The Rise and Fall of Diamonds

by Edward Jay Epstein

  Many of the ambushes were bloody affairs. A caravan of a dozen or so Mandango tribesmen would emerge from the jungle in Sierra Leone and head for the bridge across the Mao River, which was the Liberian border. Suddenly, mines and flares would be detonated all around them. Then Kamil's mercenaries would open fire with hunting rifles. The tribesmen, who were not hit, would instantly surrender and turn their diamonds over to the mercenaries. It was a "diamond war," Kamil later explained in his account of these exploits.

  As the risks of smuggling diamonds to Liberia greatly increased, and caravan after caravan was intercepted and plundered by mercenaries, the Lebanese dealers saw little alternative but to sell their contraband diamonds in Sierra Leone. This meant that the dealers had to pay a tax on the diamonds. The Sierra Leone government facilitated these transactions by lowering the export tax on diamonds.

  Once the illicit diamonds had been contained in Sierra Leone, De Beers established a string of buying offices in the jungle. Each buying office was no more than a corrugated iron hut with a barred slit through which their agent did business with the pot-holers. Each agent was given a set of sample diamonds, with which he compared those diamonds offered for sale, and a strongbox full of Sierra Leonean currency. When he ran out of currency, he radioed the cartel's office in Freetown, and a plane was sent out to drop another box of currency next to his trading post. De Beers sent some of its most promising recruits in London into the jungles of Sierra Leone to train as diamond buyers. In short order, the potholers became fully accustomed to dealing with these well tailored buyers in the strange huts.

  By 1957, Sillitoe decided that he had successfully completed his mission for the cartel. He quietly disbanded his International Diamond Security Organization, though many of his agents and mercenaries continued working directly or indirectly for the cartel, and he returned to his chocolate shop in Eastbourne.

  Sierra Leone, despite the counterintelligence successes of Sillitoe, again became in the late 1960s a serious threat to the De Beers monopoly. In 1968, to mute criticism about its dealings with the cartel, the government created a state owned diamond company called Dominico to which all the diamonds found in that country had to be sold. Dominico, in turn, sold half its diamonds to a London corporation which in turn sold these diamonds to De Beers' Diamond Trading Company. The remaining half was in theory at least sold to three independent American dealers: Maurice Tempelsman, who received 27 percent, Lazare Kaplan, who received 3 percent, and Harry Winston, who received the other 20 percent. In reality, however, both Tempelsman and Kaplan resold their share to the Diamond Trading Company in London, which effectively gave the cartel control of 80 percent of the Sierra Leonean diamonds. Winston, who like Kaplan and Tempelsman was a major customer of the cartel was temporarily permitted to sell his share in New York.

  As part of the window dressing for this deal, Tempelsman agreed to open a diamond-cutting factory in Sierra Leone's capital of Freetown. These cut and polished diamonds would then be sold to tourists as Sierra Leonean gems. As it turned out, however, Sierra Leonean diamonds were too difficult to be cut by inexperienced labor, and De Beers, which was Tempelsman's silent partner in the venture, therefore provided the factory with semi-finished diamonds from its London stockpile, which could be easily polished by Sierra Leonean labor. An Israeli cutter was brought in to supervise the diamond cutting, and a number of Sierra Leoneans were trained by him as polishers. The "factory" became a favored part of the official tours provided for important visitors to Sierra Leone. (Visitors who purchased "Sierra Leonean" diamonds from the factory or the retail stores in Freetown were, of course, not told the true origins of these diamonds.)

  Even though the cartel and the Sierra Leone government were satisfied with this complicated arrangement for dividing the diamonds, a number of powerful Lebanese businessmen in Freetown believed that they were being unfairly cut out of the lucrative trade. They demanded a share of the diamonds but were turned down. The dispute came to a dramatic head on November 13, 1969, when a band of masked men with submachine guns brazenly held up the truck delivering the rich October shipment of diamonds to the sorting office in Freetown. The security officers from the mine put up no resistance, and the masked men walked off with the diamonds. A private plane at the airport then flew the cache of diamonds to Europe, where they were sold for an estimated $10 million to a consortium of diamond dealers.

