De Beers and Conflict Diamonds (A) For decades De Beers operated a cartel in the diamond industry in which it controlled nearly 80 percent of the distribution of rough diamonds.80 De Beers also produced, primarily in South Africa, a large but decreasing share of the world’s diamonds. The company founded by Cecile Rhodes and managed by the Oppenheimer family bought under long-term contracts the bulk of the world’s diamonds from mining companies, maintained a large inventory, and sold rough diamonds in an orderly manner to maintain high prices. Distribution of the diamonds was through the Central Selling Organization in London, which sold in bulk to diamond cutters.81 De Beers did not have retail operations. This system worked well until 1990 when the production of diamonds increased and more began to leak into the market. The collapse of the Soviet Union and increased production there and production increases in Western Canada and elsewhere resulted in an increase in the supply of diamonds. Most diamond mining involved capital intensive shaft mining, but alluvial diamonds were found near the surface. Alluvial diamonds were easy to mine and became the source of funding for rebels and guerrillas in parts of Africa. The result was horrific civil wars, killings, torture, and mutilations. These diamonds became known as “conflict diamonds.” Killings financed by conflict diamonds were most severe in Sierra Leone, Angola, and Liberia. The world was incensed by the tragedy accompanying the conflict diamonds. The international diplomatic community and NGOs campaigned to end the killings, but it became clear that as long as conflict diamonds were available to finance the purchase of weapons the killings would continue. NGO activity increased during the 1990s led by Global Witness, which issued reports in 1998 and 1999, blaming companies as well as governments for the atrocities. The United Nations sanctioned the UNITA rebels in Angola and applied sanctions on the diamond trade in Angola and Sierra Leone, but conflict diamonds continued to find their way into the international markets. De Beers continued its traditional policies during the 1990s but found that its stockpile of rough diamonds was skyrocketing as it bought excess diamonds. In 2000 it was forced to end its control of the diamond supply, focusing instead on the orderly distribution of diamonds. De Beers along with others in the industry was also worried that the image of diamonds could be tarnished. The high price of diamonds was in an important sense artificial, since diamonds had no intrinsic value.82 De Beers began a consumer marketing campaign to enhance the image of diamonds as symbols of love and marriage and attempted to brand diamonds at retail. The atrocities and killings in Africa had rallied an array of NGOs that concluded that the only way to stop the killings was to stop the flow of conflict diamonds. The NGOs pressured the United Nations, individual countries in the developed world, and the African countries to stop the flow of conflict diamonds. They also blamed the diamond companies for their role in buying the diamonds. Some of the NGOs began to label them “blood diamonds” and sought to persuade consumers not to buy diamonds. A movie entitled Blood Diamond was made, and rapper Kanye West released “Diamonds from Sierra Leone.” The campaign posed a threat to the image that gave diamonds their value. ■ Preparation Questions 1. How serious are the developments centering on conflict diamonds? To what extent is De Beers at risk? To what extent is De Beers responsible? 2. Identify the key actors in the case and their interests and objectives. 3. Is there a mechanism that can stop the supply of conflict diamonds, end the killings, and restore order to the market? Which parties should lead the development of this mechanism? How would the mechanism be enforced? 4. Are there ways to get around the mechanism?