In geology, diamonds are pieces of carbon crystals that were squeezed for eons, deep inside the earth's crust, and then pushed toward the surface by volcanic eruptions. But diamonds are more — they're symbols of devotion, fidelity and wealth. Diamonds used to be extremely rare. That's why they were the prized property of kings, queens and conquerors. But all that changed in the late 1800s when prospectors found huge diamond deposits in southern Africa.
Since then, one company has controlled almost all the diamonds on the planet — the De Beers Corporation, founded in South Africa by Cecil Rhodes. But the De Beers people haven't mined only diamonds; they've mined the American psyche to create a marketing juggernaut.
This is the story of the most enduring cartel in modern history.
Early Empire
On a recent morning in New York City, Tiffany and Co. held a breakfast extravaganza at its premier emporium on 5th Avenue and 57th Street. Tuxedo-clad waiters carried platters of champagne, a jazz combo played cool, quiet sounds, all a backdrop for stunning models who glittered with mesh filigrees of diamonds. With price tags soaring to nearly half a million dollars, the jewelry was part of Tiffany's new collection, called "Lace."
Outrageously expensive diamonds like these are a Tiffany hallmark — but their full pedigree leads far away to the mines of southern Africa. Tiffany's icon, a 128-carat, canary-yellow diamond called simply The Tiffany, was discovered in the 1870s at the Kimberley mine in South Africa. The diamond-encrusted mines at Kimberly became known as kimberlites. And their discovery set in motion huge mining operations that continue to this day, offering the once-rare gem to millions upon millions of ordinary consumers.
"The first effect of discovering kimberlites was that it converted diamonds from a rare gem to an industrial product like copper or any other product that you can mine," said writer Edward Jay Epstein, whose 1982 book The Diamond Invention cast a sharp light on the diamond trade.
Epstein says the discovery of kimberlite mines touched off a frenzy that propelled thousands of prospectors into fierce competition. And when the kimberlite gems hit western markets in the late 1800s, diamond prices plummeted from 500 dollars to ten cents a carat.
At that stage, a young man named Cecil Rhodes, who would later help build British colonial Africa, saw an opportunity. "Rhodes saw that if all the miners put their shares together and formed one company there wouldn't be the kind of competition that was causing the leaks or the price falling," Epstein said.
With diamonds increasingly abundant, Cecil Rhodes founded the De Beers Mining Company as a group — or cartel — of diamond producers. The first aim of the cartel was to control production — if too many diamonds hit the market, prices would again plummet. By rewriting the equation between supply and demand, and calibrating that equation itself, De Beers became the most successful cartel of the 20th century.
By 1900, after knocking out competitors and buying up surplus, De Beers controlled an estimated 90 percent of the world's supply of uncut or rough diamonds. It was a fierce juggernaut.
"It was a ruthless, autocratic, dictatorial and in every way, a non free-trade kind of system," says Matthew Hart, a Canadian mining expert and author of Diamond: A Journey to the Heart of an Obsession. "But the actual material, the mystique, the gem let's say, thrived under the De Beers system. It did very well and held its value. And because De Beers controlled the supply, the illusion of the value of diamonds was sustained." Hart said that De Beers first courted colonial rulers and then their African successors. Gun-toting mercenaries defended its empire.
'A Diamond is Forever'
To truly exploit the growing diamond empire, De Beers needed to stoke demand, especially in its biggest market, the U.S. In 1929, the Oppenheimer family, owners of the Anglo American Corporation, seized control of De Beers. It was a critical time. America was entering a depression, and diamond prices were sinking. De Beers' new owners embraced the masters of myth, and hired the N.W. Ayer Advertising Agency to transform the public imagination about the diamond. To do that, the company hired psychologists to burrow into American buying habits. And it hired the most visionary artists in the world to help.
At the office of N.W. Ayer in New York City, company archivist Howard Davis showed original art produced by Picasso, Salvador Dali and others for the De Beers account.
"What the ads really did was concentrate on a combination of emotion and status," said Davis. "Early on they told us it would be a good idea to make a statement about what a young man should do for his fiancée in the way of a diamond ring. The idea that they were trying to get across was that if you loved her enough, you're going to spend a months pay on it (the diamond ring)…I guess it worked quite well…"
It did work quite well, but the best was yet to come. In 1947, a maiden lady copywriter at N.W. Ayer, Frances Gerety, created the most durable advertising slogan in history: A diamond is forever. According to Howard Davis, Gerety coined the line after her nightly prayers, when she was awakened by a flash of inspiration. Within three years of creating the 'diamonds are forever' slogan, an estimated 80 percent of wedding engagements in America were consecrated with diamond rings. Gerety herself never wed, but she had wed a concept to diamonds.
