BNC paper on the Israeli diamond industry by Yasmine Gado
I. Introduction
Israel is one of the world’s leading trading centers in rough and polished diamonds.[1]While historically Israelwas heavily involved in “cutting and polishing”—the process of manufacturing gemstones out of rough diamonds—today it is primarily a trading center that employs less than 3000 people.[2] Thus, while Israel’s gross exports of all diamonds for 2008and 2009 were $19.4 billion and $11.6 billion respectively,[3] representing one third of its total gross exports for those years,[4]net exportsin value of polished diamonds were much smaller at $6.29[5] and $3.92[6]billionrespectively.[7]Israel’s top polished diamond exporter is L.L.D. Diamonds Ltd., owned by Lev Leviev andthe primary destination for Israel’spolished diamond exports is the United States,which consumes half of the world’s retail diamonds by value[8]and where a diamond ring is an integral part of the rite of marriage.[9]The U.S. imports close to fifty percent in value of its diamond supplyfrom Israel,an amountthat accounts for fifty percent in value of Israel’s diamond exports, both as a whole and for polished diamonds separately.[10]
During the 1990’s, the image of diamonds suffered from revelations that brutal civil wars in Africa involving mass killing and maiming of civilians were being financed bythe sale of rough diamonds—or so-called “blood diamonds.”In response, the industry joined forces with state governments and civil society organizations to form a joint initiative known as the Kimberley Process Certification Scheme (KP)[11] which went into effect in 2003. The KP is essentially an import-export certification scheme that requires member states to certify that rough diamonds exported from their territory are conflict-free, which they are entitled to do if they implement certain internal controls and trade only with each other. Conflict diamonds are defined by the KP as rough diamonds used by rebel movements to finance armed conflict aimed at undermining legitimate governments.[12] Although the KP was purportedly established to protect the human rights of civilians, the definition does not extend to human rights abuses committed by member states even if those abuses are financed by their diamond sectors.The KP also does not cover exports of polished diamonds, leaving a gap which allows Israel’s polished diamond exports to be certified despite its government’s commission of serious human rights abuses.
This paper is a study of the Kimberley Processand (a) whether Israel’s diamond industry is compliant under current standards, (b) if so, the type of expansion of the KP that should be advocated to ensure Israel’s human rights abuses are taken into account and what such an advocacy campaign could achieveand (c) alternative legal mechanisms available to target individual Israeli companies or nationals. There is ambiguity regarding the extent to which human rights abuses by member governments can be addressed within the KP framework. NGOs are seeking to clarify that member states are or should be penalized under KP mechanisms for committing human rights abuses in connection with their diamond sectors. However, penalizing Israel for its abuses would require that the KP address any abuses by its members, for example by making compliance with human rights law a precondition of KP membership. A campaign for such an expansion would face enormous obstacles given the KP’s difficulty in enforcing even its current standards, although it would raise awareness about the limitations of the KP and the extent of Israel’s involvement in the diamond industry. Mechanisms outside the KP that may be used to target the Israeli government or private actors for human rights abuses in the supply chain of rough diamonds imported into Israel include judicial remedies, mediation, voluntary mechanisms, and intergovernmental and financial mechanisms; some of these mechanisms are described in Section IV.
II.The Kimberley Process
A. History
Most of the world’s diamonds are mined in Australia, Botswana, Canada, Namibia, Russia, and South Africa—countries that are “peaceful and politically stable.”[13]The focus of the Kimberley Process at its inception was on the rough diamond trade in Sierra Leone, Angola, and the Democratic Republic of the Congo,[14] estimated at 3 to 4 percent of global trade in 2000.[15] During civil wars in those countries in the 1990’s rebel groupsused the proceeds of the sale of rough diamonds to acquire weapons used against civilians, committing large-scale atrocities that caught the world’s attention. Approximately 3.7 million people ultimately lost their lives in thediamond-fueled wars, at least 6.5 million were displaced, and millions suffered displacement and gross human rights abuses.[16]
In January 1998, the London-based NGO Global Witness published a study revealingthatUNITA (the National Union for the Total Independence of Angola)was using the sale of rough diamonds to fund their role in the Angolan conflict.[17]According to the report, UNITA exported rough diamonds by air and through neighboring countries whicheventually made their way into the legitimate trade at major diamond importing centers. The report implicated the industry giant De Beers,whichat the time controlled about 80% of the world’s diamond supply, in buying diamonds from UNITA.
