"Have You Ever Tried to Sell a Diamond?" (February 1982)
An unruly market may undo the work of a giant cartel and of an inspired, decades-long ad campaign. By Edward Jay Epstein.
At a diamond cutter's in Johannesburg not long ago, a touch of the saw very nearly ruined an 8.5-carat stone. "It had a hole in one side and two gletzes on the other," said Derek Henderson, the beefy, laconic Englishman who runs the operation. A gletz is a visible flaw inside a diamond. Henderson gazed at the shattered gem as he continued: "We took a cut through the gletzes and had just started to polish off the hole when another gletz shot through the stone."
Henderson's cutters managed to salvage part of the diamond, keeping their losses under $20,000. But sometimes a gem will burst into powder when a saw hits the skin of a structural flaw—a flaw that may be invisible even through the lens of an ordinary loupe. And that's not the only danger.
"I'd bought a blue, a good sky-blue," a well-known Johannesburg diamond dealer told me. A blue is a "fancy," a category of nonwhite diamond; the more vivid the color, the higher the price. "We started polishing, putting in facets. Suddenly, as the cutter added a facet, the color changed from blue to light blue—from two hundred and sixty thousand dollars a carat to forty thousand dollars a carat." The dealer had been aiming for a four-carat finished stone: in an instant $880,000 evaporated before his eyes. He was lucky, though. "When we put in the next facet, the color jumped right back."
Like the stones themselves, the diamond trade is highly unpredictable. Gemstone diamonds have no intrinsic value; their worth depends on the buyer's act of faith. Keenly aware of this, the diamond world harbors a secret fear that the trade itself might hit some hidden flaw and crumble. Still, so far so good.
Consider this: Two years ago a pair of South African adventurers retrieved a 23-carat intense-pink fancy from the bottom of the Chicapa River, in Angola. They sold it at the diamond bourse in Johannesburg for $4.4 million. The buyers polished it into a 10-carat gem. They reportedly sold it for $9 million to middlemen, who are said to have sold it in turn to the Sultan of Brunei's brother for $20 million—this for a stone the size of a raisin.
Most diamonds come from big recovery plants—places fortified with razor wire, alive with arms, popping with the mechanized jets of air that blast the gems from streams of gravel rattling through the plants. Security is a ceaseless preoccupation: the global output of "rough," as uncut diamonds are called, is worth about $7 billion a year, and "leakage," or theft from the mining process, is relentless. Perhaps this is inevitable—after all, General Motors doesn't have to worry that workers on the production line are swallowing doors, but a 10-carat stone goes down like a pea.
As a result, the diamond trade is awash in contraband. Hundreds of millions of dollars' worth of smuggled diamonds leave Angola every year. Bootlegged goods poured out of Russia, too, until 1997, when De Beers, the world's largest diamond-mining company, forged an agreement whereby Russia sells at least half its production to the London-based Central Selling Organization—some $550 million worth of rough each year. The Russians keep the rest for domestic polishing; naturally, some of this joins the sea of smuggled gems.
Less well known to the outside world, but infamous in the trade, is the steady flow of stolen diamonds from Namaqualand, a sandy slab of South Africa along the Atlantic coast. Namaqualand's pan-hot desert and scraped little hills start north of Cape Town and run up to the Orange River, which forms the Namibian border. The ocean breaks on a forbidding shore. Not much happens in Namaqualand—except for the stealing of diamonds. In Namaqualand, stealing diamonds is the proper work of man.
"God put the diamonds here," says Frikkie Mostert, "and He put nothing else. People here think the diamonds belong to them." Mostert runs a diamond-recovery plant in the village of Port Nolloth for the South African company Trans Hex Group. Port Nolloth is on the Diamond Coast, a four-hundred-mile stretch of beach that begins at the Olifants River and extends into Namibia. If anyone is going to be strapping stolen diamonds to homing pigeons, or pressing them under his fingernails, or strolling through the sorting house in boots whose soles have been impregnated with adhesive, the Diamond Coast is a good place to find him.