"The true genius of De Beers," said Matthew Hart, "lies in having created a connection, and sustaining in the popular imagination a connection between something that has no value at all. You can't eat it, you can't drive it home, you can't make clothes out of it, you can't build houses out of it, and creating a connection between that valueless item and something that is extremely valuable, which is human love. They created that connection — they made it up — and they've sustained it."
But advertising was only one ally in De Beers' transformation of the American consumer's imagination. Another was Hollywood. Beginning in the 1930s, De Beers set out to exploit the new medium of motion pictures by getting directors and screenwriters to insert scenes into films that captured the romance of diamonds, according to company documents cited by writer Edward Jay Epstein. In addition, De Beers and N.W. Ayer encouraged jewelers to distribute diamonds to top Hollywood stars for public appearances, according to Epstein.
Reportedly, one N.W. Ayer memo from the early 1940s stated "We spread the word of diamonds worn by (film) stars….women who can make the grocer's wife and the mechanic's wife say.. I wish I had what she has." Today we call that: product placement.
The movies successfully linked female power and sexuality with diamonds, according to Maura Spiegel, a professor of literature and film at Columbia University.
"Diamonds had a special value, in part because if you wanted a piece of the glamour that you saw in the movies you couldn't buy a miniature mink coat or a piece of a Rolls Royce but you could buy a little tiny diamond or a ring with diamond chips in it and you had the real thing," Spiegel said.
17 Charterhouse Street
Each month, hundreds of millions of dollars in diamonds pass through De Beers London headquarters. No sign identifies the building on Charterhouse Street. Secrecy is its hallmark. It is said that hidden among the bricks are cameras that cover every inch of space, powerful enough to capture the color of a person's eyes. And there is good reason for this elaborate security. Inside, the company's vaults have housed as much as five billion dollars in diamonds in recent years.
"De Beers has operations in South Africa, Namibia and Botswana," company spokesman Andrew Lamont said. "De Beers also has contracts with other major producers like Russia, the second largest producer in the world, and has a contract to buy a portion of the Canadian diamonds. They are brought to London and put into about 16,000 different categories.
Critics contend that De Beers is also successful because behind the scenes it operates with ruthless precision, choking supplies and manipulating prices through the events it calls "sights". Every five weeks, 125 manufacturers and dealers — called "sightholders" in De Beers parlance — flock like swallows to the company's London headquarters for these private sales. They represent an elite group hand selected by De Beers to buy the cartel's rough diamonds.
"You can imagine this is like a sort of mini-United Nations every five weeks," De Beers' Andrew Lamont said. "People (come) from all over the world. These are the leading diamantaires meeting with each other, discussing trade, the state of the market and that's what makes it so unique and effective."
If this sounds like an ordinary business deal, it's not. The men who come to these De Beers diamond sights are seeing the diamonds for the first time — even though they'll spend half a billion dollars, prices agreed on in advance by De Beers.
Author Matthew Hart said the sights are one of many extraordinary power games De Beers plays with its own clients.
" These people, extremely rich and powerful men in their own right, are herded around like cattle," said Hart. "The De Beers porters lead them into these extremely plain, unremarkable looking rooms and they open up these attaché cases and there are bags of diamonds inside and they are laid out and that's the first look they get at them…Can you imagine a group of businessmen arriving anywhere to buy 500 million dollars worth of a product without knowing exactly what they're going to get for their money? It's completely insane."
Monopoly
The sightholder transactions have piqued the curiosity of the U.S. Department of Justice, which has a long running investigation of the De Beers company. In 1994, the Department of Justice charged De Beers in a price fixing scheme. The company failed to turn up in court, which is why you'll never see a De Beers executive sipping cognac at the Plaza Hotel in New York City, or anywhere else in the United States.
Andrew Lamont admitted that De Beers problems with the United States are painfully real. "I'm certainly not senior enough to get arrested but I do know that none of us can go to America if it's to do with business," Lamont said.
For the record, Andrew Lamont rejected the price-fixing allegations. He said De Beers controls its diamond supplies much like IBM manages its computer inventories by putting them on the market as demand ebbs and flows.
But the central questions remain. Are diamonds rare? Or are their prices hideously inflated? De Beers officials are unresponsive on these points. They will speak of how the company has "democratized" diamonds by offering them to millions of ordinary consumers.
Author Matthew Hart said that today diamonds plainly are not rare, especially consumer quality gems commonly used for engagement rings.
"There is a large supply of diamonds," Hart said. "In fact there is more than 100 million carats a year of diamonds that come out of the ground. That might be as many as 800 million separate stones. That's not to say they're not hard to find and it doesn't cost a lot of money to find them, because it does."
Many of those diamonds are in places like Russia, Australia and Canada, countries outside the grip of the cartel. But so far, none of these players is challenging the prices artificially set by De Beers. And why should they, if they too can benefit?
