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Monday, May 7, 2001 - Page updated at 12:00 AM

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Defensive over diamonds: Illegal trading and atrocities fuel protests, rattle industry

The Washington Post

In creating product demand, few industries have been as successful as the world diamond business. From a hole in the ground on a farm called De Beers in the South African hinterland in the late 19th century, Cecil Rhodes, the infamous colonial capitalist, founded a diamond empire that would grow into a global cartel controlling mining, distribution and pricing.

Through deft marketing, the De Beers Group created a mystique of rarity and eternity for the diamond and stoked ravenous consumer demand. Launched from Madison Avenue more than 50 years ago, De Beers' "A Diamond Is Forever" ad campaign last year was dubbed the slogan of the century by Advertising Age.

A host of other companies and countries now are in the diamond trade, and their output, along with De Beers', has doubled global-diamond production over the past two decades.

The trade is so successful that U.S. diamond sales reached record levels last year, accounting for more than half of the world's $57.5 billion retail-diamond trade, according to the Jewelers of America, a trade organization.

Now the industry finds itself on the defensive.

Carat, color, clarity and cut, the traditional four C's of judging a diamond, have been joined by a fifth C, conflict. The Campaign to Eliminate Conflict Diamonds, a coalition of human-rights groups, is attempting to rouse grass-roots outrage over diamonds from war zones.

Rebel armies in the African nations of Angola, Congo (formerly Zaire) and Sierra Leone have kept their cause alive by seizing diamond territories, setting up mining operations and trafficking in stones to which they have no legal right.

In Sierra Leone, especially, the diamond trade has fueled extreme brutality from rebels whose signature act of terror against civilians is hacking off limbs.

Easily absorbed into the global-diamond market, the stones traded by these groups are physically indistinguishable from legitimate diamonds and have found their way into jewelry stores the world over, including in the United States.

The numbers of "conflict diamonds" are relatively small: De Beers says they account for 4 percent of the global trade; activists say they represent as much as 15 percent. All sides agree conflict diamonds are an insidious pollutant in the legitimate diamond pipeline.

At stake, says De Beers, is not only the continued health of the diamond industry, but also the economies of such nations as South Africa, Botswana and Namibia, which depend on the legitimate diamond trade, not to mention a host of other mining countries such as Australia, Brazil, Canada and Russia.

While diamond councils, the United Nations and lawmakers around the world attempt to stop the conflict stones from reaching the market, De Beers and others already have begun issuing guarantees that the stones they trade are conflict-free.

In the insular world of diamonds, such guarantees are enough for some. In New York's gaudy Diamond District, William Goldberg, patriarch of a diamond firm that bears his name and specializes in very expensive, large-weight stones, describes it as an industry of honor.

"Man to man, company to company, where a word is honored. Lawyers are hardly ever used," he said one day while touring his cutting floor, a room as solid as a vault, where the polishing wheels worked on Goldberg's latest batch of stones from De Beers.

Goldberg believes De Beers when it says its diamonds are clean. His son, Saul Goldberg, says the conflict-diamond issue is unsettling.

"A lot of retailers are scared about it," he said. Some "have asked us for letters of assurance."

One nervous retailer is Michael Kowalski, chief executive of Tiffany. Human-rights groups have staged informational demonstrations at Tiffany and Cartier shops. Kowalski has been inundated with thousands of letters that began pouring in earlier this year at the prompting of the coalition. He answers each with a form letter bearing his signature.

"The thought that a Tiffany product, no matter how indirectly, could be linked to the horrific events of Sierra Leone absolutely and figuratively makes us lose sleep," Kowalski said in an interview.

"The whole industry is peculiarly vulnerable to public opinion because the stone is absolutely without value but for its sentimental associations, and it doesn't take much to damage the sentimental associations," said Holly Burkhalter of Physicians for Human Rights, one of the groups in the campaign.

Diamonds had become a rebel's best friend - a commodity able to move into the legitimate diamond pipeline undetected. Dealers, ranging from multinationals to individual miners, even smugglers and rebels, send their stones to the world's main cutting centers at New York, Tel Aviv, Bombay and Antwerp, Belgium, where the diamonds are mixed and sorted according to quality, then exported to manufacturers and retailers around the world.

Unless a fraud-proof certificate of origin is slapped on a rough stone from the moment it is extracted from the earth, there is no technology to reliably trace the regional origin of a diamond.

Tiffany, which is a De Beers customer, tells consumers (if they ask) that it is "doing everything feasible to bar conflict diamonds from its inventory," Kowalski said. That means Tiffany is part of the diamond council's attempt to regulate the trade. So far, that has been enough. Tiffany's sales were up 13 percent last year.

De Beers lobbyists and allies swarm Capitol Hill, hoping to shape new diamond legislation. Its marketing arm, London-based Diamond Trading, maintains a public-relations office in New York at J. Walter Thompson, De Beers' ad agency.

Not bad for a firm that remains under U.S. criminal indictment in a 1996 price-fixing case and whose executives do not set foot on U.S. soil for fear of arrest. That's long been De Beers' history: squeezing out of tight spots, confounding critics. (The U.S. Justice Department refused to comment on the status of the De Beers indictment.)

Even during the years of South African apartheid, a system of racial repression from which De Beers benefited greatly because it ensured cheap black labor for the mines, the company staved off threats of international diamond boycotts. And in 1994, when South Africa went democratic, De Beers executives emerged with reputations as white reformers for having spoken out against apartheid.

De Beers manages the potential conflict-diamond crisis in a similar fashion. It has wrapped its anti-conflict-diamonds campaign into a broader corporate overhaul, including a buyout that will take it private, a step intended to make the company more competitive. Although its reach once made it the world's most prominent trader of conflict diamonds, the firm has emerged as the industry's leading proponent of reform.

Led by South Africa, the African governments that mine in conjunction with De Beers created the "Kimberley Process," named for the South African town where De Beers was founded. The Kimberley group, which met in Brussels recently, has proposed a global-diamond regime whereby all rough diamonds would receive certificates of origin from the time they are mined.

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