Global Policy Forum

By Ken Silverstein *

For much of last year, the diamond industry was rocked by a wave of bad publicity concerning "conflict diamonds"-smuggled gems whose sale allows African governments and rebel groups to finance their wars. In addition to several United Nations reports and hearings in the US Congress on conflict diamonds, the media devoted considerable space to the topic. Particularly damaging was a PrimeTime Live segment that included dramatic footage from Sierra Leone, where rebels known as the Revolutionary United Front-best known for cutting off the limbs of civilians who oppose it-fund themselves primarily through diamond sales. Meanwhile, groups such as Global Witness, World Vision, Physicians for Human Rights and Amnesty International threatened to launch a consumer boycott until the industry changed its buying practices so as to insure that conflict diamonds are eliminated from international markets.

Fearful that diamonds might become to this decade what fur was to the last, industry leaders in the United States (such as Lazare Kaplan International) and abroad (especially De Beers of South Africa) vowed to take action. To address the issue of conflict diamonds-which account for 4 percent of the world's $7-billion-a-year trade according to industry and at least 15 percent according to human rights groups-the companies formed the World Diamond Council last July. The WDC pledged to support the campaign for reform, including efforts to halt imports of conflict diamonds into the critical US market, where about two-thirds of diamonds are sold.

Instead, diamond companies and trade groups have launched a lavishly funded lobbying and public relations campaign aimed at burnishing the industry's reputation while protecting its profits. The centerpiece of the industry effort is a bill called the Conflict Diamonds Act of 2001, which was written by one of the Beltway's most well-connected lobby shops. Representative Tony Hall, an Ohio Democrat who has spoken at rallies against conflict diamonds at jewelry stores in New York City and Chevy Chase, Maryland, calls the act "mushy, fishy and full of loopholes." "The industry is completely untrustworthy," says Hall, who along with Republican Representative Frank Wolf and Democratic Representative Cynthia McKinney has introduced an opposing bill to crack down on conflict diamonds. "The fact that they've hired so many of the top lobbyists in town shows that they don't want any serious legislation to get passed."

During the cold war, dictators and guerrillas in Africa could turn to one of the superpowers for financial support. Now rebel groups need to raise their own money to buy weapons and pay for their wars. In Africa the source of that money is invariably diamonds, which are small, easy to smuggle and hugely lucrative. The three primary sources of conflict diamonds are Angola, Sierra Leone and the Democratic Republic of Congo (formerly Zaire). In the first, Jonas Savimbi's UNITA rebels, supported until the early 1990s by cash and matériel from the CIA, have raised almost $4 billion from diamond sales during the past decade. In Sierra Leone, the Revolutionary United Front has smuggled out at least $630 million in diamonds through Liberia, in exchange for support and weaponry from Charles Taylor, the corrupt warlord who heads that nation. To pay for its war against rebel groups and their foreign allies, the government of the Democratic Republic of Congo formed a diamond joint venture with the armed forces in neighboring Zimbabwe. The combined death toll from fighting in the countries named above is more than 2 million. About a quarter of the casualties are in Angola, where four-fifths of the country's population lives in poverty, average life expectancy is 42 and more than 2 million people are internal refugees.

Countries that launder diamonds smuggled out of war zones also profit from the conflict diamond trade. The big players here, in addition to Liberia, are the Ivory Coast, Guinea, Gambia, Togo, Burkina Faso, Zimbabwe and Ukraine (the last of which is accused by the UN of bartering arms for diamonds from UNITA). Profiting, too, are diamond finishing and polishing centers, notably Belgium and Israel. "Why should Antwerp and Tel Aviv be built on the limbs and backs of Freetown, Luanda and Kinshasa?" Representative McKinney asks.

Of course, the other big beneficiaries of the conflict diamond trade are the corporations that control the industry. De Beers, which buys about two-thirds of the world's diamonds, reported an 83 percent increase in profits for 1999. Though it claims to no longer buy conflict diamonds, just a few years ago De Beers publicly acknowledged-indeed, boasted-that it was purchasing most of UNITA's output in order to prevent a glut on the world market that would drive prices down.

Lazare Kaplan International, America's largest diamond cutter, is headed by Maurice Tempelsman, whose initial foray into diamonds came in Zaire, where he was a close friend of the tyrant Mobutu Sese Seko. In the 1960s Tempelsman hired as his business agent the CIA station chief in Kinshasa, Larry Devlin, who helped put Mobutu in power and afterward served as his personal adviser. Tempelsman is best known as Jackie Onassis's longtime companion, but he's also a prominent player in Washington. He's doled out about $500,000 to the Democratic Party in the past decade, and during the Clinton years he was twice invited to state dinners and was one of a dozen executives who went on the President's 1998 trip to South Africa.

