Dark shades of sparkle – Curses of mined diamonds

Various curses of mined diamonds including high environmental impact, human atrocities, blood diamonds, fraud to consumers, governments and industry bring out the dark shades behind the sparkle.

Mined Diamonds
[Image Courtesy: DiamondBuyersGuide, YouTube]

The multibillion dollar diamond industry with vast geographical spread of value chain, illustrates human quest for doing business, which brings out diamond. Diamond is the symbol of eternity and love, but the process that brings out diamonds to the world does not reflect the same emblem. Unfortunately, behind the mesmerizing sparkle of diamonds, there are several dark shades – the curses of mined diamonds.

Environmental impact

Diamond mining causes massive destruction of environment but usually consumers are heedless of this fact. If one considers the global diamond production of 128 million carats in 2012, the environmental impact is alarming. To put it in a perspective, only 2012’s diamond production caused earth displacement equivalent to ~20% of Mount Fuji, CO2 emissions equivalent to 1.5+ million vehicles running for a year, fuel consumption of 8,500+ New York – London return flights, energy usage equivalent to a million US household’s annual electricity consumption and water usage that could give 5 months water supply to entire Kenya’s population!! During the last decade, annual diamond production averaged 143+ million carats, even peaking to 177 million carats in 2005. The actual harm to environment thus was much more.

Mining in South Africa has changed the environment with deforestation, re-routed rivers, abandoned open pit mines and endangerment of 45 endemic plant species. De Beers abandoned a land equivalent to 2,000 football fields, which can no longer be inhabited.

Amazon rainforest is the richest biodiversity region in the world, a habitat of tens of thousands species of flora and fauna, most of which are not found anywhere else in the world. But, it is believed that rainforest area in Brazil is also the biggest diamond reserve on the earth. Diamond mining has already cleared an area spanning 10Km width by 2 Km length in Brazil. Locals estimate that the exploratory area could be much bigger, more than 1,000 hectares.

In Zimbabwe’s Marange region, diamond miners are turning away from their responsibility towards environmental destruction that takes place due to mining. Local communities suffer as they have to deal with heavily polluted water bodies. Whereas, Zimbabwean watchdog, Environmental Management Agency, collects fines from the miners and permits them for mining without addressing the issues.

Human Atrocities

Diamond mining is tainted with issues including unregulated, unhealthy and unsafe working conditions, low wages, child labor, human trafficking, attack, torture, sexual harassment, exploitation, enforced displacement, widespread looting etc.

Slavery & Child Labor

During Sierra Leone’s 10-year civil war, children were often used as soldiers and workers in the rich Koidu diamond mines that funded the country’s rebels. This however still continues in many parts of Africa. Recently, Amnesty international found an 11-year old boy working in hazardous conditions at a mine site in Central African Republic (CAR).

Dangerous working conditions

Only 5% of the 80,000 – 100,000 artisanal miners in CAR are formally registered. They have to work in dangerous conditions and are poorly paid according to a report by International Crisis Group. Cases of serious injuries, miners dying under collapsed pit walls, divers sometimes not resurfacing are common.

Low wages

According to a website, “Diamond miners who work in small-scale mining produce about 15% of the world’s diamonds. But their wages do not reflect the value of their work. An estimated one million diamond diggers in Africa earn less than a dollar a day”.

Forced displacement

According to census statistics, Brazil’s indigenous group – Cinta-Larga, earlier counting for 5,000 people has reduced to only 1,758 and also diamond mining has caused death of 29 people in that region.

Blood Diamonds

Also termed as conflict diamonds, blood diamonds are mined and traded illegally to fund civil wars, insurgency, warlord activities etc. In 1998, Global witness was one of the first organizations that threw light on key role of diamond mining in African civil war. It reported that the war in Angola costed lives of half a million people. Soon after this, Kimberley Process, a joint initiative between government, industry and civil society vowed to stop infusion of conflict diamonds into diamond pipeline. But, even 13 years after it came into force, great volume of conflict diamonds is still being mined across Africa and sold throughout the world resulting in thousands of gruesome killings, sexual assaults, violent atrocities and social unrest.

In CAR, one of the ten largest diamond producing countries, 902,000 people were displaced and over 5,000 people killed in an attack by anti-balaka militia group. Kimberley Process imposed a ban on export of diamonds out of CAR and suspended its membership in 2013. However, a recent report by UN panel of experts on CAR suggests that approximately 140,000 carats of diamonds worth USD 24 million made their way out of the country, post the ban. Despite this, the sanctions imposed on CAR were partially lifted this year, clearly indicating a complete failure on part of Kimberley Process.

Consumers being ripped off

Consumers go through many websites, do research to learn the 4Cs of a diamond to derive the right price of a love stone but to no avail. Primarily these 4Cs (Carat, Clarity, Cut and Color) and other parameters generate over 16,000 permutations and combinations of diamond variants. This makes diamond grading a highly complex process, which according to many experts is currently subjective and inconsistent and 2 appraisers can differ in their valuation by as much as 30%. Hence diamonds are not fungible unlike other products and commodities. This however gives rise to scope of price manipulation by the traders and other stakeholders in the diamond value chain.

Though there are some benchmark prices published by industry professionals and some diamond price calculators available, they are meant more for the trade and not for retail consumers. Resale value of a diamond though may be an alternative method, but reveals very shocking facts – in some cases, consumers may end up giving 70% discount on the appraised value while reselling their diamonds.

Yet, 40% by volume of the mined diamonds produced are used in gems and jewelry and accounts for 95% of the value of diamond business. The reason of this implausible consumer behavior lies in the decades old multifaceted marketing strategy of De Beers, which led to a trend of consumer’s worldwide shelling out more than 2 months of their salary for a diamond engagement ring that should have costed much less in the first place.

Fraud to Government

Round tripping, money laundering, overvaluation, tax evasion and manipulation are severe and largely seen issues in the diamond industry. In round tripping, a same good is traded over and over, circularly or back and forth to raise big capital for the industry before it goes into retail market. So, a polished diamond generates money equal to multiple times worth its own price by round tripping. This is an antagonistic practice for the industry and it is a fraud to governments.

According to a report, in India, circular tripping is also used to convert black money into white. For example, black money is sent to Dubai (since Dubai does not impose duty on import or export of diamonds), where the money gets deposited in a bank account of a diamond dealer. A parcel of diamond is imported in to India and traded several times. Thus black money is brought into the mainstream.

Responsible Jeweler Council (RJC) – Dahlberg report identifies 2 out of 5 serious issues in the diamond industry as money laundering and corruption including overvaluation, tax evasion and manipulation, round tripping etc. The diamond industry could have been one of the largest generators of black money. Though it is not true for the entire industry, however several rouge players indulge in illegal activities, costing heavily to the government exchequer and such fraudulent practices are on the rise.

Industry malpractices

Erstwhile monopoly and monopolistic practices of De Beers are well known, when it used to control over 90% of global diamond production and supply. However, over the years several players have emerged and grown. Though De Beers is no longer the world’s biggest diamond producer, the Top 5 diamond miners together produced 73% of global diamond production in 2014. Diamond Industry has passed the monopoly phase and entered into an oligopoly one.

Such market control turned out to be unfavorable to the industry because, miners raised the rough diamond prices to unsustainable, speculative and unfair level. They sucked profit out of diamond value chain leaving other stakeholders i.e. cutters, polishers, traders, jewelry designers, manufacturers and retailers, who add immense value to the rough, profitless.

The grim reality about social, environmental and economical impact of mined diamonds enumerates its curses and elicits the dark shades behind the sparkle.

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