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Following Illegal Diamond Trade Across S. America

May 2, 2006 10:23 AM   By Jeff Miller, Jeanette Goldman
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(Rapaport...May 2, 2006) Partnership Africa Canada (PAC) praised Guyana's Geology and Mines Commission (GGMC) for being an "able and effective administrator, determined to bring Guyana’s diamond fields under control," however the non-governmental organization also suggested five ways in which Guyana and neighboring Brazil and Venezuela should curb the flow of illegal diamond trade, in a report titled “Triple Jeopardy: Triplicate Forms and Triple Borders: Controlling Diamond Exports from Guyana.”

During March and April 2006, PAC sent researchers to the region to test Kimberly Process controls, which PAC contended are more of an issue for Brazil than its two neighboring countries. PAC concluded that Brazil’s lack of control over the diamond trade impacts Guyana.

Guyana's GGMC commissioner Robeson Benn devised a system of controls using a combination of voluntary declaration by miners and exporters in exchange for low-set royalties and simple valuation measures.

"Exporters can sell their diamonds to whomever they choose, receive payment in dollars, and freely transfer their profits abroad," PAC reported.

“If countries are not compliant, then they don’t belong, because this is the only way to ensure that only legitimate diamonds enter the system,”

Eli Izhakoff, World Diamond Council chairman


Processing of export licenses and Kimberley Certificates has become quick and efficient. However, PAC also said that Benn's system is bureaucratic, non-computerized, and relies upon triplicate forms, signatures, and co-signatures.

Aside from office improvements suggested for GGMC, PAC described how the geography of the region makes it relatively easy to smuggle diamonds from one country into the next.



The Landscape

"The southern Venezuelan region around Santa Elena de Uairén is as rich in diamonds as Guyana….Santa Elena is relatively isolated from the rest of Venezuela. It’s a 12-hour bus ride to the state capital of Bolívar, itself a 2-hour flight from the capital in Caracas. For those seeking to export diamonds, the natural route is not north, but across the border into Brazil," according to the PAC report.

Researchers visited Santa Elena and described the town as one might describe Antwerp, with the exception that its population is comprised of diamond traders from Brazil. At least three major Boa Vista (Brazil) diamond traders maintain offices or buyers in Santa Elena, PAC contended. "Most of these buyers are connected in one way or another to exporters in Guyana,” PAC reported.

Among them, “Bastos Diamantes, is one of Guyana’s biggest exporters...These traders buy significant quantities of stones in Santa Elena, and bring them back to Boa Vista for sorting. They do not export them through Brazil," PAC reported.

Boa Vista has never issued a Kimberley Certificate, PAC said. "Nor do they send them south to Brazil’s diamond exporting cities of Belo Horizonte or Juina. Instead, as one of the largest exporters told PAC directly, they send them north [back] to Georgetown, Guyana."



Minimal Corruption

Since the Kimberley Process was implemented in Guyana in 2003, nearly 40 traders have been licensed for exports. In April 2006, Benn suspended issuing new licenses and is currently reviewing new regulations for diamond traders. While Benn did not grant an interview to Rapaport News, PAC reported that he is considering implementing measures requiring that traders verify bank or wire transfers to show legal source of funds -- which is similar to the new anti-money laundering requirements in the United States.

"The other new regulation would be a requirement that each diamond trader present a business plan, to be evaluated by the commission," PAC reported.

Some corruption exists, but both PAC and Benn have reported it at "low levels" and petty corruption is more endemic to Guyanese society in general.

"Foreigners applying for work permits from the Ministry of Home Affairs are routinely asked for a ‘contribution’ to speed the work along. Traffic police routinely offer motorists the option of paying a ticket or paying the officer a smaller, faster bribe. The GGMC is not immune from this phenomenon," PAC reports.

However, Benn said that the situation is improving due to a multiple [political] party system. PAC determined that the system of checks and balances are built upon use of ledger books and triplicate forms. "There are certain gaps in the system, some minor, some more serious," PAC reported. Gaps were found in Guyana’s system of Kimberley Certification most notably the production sheets, which record daily activities of each working dredge.

While all dredges (about 3,683, which includes gold and diamonds) operating in Guyana must be licensed, the dredge owner must also be a citizen or legal resident of Guyana. Once a dredge is registered, an entry is made in the GGMC’s master ledger, and the admin clerk opens a dredge file. One copy of all production sheets produced by that dredge are stored in this numbered file, PAC reported.

"However, as the information is not computerized it is difficult to provide any breakdown on the overall numbers. Sometimes a Brazilian without a work permit will register a dredge in the name of a wife or girlfriend. Oftentimes dredges are bought and sold, sometimes changing hands several times, while the titular owner in the GGMC registry remains un-changed," PAC concluded.

But PAC conceded that the system in place is valuable and "with just a few adjustments, should make it possible to eliminate the remaining holes in Guyana’s Kimberley System."