Conflict Diamonds in West Africa
by Deborah George
For roughly one thousand years, people thought that the gods had created diamonds only in India. But then they found them in Brazil; and in 1867, a boy named Erasmus Jackobs stumbled across a diamond on his father's farm in what would eventually become South Africa. The land was rich with diamond stones and the modern diamond rush began.
Today, miners scrape, dig and blast the earth to find diamonds on every continent except Europe and Antarctica ... But Africa is still one of the centers. And its gems have been a blessing and a curse.
Consider the nation of Sierra Leone, in West Africa. They have a bounty of diamonds. And they're at the heart of a civil war: over the last decade, the various factions have killed at least 75,000 people, and they've maimed and crippled thousands more. The fighting has driven millions of citizens from their homes.
Earlier this year, the warring sides began to negotiate peace. But the main rebel group, the Revolutionary United Front (RUF), refuses to give up control over their most valuable weapon: they run the country's richest diamond mines.
Sierra Leone is blessed with fertile soil…but its chief crop isn't cassava or groundnuts. Millions of years ago, deposits of compressed carbon formed here — miles beneath the earth. Then, subterranean volcanoes erupted, shooting diamonds to the surface. Today, you can find them sprinkled in the sand and gravel of Sierra Leone's alluvial plains.
On a hot and humid afternoon, a canoe dug out of a hollow tree trunk floats in the Sewa River. A rusty generator hums on the bank. And, unseen, below the surface, a man stands on the river bottom — scraping gravel into a bucket.
The humming generator is the machine that gives him air to breathe.
Sensei Condo says that the man beneath the river is a diamond miner like himself. He explains, "The machine has an airline directly into the river. He breathes just the way I am breathing, sitting in the river."
The man scrapes the river gravel into a bucket attached to a rope, which he pulls on twice when he wants it lifted out.
Sierra Leone has thousands of subsistence miners like these men, scraping a living out of the ground. But for years, diamonds mined by the rebels have made the really big money — an estimated 250 to 300 million dollars a year. That money has brought war and mayhem instead of development.
The Beginning of the Diamond Chain
The roads in Sierra Leone tell the story. There, the beginning of the diamond chain is also the best-paved stretch of road in the whole country. It runs between the towns of Bo and Kenema, in the heart of the country's eastern diamond fields. On Fridays and Saturdays, miners crowd into both towns to pick up supplies and negotiate with the dealers who are the next link in the diamond chain.
An American RadioWorks correspondent met with Rodney Michaels, one of those dealers. Rodney is Lebanese, like most of the diamond dealers in Sierra Leone. His great grandparents came here in the 1800s. He operates out of a tiny storefront. In his backroom office, there's an ancient air conditioner held together with duct tape and a fluorescent light pulled down low over a wooden table.
This afternoon, three men have brought in a diamond wrapped in a piece of paper. They put it on the table. Rodney takes out his glass, examines the stone and says "four — eight for me."
What he means is that for this large stone — 3.7 carats — he will offer them $4,800 U.S. dollars. It may seem like a lot but at this stage of the diamond chain, a dozen or so people will take a cut — even the paramount chief of the region.
At first, the men seem angry with Rodney's offer. One says, "I no like you!" Another has tears in his eyes. But finally, they shrug their shoulders, laugh, and accept the offer.
But the deal isn't done. Rodney says he won't buy the diamond unless they get a mining license. So they go, probably to find a miner with a license who will go in with them — for a cut, of course. These men could be rebels but according to Rodney, RUF fighters are laying low these days.
"It's a very delicate situation and you have to be careful what you say. There was a time when the peace pact was signed, the rebels were allowed to come in and sell. But now," says Rodney, "you cannot buy a diamond from someone if they don't have mining license. They need documents. The rebels are not coming to Bo and Kenema and selling their diamonds. And even if they are it will be the very smallest goods. All the big diamonds are taken to Liberia and then god only knows."
According to United Nations (UN) reports, Liberia has been the main transit point for the rebel diamonds. It's easy to figure out, experts say, since Liberia produces almost no diamonds. Watchdog groups assert that until 1998, Liberia exported six million carats a year.
Sierra Leone's Children
Some of the most intriguing information about how the rebels get their diamonds out of the country comes from Sierra Leone's children.
Near the town of Bo, there is a camp for children who have escaped from the rebels or have been released. The R.U.F. abducted thousands of children during the war. They turned most into soldiers, some they use for sex. Others slave in the diamond mines of the Kono district…. where the biggest and most valuable stones are found. The rebels have held this area since 1997.
A young woman introduces herself in Krio, an English-based Creole. "My name Jenna Sandy, 18 years old."
Jenna Sandy was abducted as a child and spent years with the rebels. She finally escaped and made her way back home. She says besides their own mines, the rebels often sweep down on subsistence miners and rob them. And, she says she often saw visitors who arrived in small planes to do business with the rebels.