Diamonds arrived in Namaqualand millions of years ago, tumbling down the rivers and into the sea. When the ocean receded, some of the diamonds remained on the beach. Others are embedded in gravel on the ocean floor. In short, a great swath of diamonds lies along the coast, and millions of dollars a year pour into the efforts to retrieve them. The area, land and sea, is a grid of mining concessions. At Kleinsee, where the Buffels River meets the ocean, De Beers strips the shore. Alexkor, South Africa's state-owned mine, controls the beach to the north and maintains a flotilla of inshore diamond boats. Ten miles inland Trans Hex combs a long-buried former bed of the Orange River. But across the river, in the southwest corner of Namibia, is the real prize—a 10,140-square-mile tract of land identified on maps as Diamond Area 1. It was once the richest diamond ground on earth and still produces an abundance of high-quality stones. Mining rights to the area belong to Namdeb, a consortium of De Beers and the Namibian government. Namdeb holds a special place in the hearts of those who live in Namaqualand, whose arid landscape it helps to water with the only rain that counts there—stolen diamonds.
Beach mines are a thief's delight. In open pits, by contrast, workers rarely come face-to-face with diamonds: heavy equipment scoops out the ore and feeds it to the plant. But on the beach, diamonds sit on the old seabed. Miners strip away the "overburden," non-diamond-bearing sand and gravel, and sweep the bedrock for gems. Until recently they did the sweeping with whisks. Now Namdeb uses huge vacuum machines instead, to make it more difficult for miners to come into direct contact with diamonds. In addition, the mines offer a bounty for every loose stone turned in. So do illicit diamond buyers in Port Nolloth.
Let's say a miner spots a diamond. He may glance around to make sure that security guards are looking the other way, and press the diamond under his fingernail for later transfer to another receptacle, such as his mouth. In the event that members of the security force have been corrupted (always a possibility), he needn't be that careful. The next step is to get the diamond out of the mining area. In one scheme workers smuggle trussed homing pigeons out to the mining areas in lunch boxes. They fit the birds with harnesses, load them with rough, and set them free. Sometimes the thieves are too ambitious. Security officials at Namdeb caught one thief when they found his pigeon dragging itself along the ground, its harness loaded beyond takeoff capacity.
Another time a thief smuggled in the pieces of a crossbow, later sending a volley of hollow bolts freighted with diamonds arcing over the fence, for retrieval by a confederate. This scheme ended when an unlucky shot fell to earth in front of a security jeep. Diamonds are dropped into the gas tanks of machinery leaving the beach, and inserted into razor cuts in tires; collaborators remove them later. Miners wedge diamonds behind sweatbands, tap them into ears, and insert them in other orifices. At one De Beers mine, security guards caught a thief only because he'd inserted so many gems into his rectum that he was waddling. Diamonds fluoresce under x-rays, and Namdeb uses x-ray scanners on employees leaving the mining area. But as miners well know, the cumulative health hazards posed by x-rays dictate random use. The scanner always makes a noise, but it is not always taking an x-ray. So the miners take their chances, and diamonds slip through.
A good number of the diamonds filched from Alexkor and Namdeb find their way down the coast to Port Nolloth, a hamlet with few visible means of support but with a flourishing population of BMWs. At the north end of town stands a cluster of neat concrete villas, painted ocher or white. Each has a shiny German car or two parked out front. It is common knowledge in the area that illicit diamonds paid for some of these villas. The south end of town is marked by the pier that serves Trans Hex's tiny recovery plant—Frikkie Mostert's plant. The municipal dock nearby makes a stubby L. A small fleet of forty-foot fiberglass boats, called tupperwares, bobs in the shelter of the reef. Most are independently owned, and contract their services to diamond companies.
On the rare days when the wind subsides, crews and divers pile aboard and the tupperwares go rolling out to sea, trailing suction hoses. Reaching their inshore concessions, the boats toss on the swell; divers splash into the frigid water. At a depth of a hundred feet they wrestle steel nozzles into the muck. Larger ships work farther out. Indifferent to the heavy seas, remote-controlled tractors lowered from these ships creep along the ocean floor, harvesting gravel.
Although the fleets contribute stolen rough, Port Nolloth really lives off booty from the beach digs of Alexkor and Namdeb. The industry knows this; the South African police know it. Mostly they live with it, having little choice.
Consider the last raid on the town, four years ago. With a ferocity born of frustration, officers from the diamond branch of the police pounced on Port Nolloth. They focused on the town's Portuguese, who had fled Angola in 1975, at the end of Portuguese rule, and are thought to be particularly active in the illicit diamond trade.
On the day of the raid the diamond branch gathered its forces near Kleinsee. Vehicles full of heavily armed police officers sped north. A helicopter clattered into the air. They all headed for the Portuguese country club, south of Port Nolloth. The club is surrounded by a wall topped with razor wire. The helicopter racketed over the wall and hovered. Combat officers slid down ropes into the green oasis of the grounds and charged the clubhouse.
