The Heart of the Matter: Sierra Leone, Diamonds and Human Security

By Ian Smillie, Lansana Gberie and Ralph Hazleton

ISBN 0-9686270-5-6

© Partnership Africa Canada, January 2000

Preface
Introduction
The Diamond Industry and De Beers
Belgium and the Diamond High Council
The Sierra Leone Diamonds
The ‘Juniors' and Private Security Firms

( Part II) Recommendations

PREFACE

This study grew from a discussion among members of an informal group in
Ottawa called the ‘Sierra Leone Working Group'. Meeting under the auspices
of Partnership Africa Canada (PAC), the group concluded that diamonds were
central to the conflict in Sierra Leone, and that a highly criminalized war
economy had developed a momentum of its own. The group believed that no
peace would be sustainable until problems related to mining and selling
diamonds had been addressed, both inside Sierra Leone and internationally.

The study was conducted between February and December 1999. Many
organizations and individuals supported this study. To all of them the
authors and PAC are very grateful.

INTRODUCTION

This study is about how diamonds - small pieces of carbon with no great
intrinsic value - have been the cause of widespread death, destruction and
misery for almost a decade in the small West African country of Sierra
Leone. Through the 1990s, Sierra Leone's rebel war became a tragedy of major
humanitarian, political and historic proportions, but the story goes back
further - almost 60 years, to the discovery of the diamonds. The diamonds
are, to use the title of Graham Greene's classic 1948 novel about diamond
smuggling in Sierra Leone, The Heart of the Matter.

In the 1960s and 1970s, a weak post-independence democracy was subverted by
despotism and state-sponsored corruption. Economic decline and military rule
followed. The rebellion that began in 1991 was characterized by banditry and
horrific brutality, wreaked primarily on civilians. Between 1991 and 1999,
the war claimed over 75,000 lives, caused half a million Sierra Leoneans to
become refugees, and displaced half of the country's 4.5 million people.
There is a view that Sierra Leone's war is a crisis of modernity, caused by
the failed patrimonial systems of successive post-colonial governments.
Sierra Leonean writers have rejected this analysis on several grounds. While
there is no doubt about widespread public disenchantment with the failing
state, with corruption and with a lack of opportunity, similar problems
elsewhere have not led to years of brutality by forces devoid of ideology,
political support and ethnic identity. Only the economic opportunity
presented by a breakdown in law and order could sustain violence at the
levels that have plagued Sierra Leone since 1991.

Traditional economics, political science and military history are of little
assistance in explaining Sierra Leone's conflict. The point of the war may
not actually have been to win it, but to engage in profitable crime under
the cover of warfare. Diamonds, in fact, have fueled Sierra Leone's
conflict, destabilizing the country for the better part of three decades,
stealing its patrimony and robbing an entire generation of children, putting
the country dead last on the UNDP Human Development Index.

Over the years, the informal diamond mining sector, long dominated by what
might be called ‘disorganized crime', became increasingly influenced by
organized crime and by the transcontinental smuggling not just of diamonds,
but of guns and drugs, and by vast sums of money in search of a laundry.
Violence became central to the advancement of those with vested interests.
As the mutation of the war in Sierra Leone continued and spread through the
1990s, so did the number and type of predators, each seeking to gain from
one side of the conflict or another.

The Diamond Industry and De Beers

In 1998 the international diamond industry produced an estimated 115 million
carats of rough diamonds with a market value of US $6.7 billion. At the end
of the diamond chain, this was converted into 67.1 million pieces of jewelry
worth close to US $50 billion.

The De Beers group of companies mines, or partners in mining, the majority
of the world's diamonds. De Beers purchases by far the majority of all
diamonds produced, and more or less sets the price of rough diamonds on the
global market. Manipulation of both the supply and demand for rough diamonds
on world markets is managed through its Central Selling Organization (CSO),
headquartered in London.

The CSO sources diamonds from De Beers mines as well as from the ‘outside
market' - diamonds produced by non-De Beers firms. Diamonds purchased by the
CSO are in turn sold at ten annual ‘sights' (sales) to 160 ‘sightholders'.
Sightholders are designated by De Beers and are presented with mixed
‘parcels' of diamonds. The parcels are packages of combined rough gem
quality and industrial diamonds, and may include stones from a combination
of countries. Parcels are priced by De Beers and are bought by
sightholders - ironically enough, sight unseen. Sightholders then take the
diamonds to other cities where they are resorted and repackaged for onward
sale, or for cutting and polishing.