"The rebels used to say they were giving the diamonds to Poppy. Poppy is the rebel leader, Foday Sankoh," says Jenna. "So when they gather these diamonds, white people come with Poppy and in exchange, they give them food items or ammunition."
Now, the rebel leader Foday Sankoh sits in prison in the capital, Freetown. He was captured last year. And the government is trying to staunch the flow of blood diamonds with computers and sealing wax.
Every diamond that leaves the country is supposed to come through the Government Gold and Diamond Office in Freetown. It is located just behind the Bank of Sierra Leone in two cramped rooms with a few odds and ends of furniture.
Exporters come in to the Government Gold and Diamond Office with diamonds they've bought from dealers. The two men who evaluate them are Lawrence Ndoga Meyer, the director of the office; and Lemple Michel, an Israeli dealer who represents the Diamond High Council in Antwerp. Both men say they can spot possible rebel diamonds just by looking.
Michel says, "There are certain areas, you can identify from where it comes. By the quality..."
"By certain peculiarities in the diamond you can easily identify (them)." Meyers interjects, "You have an area called Pujehun — the diamonds are smooth, oily and they are shiny. In Tongo field, a rebel held area, diamonds are crinkly, they are cleaved looking. In Kono, they are smooth, good looking, good shapes, very nice colors. They fetch a premium when they go outside on the open market."
Once the diamond is examined, it's weighed, photographed, packaged in clear plastic, sealed and assigned a random number to foil would-be counterfeiters.
The information is sent to Antwerp by computer. But what happens before a diamond gets to this office in Freetown is anybody's guess. There are weak links all along the diamond chain. Out in the bush, the mines inspectors say if they get a tip-off about illegal diamonds, they get on their bicycles or take public transportation. By the time they get to the spot… the men with the diamonds are long gone.
In July, the rebels signed an accord with the government. As part of the peace deal, they promised to stop mining and give up control of the Kono area. But Ian Smillie, a Canadian who served on the UN panel investigating conflict diamonds in West Africa, says the RUF has used previous cease-fires to prepare for more war. His group has visited rebel held areas. He says the diamond digging is going on at an even faster pace today than ever.
Smillie says that since there is a peace agreement the RUF aren't being harassed by anybody. "In fact," he says, "UNAMSIL, the UN peacekeepers are patrolling the area to make sure there isn't any fighting. They don't have the mandate to stop diamond mining, so in effect basically what we've done in helping to create a 'peace' in Sierra Leone, and I put peace in quotation marks, its given the RUF the time, the space, the ability, to dig in a way they couldn't over the past five years."
And, he says, blood diamonds are moving easily across the border in all directions.
"You can take them to Guinea," says Smillie, "you can take them to Liberia, you can take them straight to Antwerp if there was a plane going that way."
At the tiny airstrip at Freetown, passengers coming from the diamond fields line up and one by one are led into a room for a pat down. It's not a very serious attempt. Leaving the country, there's even less security. A passenger without the required police clearance gets a polite request for a bribe. Any of these people could be hiding diamonds in their shoes or watchbands. And so this is how a handful of tiny rough stones begin a chain of greed, hope and desire that will extend around the world.
Weak Links Along the Diamond Chain
Every diamond that leaves the country is supposed to come through the Government Gold and Diamond Office in Freetown. It is located just behind the Bank of Sierra Leone in two cramped rooms with a few odds and ends of furniture.
Exporters come in to the Government Gold and Diamond Office with diamonds they've bought from dealers. The two men who evaluate them are Lawrence Ndoga Meyer, the director of the office; and Lemple Michel, an Israeli dealer who represents the Diamond High Council in Antwerp. Both men say they can spot possible rebel diamonds just by looking.
Michel says, "There are certain areas, you can identify from where it comes. By the quality..."
"By certain peculiarities in the diamond you can easily identify (them)." Meyers interjects, "You have an area called Pujehun — the diamonds are smooth, oily and they are shiny. In Tongo field, a rebel held area, diamonds are crinkly, they are cleaved looking. In Kono, they are smooth, good looking, good shapes, very nice colors. They fetch a premium when they go outside on the open market."
Once the diamond is examined, it's weighed, photographed, packaged in clear plastic, sealed and assigned a random number to foil would-be counterfeiters.
The information is sent to Antwerp by computer. But what happens before a diamond gets to this office in Freetown is anybody's guess. There are weak links all along the diamond chain. Out in the bush, the mines inspectors say if they get a tip-off about illegal diamonds, they get on their bicycles or take public transportation. By the time they get to the spot… the men with the diamonds are long gone.
In July, the rebels signed an accord with the government. As part of the peace deal, they promised to stop mining and give up control of the Kono area. But Ian Smillie, a Canadian who served on the UN panel investigating conflict diamonds in West Africa, says the RUF has used previous cease-fires to prepare for more war. His group has visited rebel held areas. He says the diamond digging is going on at an even faster pace today than ever.
