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The Trade of Conflict DiamondsDe Beers & ABN Amro

By

Tharunya RRoll no -KH.BU.P2.9063

MBA , Amrita School of Business

Kochi



Declaration

This is to formally certify that the Project ´Trade of conflict Diamonds : De beers& ABNAmro ´ is an original work compiled by Ms. Tharunya Raveendran using secondarydata collected from online portals and journals and the appropriate referencing to thesources have been indicated.

ASB 18-09-2010

Kochi



Contents Page

1) Executive Summary««««««««««««««««««««««««««4

2) Introduction«««««««««««««««««««««««««««««..5

3) Research Question, Methodology & Scope«««««««««««««««.....6

4) Main Issue Details & Analyses«««««««««««««««««««««..12

5) Conclusions & Initiatives««««««««««««««««««««««««14

6)Bibliography«««««««««««««««««««««««««««««...16



Executive Summary

Among the various luxury products that have been prevalent in history nothing hasbeen more controversial than the story of the trade of diamonds. Diamonds have hadlegends surrounding them and even today they are regarded as a symbol of status andaffluence. Diamonds and other precious stones are almost said to be having asupernatural power revered by the elite.If not for adorning beauty it has also largelygrown as an option for future investments. And what truly makes it rare is its limited

supply, i.e, available in very few mines located in South Africa, India and others and itsmarginal utility.

The international diamond Industry has largely been monopolistic in naturedominated by De Beers trading firm. ABN Amro is an international banks that facilitatethe trade of diamonds the most. Most of the diamonds around the world are sourcedfrom Africa where many countries like Angola, Sierra Leone ,Democratic Republic ofCongo that are stricken in the mires of civil war. And certain militant groups in theseareas fund their coupe weaponry by trading those diamonds from the mines they haveforcibly taken control of. Major players Like De Beers and ABN Amro are under the fireof controversy because of trading those conflict diamonds. There has been an increased

awareness about this issue and it has also started playing significantly on the end-consumer perceptions. Thus there has been certain legal, political and ethical issuesthat have arose from this which this case intends to study.



INTRODUCTION

Often it is observed that businesses mitigate war and are supposed to fuel a country·seconomy by providing employment, bringing in foreign investments and thus anoverall economical wealth and prosperity. However this study presents a contradiction

to the said view .It explores the issue of Conflict diamonds or the blood diamonds thathas recently mired the international diamond industry as a whole in particular bigfishes like De Beers associates and ABN Amro.

Diamonds are essentially revered world -over as a luxury product. The ownership of adiamond ornament is a declaration of once hard-earned status, a gift of it to one·s loveis an expression of deep emotional attachment and an investment in it is a strongreliable asset. Many of the world histories and legends surround diamonds for instancethe story of the Kohinoor Diamond brought from the Indian Golconda mine in thecolonial era adorns the crown of Queen Elizabeth. Often the origin of diamonds is aprimal issue with the consumers. Thus the issue of conflict diamonds becomes more

relevant .

Two thirds of the diamonds world over are sourced from countries like Liberia , SierraLeone, Angola, Ivory Coast, The Democratic Republic of Congo, The republic of Congoand recently Zimbabwe that are politically unstable. The governments of these regionsare inefficient and still in the initial turbulent years of establishment and consolidation,and there are militant groups that have a stronghold over the diamond mines. Theytrade diamonds with companies world over and finance their weapons and civil warsunleashed upon the governments and people at large.Thus systematically violatinghuman rights. In fact the condition is so horrendous that even children are being

recruited and trained to unleash terror attacks. The media has responded to this issuewith the release of the movie called ´Blood Diamondµ directed by Ed Zwick. And sothere is a greater awareness of this issue world over and is now being stronglycondemned by end consumers.

Thus trading in tainted diamonds have become a contentious ethical-political issueand compaies like De beers and AMR Amro sre struggling to deal with it. Since it is aquestion of whose responsibility it is to curb the trade of illicit diamonds. Thoughcertain international organizations like UN and WDC(World Diamond Congress) haveframed certain strict regulations and policies to deal with it the key players are still thelocal unstable governments. Thus the companies are under pressure to self-regulate.



Research Questions

Certain questions this research proposes to explore:

1) What are the ethical and political issues related with the trade of conflictdiamonds?

2) What are the industry ²level measures taken to curb the business of conflictdiamonds?

3) How are the key players in the Diamond business like De Beers and ABN Amrodealing with their alleged involvement in the trade of conflict diamonds?

Research Scope

This study is made in an attempt to explore the issues in international business and isbased on secondary data analysis. An attempt is being made at understanding theconflict of interests in the international diamond industry. It looks at what is essentiallya controversial humanities issue from a business perspective.

