RAPAPORT... From both an international and industry perspective, the Kimberley Process (KP) and the Kimberley Process Certification Scheme (KPCS) appear to have been effective tools in eradicating blood diamonds from the trade. That’s the reality on the surface, at least, and it is a very positive reality. But there have been other, adverse effects from KP and they have hit hardest on working-class miners.
CATASTROPHIC CONSEQUENCESOne of the KP’s main negative results has been its impact on small diggers, according to Gregg Hupert of Diamaxx, a former partner in Independent Diamond Valuators (IDV), a company that enforced the KP in the Central African Republic for four years. “Today, they can’t freely dig, sell and transport their production, because they have no access to KP papers, which are too expensive for them,” said Hupert, adding that these small diggers are forced “to sell everything to licensed companies” that have the financial resources to get certification for the diamonds.
“Previously, the diggers would come to Antwerp or other diamond centers, sell their stuff and buy cargos of chickens, onions, tomatoes, second-hand cars, etc., to sell back in their homelands,” explained Hupert. “We’re speaking here of hundreds of thousands of people who depended directly on those independent diggers traveling and buying supplies.”
Hupert said that now, because of KP requirements, “Diamonds continue to travel, but in fraudulent ways. Today,the KP is a totally dysfunctional system. It doesn’t look to me as if NGOs (nongovernmental organizations), or governments, or diamond industry representatives or diamond-producing countries are actually looking for a solution to that problem. Everybody seems to be happy with the status quo.”
One reason for the satisfaction with the status quo is KP’s success with its main goal. A third-year review of KPCS carried out in 2006 concluded that, of the total diamond trade, the estimate of the percentage of conflict diamonds was less than 1 percent. Rahul Khullar of India, current KP chairman, says that “Today, there are reasons to believe that this percentage may have declined further.”
Although the KP was invented to stop the financing of wars with diamonds, and it appears to have been successful on that front, Hupert suggests that its success should be tempered by its negative impact on other areas.
Paul Motmans from SAO, the company that developed DiamCare, a diamond tracking and certification system that competes with the KP, agrees that “Regardless of everything, diamonds are like water. If you attempt to block their flow, they will always find another way of reaching the sea.”
Freddy Hanard, chief executive officer (CEO) of the Antwerp World Diamond Centre (AWDC), points out that “Obviously, no system is perfect. The NGOs worked together with many others in order to come up with a solution that would solve the blood diamonds issue. In doing so, everybody, including the NGOs, was aware that there would be a price to pay. But the counterpart to some of the negative effects is that blood diamonds have been banished from the trade.”
A FISCAL ILLUSION?In the aftermath of the implementation of the KPCS, as might be expected, ways have been devised to get around the intent of the scheme. A common scenario is to pay a bribe to get goods worth, say, $500 to leave an African KP country with a $150 certificate, enabling the exporter to reduce the amount of tax he pays to the exporting country. When the goods reach Dubai, they are officially “re-assorted” without in any way changing their value before being sent on consignment to Antwerp or elsewhere with a certificate for, say, $750. At this destination point, the stones will eventually be sold for more than the dollar value on the certificate.
When subverted in this way, the “inefficiency of the KP serves the interests of those who don’t want to pay taxes in the exporting countries,” says Hupert. In addition “the stones become ‘untouchable’ when they are introduced on consignment from Dubai, thus protecting the seller from Belgian seizures, for example.”
That “protection” is a significant advantage because Antwerp diamantaires currently are embroiled in tense negotiations with judicial and legal authorities over the confiscation and holding of diamond inventories during fraud investigations. This practice basically puts targeted diamantaires out of business for the entire period of the investigation because they have no stock with which to do business.
But it also creates a negative business environment because dealers are reluctant to consign goods to another dealer for fear that their goods could be confiscated if the other dealer is raided. Adding to the turmoil is the fact that it can take months, or even years, for fraud investigations to be completed.
Philip Claes, spokesman of the AWDC, insists “One of our major concerns is the legal aspects of working in Antwerp. Everything is done to work within the legal restrictions since failure to do so is not an option for us.” But Hanard admits that “Having said that, the international competition is a reality and we have to adapt to it. Our only solution is to maintain and develop our own poles of added value” for the diamonds that travel through and trade in Antwerp.
KP EQUALS NATO?There are those in the industry who draw a comparison between NATO and the KP. Now that the Berlin Wall has crumbled and is no more, NATO has become obsolete to some extent. What about the KP? Blood diamonds are now almost gone and related wars appear to have come to an end. “What’s to become of the KP, now that its purpose has been fulfilled?” wonders Motmans.
Both Motmans and Hupert have suggested that now might be a good time to change the KP’s purpose and make it a tool to help producing countries and their governments better monitor their exports. Better monitoring would have the direct effect of increasing the accuracy of shipments’ value — and thus increase the taxes collected on those values. But such a system “would require the whole process to be monitored and enforced by independent bodies and most certainly not by nationals. This won’t happen,” insists Hupert, “simply because too many people are benefiting from the KP inefficiency as it operates now.”
One example: Why is there so much smuggling between Angola and Congo? Because export taxes are 12 percent in Angola and 6 percent in the Congo. Another example: When the United Nations (UN) decided to embargo the Ivory Coast, suppressing its KP privileges and rights, the production and issuance of KP certificates increased miraculously in neighboring Ghana.
“When it became obvious that there was a problem with Ghana,” says Hanard, “the KP authorities sent a commission of experts to make sure things were all right. A special regime was installed for a period of three months, allowing Ghana to proceed with exports only during one week each month. A fraud was detected and Ghanean authorities reacted by improving the control on the pipeline from the mine to the export point.”
Sources from within the KP organization confirm that, even though the special regime was eventually disbanded, a statistic sample visual control is still in effect for Ghana. Images of stone samples being exported are sent by email to the KP Working Group Diamond Experts (WGDE), where gemological analysis of the physical aspects of the rough stones give quite accurate information as to their origins.
Alyson King, European Commission (EC) spokesperson in KP matters, adds “Nowadays, there are hardly any real ‘conflict diamonds,’ but we consider this a cause for celebration rather than disappointment. We are very much conscious of the fragility nonetheless of the situation in many diamond-producing countries and have employed a number of ‘early warning’ and monitoring tools to avoid problems, including satellite monitoring, field missions, etc. The KP is taking measures to address the underlying issues of development. In 2007, for example, we brought development experts to Brussels to inform the KP community about various efforts going on to address property issues in mining communities, along with issues related to child labor, fair trade diamonds, reclamation of mining land to enable crop cultivation, etc. No one would dispute the difficulty in addressing all the labor, social, environmental and fiscal issues involved in small-scale mining, especially as they often occur in fragile states, but we are trying to move things in the right direction.”
Khullar says the KP is already working on the many areas of need cited by Hupert and Motmans, including “increased transparence and accuracy of statistics, internal controls in producer countries as well as trading and manufacturing centers and focused monitoring through annual reports and review visits.”
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We understand and appreciate that there are still many challenges that lie ahead of us,” says Khullar, adding that “We welcome constructive criticism of the KPCS. Over the past five years of its existence, the KPCS has evolved new methods and tools through the combined efforts of its participants. KPCS stresses learning from each other’s best practices, cooperation and information sharing.”
Article from the Rapaport Magazine - August 2008. To subscribe click here.