Smillie says that since there is a peace agreement the RUF aren't being harassed by anybody. "In fact," he says, "UNAMSIL, the UN peacekeepers are patrolling the area to make sure there isn't any fighting. They don't have the mandate to stop diamond mining, so in effect basically what we've done in helping to create a 'peace' in Sierra Leone, and I put peace in quotation marks, its given the RUF the time, the space, the ability, to dig in a way they couldn't over the past five years."
And, he says, blood diamonds are moving easily across the border in all directions.
"You can take them to Guinea," says Smillie, "you can take them to Liberia, you can take them straight to Antwerp if there was a plane going that way."
At the tiny airstrip at Freetown, passengers coming from the diamond fields line up and one by one are led into a room for a pat down. It's not a very serious attempt. Leaving the country, there's even less security. A passenger without the required police clearance gets a polite request for a bribe. Any of these people could be hiding diamonds in their shoes or watchbands. And so this is how a handful of tiny rough stones begin a chain of greed, hope and desire that will extend around the world.
Diamond Trading in Belgium
by Stephen Smith and Sasha Aslanian
Almost all the stones found in Africa's mines and rivers are packed into parcels and shipped thousands of miles north. Uncut, they are known in the business as "rough diamonds." The capital of the rough diamond trade is the port city of Antwerp in Northern Belgium. There, diamond dealers from around the world throng its diamond district to buy and sell.
A vast river of diamonds flows through Antwerp—25 billion dollars worth annually. It's the equivalent of the gross domestic product of Alaska, or enough stones to fill three stretch limos. Some are from legitimate sources, some not so legitimate. Belgian police acknowledge as much as fifty percent of the trade may be on the parallel market. The city is now at the center of the human rights campaign over "conflict diamonds" from Africa.
Walking onto the trading floor in one of Antwerp's rough diamond exchanges is like entering the prism of a diamond. A slanted wall of floor-to-ceiling glass captures north-facing light — the best for viewing gemstones. Traders in dark suits sit at long, narrow tables. Most are men…who look determined, even grim, as they sift through handfuls of stones, inspecting each one with magnifying glasses and punching figures into calculators.
Michael Vaughn, is a British-born diamond broker. He wears a yarmulke and a well-tailored black suit. Standing at respectful distance, he gives a play-by-play of a buyer contemplating a deal:
"Here on the trading floor, you have the client being shown a parcel of diamonds. The first thing he has to decide is whether he needs the item", says Vaughn. "Then the question is 'How much?' Then begins the negotiation. If at a certain stage the prospective dealer or broker feels that he can accept the offer, he will take that parcel, put it in the envelope, seal the envelope, on the seal put his initials, and inside the envelope will be the terms of payment. That is called a cachette. It is the bit in our industry that is holy."
The cachette is holy because the diamond business is traditionally a gentleman's game—a discreet, honor-bound profession. A handshake can secure a deal worth a fortune.
A Portable, Easily Convertible Form of Wealth
Brum Fischler is part of this old school of diamond trading. He's spent six decades in the business and now presides over Antwerp's polished diamond exchange. These trading centers are private clubs, which share membership lists. It's a powerful way to control behavior in the industry, Fischler says. "We have force on people who are members. Expel them. At same moment he is expelled, all the bourses around the world know. The business for these people is out."
For those who play by the rules, the diamond industry is like family. Fischler grew up in the business after losing all his own family in the Holocaust. As a young boy, he migrated to Cuba, started a diamond business there, then fled when the communists took over.
Fischler says the diamond business is different from any other because it was built by refugees. He notes, "With a building you can't go away. With the diamonds you can go away. All my life my parents, my grandparents had to fly away because of pogroms. The diamonds have always saved us. With diamonds you can go away."
Diamonds offered Jewish refugees like Fischler a new life. The stones were a portable, easily convertible form of wealth. But these attributes also make diamonds ideal contraband. They can cross borders undetected and don't have serial numbers. They're perfect for smuggling and money laundering.
In March of 2000, a United Nations' report charged that Antwerp's extremely lax import controls make it easy to smuggle diamonds here…especially conflict diamonds. In the wake of September 11, American investigators are studying the possibility that the terrorist group Al Qaeda bought diamonds from rebels in Sierra Leone and sold them in Belgium to finance their operations. The potential to make and conceal enormous sums of money draws criminals from all over the world into the industry.
