Kimberley Process: Utopian Mission Languishing

Nearly a decade of debate later, the Kimberley Process (KP), in spite of being initiated by United Nations, backed by powerful governments, championed by industry and influential NGOs, remains a mission in doldrums. It is yet to become the well-oiled and effective mechanism meant to curb the illicit trade in diamonds that fund wars and terror.

In a recent blow to the Kimberley Process, Ian Smillie, conflict diamond expert and key KP architect, declared that the Kimberley Process remained ineffective. He resigned from Partnership Africa Canada, one of the key NGOs in the KP.
In a letter to KP members in June 2009, Ian Smillie stated that “I feel I can no longer in good faith contribute to a pretense that failure is success. When regulators fail to regulate, the systems they were designed to protect collapse.”
The Kimberley Process, flawed as it is, aims to control the production and trade of Conflict Diamonds. The member countries participating in the Kimberley Process Certification System (KPCS), agree to follow KP guidelines and put into place various internal control mechanisms to prevent illicit mining and seal porous borders to prevent diamond smuggling.

India is a part of the Kimberley Process. India had assumed the Chair of the Kimberley Process for the year 2008. India has placed controls to prevent illicit diamond flows at the entry point.
Indian customs will not allow any rough diamond consignment into the country without proper KP certification. Only when there is no certification or if there is any cause for suspicion, then the customs would take up the matter with authorities in the exporting country. But in cases of conflict diamonds that are mixed up with the certified ones, before entering India, the customs can do nothing. There are no external audits on diamond companies.

Anurag Saxena, Director, Department of Commerce, admits that, “the Kimberley Process does not certify diamond dealers. Therefore, reputable businesses should only buy from suppliers that can guarantee that their diamonds are conflict-free.” For other KP issues, there is the Gem & Jewellery Export Promotion Council (GJEPC).

Anurag Saxena adds that the Government of India has designated GJEPC as the importing and exporting authority for India. The system of verification and issuance of KPC is administered from Mumbai and Surat offices of the GJEPC. The Council has recently revamped its procedure for issue and endorsement of KP Certificates through implementation of a new online software that simplifies the process for exporters and importers based in India.
While the GJEPC was not available for comment, diamond companies admit that while India is largely considered safe from conflict diamonds, yet there is always the possibility for certified diamonds getting mixed up with uncertified stones as it is impossible to create records for every certified rough diamond that passes through India.

Anil Shah, partner, Venus Jewels, points out that administratively it is impossible to track each rough diamond or even to differentiate between diamonds in a single parcel received by a diamantaire after being duly cleared by customs following presentation of legitimate Kimberley Process certification. This is because only the total caratage is marked on the parcel containing the diamond roughs, not the caratage of each diamond. Moreover, diamond businesses are traditionally secretive and will not subject themselves to external audits.
The reality of KP as it operates in member countries is far different from design.

Illicit Diamond Trade :

The KP has not been able to control illicit mining and trade in conflict diamonds.
“There are persistent loopholes in the scheme, which for example, have allowed conflict and illicit diamonds to directly enter cutting and polishing centres, circumventing KP controls,” admits Elly Harrowell, Assistant Campaigner, Conflict Resources in Global Witness, the NGO that has actively campaigned against conflict diamonds and instigated the initiation of the KPCS.
Investigations and monitoring of participating countries, done under the Kimberley Process have revealed startling instances of illicit diamond trade among participating countries. A document, titled Loupe Holes, published in November 2008, by the two key KP NGOs, Global Witness and Partnership Africa Canada, points out several flaws in the Kimberley Process.

Some instances of illicit diamond trade :
Democratic Republic of Congo :

Congo has a population of more than one million artisanal diamond diggers of whom there is no proper account. They are not registered with the government. Small time traders buy the diamonds from the diggers either at the mine site or the night time diamond bazaars. No records are maintained and the diamonds finally reach the buyers with a traders license who collects an assortment of diamonds from various sources to assemble a package of diamonds that manages somehow to enter the legitimate diamond trade. The country has made no attempt to count or regulate its population of diamond diggers.

Ivory Coast :
Conflict diamonds mined by rebel groups in the northern part of Ivory Coast were being smuggled into neighbouring West African countries of Guinea, Sierra Leone, Ghana and Liberia. Subsequently in 2005, the United Nations Security Council imposed an embargo on the export of all diamonds from Ivory Coast. However, despite the ban, these conflict diamonds are still being mined in the country and smuggled into international trading centres in KP participant countries and sold on to consumers.