Until the 1980s, De Beers was directly involved in Sierra Leone, had
concessions to mine diamonds offshore, and maintained an office in Freetown.
Since then, however, the relationship has been indirect. De Beers maintains
a diamond trading company in Liberia and a buying office in Conakry, Guinea.
Both countries produce very few diamonds themselves, and Liberia is widely
understood to be a ‘transit' country for smuggled diamonds. Many ‘Liberian'
diamonds are of Sierra Leonean origin, and others reportedly originate as
far away as Russia and Angola. De Beers says that it does not purchase
Sierra Leonean diamonds. Through its companies and buying offices in West
Africa, however, and in its attempts to mop up supplies everywhere in the
world, it is virtually inconceivable that the company is not - in one way or
another - purchasing diamonds that have been smuggled out of Sierra Leone.

Belgium and the Diamond High Council

Antwerp is the world centre for rough diamonds. More that half of the CSO
sightholders reside in Antwerp. Antwerp is also the principal ‘outside
market' serving as a funnel for more than half of all the diamonds produced
in the world. The formal trading of diamonds in Belgium is structured around
the Hoge Raad voor Diamant (HRD) - the Diamond High Council. The HRD is a
non-profit umbrella organization officially acknowledged as the voice of the
entire Belgian diamond industry. The mission of the HRD is to maintain and
strengthen the position of Antwerp as the world centre for diamonds.
Smuggling in the Belgian context refers to diamonds which enter Belgium
without being declared to customs officials, and which are not licensed for
import by the Ministry of Economic Affairs and the HRD Diamond Office.
Neither the Government of Belgium nor the HRD have estimates of the quantity
or source of smuggled diamonds. In addition, there are few active policies
aimed at controlling diamond smuggling.

A factor which eases large-scale diamond smuggling and inhibits the tracking
of diamond movements is the manner in which the HRD documents diamond
purchases. The HRD records the origin of a diamond as the country from which
the diamond was last exported. Therefore diamonds produced in Sierra Leone,
say, may be officially imported and registered as originating in Liberia,
Guinea, Israel or the UK, depending on their journey from one trading centre
to another.

A major problem with the Belgian environment - as it pertains to Sierra
Leone or any other diamond producing country - is the lack of interest and
information on the true source of the diamonds entering the country. A
comparison of West African diamond export figures with Belgian imports is
revealing. For example:

- while the Government of Sierra Leone recorded exports of only 8,500
carats in 1998, the HRD records imports of 770,000 carats;
- annual Liberian diamond mining capacity is between 100,000 and 150,000
carats, but the HRD records Liberian imports into Belgium of over 31 million
carats between 1994 and 1998 - an average of over six million carats a year;
- Ivory Coast, where the small diamond industry was closed in the mid
1980s, apparently exported an average of more than 1.5 million carats to
Belgium between 1995 and 1997.

Of further interest where transparency and accountability are concerned, is
the question of who actually monitors imports and exports on behalf of the
Belgian government. Oddly, this role is carried out largely by the HRD
itself, the representative and lobbying institution for the Belgian diamond
industry. In recent years there have been a number of judicial inquiries
which have shown that the overall system violates almost any definition of
neutrality, and is an invitation to corruption. Cases of fraud in the
Antwerp diamond trade are legendary and Antwerp has become one of the
primary world centres for Russian organized crime.

The Sierra Leone Diamonds

The first Sierra Leonean diamond was found in 1930, and significant
production commenced in 1935. Sierra Leonean production is characterized by
a high proportion of top-quality gem diamonds. The Star of Sierra Leone, a
magnificent 969-carat diamond, was discovered in the Koidu area. By 1937
Sierra Leone was mining one million carats annually, reaching a peak of 2
million carats in 1960. From 1930 to 1998, approximately 55 million carats
were mined (officially) in Sierra Leone. At an average price in 1996 dollars
of US $270 per carat, the total value is close to US $15 billion.

