Thursday, February 04, 2010

Lebanon's devious diamond trade

The shady business of diamond dealing in Lebanon
Executive magazine
By Paul Cochrane in Beirut

Lebanon has as dubious a reputation on diamonds as it does for exporting hashish. Both have been linked to funding for militant groups during and after the Lebanese Civil War, while the diamond trade put Lebanon in the international spotlight when the country was removed from the Kimberly Process Certification Scheme (KPCS) in 2004, which meant other KPCS countries were barred from trading rough diamonds with Lebanon.

The KPCS’ fundamental tenant is to ensure the diamond trade does not fund violent conflict, and it does so by imposing requirements on member countries to certify shipments of rough diamonds as ‘conflict-free’. Lebanon was dropped from the KPCS for failing to enact such standards. Draft legislation that would have made Lebanon KPCS compliant was vetoed by then-President Emile Lahoud, whose justification was that parts of the bill were unclear.

“The rejection, however, follows a deal reported in the Russian media in 2003, between the Russian mining giant, Alrosa, and a hitherto unknown Beirut company called Horizon Development,” reported Other Facets, a publication of the African development forum Partnership Africa Canada, in June 2004. “Horizon, owned by Bahaeddine Hariri…reportedly struck a deal to buy $500 million worth of Russian diamonds. Lebanese press reports say that the 2004 bill may have been vetoed by Lahoud in order to foil the burgeoning Hariri diamond operation.”

Lebanon was reinstated into the KPCS in 2007, but was since designated “a major diamond laundering route” for Guinean diamonds in 2009. An estimated 60 percent of the West African country’s diamonds leave destined for Lebanon, yet they are exported at less than 10 percent of their actual value by being certified as “industrial” rather than “gem-quality” stones, according to Annie Dunnebacke, a campaigner at non-governmental organization Global Witness in London. At the same time, “some 250,000 more carats leave [Lebanon] as gem-quality diamonds than arrive — worth 36 times their import value,” noted Partnership Africa Canada’s “Diamonds and Human Security Annual Review 2009.”

“The pre-carat value of diamonds leaving Guinea is vastly lower going to Lebanon than to other places, which is very odd,” added Dunnebacke. Furthermore, 72,632 more carats were exported than imported in 2008, according to the KPCS’ latest figures (see page 29).

“A member of [KPCS] should do spot checks on stock piles of traders, but that is something not always done,” said Dunnebacke. “The confusion over figures in Lebanon is a prime example of why certification needs to be done, of how diamonds come in illicitly and are then exported legally, [with traders] saying it is from their stock pile.”

But a year after the reports surfaced that Lebanon is flouting certification rules, the KPCS is still only asking “polite questions and getting very little from Beirut in return,” according to Partnership Africa Canada, a non profit organization that focuses on African development..

No questions asked

The Lebanese have been a fixture of the diamond trade in Ghana and Sierra Leone for decades, but as the trade changes and the KPCS tries to tighten regulations — particularly over conflict diamonds — a number of Lebanese traders have moved to places such as Guinea, the Republic of Congo, and more recently Zimbabwe, which is flouting the Kimberly Process.

With Zimbabwean diamond exports being monitored, the rough diamonds are smuggled across the border to neighboring Mozambique where they are then transported to the major diamond hubs.

“Zimbabwean diamonds have a brown base, and people with experience know they’re from Zimbabwe, so they send these diamonds illegally to Dubai, Thailand or Lebanon, and re-certify them in Antwerp to make them legal, turning black into white,” a Lebanese-Armenian diamond merchant in Antwerp told Executive under condition of anonymity.

“Zimbabwean diamonds are diamonds not to touch. All diamonds can be traced if still in their rough structure and they are known from the density of the color,” he explained.

However, while a diamond’s origins can be traced, getting around the KPCS is not a difficult task.

“You give diamonds in an empty slip to the diamond organizations here in Antwerp and say, ‘Can you please certify them.’ You need membership and an office so they know who you are. They certify them no questions asked — not where they come from, that’s it. It is easy, and they put a price on them,” the source said.

With diamonds much smaller than other precious commodities like gold, stones are a common way to launder money for organized crime, drug dealers and, according to the United States authorities, for funding groups such as Hezbollah. Unsubstantiated reports have also linked part of the illicit trade in diamonds to Lebanese honorary consuls, who use diplomatic channels to bypass customs in West Africa and Lebanon. However, given the levels of corruption in places such as Guinea, greasing a few palms gives any carrier VIP status.

“There are some things in this business which make me think twice about being in the diamond trade,” said the Antwerp diamond trader. “But while Lebanon was a big hub, and [one] could pay off people, now Dubai is and the authorities there are closing their eyes to a lot of things. Lebanon is a relatively small player on the global diamond scene.”

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