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?
Next: Part II Conflict Diamonds in West Africa