  In investigating this well-planned and professionally executed robbery, the cartel quickly established that the thieves had had inside information about the time and place of the delivery, and that the police had permitted them to escape from the country. The more they looked into the circumstances surrounding the crime, the more the cartel's investigators found abundant evidence of corruption in high places. The coverup seemed to involve everyone from petty police officials to )Justices of the Supreme Court. From what the investigators could piece together from the cartel's network of informers, it appeared that a group of Lebanese businessmen were behind the robbery. Further inquiries showed, however, that these Lebanese had powerful connections with the highest officials in the government and therefore there was virtually no possibility that any action would be taken against them.

  Since De Beers could not easily eliminate the Lebanese from their positions of power in Sierra Leone, it decided to make a deal with some of them. The single most powerful Lebanese entrepreneur in Sierra Leone was Jamil Mohammed. He had an African mother and Lebanese father, and in the 1950s had been reputed to be the financier behind many of the gangs of illicit diamond diggers. In any case, he made an immense fortune in diamonds and invested it in real estate, rice and fishing. Then he became a partner with the Soviet Union in a lucrative venture that allowed their trawlers to fish in Sierra Leone's waters and operate out of Sierra Leone's ports. By 1969, he had become the richest man in Sierra Leone and more or less the godfather who looked after the interests of the Afro-Lebanese community. And he now became the man with whom the diamond cartel decided to deal directly in Sierra Leone.

  Accordingly, the division of Sierra Leonean diamonds was suddenly revised in early 1970. The cartel would still receive, through its allies, 80 percent of the total production. The remaining 20 percent would, however, be taken away from Harry Winston, and most of this consignment would instead be given to Jamil Mohammed. Jamil Mohammed would then sell his share back to the cartel for a substantial profit. The net effect of this new arrangement was that the cartel received nearly 100 percent of Sierra Leone's diamonds, and Jamil Mohammed, the cartel's new man in Sierra Leone, received a fixed percentage of the revenue from these diamonds. There were no more robberies in Sierra Leone and a marked decrease in smuggling.

  The only problem that the cartel had in Sierra Leone now was that the production was gradually decreasing. As the riverbeds and mudholes were exhaustively panned, fewer and fewer diamonds were found. By 1978, Jamil Mohammed, vexed by the decline in output, made new demands on the cartel. He asked for a larger share of all the giant diamonds found in Sierra Leone (some weighed more than a hundred carats). These giant diamonds still could be sold directly to dealers in Antwerp and New York at enormous profits. When the cartel refused to increase his share of these giant diamonds, Jamil Mohammed threatened to sell his share of diamonds on the open market. The cartel now began to regard Jamil Mohammed "as a monster of our creation," as one of De Beers' executives put it.

  It was, however, necessary to come to terms with strong men like Jamil Mohammed in Africa to preserve the diamond invention. Eventually, his share was increased, and he was given access to the great diamonds.

  The smuggling problem was not restricted to Sierra Leone. Sir Ernest Oppenheimer had always considered the vast undeveloped diamond fields of the Congo to be the single greatest threat to the cartel. So long as the Belgians ruled this area, he was able to assure, through secret arrangements with the Belgian government and banking houses, that diamond smugglers would be ruthlessly stamped out in the Congo. The situation chang
ed radically for the cartel after Belgium abruptly granted the colony Independence in I 960 and it became the independent nation of Zaire. De Beers now had to persuade its President, Mobutu Sese Seko, that it also was in his interest to prevent diamonds from being smuggled out of the country. Working through intermediaries in the capital of Kinshasa, De Beers arranged a deal whereby Zaire would sell all its diamonds to a privately held corporation, which, in turn, would deliver these diamonds to De Beers Diamond Trading Company in London. The corporation would pay an immense tax to the Zairean government and distribute an important share of the profits in the diamonds to Zairean stockholders who were closely associated with the Mobutu government.