Lazare Kaplan has a long-term agreement to buy $100 million worth of gems per year from ALROSA, the Russian diamond monopoly that is rife with corruption and a fierce opponent of efforts to restrict the trade in conflict diamonds. In the mid-1990s the US Export-Import Bank issued a $62 million loan guarantee to underwrite ALROSA's acquisition of mining equipment from Caterpillar. In March, the Ex-Im confirmed that it has approved a new, $200 million loan guarantee that will benefit Lazare Kaplan's diamond-cutting factories in Russia. In January Lazare Kaplan announced that last year's second-quarter sales of polished diamonds increased by 108 percent.

Retailers such as Cartier and Tiffany are also keenly following the political maneuvering on conflict diamonds. Mustered in the Jewelers of America, they form a potent lobbying force, especially with House Republicans.

When the conflict diamond issue first hit the public's radar screen, the industry argued that there wasn't much it could do because it's almost impossible to determine where a diamond was originally mined. Hence, said the gem companies, any effort to eliminate conflict diamonds would wreck the entire trade, thereby devastating legitimate producers like South Africa, Namibia and Botswana, not to mention thousands of small businesses in the United States and Europe.

Last May, when bad press was starting to take a political toll, a South African initiative brought together governments, industry and critics. What emerged from that meeting, held in the South African city of Kimberley, was a call for a broad system of reform called Rough Controls. Under Rough Controls, diamond-mining countries are to ship stones in tamper-proof containers that will include country-of-origin documentation. All importing countries, including cutting and polishing centers-major ones include Belgium, Israel, Russia and India-will reject stones that can't be certified as coming from countries that have Rough Controls. When the World Diamond Council was founded two months after the Kimberley meeting, it embraced Rough Controls and said that anyone found dealing in conflict diamonds would be permanently banned from the industry.

Buoyed by these shows of good faith, human rights activists and members of Congress sought to put words into action. After months of negotiations with industry representatives, a deal was struck that all the players, including the Clinton Administration, agreed to. Last fall, Hall and his allies attached a rider to an appropriations bill for the Commerce, Justice and State departments that would have prohibited the importation of diamonds from conflict-diamond countries. In the Senate, Judd Gregg, a conservative Republican from New Hampshire-who has compared buying conflict diamonds to purchasing goods made by Nazi Germany-threatened to cut off funding to US Customs if the rider didn't go through with the bill.

Then on December 8, when it appeared that there were no serious obstacles to passage, the World Diamond Council invited activists to a breakfast meeting in Washington and announced that it was withdrawing support for Hall's bill. According to the WDC's executive director, Matthew Runci, the law was badly drafted (this was a surprise, since it was put together by the legislative counsel of the House and was based on a memo from the Jewelers of America) and that industry had therefore decided to write its own legislation. Soon afterward, Hall's rider was stripped from the appropriations bill, which then sailed through Congress. No one knows for sure exactly who did the dirty work, but the move clearly had the blessing of the House Republican leadership.

The WDC recently unveiled its bill-it will likely have been introduced by the time this story goes to press-which was drafted by two lawyers at Akin, Gump, Strauss, Hauer & Feld. Akin, Gump's most notable door openers during the Clinton years were Vernon Jordan and Robert Strauss, but the firm is equally well connected to the GOP. Nine officials from the lobby shop served as members of the Bush Administration's Transition Advisory Teams, including Bill Paxon, the former Congressman from New York, who remains close to the House Republican leadership.

The WDC's bill, the Conflict Diamonds Act of 2001, states that no diamonds are to be imported into the United States from countries that are not on an approved list that the Treasury Department will issue later this year. The problem is that the standards for making the list are incredibly weak. A "cooperating country" is defined by the bill as one that is "negotiating in good faith to develop an acceptable international agreement" or "acting in good faith" to develop a unilateral certification system. "With these flimsy guidelines, virtually any nation can make the [Treasury Department's] good-guy list," says Holly Burkhalter of Physicians for Human Rights, coordinator of the eighty-member coalition working to support the reform movement in Congress.

The WDC's draft bill exempted diamond jewelry from the import ban. Hence, a $20 setting could turn an illegal diamond into a perfectly allowable necklace. In response to criticism from NGOs, Akin, Gump inserted a clause that allows the President to ban jewelry imports if he so chooses. Another section of the WDC bill permits violators of the law to escape prosecution if they import contraband "through inadvertence, or by reason of clerical error or other mistake of fact." "It's a trade lawyer's dream," Deborah DeYoung, an aide to Hall, says scornfully of the WDC's legislation. "It won't cut the flow of conflict diamonds, and there's no incentive for countries to take serious action."