Eli Izhakoff, chairman of the World Diamond Council, and monitoring committee member for the Kimberley Process, noted that reports of this kind “are viewed with full seriousness by the Kimberley Process and various monitoring committees.”

The PAC report, said Izhakoff, is likely to trigger a review visit from the Kimberley Process after the initial results of an investigation arrive and the appropriate next steps planned.

Benn told PAC that in 2005 he no longer accepted production sheets without full signatures, and his office no longer accepted diamonds without the production sheets.

From that point forward, a signed production sheet became the norm for an exporter hoping to obtain Kimberley Certification for his diamonds.

Guyana’s Deterrent Process

In Guyana, diamond miners must surrender diamonds before exporting them outside the country. Both the stones and the paperwork are held in government control for inspection, and once approved with an export application, the diamonds are returned (packaged) to the owners for export with a Kimberley Certificate.

Benn contended that since diamond traders must hand over their diamonds, they are far more careful with completing paperwork. The process secures an export slip bearing signatures of three inspectors, which is given to the diamond's owner along with carat weight and location of origin. The government seals the package and returns it to the owner for export.

Diamonds submitted with faulty paperwork can be seized, and according to PAC, this only occurred once so far against a company they named Battle Green Mineral & General Trading.

In February 2005, according to PAC, Battle Green submitted export paperwork for some 10,942 carats, but the diamonds were confiscated, because their original source was not clear. Battle Green’s owner David Pesci, said the snafu was the result of a rival diamond trader's letter to the government; pointing out Pesci’s frequent trips to Venezuela.

Benn claimed diamond traders denounce each other all the time, but his issue was with "an analysis of the stone and carat count of Battle Green’s export. The parcel was tilted towards larger stones, and certain point sizes were not present in the ratios that should have been expected."

In the end, Battle Green went to court and lost, some 2,500 carats were cleared for export and the remaining 8,500 carats were forfeited because the company could not account for the origin of the diamonds.

Changes to Guyana’s Process

At present PAC reported that most diamonds from Guyana are hand-carried on BWIA flights to New York’s John F. Kennedy Airport, where diamonds are then inspected by a customs broker who forwards the stones to their final destination, most often in Belgium, Switzerland, or Israel.

Overall Guyana's diamond production has risen from 33,500 carats in 1998 to 445,000 carats in 2004, but production fell in 2005 due to Benn’s tighter controls. PAC reported that Guyana’s trade office was not always managed well.



"Sometime early in 2000, an old-time diamond trader… a long-time Guyana resident… told the [former] commissioner, he wanted to do things properly. He wanted to declare his diamonds and pay his royalties and keep his exports above board. The problem was that so many of the stones coming from the interior lacked the requisite paperwork," PAC reported.

The trader proposed that locals should be approved to export with "whatever" paperwork they had until the traders from Brazil were up to speed on the required paperwork. Benn's predecessor agreed and permitted exports via handshake as long as local traders paid the royalties due.

The handshake rule allowed diamond to flood the system, “particularly after the Kimberley Process Certification Scheme came into force in 2003, and diamonds suddenly needed Kimberley Certification," PAC deduced.

While many of the diamonds were, submitted in good faith from Guyana, "a good many diamonds also came from Venezuela, via diamond dealers in Brazil,” according to the PAC report.

"Just how many Venezuelan diamonds were entering the system is difficult to estimate," PAC reported. Benn ended the practice of gentleman's handshake in 2005, and clamped down on processes, and the drop in exports was noticeable by 90,000 carats.

Buying Diamonds Undercover

Posing as a potential diamond buyer, one PAC representative met with a man they did not name, but described as "the largest Brazilian trader in Boa Vista" who had already been banned by Benn from conducting business in Guyana.

The man claimed he was sending between 1,000 and 5,000 carats per week from Venezuela to Guyana. PAC admitted they normally would have thought the man as simply boastful, "but the man had a five kilogram sack of diamonds on his desk, which gave some weight to his assertions."

The under-cover PAC researcher also claimed that upon meeting the man, Guyana's "most prolific mid-level diamond trader" was present.

It was the Boa Vista man who presented "a variety of bundles and parcels, some wrapped in packing tape, others double sealed in Ziplocs, all of them full of diamonds. He spread the various parcels out over his desk, seemingly just for show,” PAC reported.

All of the diamonds shown to the investigator were sold, the man claimed. “He just had to sort it, package it and get it up to Georgetown. The diamonds, he explained, had originally come from Guyana."

Even though the man had been banished from Guyana, he told the PAC researcher that his new business model involved owning three firms in Guyana and that he was "having diamonds delivered to him in Brazil," how the mid-level traders got the diamonds across the border was none of his business. The man operated with 2 percent margins (which he called ‘razor thin’) and made up for a lower commission simply due to higher volume.

