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Dubai Probing Rough Diamond Values

While the Kimberley Process chair is focused on advancing forums on rough valuation, questions linger about the UAE's own diamond trade.

Aug 25, 2016 5:25 AM   By Avi Krawitz
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RAPAPORT... From the get go, the United Arab Emirates’ (UAE) chairmanship of the Kimberley Process (KP) had a fair share of controversies as civil society, and a number of member states, expressed their concern with seating the 2016 chair in Dubai.

Ultimately, the Civil Society Coalition – the non-government pillar of the KP – boycotted the KP this year, saying the UAE failed to address four issues prior to its appointment. These include: over-valuation of rough re-exports, absence of enforcement cooperation with key trading partners, lack of vigilance on diamonds imported into Dubai from problematic areas, and effective engagement with civil society.

Eight months into the chairmanship and Ahmed Bin Sulayem, the UAE-appointed 2016 KP chair, dismisses the concerns, claiming they deflect from the KP’s achievements this year. His focus for the remaining few months of his tenure is two-fold, he explained in an interview with Rapaport News: Advancing the rough valuation initiative introduced in May, and strengthening the KP’s ties with African states.

Time for Africa

His recent tour of select African nations bore some significance as it included the Central African Republic (CAR), shortly after the country resumed its rough exports, effectively ending a three-year suspension imposed by the KP. Bin Sulayem was the first KP chair to visit CAR and instrumental in lifting the ban, which he said will have a notable impact on the country, considered among the poorest in the world.

“The embargo meant workers weren’t getting their salaries and so they naturally looked for other ways to feed their families,” he said. “Sometimes, preventing a livelihood becomes a reason for the conflict, which is a scenario I don’t want.”

Such visits, Bin Sulayem believes, put the UAE in a unique position to act as a bridge between the KP members from Africa and those in the West. Tensions between the two groups have risen in the past over issues such as expanding the definition of conflict diamonds. While the discussion regarding what constitutes a conflict diamond is not currently on the KP agenda, it is something Bin Sulayem would like to discuss in the future. He believes the UAE can act as an effective intermediary in such deliberations.

Rough Values

For this year, however, his attention is focused on facilitating rough valuation forums, after hosting the first one in May in Dubai. A second meeting is scheduled to be held in Antwerp on September 21 and a third will take place in Dubai just before the November KP plenary.

The aim of such forums is to develop a set of global standards for pricing rough diamonds, which Bin Sulayem believes would help artisanal miners figure out the value of their rough production and negotiate prices.

“We want to make sure the whole industry benefits from this,” he said. The next steps involve engaging with KP participants and industry experts, including, he stressed, from civil society.

The Dispute Continues

The forums may even serve as a conduit for the resumption of civil society’s participation in the KP, Bin Sulayem suggested, adding the “door is still open” to attend the upcoming KP plenary meeting in November.

However, relations between the two remain strained as implied by the coalition’s absence at the May inter-sessional meeting. It’s unlikely they will attend the plenary since mediation between the two fell through, explained Offah Obale, a researcher on conflict minerals at Partnership Africa Canada (PAC), which handles communication for the KP Civil Society Coalition.

The coalition, which has observer status at KP meetings, will meet again in October to evaluate its position and consider a range of options, Obale said.

Bin Sulayem argued civil society’s concerns have been addressed or were not clear or reasonable in the first place. The KP conducted a review mission of the UAE which should have alleviated any concerns, he added, although the final report has not yet been published.

Dubai’s Value Discrepancy

Among the most pressing questions are the UAE’s own rough valuation practices, which see inexplicable increases in the value of re-exports from the country, Obale explained. In 2015, the average price of rough diamonds imported into the UAE was $88 per carat whereas the average price of exports was $119 per carat, according to data recently published by the KP.

Such discrepancies have raised questions about how the industry uses Dubai as a tax haven through transfer pricing – the price at which divisions within a company transact with each other. The so-called “silk route” of importing rough from Africa to Dubai and re-exporting at inflated prices to India, for example, enables companies to transfer profits to Dubai, where they are not taxed.

Transfer pricing poses significant ethical and enforcement challenges to Dubai’s diamond sector, PAC wrote in a report. Dubai’s status as a free trade zone makes its diamond trade particularly vulnerable to abuse by criminal and terrorist networks, it added citing a study by the Financial Action Task Force (FATF).

Making Progress

Asked to explain the discrepancies, Bin Sulayem explained to Rapaport News the UAE’s KP office only valuates rough exports and is not mandated to look at imports as they have already been authenticated by the exporting countries. Therefore, the question should rather be directed at the industry as goods are shipped in at a pre-agreed price, mainly from Europe and India, and shipped out again at a price agreed by the relevant companies, he stressed. The UAE is looking into the matter and will share its findings in due course, Bin Sulayem assured.

At the very least, he hopes civil society’s objections with the UAE won’t affect the KP in the long run, with Australia set to take over the chairmanship in 2017. In fact, the KP chair’s mid-term report published this week failed to mention civil society at all, while outlining the organization’s activity in the first half of the UAE’s term in office.

“I believe statements made [by civil society] last year are holding them back and I can only urge them to get past that in the interest of the KP family,” Bin Sulayem said. “I’m happy with the progress we’ve made so far this year.”
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Tags: Ahmed Bin Sulayem, Avi Krawitz, Conflict Diamonds, diamonds, DMCC, Dubai, pac, Partnership Africa Canada, Rapaport
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