"They had food," says Derrick Clampett, a seasoned diamond detective who participated in the raid. "They had booze. They were ready for a party. The diamond scales were all set up, there were loupes—the whole business. But there weren't any diamonds. We were a day early. Later we raided a house and found $250,000 in cash."
"Yes," adds Koos Jooste, who heads the diamond branch's Cape Town detachment, "but the possession of money is not illegal in South Africa."
The beaches of Alexkor, the South African state mine, begin only a few miles north of Port Nolloth. By the company's own admission, the mine leaks as much as 30 percent of its goods, amounting to some $15 million worth of diamonds every year—most of it making its way to Port Nolloth. Newspaper reports assert that the losses may in fact be as high as 45 percent. Still, Alexkor is something of a sideshow; for thieves on the Diamond Coast, Namdeb is the main event.
Every year giant bucket-wheel excavators scoop some 33 million tons of overburden from the beach, adding it to the neat range of hills that Namdeb has created along the coast. Every year some 26 million tons of ore, buried eons ago, is dredged up and returned to the light of day. Namdeb feeds the ore to its mill, which crushes, sifts, and washes it, leaving a gravel concentrate. The concentrate is fed onto conveyor belts and bombarded with x-rays; when the fluorescence that indicates the presence of a diamond is detected, jets of air knock the diamond free.
Namdeb's biggest security problem comes from a historical anomaly—the construction of miners' hostels inside the part of the mine site that includes the high-grade beach. A large population of single men with lots of spare time to think up ways to steal diamonds thus permanently occupies the most sensitive area of a famously rich mine. Miners with luggage pass in and out at will. Criminal syndicates, active at mines throughout the region, conduct a brisk bourse inside Namdeb's hostels. Miners receive anywhere from 60 to 80 percent of a diamond's value, adding the sum to their $350-a-month wage. Nor is money the only incentive. Coercion is ubiquitous. "The diamond industry has tended to attract all kinds of unsavory characters, not just to steal but to intimidate people, to introduce a general criminal atmosphere," says Sir Alan Grose, the chief of security for De Beers. "Once that gets in place, it's very hard to eliminate."
Reluctant to offend the Namibian government, Namdeb will not raid the hostels. Political delicacy has also precluded simply closing them: the former guerrillas believed to operate the Namdeb syndicates are veterans of the same organization that now constitutes Namibia's ruling party.
A few years ago Namdeb's beleaguered security force tried a different tack. "They decided to raid the buses," a former De Beers mine executive told me, referring to the vehicles in which miners travel to and from the beach. "The thinking was, if we can't do anything about the hostels, let's stop the buses on the way back. So without warning, security stopped the buses. They didn't find a thing. But a hundred yards back all these tiny parcels littered the road. The miners had chucked them out. Even though the roadblock had been a last-minute operation, word had gotten to the buses in time. That's how completely the syndicates have penetrated security."
De Beers is always trying to improve security, and has developed a low-dose x-ray, called Scannex, a version of which is now being tested at Cape Town's Groote Schuur hospital. If the tests indicate that the dose is safe for daily use, Scannex could close the loophole of random scanning. But the problem of corrupt security is likely to remain. The only real solution would appear to be the removal of the hostels. Unless that happens, Namdeb will stay porous.
"I wouldn't want to put a percentage on our production that goes missing," Sir Alan told me a year ago, "but the larger of the figures you just mentioned is in the ballpark." That figure was 15 percent, the high end of a conservative estimate I'd heard. I had in mind a higher figure. "They'll tell you fifteen percent, but it's more like thirty," a former De Beers executive had warned me. When I tried this higher figure out on Sir Alan, he fixed me with a serene gaze. "I don't think it's ever been much more than thirty percent, honestly."
In 1997, for example, Namdeb collected 786,000 carats from the beach. Offshore its fleet scoured the seabed for another 485,000. Inshore a few tupperwares on commission brought in 135,000 carats more. At, say, $270 a carat (an insider's estimate of Namdeb's price for rough), the reported production adds up to some $380 million. If workers are stealing 30 percent—in other words, if the $380 million represents only 70 percent of Namdeb's real output—then thieves are skimming off some $160 million a year.
The boundaries of Diamond Area 1 exactly match those of the old Sperrgebiet, the "forbidden territory" proclaimed by Namibia's German colonial masters in 1908, after a railway laborer shoveling sand from the tracks stumbled across a diamond. South Africa seized Namibia in 1915. Seventy-five years later the Namibians ousted the South Africans. Four years after that, in 1994, Namdeb was formed. Through it all the borders of the Sperrgebiet have remained unchanged. The enduring sovereignty is the sovereignty of diamonds.
