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Report Warns Zimbabwe Corruption Weakens Diamond Supply Chain

Ongoing Smuggling, Money Laundering Benefits Zimbabwe Political Elite

Nov 12, 2012 5:00 AM   By Jeff Miller, Avi Krawitz
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RAPAPORT... Partnership Africa Canada (PAC) alerted the global diamond industry to ‎ongoing ‎smuggling in Zimbabwe, adding that money laundering and a lack of ‎transparency ‎directly benefits certain members of the country's ruling party.‎

In a report titled “Reap What You Sow: Greed and Corruption in Zimbabwe's ‎Marange ‎Diamond Fields,” released to coincide with the start of Zimbabwe's International ‎Diamond ‎Conference on Monday, PAC claimed that the diamond industry's efforts to ‎detect and ‎interrupt smuggled Marange diamonds continues to fail, thus compromising ‎the entire ‎supply chain.‎

The Marange mines caught the world’s attention in late 2008 when the ‎government ‎launched an operation to evict illegal miners from the area that resulted ‎in ‎serious human rights abuses, including the deaths of more than 200 miners, ‎Human ‎Rights Watch reported at the time. ‎

The incident sparked a three-year debate at the Kimberley Process Certification Scheme ‎regarding ‎Zimbabwe’s right to export its Marange production and its participation in the ‎scheme. In November 2011, the Kimberley Process ‎lifted the export restrictions. ‎

There are currently four operating mines in the Marange fields, including ‎Mbada ‎Diamonds, Marange Resources, Chinese company Anjin and Dubai-based ‎Diamond ‎Mining Company (DMC). The combined production of the mines is estimated ‎at about ‎‎1.3 million carats per month in 2012. Zimbabwe’s diamond production reached ‎‎8.5 million ‎carats valued at $476.2 million in 2011, according to Kimberley Process ‎data.   ‎

While PAC noted that no recent mass murder has occurred in and around the ‎Marange ‎diamond fields, it confirmed ongoing corruption associated with the mines. ‎The ‎group indicated that there has also been gross negligence on the part of trading ‎centers in ‎Dubai, Israel and India, where the trade turns a blind eye to illegal rough ‎imports and the ‎ineffectiveness of the Kimberley Process to monitor the rough pipeline. ‎

The Chief Beneficiary

PAC concluded that one man, in particular, was benefiting from Zimbabwe's ‎diamond ‎mining trade: Obert Mpofu (pictured), the country's minister of mines and a ‎member of President ‎Robert Mugabe’s ZANU-PF ruling party. The report claimed that ‎Mpofu is the chief ‎custodian of the Marange fields, where he presides over the ‎concessions he awarded to ‎dubious individuals without mining experience and under ‎questionable terms, offering no ‎accountability or due diligence.‎
‎ ‎
Tendai Biti, Zimbabwe’s finance minister, who is a member of the Movement ‎for ‎Democratic Change (DMC), which currently has a power sharing agreement ‎with  ‎ZANU-PF, has claimed a shortfall of hundreds of millions of dollars worth of ‎diamond ‎revenue at the treasury. ‎

PAC stressed that it is impossible to determine an exact amount of missing revenue from ‎the mines in ‎part due to the lack of transparency of diamond sales overseen by Mpofu. ‎The group ‎pointed out, however, that Mpofu's ministerial salary of $800 a month stood in ‎great ‎contradiction to his expenditures of $20 million incurred in the past three years for ‎property, stores, ‎banks and farms -- nearly all paid in cash. PAC stated that Mpofu did ‎not respond to its interview ‎requests. ‎

Others Cashing In

The report indicated that the corruption extends beyond Mpofu to other executives at the ‎Marange ‎mines and ZANU-PF loyalists. Concerns were raised that Robert Mhlanga, the ‎chief executive of Mbada Diamonds, ‎was laundering Marange proceeds after he paid ‎inflated ‎prices in a series of multi-million dollar real estate deals in South Africa, PAC ‎explained.‎

‎“Many top securocrats loyal to President Robert Mugabe and his party, the ‎Zimbabwe ‎African National Union (ZANU), are also, in the parlance of corruption ‎watchers, 'eating ‎well,'” the report claimed. “This is particularly the case for those ‎associated with ‎Zimbabwe Defence Industries - a state-owned company aligned with ‎Chinese mining ‎company Anjin - or who oversaw military operations in Marange. Many ‎are known to ‎own, or be building mansions in Harare’s tonier neighborhoods that would ‎exceed their ‎publicly funded salaries.”‎

PAC concluded that unexplained wealth is indicative of a much wider problem ‎for ‎Zimbabwe, especially considering how such a promising future of diamond wealth ‎could ‎benefit the entire country and its people. Not only does the lack of revenue ‎transparency ‎deprive Zimbabwe's treasury but it amplifies concerns of a parallel ‎government operating ‎in the country and fails a minimum standard set by the Kimberley ‎Process, the report cautioned.‎

Earlier this year, Global Witness, which quit the Kimberley Process over the lack ‎of ‎progress at the organization, published a report claiming that Zimbabwe’s diamond ‎mines ‎are financing Mugabe’s military. ‎

A Local & Global Problem

While PAC previously published reports on Zimbabwe's diamond industry in 2009 and ‎‎2010 as ‎a result of the carnage in Marange, this year, the group warned that the Marange ‎issue has taken on a more international flavor. “While the mismanagement of Marange ‎diamonds remains primarily a Zimbabwean problem, the global dimensions ‎of illegal ‎trading has developed to compromise most of the major diamond markets,” the authors ‎wrote.‎