De Beers Consolidated Mines,founded in 1888 by British enterpreneur Cecil Rhodes, built a monopoly on the world’s supply of rough diamonds by marketing diamonds from its own mines, and purchasing rough diamonds from the rest of the market not under its control, which it termed “outside market purchasing”. By stockpiling these diamonds, De Beers was able to create an artificial scarcity[18] that enabled it to manipulate the price of diamonds worldwide.De Beers markets its diamonds through its London-based Diamond Trading Company (formerly named the Central Selling Office) which sells diamonds to a select number of diamond purchasers at dictated prices at “sights” held ten times a year. Unfortunately for De Beers, maintaining its monopoly meant purchasing rough diamonds from any source, including during the 1990’s,UNITA. De Beers did not close its Angolan buying offices until 1999, after the UN Security Council (UNSC) imposed an embargo on diamonds mined by UNITA.[19]In 2000, under continued pressure over the conflict diamond issue, De Beers announced it would abandon its “supply management model,” cease buying on the outside market, and sell only diamonds sourced from its own mines, from its partners in Botswana and Namibia, and from Russia and Canada.[20]
The events in Angolaplayed out similarly in Sierra Leone and DRC (except that no embargo was imposed in DRC).[21] The diamond embargoes were not effectivebecause of the ease of diamond smuggling. Diamonds smuggled out by rebels in all three countries reached the major trading centers through smuggling via the Central African Republic, Rwanda, Guinea, Congo-Brazzaville and South Africa, among others.[22] (Today the only country under a diamond embargo is Cote D’Ivoire, where the rebel group Forces Nouvelles controls mines in the north of the country. Smuggling of ivorian diamonds continues despite the ban through smuggling routes that pass through surrounding countries that are KP members.[23])
In May 2000 officials of Southern African states, NGOs and industry representatives met in Kimberley, South Africa to begin discussions about how to prevent the use of diamond salesto fund armed conflict.[24] In December of that year, the UN General Assembly (UNGA) adopted unanimously a resolution supportingthese efforts.[25]The result, after three years of intensive negotiations among over thirty states, the diamond industry and civil society organizations[26] was a voluntary joint initiative designed to stem the trade in conflict diamonds.
B. The KP Certification Scheme[27]
The KP is an import-export certification scheme that requires participating governments to certify the origin of rough diamonds, and implement internal controls sufficient to ensure that no conflict diamonds enter the global supply chain from their respective territories. KP member states are required to enact domestic legislation to implement the scheme, and may only trade with each other. Membership is voluntary, open to any nation willing and able to fulfill its requirements.
Conflict Diamond Definition
The precise definition of conflict diamonds are “rough diamonds used by rebel movements or their allies to finance conflict aimed at undermining legitimate governments, as described in relevant United Nations Security Council (UNSC) resolutions.”[28]
Certificate
Every export shipment of rough diamonds from a member’s territory must be transported in a tamper and forgery resistant container which also contains a certificatebearing the title “Kimberley Process Certificate” and stating that “the rough diamonds in this shipment have been handled in accordance with the provisions of the Kimberley Process Certification Scheme for rough diamonds.” The certificate must identify exporter and importer and be validated by the local exporting authority, state the country of origin for parcels[29] from the same origin, the name of the issuing authority, date of issuance and expiry, carat weight/mass and value in US dollars,and the number of parcels in the shipment.
Trading Partners and Procedures
Members agree that no shipment of rough diamonds is imported from or exported to a non-member, that shipments of rough diamonds imported from a member contain a duly validated Certificate, that confirmation of receipt is sent promptly to the relevant exporting authority,[30] and that the original certificate is accessible for at least three years.
The KP recommends (but does not require) that all diamond buyers, sellers, exporters, agents and courier companies involved in carrying rough diamonds should be registered and licensed and required for five years to keep daily records of their transactions, listing the names and license numbers of buying or selling clients and the amount and value of diamonds sold, exported or purchased. Other recommendations include physical inspection of packages to ensure they have not been tampered with and the contents conform to the KP certificate; notification of the importing authority of an impending shipment and confirmation of receipt by the importing authority, and declarations by exporters that they are not shipping conflict diamonds.
Internal Controls
Each KP member must design a system of internal controls sufficient to eliminate the presence of conflict diamonds inside its territory. These include laws and administrative processes with penalties for non-complianceand collection and sharing of production, import and export data. More extensive measures are needed in diamond producingcountries especially those (like Sierra Leone, DRC and Angola)that contain extensive “alluvial diamonds”—deposits that are scattered through fields and riverbeds and mined with simple tools, known as artisanal mining. Because artisanal mining can be performed by almost anyone,it is very difficult to control and regulate. (Industrial mining of carrot-shaped vertical mines known as “Kimberlite Pipes” is much easier to regulate).
Monitoring and Review Visits
Members are required to report at annual meetings on how the KP is being implementedwithin their respective jurisdictions, and provide additional information and clarificationupon request. The KP sends a “peer review” mission composed of industry, civil society and government representativesto each member every three years or whenever there are credible indications of significant non-compliance. The results of these missions are confidential. If a compliance or implementation issue arises, all Participants are informed of the concern and discuss how to address it.
