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The following is an unauthorized version of the Report of the Panel of Experts to the United Nations on Sierra Leone.
This is not the official report. The official report has not yet been released. The report posted here is subject to change by the sanctions committee.
III. 'CONFLICT' DIAMONDS' AND 'ILLICIT' DIAMONDS
A. The Issue
145. 'Conflict diamonds' have been defined as diamonds that originate in areas controlled by forces fighting the legitimate and internationally recognized government of the relevant country. De Beers has estimated that in 1999 the total volume of conflict diamonds was approximately $255 million, less than 4 per cent of the world's rough diamond production of $6.8 billion. Of these, $35 million were said to originate in Democratic Republic of The Congo, $150 million in Angola, and $70 million in Sierra Leone. Where the DRC is concerned, some researchers place the figure at about twice the De Beers estimate. Where Sierra Leone is concerned, a more detailed discussion can be found in paragraphs 79-81 above.
146. In its search for conflict diamonds from Sierra Leone, the Panel discovered that there is a much greater volume of 'illicit' diamonds, and that distinguishing between the two is extremely difficult. As noted above, part of the difficulty in understanding diamond statistics is that once rough diamonds arrive in Europe, they are sorted, traded across borders, re-sorted and re-traded - possibly many times - before they actually get to a cutting and polishing centre.
147. This obscuring of origins makes the diamond industry vulnerable to a wide variety of illicit behaviour. It is no secret that diamonds are stolen from virtually every mining area in the world. Diamonds have long been used as an unofficial hard currency for international transactions. As with other precious commodities, they lend themselves to money laundering operations. Because they are small and easily concealed, they are readily moved from one country to another for the purpose of tax evasion, money laundering or to circumvent trade agreements. Virtually all of these diamonds eventually find their way into the legitimate trade. And all of these illicit transactions are made easier by the industry's long history of secrecy. Secrecy in the diamond industry is understandable for security reasons, but secrecy also obscures illicit behaviour.
148. At an October 2000 intergovernmental meeting on conflict diamonds in Pretoria, a senior diamond evaluator and trade consultant estimated that 20 per cent of the worldwide trade in rough diamonds is illicit in nature. The Panel raised this issue in its travels, and the figure was widely accepted as a reasonable estimate.
149. Official rough diamond production in 1999 was approximately $6.85 billion. About 65 per cent of this was controlled in one way or another by De Beers, which maintains that its diamonds are clean. If it is assumed that no De Beers diamonds are 'illicit', the illicit 20 per cent of $6.85 billion must all be flowing through the part of the business that trades on 'outside markets'. This would mean that a surprising 57 per cent of the outside market is comprised of illicit diamonds. Two other possibilities exist. The first is that the 20 per cent estimate is wrong. The second is that if it is not wrong, De Beers, too, must accept some responsibility for the trade in illicit diamonds. Whatever the explanation, this is an area that warrants further study, because it has the potential to taint and damage the entire industry.
150. Regardless of the explanation, it became obvious to the Panel that there is a very large trade in illicit diamonds, and that conflict diamonds are only a part of this trade. They are, in essence, illicit diamonds that have gone septic. They are, however, difficult to distinguish from illicit diamonds, because they are often traded in the same way, and by many of the same people who have been involved in the illicit trade for generations. When asked how conflict diamonds enter the system, dealer after dealer told the Panel that it happens in the same way that illicit diamonds enter the system. Someone brings them to a trading centre - Israel or New York, for example - either smuggling them past customs or making a false declaration. Either way, they will find a buyer. Or, a dealer will go to Africa and buy them from rebels, or from a third or fourth party. He will then take them to Europe, Israel or New York, and smuggle them past customs or make a false declaration.
B. Conclusion on Conflict versus Illicit Diamonds
151. The Panel visited three import-export regulatory centres: in South Africa, Israel and Belgium. Given the huge volume of diamonds moving in and out of these three countries alone, even a five or tenfold increase in the size of these regulatory operations would probably not be enough to deal effectively with the issue of illicit diamonds. A global certification scheme with teeth would help, because it would require much better documentation on the part of exporters and importers, and would make false declarations less possible. A global certification scheme would not completely stop smuggling, but the anomalies described in the Liberian, Gambian and Guinean case studies above would not have been possible, and such a system would help put an end to conflict diamonds in Sierra Leone.