How Conflict Diamonds Taint the Market
In a street café in the gangster-filled Yugoslav city of Podgorica, we meet a young diamond smuggler who doesn't want his real name used. Instead, we'll call him Dragan. He has a soft, boyish face, wears a black Versace t-shirt and sips a Coke as he explains how he smuggles diamonds from Sierra Leone into Antwerp:
"When I travel I use a Belgian passport. I fly to Istanbul and from there go to Freetown. In Freetown I go to a hotel that was arranged and meet with the manager who is my contact. He brings the diamonds to me in a room and I inspect them.." Dragan continues, "Then I pack up the diamonds in a soda can with a false bottom or in sandwiches, or in toys that I bring or in false-bottomed suitcases. Then I fly back to Turkey and from there to Belgium. It's all arranged so I can easily pass through customs."
Dragan says he works for a large, well-known, seemingly legitimate diamond firm in Antwerp. He wouldn't say which one. He estimates he that he's made about thirty smuggling runs from Sierra Leone to Antwerp in the past five years. He says he smuggles the stones into Belgium two ways: smaller hauls by airplane, larger quantities by boat:
"These are the large shipments of 200-500 stones. Sometimes we hide the stones in with a cargo of cotton thread. The boxes aren't opened at customs. We bribe the officials."
Once Dragan gets the diamonds to Antwerp, the money flows back to Sierra Leone…. along with guns and grenades.
Dragan explains, "Here's how it works: We pay an arms dealer who then ships weapons to Sierra Leone. I was there two times when we delivered money to a Bulgarian arms dealer. Sometimes we just deposit money into their bank accounts."
In Antwerp's diamond cutting shops, rough diamonds are sliced and burnished into finished gems. If Dragan's blood diamonds are sold to a dealer who mixes them with legitimate diamonds, they vanish into the legal trade. So this is how conflict diamonds—an estimated 4 percent of the business—taint the entire stream.
An International Effort to Block Conflict Diamonds
Leaders at Antwerp's diamond council—basically the diamond chamber of commerce that's known by it's Flemish abbreviation HRD—fear that the controversy over conflict diamonds might spark a consumer boycott of all diamonds. As a result, Belgium has decided to show the world that it recognizes the problem and is responding.
Mark Van Bockstael, Director of International Affairs of the HRD, is trying to prevent conflict diamonds from entering the market in Antwerp and around the world.
Van Bockstael says Belgium has changed its practices and stepped up enforcement since the UN report came out. Diamonds from Sierra Leone and Angola now must have certificates showing they don't come from a war zone. Belgium also publishes data showing where its diamonds come from—something other trading centers in the secretive diamond trade don't do. But Van Bockstael says Belgium can only do so much. So it's backing something called the Kimberley process, an international effort by diamond mining and trading countries to block traffic in conflict diamonds:
"Can we stop conflict diamonds today? The answer is a clear no. We cannot." says Van Bockstael. "The reason that we are working with the Kimberley process is to have the legislation in place to do so."
Their aim is to create an international certification system—a paper trail for all the stones. It's been a slow and complicated process to get more than thirty countries to agree on a plan.
Charmian Gooch is co-director of Global Witness, a humanitarian watchdog group in London. She says the diamond industry—in Antwerp and elsewhere—has been stalling on conflict diamonds:
"The reason that everybody is at Kimberley trying to deal with this problem is because the diamond industry refused to do this. …The point here is that the industry has played a game of saying it welcomes government regulation and is waiting for governments to tell it what to do. Well, that's patently ridiculous," continues Gooch. "The industry should be really moving forward, embracing independent audit to prove to consumers that it is no longer involved in funding conflict."
While the diamonds may allow warring factions to purchase arms, food and supplies, Van Bockstael argues that blaming diamonds for the civil wars in Africa is too simplistic. He notes, "I hope people understand what we are trying to stop with the Kimberley process; this is not necessarily a guarantee that conflicts will be stopped. Diamonds have been unduly identified as the sole part of conflict."
Diamond traders say much the same thing. It's not diamonds that have hacked off children's limbs in Africa. Diamonds, they say, have only brought joy to people.
Antwerp's diamond industry is on the defensive. It can't compete against the cheap labor in Asia's cutting centers…. The luxury goods market is depressed… Americans aren't buying diamonds like they used to. The Japanese market has shriveled. And the issue of blood diamonds threatens to explode again if the international certification system fails.
The Democratic Diamond
By Jacki Lyden and Davar Ardalan
Retail sales of diamond jewelry totaled 56 billion dollars last year worldwide. And nearly half of all the diamond jewelry in the world is sold in the United States.
Of those diamonds destined for the U.S., all but a few of them pass through the Diamond District in New York. This district includes the blocks surrounding 47th Street and Fifth Avenue in Manhattan.
This is not a good time for luxury goods. Demand for luxury goods has plummeted. The images of the 'blood diamond,' ransomed with human lives, have rocked the industry. The De Beers corporation, which used to rule a mighty cartel has been giving up some power, shifting the equation of demand and supply. Industry leaders have been fighting back by doing what they do best, marketing.
