Study: The Global Diamond Supply Chain is Tarnished

conflict diamonds

Companies buying diamonds from the Central African Republic (CAR) are not doing sufficient due diligence to determine who specifically is benefiting from the purchases, according to a new report out last week from Amnesty International. The CAR’s largest traders have been buying diamonds worth several millions of dollars without determining if that money is going to armed groups responsible for the ongoing conflict in the country.

The study, titled “Chains of Abuse: The Global Diamond Supply Chain and the Case of the Central African Republic,” points to gaps in the diamond trade industry that make it possible for foreign companies to obtain conflict diamonds, or blood diamonds, from the CAR. Both Christian or animist anti-balaka and the Muslim Séléka militia groups are profiting from the CAR diamond trade industry, the report said.

The Kimberly Process

The Kimberly Process was established more than 10 years ago to keep conflict diamonds out of the supply chain. But Lucy Graham, legal adviser in Amnesty International’s Business and Human Rights Team, said the Kimberly Process is failing to ensure armed groups are not profiting from the diamond purchases from the CAR. Companies are still struggling to determine if their diamonds are ethically sourced. Additionally, some “key players” in the diamond industry are not addressing human rights violations that occur in the diamond supply chain, the report continues.

Problems in Mineral Supply Chains

Determining products as conflict free is a struggle throughout mineral supply chains. This was demonstrated in another recent report that showed the majority of companies could not determine if their supply chains contained conflict minerals connected to militia groups in the Democratic Republic of the Congo.

Spend Matters covered that report and the challenges it presents to companies sourcing minerals around the world. Spend Matters’ Vice President of Research Thomas Kase weighed in the US federal conflict mineral regulations, calling them “disastrous and counterproductive,” as they end up leading companies to cease doing business with any African country to avoid any chance of sourcing a conflict mineral, cutting off a source of revenue for that country.

We reached out to Thomas again regarding Amnesty International’s new report on the diamond supply chain. Does the Kimberly Process and the challenges associated with sourcing diamonds from CAR cause the same effect as the US conflict mineral regulations and sourcing tin, tungsten, gold and tantalum from the DRC?

Thomas: Let’s take a step back and look at the realities in the regions where diamonds come from. Africa, obviously, but also parts of South America, such as Venezuela, are all locations with highly dubious adherence to any level of transparency and fairly uniformly known to be rife with corruption. That is a big part of the problem with the Kimberly Process, as it is essentially a self-certified process run through a “member’s club” of about 80 countries, where the governments issue certificates. In other words, if the government is corrupt, why would a certificate mean anything?

Note that the trade in diamonds is in rough, uncut, unpolished diamonds – they look more or less like small pieces of gravel. Exceedingly easy to smuggle, extremely hard to trace back to any source. Once cut and polished they can be laser engraved, which is harder to work around.  Leakage and shrinkage in government inventories is legion. Robert Mugabe, the Zimbabwean president, is strongly suspected to have augmented his personal bank accounts with profits from raw diamonds “removed” from the government warehouses.

What we have is first of all a broken process. It is not tied to verification going back to the source, it only depends on a piece of paper – easily forged, too – issued by the government nominally in charge of the area. Second, and perhaps most importantly, the certificated are completely decoupled from how the diamonds are mined – how environmentally

intrusive or damaging the mining process is, how safe the mining process is and what standards are in place to keep workers safe, treated equitably and paid fairly. In a sense, it is quite similar to the fair trade approaches in the coffee industry and other farmed resources, such as exotic lumber.

I think the last part, the missing holistic view, from the source, the local impact, is what fatally breaks the Kimberly Process and turns it into a thinly veneered, feel-good effort that perhaps produces pretty paperwork but no real local results, not where it matters.

What Needs to be Done?

  • The industry as such needs to take charge, adopt a localized approach, adopt a fair trade model and perhaps get some corporate social responsibility (CSR) program ideas from the EcoVadis certification process
  • An industry-wide alliance to lift the image of the industry is in order – luckily there are precious few players in the industry. As a mere five firms (ALROSA, De Beers, Dominion Diamond, Petra Diamonds and Rio Tinto) make up about 85% of world-wide diamond revenues. If these companies decide to change the way they do business, this will turn around quickly.

India has steadily grown stronger in the diamond industry, with more than 60% of the cutting and polishing work being done in there. Jewelry, on the other hand, is dominated by China. Getting these two countries to back radical changes is not an easy feat. It’s probably easier to go after the five firms mentioned above and pressure them into forming an industry alliance to address this issue. Certificates issued like International Organization for Standardization (ISO) certificates, by proven providers like Bureau Veritas, TÜV Rheinland and other certification authorities or registrars, are a lot less prone to adulteration than government-issued documents.

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