  Consequently, Mobutu moved even more vigorously against the smugglers than his Belgian predecessor. He deployed hovercraft patrol ships, which could skim over the water at forty miles an hour, and armed helicopter gun ships to police the diamond fields. These diamond soldiers tended to shoot first and ask questions only afterward. For example, in November of 1979, they spotted a group of young Zaireans walking through a diamond digging, and ambushed them, killing some 200 of them in a matter of minutes. They then learned that they were students on a camping trip, not diamond poachers.

  Mobutu also moved to prevent diamonds from being pilfered in the sorting houses in Zaire. Since native sorters could not be effectively isolated from their family and friends, and therefore they could easily pass along diamonds that they swallowed or palmed, Mobutu arranged with the Diamond Trading Company to employ European sorters rather than Zaireans. In a matter of months, the number of gem diamonds recovered-and turned in-in the Zairean sorting house increased by 30 percent.

  Most of Angola's diamonds were mined from meandering rivers in eastern Angola which allowed easy access to illegal diggers and smugglers. De Beers arranged for the rivers to be dammed and the riverbeds cordoned off behind barbwire. This prevented diamonds from being carried downstream. Then, to seal off the jungle border, De Beers arranged to hire the remnants of the Katanga gendarme, which had fled Zaire en masse after its rebellion against Mobutu had failed in the 1960s. Led by mercenaries, these soldiers tracked down smugglers in the anarchic border zone, and they received a bounty for the diamonds they recovered.

  Even with the support of private armies and black governments, it was impossible for De Beers to eradicate completely native smugglers . To prevent even this trickle of gems from reaching Europe and competing with the cartel's prices, De Beers stationed undercover diamond buyers in Monrovia, Brazzaville, Burundi and other entrepots in Africa. Aside from buying back diamonds, this operation was designed to provide a constant flow of information that could be used against the diamond smugglers. One of the men chosen to head this undercover diamond buying was the Lebanese mercenary who had ambushed hundreds of smugglers in Sierra Leone, Fred Kamil.

  In April of 1965, Kamil was flown by De Beers to Johannesburg and then driven by a major in the South African police to Oppenheimer's headquarters at 44 Main Street to meet Colonel George Cloete Visser, the head of security for the Anglo-American Corporation. According to Kamil's account, an agreement was "hammered out" which included: "Kamil would establish a network of investigators and informers which would operate secretly and independently, but under the direction of Anglo-American Corporation's Security." The priorities were: "(a) The identity and activities of the Corporation's employees in positions of trust, involved in illicit diamond buying. (b) The discovery and closure of diamond leakages from the Corporation's mining and protected areas. ©) The recovery of stolen diamonds."

  As compensation, Kamil was to be paid his expenses plus one third of the value of all the diamonds that were recovered. It provided him with a powerful incentive to uncover stolen diamonds.

  Kamil built a fairly extensive intelligence organization throughout southern Africa and made a small fortune recovering smuggled diamonds for the cartel. Then, in 1968, he began to suspect that some high-level De Beers executives were involved in siphoning off diamonds from the mines in Namibia. When he persisted in steering his investigation into this sensitive area, Colonel Visser abruptly terminated his arrangement with the cartel. Kamil suspected that he was fired because he was on the verge of exposing these executives.

  Angry and embittered, Kamil returned to Beirut from where he wrote Harry Oppenheimer a series of letters demanding more compensation for his work. He received no response. Finally, in 1972, he devised a desperate plan to extort money from De Beers. He would hijack a South African airliner carrying Oppenheimer's son-in-law, Gordon Waddell, and demand that

  Oppenheimer personally meet with him and negotiate the ransom. With a Lebanese companion named AM Yaghi and a few hand grenades, Kamil managed to hijack a South African airliner, but the intended victim was not aboard it. Oppenheimer refused to meet with him-or ransom the jet. Kamil finally ordered the pilot to land in Malawi, where army troops shot out the plane's wheels. After a twenty-four-hour siege, Kamil surrendered.