Fifth Avenue, with its big diamond-shaped lamps, is where it starts. The diamond district in New York's mid-town is one of the city's most colorful neighborhoods. The insular world still feels like an East European village, yet nearly every diamond sold in America passes through its streets.
The flocks of Hassidic men in flapping black frock coats and black hats push past gawkers in thigh-high skirts. And Hebrew is mingled with Spanish, Japanese, and Urdu.
Joe Schlussel, a Romanian-born dealer elbows his way through the crowd. Schlussel has 40 years in the district and explains his mental map of the district.
"This is the way to go when people talk about the diamond district or 'diamond way' they speak about the streets between 48th and 46th Street between 5th and 6th Avenue," says Schlussel. "There are many levels of the jewelry and diamond trade on this block— right now we are on the bottom — street level where the retailers are — now we call these exchanges, everybody has a booth — more like a bazaar — each has a specialty.
In the bazaar, there are cubicles for the dealers, and in one building is the Gemological Institute, which trains everyone. On the higher floors, there are the diamond dealers, kind of a bourse, or exchange with its own synagogue. It's where, for a token twenty five cents, diamonds are weighed. Dealers can keep climbing higher, in search of the ultimate diamond.
"If you want a real deal, " says Schlussel, "you have to go closer to the source." Schlussel is on the eighth floor, but there are some at a higher level than him.
At the moment, however, things are bad… there've been layoffs and foreclosures in the district. Worldwide, profits are expected to be down by a billion dollars. In India, four hundred thousand of the eight hundred thousand diamond cutters have lost their jobs. The diamond industry is sitting on excess merchandise it can't sell and that the banks effectively own. So the answer is to promote, promote, promote. And just ten blocks uptown, at Tiffany's, that's just what was happening at an event earlier this fall.
Tiffany's is the home of the trademark 'Blue Box.' It was Tiffany's, say its directors, who got American women hooked on the diamond. During its fashion week show, Tiffany's premiered a new line called "lace" designed to showcase the diamond in all its most powerful allure.
"They're beautiful, very modern; I'd want them" says one woman.
Igniting Diamond Desires
From a flagship emporium like Tiffany's, to the backroom mom and pop diamond shops, marketing is the anthem for an industry chorusing that it may loose its edge. When De Beers controlled the most of the worlds diamonds, supply and demand was easily manipulated: De Beers could make diamonds more rare simply by not putting them on the market. At that point, De Beers controlled 80 percent of the diamond supply. Now it controls just 66 percent; and without a powerful cartel controlling the flow, many more diamonds are available.
In an ironic twist of fate, the diamond district's purveyors are being nudged by De Beers into being the promoters of a more freely traded product. These nudges feel like tidal waves, says Rob Bates, who follows diamonds for Cahners publications. To explain: Gucci, a luxury retailer, spends about fifteen percent of its profits on marketing. In comparison, diamond industry spends only one percent.
Bates flipped through a recent issue of JCK, the jewelry magazine and pointed out a recent article on De Beers new 'marketing strategy seminar 101' — Igniting diamond desires.
Explains Bates, "It's basically about the seminars for the sightholders; a lot of these guys aren't marketing-savvy and De Beers is holding seminars for them." Bates acknowledges that while most middlemen in the business spent very little on marketing, De Beers is forcing them to learn how.
De Beers practically invented diamond marketing: a diamond is forever is the most recognized ad slogan line of the 20th century, according to Advertising Age. Ninety percent of all Americans know it.
Yet, right now they're spending millions on a campaign that doesn't even include the De Beers name. It's just like pork — 'the other white meat' or the milk as you see it on mustachioed celebrities. The ad agency J. Walter Thompson is in charge of a De Beers website called AdiamondsIsForever.com. Their site is accessible to anyone who can go on-line; and Senior Account Executive Ann Ritchie hopes that it will be high-end platform. She says you shouldn't have to be a jeweler or a dealer to look at a diamond ring from every angle.
The ADiamondIsForever.com website gets 200,000 visitors a month. Each spends an average of twenty minutes on line. Most of them are in the target market: women, 18 to 34 years old.
Ritchie explains that she's heard women talking about how much they enjoy the Web site, and that they email their friends with engagement ring designs.
But could a diamond by any other name shine more brilliantly? More ardently? De Beers may not be putting its name on diamond products now, but that will change. Branding means associating a diamond with a high-end merchandiser like Givenchy, or Prada, or, how about a De Beers diamond? Gucci spend fifteen percent of its profits on marketing, the diamond industry, one percent.
De Beers wants to exploit the changes in the market from both directions. It will sell its own diamonds directly to the public: industry analysts say that within a year or two, there will be a flagship De Beers store in London.
Andrew Lamont, with De Beers says, "If you look at the watch industry, as an example, people instantly recognize big brands: Rolex, Omega. There's exciting marketing — innovation. These are the sorts of things which help raise the tide to lift the ships."