In the diamond trade there are effectively no states. Borders are unable to control the flow of goods. Take Botswana, considered a model of civic decorum, with a reputation for husbanding its diamond revenues to improve the conditions of its people. The Jwaneng mine, a joint venture of De Beers and the Botswana government, produces 12 million carats a year. A game park teeming with zebras surrounds the mine, and the nearby village where the miners and their families live is a little Eden, profoundly unlike the calamitous, violent world of neighboring South Africa. Yet miners steal diamonds here, too; a De Beers executive in the capital, Gaborone, told me that South African syndicates have moved in.
South Africa, of course, has added its own special acid to the corrosion of frontiers. During the country's long civil war the army and the African National Congress thrust back and forth across the region's borders, helping to spread economic mayhem throughout the southern part of the continent. The white government in Pretoria is reported to have authorized military intelligence to engage in the illicit diamond trade, further entrenching the activity.
Diamonds have also fed Angola's long civil war—a war that ended with a peace accord in 1994, but only on paper. The war was reignited late last year by a bloody series of rebel attacks, including one on a remote diamond mine owned by a Vancouver-based company, some of whose directors had clear ties to mercenaries who have acted against the rebels. There are two principal warring factions: the Popular Movement for the Liberation of Angola (MPLA), headed by José Eduardo dos Santos, the country's President, and the Union for the Total Independence of Angola (UNITA), under Jonas Savimbi. The MPLA, which has enjoyed international recognition since 1976, holds the capital, Luanda, and in recent years extended its military reach into regions once controlled by UNITA. In spite of commitments made in 1994, UNITA has refused to relinquish the diamond-rich Cuango Valley and the provinces of Lunda Norte and Lunda Sul, each with valuable diamond fields. The rebels are funded, after all, by the only available asset that meets the dual requirements of portability and easy conversion into cash—diamonds.
"The government has oil, Savimbi has diamonds," says Edgar J. Dosman, a Senior Research Fellow at the Centre for International and Security Studies at York University, in Toronto. In 1996 alone Savimbi ran $700 million in rough out of Angola. Clearly, UNITA cannot afford to abandon the diamond regions.
The government reaps its share of diamonds too. Ministers openly take positions in diamond-mining joint ventures. Elsewhere a joint-venture partner would furnish money or expertise; in Angola he simply arranges permission to mine.
Next door, in the Democratic Republic of the Congo (formerly Zaire), the new President, Laurent Kabila, now battling insurgents, is believed to have funded his own insurgency partly by selling diamond and other mineral rights. The ruler ousted by Kabila, Mobutu Sese Seko, maintained an alliance with Savimbi; Kabila's is with the MPLA. The long-term effects of these shifts in power and allegiance remain to be seen.
Helicoptering up Angola's Chicapa River, I could see the vivid scars of illegal digs—illegal in the eyes of the government, perhaps, but "licensed" by whoever had happened to control the area at the time. The specter rises of a medieval land, a dominion of barons perversely devoted to the sacking of their own domains. In this model the lonely monarch is De Beers, fighting an endless battle for order, at tremendous cost. In a practice known as "mopping up," the company has often tried to buy as many illicit diamonds as it could; the gems, if allowed to flood the open market, could send prices plummeting virtually overnight. Not long ago, De Beers was spending $15 million a week mopping up Angolan diamonds alone.
One winter morning, in the hard sunlight of Namaqualand, I stood staring down into a pit whose dimensions were roughly those of a twenty-story building covering three football fields. It was part of the Trans Hex Baken mine, which produces diamonds worth, on average, $500 a carat. It is hard to find better goods than these. At the bottom of this hole, dug from gravel laid down over 15 million years, is a former riverbed. Sometimes Trans Hex locates the plunge basin of a prehistoric waterfall, where handfuls of diamonds may have accumulated. Recovering them involves a lot of digging: Trans Hex estimates that two truckloads of dirt are removed for every carat that makes its way out of the pit and onto someone's finger.
Across the Orange River morning dumped its bin of light onto Diamond Area 1. I could almost hear the pigeons stirring. Probably the first few stones of the day were already slipping past the fence. And down on the Diamond Coast, in Port Nolloth, someone would be turning the ignition key in his BMW, tossing his loupe onto the dash, and heading off to work.