Eli Izhakoff, chairman of the WDC, says that jewelry was exempted because the problem lies with rough stones and that the Akin, Gump bill will insure that only clean diamonds find their way to polishing and finishing centers. "We're looking to make the law efficient and practical," he said by telephone from New York. "If you start making it too costly, it's not going to happen." And why, I asked, did the council draw up its own bill instead of asking for changes to legislation introduced last year that it had pledged to support? "I would rather not have [gone to Akin, Gump]," he says. "It cost a lot of money, and I'm very cheap that way. But this will affect the worldwide industry, and it had to be prepared properly."

Over at Akin, Gump, Warren Connelly, head of the firm's international trade practice group and co-author of the WDC's legislation, says industry is "amenable to discussing" a flat ban on jewelry, but that inserting such a provision is complicated. "We have a concern about how you trace a diamond into a piece of jewelry and putting too heavy a burden on jewelers in enforcing that," he says.

Neither Connelly nor Izhakoff will yet say who the WDC is working with on Capitol Hill, but to make sure that its legislation gets through Congress-and to insure that a new bill introduced by Hall and his allies doesn't-the industry has hired a number of prominent Beltway influence-peddlers. In addition to Akin, Gump, the World Diamond Council is using two big PR firms, Powell Tate-headed by Jody Powell, the former spokesman for President Jimmy Carter, and Sheila Tate, who performed the same job for Nancy Reagan-and Shandwick Associates, a firm that specializes in corporate "grassroots" campaigns. The latter has represented US clients like Monsanto, Ciba-Geigy, Procter & Gamble and Georgia-Pacific. Its clients abroad, according to the newsletter PR Watch, include Timberlands, a New Zealand government-owned logging firm that required help in spinning its pillage of rainforest lands; and Royal Dutch/ Shell, which hired Shandwick to counter protests against its operations in Nigeria, where it has closely collaborated with the military.

And that's just the start of the industry's hiring spree. On the payroll of Lazare Kaplan is Ted Sorensen, a former top adviser to President John F. Kennedy, and Kate McAuliffe, a former aide to House minority leader Richard Gephardt, both from the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison. ("As an active figure in the Democratic Party, he has participated in nine of the last 11 Democratic Party National Conventions andÅ is experienced in the ways of Washington," says the bio of Sorensen on his firm's website.) Tiffany has signed up the blue-chip firm of Cassidy & Associates, which has deployed Christy Evans, previously with the House Republican Conference, and Dan Tate Jr., a former lobbyist for the Clinton White House. The Jewelers of America has turned for help to Haake and Associates, where another revolving-door alumnus, Timothy Haake, is handling the account.

Foreign nations that would be hurt by efforts to ban conflict diamond imports have also shelled out big bucks to fight off tough legislation. Herman Cohen, a Republican foreign policy guru who previously served as Assistant Secretary of State for African Affairs in the first Bush Administration, is lobbying on behalf of the Democratic Republic of Congo and Burkina Faso. Botswana has a good record on conflict diamonds but is nervous about Hall's approach. It has hired Hill and Knowlton to work the Hill, especially the thirty-seven-member Congressional Black Caucus. Even Liberia has bought its own hired gun in the form of Ken Yates of Jefferson Waterman International, a firm whose past clients include Burma's military rulers. (In a bold display of principle, Jefferson Waterman quit when the Burmese fell behind on their payments.)

The industry's phalanx of lobbyists have slowly fanned out across Washington. Before George W. Bush's inauguration, they met with officials at the White House, the State Department and the Treasury Department. To garner further support for the WDC bill, jewelers and jewelry-store owners visited dozens of Congressional offices on February 27, which industry set as the D-day for its lobbying drive.

On the other side, Hall has just reintroduced a version of his bill, which has 107 co-sponsors, including all but seven members of the Black Caucus. It's similar to last year's measure but includes a number of new clauses, including one that bars the Ex-Im from making loans to countries that are not seeking to end the trade in conflict diamonds-what one Congressional staffer dubs the Maurice Tempelsman Memorial Provision. Given the firepower deployed by industry, however, it's not at all clear that the bill can make it through Congress-which from the industry's point of view is almost as good as winning passage of its own bill. "We're going to face a huge uphill battle," Burkhalter concedes. "There's no way to pass tough legislation without industry support, and you don't get that support by holding hands. We need grassroots action."

And as Washington debates the matter and the industry seeks half-measures, warlords and guerrillas ring up millions of dollars a day in the sale of conflict diamonds.

* Ken Silverstein is an investigative reporter based in Washington, DC. Research support was provided by the Investigative Fund of the Nation Institute.