History of Diamonds part 3.

One of the really ugly stories that has surfaced in the last few years is in regard to what is known as “conflict diamonds” or “blood diamonds”. These are diamonds that have come from areas where civil wars are being waged to control the diamond resources of producing countries. The really ugly part is that there is such a nasty fight being waged for that control that local citizens are brutalized by the warring factions in order to maintain control of the area.

The brutality of these conflicts, particularly in Angola and Sierra Leone, has left many children without arms and legs…as one of the methods used by the various militias to control the local population is to sever the limbs of many of the locals to instill fear in everyone. The purpose obviously being to control them by fear so the local population will not assist legitimate government actions to control the problem.

There are many who believe that De Beers is complicit in this problem, mainly because for many years no diamond of any size could be bought or sold without De Beers being in control of the pipe line somewhere along the way. Given the De Beers total control of the diamond markets for many years, there was no way the conflict diamonds would find a market without De Beers being willing to buy them.

How much of this is true? There is a lot of speculation that common sense requires to be taken with a degree of credibility. Actual prima facie evidence is missing since most of the conflict diamond dealings are strictly clandestine purchases for which there are no records, and very few witnesses willing (and sometimes able) to talk. So the speculation continues.

One important note: At their greatest level, conflict diamonds are estimated to have included less then 5% of the diamonds on the market, and today account for less than 1% of the diamonds on the market. Meaning the chance of having a conflict diamond would be about 1 in 100. Taking into account the concern for those damaged by that 1%, it would also be wrong to throw out the whole diamond industry because of the bad deeds of a few disruptive factions. In order to protect the integrity of the industry many world governments met and created what is now known as the Kimberley Protocol, whose stated purpose was to help control this situation.

Kimberley Process

The Kimberley Protocol was an agreement by many nations that action was needed to stop the use of diamonds to fund wars and terrorism throughout the world. This protocol gave rise to the Kimberley Process, which are the regulations that have been adopted regarding the sale and distribution of rough diamonds around the world.

The Kimberley Process was implemented in January of 2003, and states that all rough diamonds must come with a certificate of verification, issued by a proper government authority to insure that they are from a non-conflict source. The diamonds must be packed in a specially marked container. All legitimately registered diamond dealers may only do business with other registered diamond dealers, and all must follow the above rules for all diamond shipments sent and received. The idea is that if the diamond industry only buys diamonds from known sources who are selling government approved diamond rough that has been legitimately verified, that the conflict diamond market will fade away.

Well….this looks good on paper, and it plays well in the media. However, many in the diamond industry know that this is going to have little impact on the conflict diamond issue. Currently there is no method available to identify a diamond as being from one source or another…as we can do with rubies, sapphire, etc. Small impurities in colored gemstones allow a certain level of identification as to their source if one has the proper equipment. Not so with diamonds. As of this writing there is no known method of identifying diamonds based on geographical origin. So it would be very easy for just one unscrupulous diamond dealer to do business with the bad guys and create an inroad into the legitimate diamond markets for conflict sellers.

While that scenario is probably closer to the truth than anyone wants to admit, it is still an extremely small part of the overall diamond market. So much so that the efforts to prevent the problem have almost created a situation where the fix is worse than the problem itself.

The compounded problem is that too many activists want to ruin the whole diamond market for the sake of a few problem diamond sources.

The reason is many activists wanting to blame the entire diamond industry for the actions of a few militias in diamond producing countries, which are beyond the control of local governments. Rather than solving the problem of the militias on a military level, all too many people want to blame the diamond industry for the illicit funds received by the conflict sellers, and try to control the problem through the diamond markets rather than through proper governmental and military action.

The end result is that diamonds and the diamond industry are being blamed for actions beyond our control, which should be dealt with by local governments rather than the world diamond industry.

We can only hope that the Kimberley Process will serve its intended purpose at some point in the future. The last chapter of that story is yet to be written, and probably won’t be for some time to come. Right now the Kimberley Process is about as well enforced as the Pirates Code in the Pirates of the Caribbean movie.
The Future of the Diamond Market

The future of the diamond industry is in limbo. While De Beers has controlled distribution and prices for over a century, the fact remains that diamonds are quite plentiful and De Beers is quickly losing that strangle-hold on the markets and prices. Yes, diamond prices continue to hold at fairly average levels, but that is due to a world wide effort to continue the monopolistic pricing structure of the diamond market, thanks in large part to RapNet and Rapaport and their undue influence on world diamond prices. Overall, however, it simply serves every diamond producer’s best interests to abide by the prices originally controlled and set by De Beers in order to maintain some form of market stability. Is that going to last? Only time will tell.

The other problem is compounded by a total lack of uniform standards or oversight of the diamond grading lab industry. The major diamond grading labs, who tout their grading reports as being some kind of certification of diamond quality, operate in a legal void. Total anarchy with no legal standards and no official oversight. As a result we have the GIA diamond graders selling higher grades to big dealers, same thing with the HRD, and a total Wild Wild West show throughout the diamond grading industry world-wide.

If consumers truly understood the anarchy that exists in the diamond grading industry, they would most likely go buy a new car or new 4k Res television.

While diamonds may be forever, as the famous N. W. Ayers advertisement for DeBeers claimed, the diamond markets may not be if things continue in the direction they are going.

Without any uniform standards or oversight regarding the diamond industry, this free-for-all concept running the diamond market may just turn into a free-fall reality for the diamond market. It is a fact that the world diamond industry is in deep, deep trouble.

Only time will tell……

Robert James FGA, GG
President, International School of Gemology Inc.
a 501(c)3 Non-Profit Education Organization

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