Research Methodology

An exploratory secondary data analysis is the methodology chosen. The researchessentially explores the issue of conflict diamonds and studies the internationalbusiness aspects of it focusing on De Beers group of Companies and AMR Amro.Secondary data has been sourced from online sites of reputed newspapers , Wikipediaand other research sites details of which are clearly stated in the bibliography.



Background of the study

A brief on the Diamond Industry World over

Diamonds are a luxury product with unique attributes which are very distinct from thecommodities Whilst also a natural resource, diamonds are the main feature of an endconsumer product, as distinct from more fungible commodities. From a consumerperspective, diamonds have both emotional and physical attributes which influencepurchase behavior.Diamond jewellery competes with other discretionary services and products for the

share of consumers wallet Because of their aspirational and discretionary nature,Diamonds are more vulnerable to reputation threats than other raw materials. Itscontributes more to jewelry than to other sectors like Industry, Investment andautocatalyst.



Key Players and Their Market Share

Conflict diamonds

In relation to diamond trading, blood diamond (also called a converted diamond,conflict diamond, hot diamond, or a war diamond) refers to a diamond mined in a warzone and sold to finance an insurgency, invading army's war efforts, or a warlord'sactivity, usually in Africa]where around two-thirds of the world's diamonds areproduced.

Countries where the Conflict Diamonds are sourced And their political situation

Angola

Angola, a colony of Portugal, gained independence on November 11, 1975. Althoughindependent, the Popular Movement for the Liberation of Angola (MPLA), the NationalUnion for the Total Independence of Angola (UNITA), and the National LiberationFront of Angola (FNLA) fought in a civil war from 1974 to 2001. Between 1992 and 1998,UNITA sold diamonds, in the value of US$3.72 billion, to finance its war with thegovernment. The UN recognized the role that diamonds played in funding the UNITA

rebels and in 1998 passed United Nations Security Council Resolution 1173 and UnitedNations Security Council Resolution 1176, banning the purchase of conflict diamondsfrom Angola Resolution 1173 was the first resolution of the UN which specificallymentioned diamonds in the context of funding a war. Reports estimated that as much as20% of the total production in the 1980s were being sold for illegal purposes, and 19%were specifically conflict in nature. By 1999, the illegal diamond trade was estimated bythe World Diamond Council to have been reduced to 3.06% of the world's diamond



production.The World Diamond Council reported that by 2004 this percentage hadfallen to approximately 1%.

Despite the UN Resolution, UNITA was able to continue to sell or barter somediamonds in order to finance its war effort. The UN set out to find how this remaining

illicit trade was being conducted, and appointed Canadian ambassador Robert Fowlerto investigate.

Liberia and Sierra Leone

From 1989 to 2001 Liberia was engaged in a civil war. In 2000, the UN accused Liberianpresident Charles G. Taylor of supporting the Revolutionary United Front (RUF)insurgency in neighboring Sierra Leone with weapons and training in exchange fordiamonds. In 2001 the UN applied sanctions on the Liberian diamond trade. In August2003 Taylor stepped down as president, and after being exiled to Nigeria, now faces

trial in The Hague.

Around the time of the 1998 United States embassy bombings, al-Qaeda allegedlybought gems from Liberia as some of its other financial assets were frozen.

Having regained peace, Liberia is attempting to construct a legitimate diamond miningindustry. The UN has lifted sanctions and Liberia is now a member of the KimberleyProcess.

Ivory Coast

Ivory Coast (also known as the Côte d'Ivoire) began to develop a diamond miningindustry in the early 1990s. A coup overthrew the government in 1999, starting a civilwar. The country became a route for exporting diamonds from Liberia and war-tornSierra Leone. Foreign investment began to withdraw from the Ivory Coast. To curtailthe illegal trade, the nation stopped all diamond mining, and the UN Security Councilbanned all exports of diamonds from Côte d'Ivoire in December 2005. However, despiteUN sanctions the illicit diamond trade still exists in Côte d'Ivoire. Rough diamonds areexported out of the country to neighboring states and international trading centersthrough the northern, Forces Nouvelles controlled section of the country, a group whichis reported to be using these funds to re-arm.

The Democratic Republic of the Congo

The Democratic Republic of the Congo (formerly Zaire) has suffered numerous civilwars in the 1990s, but has become a member of the Kimberley Process and now exportsabout 8% of the world's diamonds.]One of De Beers' most celebrated and pricelessdiamonds, the flawless D-colour 200 carats (40 g) Millennium Star was discovered in the



DRC and sold to De Beers during the height of the Civil War that took place in the earlyto mid-nineties.

The Republic of Congo

The Republic of Congo (Congo-Brazzaville) was expelled from the Kimberley Process in2004 because despite having no official diamond mining industry, the country wasexporting large quantities of diamonds, the origin of which it could not detail. It wasalso accused of falsifying certificates of origin. The Republic of Congo was readmittedin 2007.

