an eight million dollar PR drive this autumn.

Not any more. But in the 1990s, they accounted for about 15% of the world's $10bn trade in rough diamonds, according to Partnership Africa Canada, a human rights group. The trade began in the early part of the decade with Jonas Savimbi's Unita rebels in Angola and later financed the conflict in Sierra Leone that provides the backdrop to Blood Diamond, and also in the Democratic Republic of Congo. Currently, conflict diamonds are fuelling civil war in the Ivory Coast, but are thought to account for less than 1% of the global diamond trade.

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Spurred into action by investigations and lobbying by non-governmental organisation (NGO) activists, notably the UK-based Global Witness, the diamond industry mining firms, governments, traders and interested NGOs organised a conference in 2000 at Kimberley, the South African town where the industry was born in the 19th century, to explore ways of tackling the problem. Launched in 2003, the Kimberley Process is an international scheme under which signatory governments must certify that any export of rough diamonds from their territories are conflict-free. The idea is to make any consignment of diamonds traceable from point of sale to the originating mine. To date, 71 countries have signed up to the scheme, which has sharply cut the trade in illicit stones.

No. At the Kimberley Process review in Botswana last month, Ghana was threatened with expulsion (which would make its diamonds unsaleable) over well-documented claims that it is laundering diamonds from the warzones in the Ivory Coast and Liberia. But a 2004 Canadian government report found that the Process has been 99.8% effective. And in a concerted campaign in recent months, the World Diamond Council has made some telling points in its campaign to see off a possible consumer boycott. In its literature (see Diamondfacts.org) it has enlisted luminaries, including Nelson Mandela, to point out the importance of diamonds to Africa's economy. Certainly, any boycott could be counter-productive, hitting countries such as Botswana, the world's second-largest diamond-producer and a flourishing democracy whose government owns a 15% stake in De Beers, and where 25% of jobs are linked to diamonds.

Assuming it weathers the Blood Diamond publicity storm, the $60bn diamond industry is in a pretty healthy position. In the long term, however, it faces the question of how a marketing strategy built on the phenomenally successful De Beers slogan "a diamond is forever" ie, on high prices and the ultimate luxury image can be married with increasing diversification into lower-end products. In other words, if everyone can afford a £100 diamond necklace, will the super-rich still want to own one costing thousands? But for the time being, demand for rough diamonds continues to exceed supply. This means the diamond miners might be worth a look. Aim-listed (and higher-risk) UK firms include Firestone, Petra and Brazilian Diamonds, while larger producers include Canada-listed Aber Diamond and Newport Mining.

Given the possibility of counterfeit certificates, there is no cast-iron guarantee that your stone was not originally mined by an enslaved worker. That said, Amnesty International recommends that you buy from jewellers who can give satisfactory answers to the following four questions: How can I be sure that none of your jewellery contains conflict diamonds? Do you know where the diamonds you sell come from? Can I see a copy of your company's policy on conflict diamonds? And can you show me a written guarantee from your supplier confirming that your diamonds are conflict-free? For more information, see Kimberleyprocess.com, Stopblooddiamonds.org and Diamondfacts.org.

Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published Customers.com, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.

Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.