Venezuela :
When Venezuela, a member in the KP, openly flouted the certification system and simply stopped reporting its diamond production and export figures, investigations revealed rampant diamond smuggling. In June 2008, Venezuela suspended itself out of the Kimberley Process. Venezuela is estimated to produce around 200,000 carats of rough diamonds that are being entirely smuggled out through Brazil and Guyana. The country has started to nationalize its diamond mines.

Guinea & Lebanon :
A US state department report to Congress had mentioned that Lebanon was becoming a major transit centre for diamonds reaching Hezbollah, Al Quaida and other terrorist networks in the Middle East. Taking this up, a report in Diamond Intelligence Briefs revealed that huge volumes of grossly undervalued Guinean diamonds were being imported into Lebanon while Lebanon was exporting diamonds valued higher than its imports. Thus, Hezbollah gets smuggled diamonds that, on the way to Lebanon, also get a KP certificate to ease further shipments to KP member countries.

Zimbabwe :
In October 2008, unarmed artisanal diamond diggers were massacred by the Zimbabwe military. Subsequently, the governor of its Reserve Bank revealed that diamonds were being smuggled out of the country.
Following these events and allegations of militarisation of diamond resources, abuse of human rights and illegal diamond mining, trading and rampant smuggling, a Kimberley Process Review team visited Zimbabwe in August 2009. However, no action was taken against Zimbabwe.
The World Federation of Diamond Bourses (WFDB) pushed for the release of the review report. Finally, the report is set to be released in November 2009 when a decision would be taken on Zimbabwe’s membership in the KP organization that will possibly be debarred or suspended until there is complete control over the mining and supply of diamond roughs.

Challenges :

Obviously, the KP has been unable to stop these illicit diamond flows either because the enforcement mechanisms have failed or member countries have indulged and allowed it. Thus, the single major challenge facing the Kimberley Process is to ensure that diamond control systems are effectively implemented and enforced by member countries.
Elly Harrowell identifies the problems that have struck down the Kimberley Process
. “These are;

• Weak implementation of key elements of the KP, such as internal controls, by some participants;

• Lack of decisive action when faced with instances of non-compliance such as Zimbabwe or Venezuela;

• Persistent loopholes in the scheme, which allow conflict and illicit diamonds to directly enter cutting and polishing centres, circumventing KP controls;

• Failure to promptly identify and address statistical anomalies.”

Money Laundering :

Diamonds are small, easily transported and can effortlessly evade border controls. Thus, the world is yet to see the end of diamond smuggling and money laundering whereby illicit diamonds can still enter the legitimate pipeline of certified diamonds. As the KP system functions, it is possible for money laundering to occur as diamond purchases, made from unauthorized traders through cash transactions, can be diverted into the formal pipeline.

Harrowell too admits that the issue of money laundering poses a serious challenge to the diamond industry and Kimberley Process alike. “It underlines the importance of full and thorough implementation of KP requirements: effective internal controls that track diamonds from the mine to export, thorough statistical analysis and reconciliation of KP certificate counts, and swift action to address any anomalies, can go some way to helping curb money laundering activities involving diamonds.”

Israel’s Exceptional Positive Experience :

However, Tel Aviv has a different story. Shmuel Schnitzer, former President of both the World Federation of Diamond Bourses and the Israel Diamond Exchange, and partner in M. Schnitzer & Company informs that the KPCS has in fact helped check money laundering issues. “In Israel, every transaction is registered and the source of the money is being checked by Hoge Raad voor Diamant (HRD), also called the Diamond High Council, the authorized government appointed agency. Also, there are random audits and inspection of records of diamond companies to ensure that KP controls are implemented.”
But political will is necessary for internal controls, Harrowell states that the KP is a government-led rough diamond certification scheme, and therefore member governments must take steps to plug the loopholes and weaknesses that the scheme continues to face.
Agrees Anil Shah “The effective implementation of the Kimberley process depends on the will of the individual participating government and its officers. If the government officers are corrupt, purchases of conflict diamonds can be smoothly diverted into the legitimate diamond pipeline.”
Harrowell also insists that to fulfill the requirements to participate in the Kimberley Process, member governments must put in place a robust system of internal controls over their domestic diamond industry.
“This system should involve strong monitoring of diamond companies operating in their country, including carrying out auditing measures and physical spot checks of the industry. In practice, many KP member governments do not have sufficient supervision over their diamond industries”.