Members and Official Observers
While only states are KP members, the KP was not created by treaty and is not a UN institution (although the members sought and received affirmation by both the Security Council and General Assembly while establishing the scheme).[31] Currently, there are 49 members, representing 75 countries (with the EU and its member states representing one participant).[32]
The KP is chaired by member states on an annual rotating basis, but the chair’s role is essentially limited to convening annual plenary meetings. Israelis the current chair. While participation in the KP is voluntary, as a practical matter, since almost all diamondtrading states are KP members participation is mandatory for any state wanting to participate. The price of diamonds exported from a non-member would be dramatically lower than diamonds in the legitimate KP-sanctioned diamond market.[33]
While only states have voting power, industry and civil society play an important role in the KP as official observers. They attend all KP meetings and participate in all working groups and committees.[34] The diamond industry is represented by the World Diamond Council (WDC)[35] and civil society mainly by Global Witness and Partnership Africa Canada, the two NGOs that helped found the scheme and are its chief monitors.
Consensus Voting
All decisions are made by consensus only (except for suspensions or expulsions where the state in question may not vote) giving every member an effective veto.
Statistics
Members are required to provide quarterly aggregate statistics on rough diamond exports and imports; the number of certificates validated for export; imported shipments accompanied by certificates; exports and imports by origin and provenance wherever possible; and rough diamond production by carat weight and by value. Most of this data is confidential; only annual production, export and import data appears are available on the public portion of the KP website.
Industry System of Warranties
The KP covers international shipments only. To complement the KP, the WDC established a system of warranties that applies to all in-country sales. Members are required to state on all invoices for the sale of rough diamonds, polished diamonds, and jewelry containing diamonds: “The diamonds herein invoiced have been purchased from legitimate sources not involved in funding conflict in compliance with United Nations Resolutions. The seller hereby guarantees that these diamonds are conflict free, based on personal knowledge and/or written guarantees provided by the supplier of these diamonds.”[36] (The warranty system has proven to be ineffective; “personal knowledge” is not much of a warranty.[37])
The warranty must accompany all transactions through the supply chain to traders, polishers, dealers, and manufacturers. Member companies agree to independent auditing to verify compliance and adopt a code of conduct, enforced by expulsion, by which they agree to trade only with companies that provide the warranty and not to be involved in the sale or purchase of conflict diamonds.[38]
D. Effectiveness of the KP: Strengths and Weaknesses
In a sense the very existence of the KP is a success given that skeptics had claimed it would be impossible to regulate the diamond industry or track the movement of diamonds across borders. As a collaborative effort involving industry, civil society and states, it is inclusive of all stakeholderseach of whom desire a market free of blood diamonds. (The participation of states and industry appears to be based more onpolitics and profit than altruistic motives.[39])
Member states and industry view the KP as highly successful, citing the reduction of conflict diamonds on the market from between 3 to 4 percentin 2000 to 1 percentor lower today.[40]This reduction is due mainly to the cessation of the civil wars in Africa that inspired the scheme. Other strengths and successes include the peer review system, the significant increase in official diamond revenues in certain producing countries in Africa like Sierra Leone, the public availability of statistics that help identify money laundering through the diamond trade,and the suspension of DRC for non-compliance in 2004.[41]
Despite these achievements, however, the credibility of the KP is at an all-time low. Partnership Africa Canada has declared that “by all indications and from evidence gathered … the Kimberley Process is failing”.[42] Its KP representative and a key architect of the scheme, Ian Smillie, resigned in protest in June 2009 declaring he could no longer “contribute to a pretense that failure is success.”[43] Human Rights Watch statedlast year that the KP had “utterly lost credibility” over its response to human rights abuses in Zimbabwe[44] and Global Witness has even hinted at withdrawing from the scheme also over Zimbabwe.[45]
Among the KP’s failures and shortcomingsare (a) ambiguity as to whether and how to address human rights abuses by member governments (b) consensus voting, which allows any member to block reform, (c) the voluntary nature of the scheme which relies upon the cooperation of corrupt governments, (d) monitoring and enforcement failures due to lack of political will, (e) weak internal controls, (f) the exclusion of cut and polished diamonds from the definition of conflict diamond and (g) weak monitoring of industry.
GovernmentalHuman Rights Abuse
Zimbabwe
Almost all these flaws are reflected in the KP’s handling of actions by its member Zimbabwe where the government has militarizedthe country’s Marange mine fields, considered by some to contain the world’s largest diamond deposits.[46] Over the past three years, police and military stationed in Marange have terrorized diamond diggers and local communities through killings, assaults, rapes, arbitrary detention and forced labor.[47] Miners are divided into syndicates supervised by policewho demand bribes and beat or kill miners outside their control.[48] In autumn 2008, the army launched Operation “You will not return”during which soldiers killed over 200 peoplewith machine guns and helicopter gunships. The military took over the mine fields from the police and continued the forced labor of locals (including children) and beating and killing of independent miners. It is also facilitating illegal smuggling of diamonds through Mozambique(a non-KP participant) and South Africa.[49]