Diamonds and Dubai
When the Kimberley Process was conceived almost 15 years ago, it was one of the first multi-stakeholder initiatives to tackle a common problem—how a high-value mineral was fuelling horrific civil wars in several parts of Africa. The very foundation of the scheme comprised the collaboration of governments, industry, and civil society. But today, that foundation is slowly crumbling.
Our role as civil society has been the watchdogs and the eyes on the ground. After the KP was established, we monitored developments and highlighted abuses in the system. As the diamond industry continues to be tainted by links between conflict and illicit financing, civil society steps up to investigate and address these serious issues.
For example, on my visit to Liberia in 2013—and more recently to Sierra Leone earlier this year—I met with policymakers who were eager to comply with Kimberley Process export requirements, but still struggled due to a lack of capacity and training. I also spoke with miners and exporters who were eager to operate legally and within the system, but didn’t have the proper information—or capital—to be able to participate in the formal economy.
More importantly, diamond-producing countries are increasingly aware they are losing out on their diamond wealth. Diamonds are flowing to Dubai—a major trading hub—and re-exported at inexplicably higher prices. Policymakers are at a loss over what to do about it.
Since the formation of the Kimberley Process, Dubai has shot from obscurity to become the third-largest diamond trading hub in the world, last year trading $40 billion U.S. worth of diamonds. Companies in its jurisdictions also engage in a practice known as transfer pricing, which results in smaller revenues for Africa’s diamond-producing countries. Recent Kimberley Process statistics, a 2013 report by the Financial Action Task Force (FATF), and Partnership Africa Canada’s (PAC’s) 2014 report, All that Glitters is not Gold, all highlighted how exports from Dubai are on average 44 per cent higher than their original import values—a markup inexplicably four times that of competing trading centres
Loopholes in Dubai’s practices have real-world consequences for African producers. Transfer pricing of diamond exports through tax-free havens costs African producers hundreds of millions of dollars a year alone. Lost revenues mean less public services, weaker institutions, and consequently, weaker compliance with KP standards.
Lax regulations and import controls, as well as insufficient due diligence by some industry players, contribute to governance challenges, and, in some cases, aid and abet those profiting from political instability, including armed conflict. It also explains why the economic promise of diamonds continues to elude most African governments.