Another inherent challenge in the KP is the impossibility of tracing diamond origins that is virtually guaranteed under the KP System of Warranties. There is no way to prove that diamonds are illicit or conflict free. According to Shah, “It is impossible to trace diamond origins. There is no fully reliable system in place to do so. While it may be possible to suggest where the diamond is not mined, it would be difficult to pinpoint exactly where it was mined. For instance kimberlites run across countries – for 3000 to 5000 miles and it would be difficult to tell apart a diamond mined in Russia from a Canadian diamond. The process is simply not reliable. The scientific method to identify the origin of a diamond rough requires millions of dollars of investment.

According to Ian Smillie, “Scientific experiments to ‘fingerprint’ diamonds are based on trace elements that have not yet advanced to the stage of practical application.”

To make matters worse, while it is difficult to tell the origin of a diamond rough, it is impossible to tell what murky story may lie beyond the beautiful face of a glittering, polished diamond. Therefore KP certification currently applies only to rough diamonds. Therefore if the KP system of warranties is to be implemented in letter and spirit, this would mean that every end consumer of a diamond has the right to request proof that the diamond is not from conflict sources.
However, it is virtually impossible to back-track diamond records, because once rough diamonds are imported into a country, these may be traded, cut and polished and set into jewellery for which a diamond may change hands several times. According to the KP, each time a diamond rough changes hands, it is required to be accompanied by the warranty on invoice stating that the stone is not a conflict diamond.
So, although diamond manufacturers and traders may maintain records for five years, under the KP, “it is difficult, if not impossible to account for each rough diamond.”
As Ian Smillie puts it, “We don't really need the KP for shipments from London to Antwerp or from Tel Aviv to New York, but we are all willing to pay the extra administrative and logistical expenses, because we rely on the KP to act where it really is needed, but in all these instances, the KP has utterly failed.”

Costing :

The KPCS does not have an official Secretariat. It functions through its working groups. Also, there is no central KPCS fund and each member country bears KP expenses. At the inception of KP in 2003, South Africa was the Chair after which it passed on to Canada. When Canada took over the Chair in 2004, it is estimated to have spent something like $250,000 in the process.
Although today, less than 1 per cent of the diamond trade involves conflict diamonds, even this is a huge amount not taking into consideration the human rights angle that was the original imperative to initiate KP.
However, Elly Harrowell is still hopeful. She believes that “the scheme has the potential to be very effective, only if its members muster the political will to effectively use the monitoring and enforcement tools at their disposal, instead of hiding behind procedure and vested interests.”

Facts on Record :

• Diamonds that have been mined by rebel political groups in contravention of laws and breaching basic human rights norms, or been traded to fund wars, insurgency and terrorist activities are called ‘conflict diamonds’ or ‘blood diamonds’.

• The Kimberley Process is a global system to prevent conflict diamonds from entering the legitimate diamond supply chain and thus helping to fund conflict.

• A brutal conflict in Sierra Leone in which diamonds were used to fund the war, turned the spotlight on conflict diamonds in the 1990s. An NGO campaign against conflict diamonds in Angola in late 1998, around the time when the United Nations failed in its purpose and had to withdraw its peacekeeping troops from Angola, suffering under 25 years of civil strife, struck a chord with the UN Security Council that has backed the Kimberley Process dialogue along with governments, industry and NGOs.

• The Kimberley Process was named after the South African mining town of Kimberley, where it was launched in January 2003, at a congregation of representatives from 70 nations, involved in diamond production, processing and trade, who agreed not to deal in rough diamonds that are not accompanied by a certificate of clean origin.

• Today, the KP has 49 members, representing 75 countries, with the European Community and its member States counted as an individual participant.

• The Kimberley Process Certification Scheme (KPCS) prohibits trading in rough diamonds with non-participating countries.

• The KP requires each member country to impose internal controls over production and trade of rough diamonds. For instance, Indian customs will not clear any consignment of diamond roughs that is not accompanied by KP certification. A KP certificate is distinctive to the participating country and has an unique serial number.

• All exports of rough diamonds have to be accompanied by a valid KP certificate stating that diamonds are conflict free.

• According to UN estimates, in the 1990s, at the peak of diamond-fuelled wars in Angola and Sierra Leone, conflict diamonds represented around 15 per cent of world diamond trade amounting to about US $1,000 million. Today, less than 1 per cent of global trade in diamonds involves conflict diamonds.

• Illicit trade in diamonds is estimated around 20 per cent of global trade. This is more worrisome.