  Kamil served only a short time in prison in Malawi and was pardoned. Shortly thereafter, the Anglo-American Corporation paid him about $100,000 that was supposedly additional compensation for his past services. He came out of the diamond war a fairly rich mercenary.

  Eventually, the diamond cartel established through a Swiss subsidiary the Outside Buying Office, or OBO, in Antwerp. Working at an arms-length distance, it provided funds to buying agents throughout West Africa to buy up or otherwise prevent gem diamonds from reaching diamond cutters.

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  Infringement On The Patent

  In 1950, De Beers had a worldwide monopoly on the production of natural diamonds. It directly controlled all the pipe mines in the world-- there were only seven, and they were all in southern and central Africa-- and it had arrangements, either direct or surreptitious, with the governments of all the major diamond-producing countries to buy whatever diamonds were found in those regions by native diggers or fortune hunters. It also had the financial and political resources to preemptively buy out any new diamond discovery in most parts of the world.

  There was, however, another threat to the diamond invention that emerged that year: the possibility that diamonds could be produced in a laboratory or even a factory. A team of scientists at the De Beers Research Laboratories had come to the conclusion that it was only a matter of time before a process was found for synthesizing diamonds. They had received information that both the United States and the Soviet Union were encouraging research aimed at mass producing industrial-grade diamonds. Converting carbon, which was one of the most common of all substances on earth, to diamonds was basically an engineering problem. It required constructing a vessel strong enough to withstand the heat and pressure necessary for inducing the synthesis. In a meeting with Sir Ernest Oppenheimer, they had themselves argued that advanced metallurgic alloys and high-pressure physics made the solution of this problem inevitable. They proposed that De Beers itself take the lead in developing this diamond-making technology, then through patents and licenses attempt to control synthetic diamond production. They warned that if an outside party made the breakthrough, De Beers might lose its monopoly position.

  Sir Ernest had listened patiently to their arguments for a crash program on diamond synthesis. Then, after considering the matter, he turned them down, and said, "Only God can make a diamond." His dogma notwithstanding, his scientific assessment of the situation proved wrong. Within two years, a diamond was produced in a laboratory in Sweden.

  For at least 300 years scientists had experimented with the conversion of carbon to diamonds. For example, as early as 1694, Florentine academicians gathered around a terrace to witness the following experiment: A magnificently cut diamond was placed in a crucible under a powerful glass lens. As the sun's rays focused on it, it began giving off acrid black vapors. A few minutes later, it disappeared in a cloud of smoke, leaving not a trace of diamond in the crucible. The academicians suggested that the diamond was pure carbon, and under the fiery heat it had turned
to the gaseous form, carbon dioxide. But they could not prove this assertion.

  A century later, an English chemist, Smithson Tennant, burned a diamond in a sealed vessel filled with pure oxygen. It also decomposed into an acrid vapor. Through chemical analysis, Tennant was able to determine that this vapor was carbon dioxide, and that the weight of the carbon in the vapor exactly matched the weight of that of the diamond that had vaporized. From this and other experiments, it was scientifically established that a diamond was carbon.

  If diamonds could be transformed through a simple chemical reaction into carbon, it followed that carbon, through a reverse process, could be converted to diamonds. From the nineteenth century onward, the idea that the commonest of elements, carbon, could be turned into rare diamonds in the laboratory intrigued both scientists and confidence men and led to a wide range of experiments as well as dubious claims.

  In 1880, a twenty-five-year-old Scottish chemist named James Ballantyne Hannay, working in a laboratory in Glasgow, attempted to achieve this sought-after synthesis by exploding carbonaceous material. He first sealed a mixture of powdered carbon, bone oil, and paraffin in coiled tubes, and then placed the tubes into a furnace. When the heat and pressure built up sufficiently, the tubes exploded and splattered the furnace walls with white-hot debris. After waiting for the furnace to cool, Hannay carefully scraped a number of minute particles off the sur~ace with a tweezers and found that these specks scratched glass-one test of a diamond. Triumphantly, Hannay claimed that he had manufactured diamonds and sent about a dozen specimens to the British Museum of Natural History in London.