PAC explained that while previously most of the illegal trade primarily affected South ‎Africa, Mozambique, U.A.E. ‎and India, it now appears that greater vigilance ‎by the ‎Kimberley Process and national enforcement authorities should extend to other ‎centers, ‎particularly Israel.‎

The U.S. specifically forbids any citizen or business to trade with entities who are on ‎the ‎Treasury’s Office of Foreign Asset Control (OFAC). That includes Mugabe and all of ‎his ‎family, Mpofu, the Zimbabwe Defence Industries, the Zimbabwe Mining ‎Development ‎Corporation (ZMDC), the Minerals Marketing Corporate of Zimbabwe ‎‎(MMCZ), Mbada ‎Diamonds and Marange Resources. ‎

Given that logistics and courier companies Brinks and Malca Amit refuse to ‎ship ‎Marange goods due to the sanctions, PAC determined that diamantaires now ‎purchase ‎diamonds in rand or euro and either charter planes to fly shipments from ‎Harare to ‎cutting centers or take the risk of entrusting shipments to individual couriers ‎on ‎commercial flights.‎

Recommendations

PAC concluded its report with several policy recommendations aimed at improving ‎the ‎management and economic outcomes in Marange. ‎

The group urged the country to improve parliamentary oversight of mining contracts. It ‎suggested that parliament should form a committee on mines and energy, revisit ‎mining ‎contracts, publicize the terms of those deals, disclose the ownership structure of ‎the ‎companies and name board members. ‎

PAC also stressed the need to de-militarize diamond deals, especially with the ‎approach ‎of the Presidential elections slated for 2013. While violence in Marange is ‎nowhere near ‎the level experienced before 2011, PAC said concerns remain as the role ‎of military and ‎special security agents overseeing legal and illegal operations will grow ‎more active in an ‎election year. ‎

Furthermore, PAC recommended that Zimbabwe should implement contract ‎transparency for all agreements related to natural resources into its constitution, as ‎was ‎done in Niger in 2011. There should also be an agreed and publicly ‎disclosed ‎understanding of what each diamond mining company exports on a quarterly ‎basis and ‎what taxes were collected. PAC said the process should be de-politicized and ‎that the ‎adoption of transparency measures would assuage western and domestic fears ‎of how ‎diamond revenues are being mismanaged.‎

PAC argued for public disclosure of business holdings and assets of public officials ‎to ‎guard against conflict of interest for the duration of an individual’s term. ‎Additionally, ‎companies must divulge ownership structures to expose secret tax havens ‎such as ‎Mauritius, where Marange stakeholders are protected from public scrutiny.‎

The Legislation Route

Since enforcement efforts failed to detect and interrupt the flow of smuggled ‎Marange ‎diamonds, PAC told the diamond trade that the entire diamond supply chain has ‎been, ‎and continues to be, compromised by tainted goods.‎

‎“Greater cooperation among enforcement agencies is needed,” the researchers ‎said. ‎‎“With this in mind, willing Kimberley Process participants should work to tackle illicit ‎and ‎increasingly sophisticated criminal networks by creating a diamond smuggling ‎profile.”‎

PAC suggested that the effort should be modeled after similar profiles used by ‎customs ‎and enforcement agencies to intercept drug and money-laundering networks, ‎and that ‎such a profile should be developed in close collaboration with the World ‎Customs ‎Organization, with which the Kimberley Process signed a memorandum of ‎understanding ‎in November 2010. ‎

Since the Kimberley Process and the World Diamond Council’s (WDC) System of ‎Warranties fail to track and respond to the illegal flow of Marange diamonds, ‎PAC ‎recommended that the WDC should commit itself to the ‎Responsible Jewellery Council’s ‎chain of custody efforts that track diamonds from mine-‎site to market. ‎The WDC ‎represents the diamond industry at the Kimberley Process. ‎

This current failure has enabled smuggled diamonds to either reach trading centers ‎with ‎Kimberley Process certificates fraudulently obtained in second countries, or without ‎one ‎at all, the report stated. ‎

Otherwise, PAC concluded that pressure will grow on the diamond industry to prove ‎its ‎commitment to the ethical and legal sourcing of diamonds. The report suggested ‎the ‎industry follow the best practices outlined by John Ruggie, the United Nations ‎Special ‎Representative for Business and Human Rights, and the OECD’s Due ‎Diligence ‎Guidance for Responsible Supply Chains of Minerals from Conflict-Affected ‎and High-‎Risk Areas.‎

Lastly, PAC urged individual countries to adopt legislation to protect their ‎manufacturing ‎and consumer markets from Marange diamonds that are owned by the ‎military or that ‎undermine governance or contribute to violence. ‎

‎''Such efforts would complement existing economic measures in those ‎jurisdictions, ‎which to date have stymied but not eliminated the trade of Marange goods ‎to ‎manufacturing centers like Surat, India nor blocked their subsequent entry into ‎western ‎consumer markets,” PAC stated. ‎

The group advised that such legislation should be based on the Dodd-Frank Act in ‎the ‎United States, and should include the mandatory, and verifiable, disclosure by ‎diamond ‎industry members that all diamonds entering such markets do not originate ‎from ‎Marange, whether in rough or polished form. ‎

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Tags: Avi Krawitz, Jeff Miller, Jeff Miller, Avi Krawitz, zimbabwe diamonds obert mpofu illegal maranage kimberley process
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