In 1935, the colonial authorities concluded an agreement with De Beers'
Sierra Leone Selection Trust (SLST), giving the company exclusive mining and
prospecting rights over the entire country for 99 years. By 1956, however,
there were an estimated 75,000 illicit miners in Kono District - the heart
of the diamond area - leading to smuggling on a vast scale, and causing a
general breakdown of law and order. The buyers and smugglers at that time
were mainly Madingo and Lebanese traders. With the tightening of security
between Kono and Freetown in the early 1950s, Lebanese smugglers began
moving their goods to Liberia. Antwerp, and then Israeli-based diamond
merchants soon noticed the booming diamond trade in Monrovia, and many
established offices there. De Beers itself set up a buying office in
Monrovia in 1954, in order to keep as much of the trade under its control as
possible.

In 1955, the colonial authorities scrapped SLST's nation-wide monopoly,
confining its operations to Yengema and Tongo Field, an area of about 450
square miles. In 1956, they introduced the Alluvial Mining Scheme, under
which both mining and buying licenses were granted to indigenous miners.
Many of these licenses came to be held by Lebanese traders who had begun to
settle in Sierra Leone at the turn of the century.

Siaka Stevens became Prime Minister seven years after independence in 1968.
A populist, he quickly turned diamonds and the presence of SLST into a
political issue, tacitly encouraging illicit mining, and becoming involved
himself in criminal or near-criminal activities. In 1971, Stevens created
the National Diamond Mining Company (NDMC) which effectively nationalized
SLST. All important decisions were now made by the prime minister and his
right hand man, a Lebanese businessman named Jamil Mohammed. From a high of
over two million carats in 1970, legitimate diamond exports dropped to
595,000 carats in 1980 and then to only 48,000 in 1988. In 1984, SLST sold
its remaining shares to the Precious Metals Mining Company (PMMC), a company
controlled by Jamil. Stevens retired in 1985, handing over power to Joseph
Momoh, who placed even greater responsibility in the hands of Jamil.

From the late 1970s to the early 1990s, aspects of Lebanon's civil war were
played out in miniature in Sierra Leone. Various Lebanese militia sought
financial assistance from their compatriots in Sierra Leone, and the
country's diamonds became an important informal tax base for one faction or
the other. This was of great interest to Israel, in part because the leader
of the important Amal faction, Nabih Berri, had been born in Sierra Leone
and was a boyhood friend of Jamil. Following a failed (and probably phoney)
1987 coup attempt in Sierra Leone, Jamil went into exile, opening the way
for a number of Israeli ‘investors' with close connections to Russian and
American crime families, and with ties to the Antwerp diamond trade.

The Revolutionary United Front (RUF) rebel war began in 1991 and soon after,
Momoh was replaced by a military government - the National Provisional
Ruling Council (NPRC). Despite the change in government, however, RUF
attacks continued. From the outset of the war, Liberia acted as banker,
trainer and mentor to the RUF, although the Liberian connection was hardly
new. With a negligible diamond potential of its own, Liberia's dealings in
stolen Sierra Leone diamonds have been a major concern to successive Sierra
Leone governments since the great diamond rush of the 1950s.

What was different and more sinister after 1991 was the active involvement
of official Liberian interests in Sierra Leone's brutal war - for the
purpose of pillage rather than politics. By the end of the 1990s, Liberia
had become a major centre for massive diamond-related criminal activity,
with connections to guns, drugs and money laundering throughout Africa and
considerably further afield. In return for weapons, it provided the RUF with
an outlet for diamonds, and has done the same for other diamond producing
countries, fueling war and providing a safe haven for organized crime of all
sorts.

The ‘Juniors' and Private Security Firms

President Momoh's search for new investors in the early 1990s was carried
forward by the NPRC military government. With De Beers out of the picture,
and with the disappointing and short-lived Israeli experience behind it, the
government now began to receive overtures from small mining firms, known in
the business as ‘juniors'. Three of these juniors became heavily involved in
Sierra Leone during the 1990s, some with interests that extended far beyond
the mining of diamonds.