Once the diamonds shifted hands across the border in Guyana, they ended up with one of his firms for export...all of which PAC reported were on the top 10 list of exporters.

"The inclusion of larger, higher value Venezuelan stones would likely also give their exports a higher average dollar per carat value than other exporters," PAC reported.

At press time PAC reports the 10 largest exporters in Guyana are:
    Alphi Diamonds

    Battle Green Mineral & General Trading Inc.

    Blue Diamonds Inc.

    Excel Minerals Inc.

    Explorer Trade & Commerce Ltd.

    Guyana Diamond Trading Company

    Kay’s Diamond Enterprise Ltd.

    Kimberley Mineral & Diamond Trading

    South American Mining International (Guyana) Inc.

    Star Diamonds Inc.


The Diamond Route

PAC speculated that the man could be "sending the stones with a courier on the thrice-weekly flight from Boa Vista to Georgetown. Diamonds don’t show up on X-rays, there is no GGMC checkpoint at the international airport, and customs inspections at Cheddi Jagan airport are a fairly informal affair."

The courier could have ridden a bus and crossed the border at Lethem. The border is more or less unmanned. On Brazil’s side of the border with Guyana, there is a gated post on the road leading to the river crossing, but the Policia Federal agents who staff the post do not regularly board and inspect vehicles heading for the crossing. Passengers departing Brazil are supposed to voluntarily present themselves for inspection, otherwise authorities will not check the traveler.

PAC was not hopeful for curtailing the Boa Vista man's activities in Guyana; however, the story does not end there. "As far as the Guyanese stones go, one could even argue that there is little reason to try. True, the diamonds are illegally crossing the border – twice – but on the other hand when they do finally leave Guyana they do so legally, with paid-up royalties and production sheets showing their origins,” according to PAC.

The process, however, does reveal holes in the Kimberley Process as those issues are open to further abuse by anyone attempting to launder conflict diamonds.

PAC representatives traveled from Boa Vista to Santa Elena (a two-hour journey) without being searched or questioned. "Moving diamonds would not pose much of a challenge," PAC confided.

Santa Elena is described as the Antwerp of Venezuela. PAC wrote that the Boa Vista trader claimed "there are three Brazilian traders from Boa Vista buying heavily in Santa Elena. The most aggressive of the three has a shop with a sign displayed prominently on Santa Elena’s Calle Urdaneta advertising the name of the Boa Vista trader interviewed by PAC ," according to the PAC report.

From its research, PAC concluded that significant numbers of diamonds are entering Guyana from Venezuela, but they are exported with the Kimberley Certificate issued by Guyana.

"However, having observed the internal procedures at GGMC headquarters, PAC is equally convinced that diamonds do not leave Guyana without a signed production sheet attesting to their origin. The question then becomes, in what way are fake production sheets being arranged for Venezuelan diamonds?" PAC questioned.

Recommendations by PAC

PAC suggested that a phantom dredge, meaning the operation only exists on paper, would easily slip through Guyana's controls. For this reason, PAC recommended that Guyana hire more officials to spot-check actual diamond operations throughout the country.

The Kimberly Process team, PAC recommended, should insist that Brazil and Venezuela review all diamond activities in Boa Vista and Santa Elena de Uairen. "If such assurances cannot be provided in a credible fashion, Brazil and Venezuela should be expelled from the Kimberley Process Certification Scheme,” Pac said.

Additionally, PAC recommended, placing a copy of the inspection reports in dredge file; making periodic dredge inspections; hiring more mine-regulation inspectors/administrators; adopting technology to help manage the files and database trends; and placing inspectors at the Lethem international airport.



For the government of Brazil, PAC said, "Boa Vista is a city replete with diamond traders and diamond trading offices," and yet there are no active diamond mines in the state of Roraima. "In this investigation, these traders are obtaining stones in Venezuela, sorting and grading them in Boa Vista, and forwarding them to Guyana for export, with phony paperwork showing provenance in Guyana."

PAC specifically condemned Brazil, "The existence of this illicit trade route puts Venezuela, Guyana and Brazil and in violation of their commitments under the Kimberley Process. As the principal actors in this trade are Brazilian, it falls to Brazilian authorities – in the National Department of Mineral Production, in the Federal Police, and in the Public Prosecutors Office – to take note of this illicit trade route, and take steps to close it down."

In Venezuela, PAC suggested that the government should gain control of diamonds in Bolívar because it represents a loss of federal revenue. PAC suggested that Venezuela should set up a Kimberley Process office in Santa Elena de Uairén. "Venezuelan authorities will also have to establish a rigorous and credible system for tracking Venezuelan diamonds from source to export."

Izhakoff said, “If the reports prove accurate and evidence is incriminating, those involved, with due process, risk being eliminated from the Kimberley Process.”

“If countries are not compliant, then they don’t belong, because this is the only way to ensure that only legitimate diamonds enter the system,” Izhakoff added.

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