Posted by: itm2011 | May 22, 2011

Corporate Social Responsibility in the Diamond Industry

A diamond is perceived to be a rarity and extremely valuable. Not to mention a necessity, a symbol, for people in love. However, aside from their limited manufacturing applications, their only intrinsic value is that they are hard, and can cut hard things. These characteristics make a diamond’s worth $30 per carat. According to the World Diamond Council, the international diamond industry is a 72 billion dollar industry, the largest consumers being American.

As defined by the United Nations, “Conflict diamonds are diamonds that originate from areas controlled by forces or factions opposed to legitimate and internationally recognized governments, and are used to fund military action in opposition to those governments, or in contravention of the decisions of the Security Council.” Conflict diamonds are illegally traded to fund violence in war-torn areas, usually in central and western Africa. Blood diamonds mostly come from countries in western Africa, and some from Venezuela. By far, the worst cases of human rights violations have been in Sierra Leone and Zimbabwe. These human rights violations have been state sponsored, over control of diamond mines. The Sierra Leone Civil War (1991-2002), left nearly 80 percent of the country’s 5 million people dismembered, upwards of 50,000 people killed, and more than half its population displaced.

Ideally, the places where the diamonds are being mined from should be amongst the richest nations in the world, considering they are amongst the richest in natural resources. However Because of lack of legitimate regulation, most mines have been rebel-held, making western Africa a war torn wasteland of poverty, disease, and death. Diamonds from rebel-held mines have raised billions of dollars to finance insurgencies in Angola, Sierra Leone and the Democratic Republic of Congo. Not only do conflict diamonds finance insurgencies in Africa, but Hezbollah terrorism against Israel, and Al Qaeda attacks against the United States.

Despite enforcement of various monitoring programs such as the United Nations Security Council and the Kimberley Process Certification Scheme blood diamonds still have made their way into the consumer market.1 When a consumer buys a diamond from a legitimate diamond dealer, typically a certificate of origin is presented with each purchase. NGOs like the Diamond High Council and the Kimberly Process issue these certificates with each diamond. The idea being, if the diamond can be traced, then there is evidence as to whether it is clean or not. However, diamonds are often smuggled and after passing through many hands end up making their way into legitimate places, like the HRD Antwerp Diamond Centre. Diamonds pretty much have the same genetic makeup, so it is nearly impossible to determine whether a diamond came from Africa, Australia, Venezuela, or anywhere else in the world; let alone which exact mine it came from.

The Diamond High Council (Hoge Raad voor Diamant, HRD) is a non-profit organization located in Belgium, which represents the Antwerp diamond trade. The HRD Certificates Department was founded in 1976 to meet an increased demand for quality diamond certificates. These certificates confirm authenticity and describe its characteristics (color, cut, clarity, and carat). It is one of the largest certification labs in the world. The HRD received backlash in the 1990s because of its policies regarding how it figured the diamonds’ province and origin. An excerpt from Blood Diamonds describes this problem:

Its apparently no big deal to show up in Antwerp with a box of rough and proclaim that its from anywhere you can think of because it will be duly recorded as an import, even if it exceeds the known annual output of the originating country.

Such obvious anomalies are the result of the Diamond High Council’s lenient Import requirements that importers list only the diamonds’ country of “province”, that is, where they were last located before entering Belgium. That’s why the Swiss can claim that 97 percent of their imported stones are “British”, and the British can claim, if those same stones are shipped back to them, that 97 percent of theirs are “Swiss”. This brazenly dishonest shell game is simply a way to launder licit diamonds and render them acceptable to the industry.

At the end of the 1990s, the Diamond High Council took steps to correct this weakness and provide some transparency to the process by requiring that importers list both a diamond’s province as well as its origin, the place where it was mined. This turned out to be a laughable failure, however. When a UN panel of experts reviewed import licenses for one company shuttling goods between Liberia and Belgium, they discovered that “diamonds far in excess of the quality or quantity available in Liberia had been imported as Liberian in province and in origin” (original emphasis). (Campbell 124)

The Kimberly Process Certification Scheme, (KPCS) was established in January 2003. According to its website the KPCS “is an international cooperative monitoring system created by joint governments, industry and civil society to eliminate the flow of “conflict diamonds” which “imposes extensive requirements on its members to enable them to certify shipments of rough diamonds as ‘conflict-free’”. The way the KPCS aims to do this is by “imposing extensive requirements on its members to enable them to certify shipments of rough diamonds as ‘conflict-free’”. (KP) However the KPCS has had the same loopholes as the HRD. How can anyone certify a diamond as “conflict free”?

The only way for a diamond to be truly conflict free is if the mine from which it came from is owned by a legitimate government or company. After pressure from Global Witness, in 2000 De Beers stopped buying diamonds from outside dealers. Now, De Beers only sells diamonds from its own mines so the company can guarantee that its diamonds are 100% conflict free. De Beers’ diamonds account for around 35 – 40% of the world’s supply of rough diamonds.

In 1967, a year after Botswana gained its independence from Britain, a diamond mine was found by De Beers in Orapa. From the start, De Beers entered into a 50-50 joint venture with the government of Botswana, and about 10 years ago it sold the government a 15 percent stake in the company. At the time when the mine was discovered Botswana’s per capita income was about $80 a year. As of 2010, that number was $13,100. According to the World Factbook, two major investment services rank Botswana as the best credit risk in Africa.

A majority of the executives in the joint venture are black Africans, trained by De Beers. In March of 2008, the company opened the largest, most technologically advanced diamond sorting complex in the world in Botswana’s capital city Gaborone. It employs 600 local people. De Beers has built roads, hospitals, and schools in Botswana. The prevalence of HIV and AIDS is second highest in the world, so De Beers has launched HIV/AIDS treatment and awareness programs. The transformation of the social/economic/political culture in Botswana is nothing short of a miracle. However this transformation was possible because of the cooperation between the government of Botswana and De Beers.

Notes

1)    I have tried to find out exactly what percentage of diamonds in the consumer market are blood diamonds however my research proved inconclusive. Global Witness has reported that about 20% of the consumer market contains blood diamonds, and diamondfacts.org has reported that less than 1% of the consumer market contains blood diamonds. My only guess to why these numbers vary greatly is probably where (geographically) they are sampled from. China doesn’t regulate their diamond industry, while the US and members of the EU does. China is also the second largest diamond consumer after the US.

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