All three companies trade on Canadian stock exchanges, no doubt because of C
anada's reputation as a source of easy venture capital for small mining and
exploration companies. The first, Rex Diamond - with de facto headquarters
in Antwerp - has an integrated mining, sorting, cutting and marketing
operation, holding Sierra Leonean concessions in Zimmi and Tongo Field.
Although Rex claims friends among both government and the RUF, this is
denied by the RUF, perhaps understandably. In 1998, Sierra Leone lost its
only combat helicopter - a serious problem because the Soviet-built gunship
had been the government's most effective weapon against the RUF. Zeev
Morgenstern, Rex's Managing Director, and Serge Muller, the company's
President, came to the government's aid by making an arrangement to supply
engines, parts and ammunition worth US $3.8 million. The deal went sour as a
result of defective parts supplied from Russia. According to the Washington
Post, Morgenstern and Muller have both said, ‘...the arms deals were
unrelated to Rex's mining activities'.

The second firm is Toronto-based AmCan Minerals, which holds various
exploration licenses in Sierra Leone. Because of the security situation,
AmCan has so far done little diamond mining, although it recently acquired a
South African-owned firm, ArmSec International (SL) with connections to both
the diamond and the security industries. AmCan's Sierra Leone lawyer is
Chairman of the Government Gold and Diamond Office, the body responsible for
overseeing the monitoring, valuation and taxation of the diamond industry.

The third ‘Canadian' firm is the London-headquartered DiamondWorks, an
outgrowth of Carson Gold and Vengold, companies promoted by Robert and Eric
Friedland. In 1995, DiamondWorks acquired Branch Energy Ltd., a private
company registered on the Isle of Man. DiamondWorks and Branch Energy have
become the subject of widespread interest because of their apparent but
much-denied connections with two major international security firms,
Executive Outcomes and Sandline. In 1995, The Government of Sierra Leone,
backed militarily onto the Freetown peninsula by the RUF and facing certain
defeat, engaged the services of Executive Outcomes (EO) to help in its
defense. With 200 imported soldiers, air support, and sophisticated
communications equipment, EO pushed the RUF back from Freetown within a
week, and within another month had cleared the major diamond areas of Kono
as well. Shortly after EO took control of the diamond areas, Branch Energy -
which had introduced EO to the GOSL - secured a 25 year lease on Sierra
Leonean diamond concessions.

In 1997, DiamondWorks' Sierra Leone country manager was seconded - as a
‘private citizen' - to Sandline, in connection with a controversial arms
shipment intended for the briefly exiled government of Tejan Kabbah.

The juniors arrived in Sierra Leone after the formal instruments of the
state - notably law, order, probity and justice - had all but disappeared.
They also arrived in the midst of a war which had at its epicentre the same
thing that brought them to the country - diamonds. Lawlessness, however, was
not new. The government of Sierra Leone had - from the 1950s - given up
pretending that it could police the diamond areas. From the days of the SLST
Diamond Protection Force, it had encouraged and even required foreign
investors to make their own security arrangements. This goes a long way to
explaining why the juniors appear to have such an intimate relationship with
private security firms.

There is a distinction to be made, however, between the need to hire a
private security firm in order to police a mining operation, and the
provision of troops and weapons in support of a faction in a civil war. Some
would argue that regardless of Executive Outcome's own purpose, its
involvement in Sierra Leone was in a good cause. EO successfully protected a
democratically elected government against a brutal and illegitimate rebel
force. And EO was certainly cheered in the streets of Freetown for its
efforts. Some would also argue that the provision of weapons to the
democratically elected government of Tejan Kabbah - a UN arms embargo
notwithstanding - made sense and was in support of a good cause.

The problem is not the individual episodes, but the bigger picture which
they help to form - of a world in which beleaguered and legitimate
governments find little formal international protection against internal
predators, and are forced into Faustian bargains in order to survive.

In the absence of a governmental capacity for self-protection, and in the
absence of effective mechanisms for international protection, private
security firms and mercenaries may be seen by some as the way of the future.
Closely connected to mining interests, the phenomenon, however, is more than
just a convenient way to let the international community ‘off the hook'. It
begins to look like a protection racket, with the payment for assistance
made in future mineral concessions - ‘concessions for protection'.

It is unclear whether junior mining companies have the capacity to undertake
serious mining ventures in Sierra Leone. Only time and peace will tell. On
the latter point, however, a peace agreement is only one step in a long
process that will be required to provide real security in the diamond areas.
An important next step will the demobilization of fighters and a return to
the rule of law under government authority, and major investments in
long-term human development. Before government authority can be established,
however, there may well be a lengthy interregnum required for UN
peacekeeping forces.