The Fate of the Middlemen
But New York diamond dealer Joe Schlussel feels like his ship is being sunk. Branding, he says, can't help but negatively impact middleman dealers like him. He has started his own Internet service, but Schlussel sees branding as crass, inimical to decades of cachet and distinction.
"My view is that when you buy a diamond you buy something intrinsically rare. Each diamond, as De Beers used to say, is as individual as your love. Now when you have branding, it means that all of them are practically the same. In other words, when you buy a Gucci bag there may be a thousand of them in the world…My opinion is that when you buy a diamond, there is only one diamond that you and your loved one has, as a common bond forever."
And for the 80 percent of American women who will 'plight their troth' with diamond engagements rings, it is an emotional bond. But, whether that emotional bond extends to the middlemen of the diamond district, its hidden synagogues and diamond clubs, remains to be seen.
Those diamond purveyors who survive, say industry analysts, will be the ones that can 'add value' to their products. In other words, come up with something extra they weren't doing before. You can promote 'Love Equity'…a classic is the anniversary ring with three stones for past, present and future.
Alan Rehs is the son in a small, innovative, mother and son company, which in itself is a rarity. He describes a stone being polished, "With this particular diamond it will be an emerald cut — it's original weight was nine carats; and one part weights 4.9 carats, the other half is 4.2 carats…so it's lost some of it's weight. The leftovers are all over the wall — all this black dirt is diamonds."
Four men sit side by side at polishing machines; the walls are gray with coats of diamond dust. Once, Alan Rehs' time was consumed with buying rough diamonds, now he's a big believer in 'adding value': making finished rings.
As Alan Rehs checks on his polishers, he is doing something else — he is bucking the notion of diamond dealing as patrimony. It used to be a lineage passed from father to son, uncle to nephew. That was before profit margins shrunk by the billions; back when a dealer could walk across the street with a diamond in his pocket and make a two percent markup in five minutes. Alan Rehs is in his 30s, and suddenly, when he looks around, he is the rare young man in this business.
"The reality is that the margins in the business aren't as grand as you'd expect…. I was actually playing golf with an associate in the business and he strictly told me that he would not let his children into this business." Rehs continues, "I don't think there are a lot of young people coming in. I see that a lot of firms are looking to maintain the status quo, and when they retire from the business, I don't see anybody else coming along to keep those businesses continuing. The reality is that the margins in this business aren't as high as people expect."
A Diamond is for Everyone
The pot has a lot of sticky fingers in it, including some who are brand new to the diamond game. What if you are hooked by the diamond desire? More and more, women are buying themselves diamonds — in industry code: self-purchasers. Do you go to the diamond district, Tiffany's, or wait for the De Beers brand? How about DirtcheapDiamonds.com?
Every day and in every way, Jim Schultz is a symbol of what can happen when you broaden the diamonds' appeal. He's a young newcomer with absolutely zero connections to the diamond trade. Dirt-Cheap diamonds deliberately takes diamond mystique and debunks it to nothing but the facts.
"Diamonds are not remotely rare," says Schultz. When I searched the Internet, I would get hundreds or thousands of diamonds. There were a lot of hands that each diamond went through before it got to me. Depending on whether a diamond went through two hands or three hands or twenty hands between De Beers and the retailer seemed to be reflected in the price."
The irony is that as the d in diamond becomes more aligned with the d in demographic, it also stands for discount. For several years now, Costco, the purveyor of all things bought in bulk — from toilet paper to crab legs — has a jewelry bar. We visited a Costco in Sunset Park, Brooklyn, not a tony place.
There, in a Plexiglas case of jewelry in the store's center, twinkling at one end, was the diamond display. Costco's diamonds come with a guarantee: they will be half the price of an appraisal anywhere else, or your money back plus a hundred dollars and the cost of the appraisal. Such competitive pricing shows how much flexibility in the diamond's markup.
We interviewed some of the Costco shoppers, and none of them felt their diamond would mean any less if it came from Costco. Shopper Eileen Morales certainly did not think so, "I came here last week and I was looking at the diamonds…they're pretty good. It's really nice, I like diamonds and have nice diamond earrings on."
Morales said she was surprised to find diamonds at Costco, but when asked if she would think less of her diamond if it came from Costco, she said, "I don't think so. The quality of the diamond is guaranteed; they're really good, and you can tell because if you put your hand over the diamond and the light goes through it and they're good diamonds. that's how you know — that diamonds are forever!"
As a marketing ploy, the slogan still works. But as the markets are profoundly changed from upper class cachet to the dirt-cheaps and bulk stores; perhaps a more apt slogan should be "a diamond is for everyone."
And that is the depressed diamond industry's greatest hope: that we just can't live without those glittering, glamorous gems, however we get our hands on them.