Zimbabwe

Zimbabwean diamonds are not considered blood diamonds by the Kimberley ProcessCertification Scheme. In the past the chaotic production at Marange and smugglingresulted in monitoring by the World Diamond Council.

Conflict Diamond campaign

Global witness was one of the first organizations to pick up on the link betweendiamonds and conflicts in Africa in its 1998 report entitled "A Rough Trade". With thepassing of United Nations Security Council Resolution 1173 in 1998, the United Nationstoo identified the conflict diamond issue as a funding for war. The Fowler Report in2000 detailed in depth how UNITA was financing its war activities, and in May 2000,

led directly to the passing of United Nations Security Council Resolution 1295 and thediamond producing countries of southern Africa meeting in Kimberley, South Africa toplan a method by which the trade in conflict diamonds could be halted, and buyers ofdiamonds could be assured that their diamonds have not contributed to violence

Kimberley Process Certification Scheme (KPCS)

July 19, 2000, the World Diamond Congress adopted at Antwerp a resolution for aninternational certification system on the export and import of diamonds, legislation inall countries to accept only officially sealed packages of diamonds, for countries to

impose criminal charges on anyone trafficking in conflict diamonds, and instituted aban on any individual found trading in conflict diamonds from the diamond bourses ofthe World Federation of Diamond Bourses.]The Kimberly Process was led by thediamond-producing African countries themselves..

The KPCS was given approval by the UN on March 13, 2002, and in November, aftertwo years of negotiation between governments, diamond producers, and Non-



Government organizations, the Kimberley Process Certification Scheme (KPCS) wascreated.

ABN Amro

With its headquarters in Amsterdam, ABN Amro is a large, internationally-orientedbank.ABN Amro occupies a strong position particularly in the Netherlands and UnitedStates.Worldwide, the bank holds sixth place and in Europe, it holds third place. TheInternational Diamond Division of ABN Amro in Antwerp is an international divisionwhich advises and supports ABN Amro diamond desks worldwide. ABN Amro is oneof the largest links in the diamond trade. ABN Amro is listed on the Euronext and isone of the funds of the AEX Index.

De Beers De Beers and the various companies within the De Beers Family of Companies are in thediamond, diamond mining, diamond trading and industrial diamond manufacturing sectors. Itis by far the largest company in all these categories.

De Beers is active in every category of industrial diamond mining: open-pit,underground, large-scale alluvial, coastal and deep sea. Mining takes place inBotswana, Namibia, South Africa and Canada. Over the last century, De Beers has beenhighly successful in increasing consumer demand for diamonds. One of the mosteffective marketing strategies has been the marketing of diamonds as a symbol of loveand commitment with its immortal slogan µa Diamond is forever.µ

NIZA

Since October 1999, a number of European societal organisations, including Amnesty International, have been campaigning alongside the Netherlands institute for SouthernAfrica (NIZA) against the illicit trade in diamonds from countries such as Angola, theDemocratic Republic of Congo(DRC), Liberia and Sierra Leone.



Main issue details & Analysis

Issue of ABN Amro

On 25 May 2001, the NIZA published the findings of a research study ¶ABN Amro andthe diamond trade·, which was carried out by SOMO on behalf of the NIZA (SOMO,2001). In the study it emerged that total bank debt of the global diamond industry at theend of 1999 amounted to 5,7 billion dollars. ABN Amro financed a third of thisamount.4 The prominent role that ABN Amro fulfilled in the diamond industry raisedquestions about the extent of the bank·s involvement in financing the ¶conflict trade·and which measures it took to prevent involvement.

It was reported that vested interests in the industry had stood in the way of reportingblood diamond traders and that the enormous incomes that were generated enabledpresidents to remain in power and rebel leaders to finance their wars. Deceased ZaireanPresident Mobutu(now the Democratic Republic of Congo, DRC) financed his regime

largely with diamonds. The NIZA and SOMO argued that, so long a soundinternational certification and monitoring system lacked, ABN Amro had to do more toacknowledge and meet its social responsibilities in this sector.

A significant player in the network of diamond traders is the Antwerp Diamond Bank(ADB).This bank is the only one which focuses exclusively on the diamond trade.6 Adiamond trader cannot approach just any bank. There are special diamond banks andbanks with special diamond divisions, such as ABN Amro. Banks can therefore play arole in financing the trade and processing of diamonds, and in providing storage,transport and customs services. ABN Amro branches in Antwerp, New York, Mumbai,Moscow, Bangkok, Hongkong, Singapore and Tokyo in particular, have large diamond

desks.

Indicators of reputational damage for Amro

- In the first three years since the issue first presented itself, no contracts were severedwith suppliers suspected of being linked to the illicit trade in diamonds. ABN Amro didreport that it received e-mails from concerned private customers who requested moreinformation about the bank·s involvement in the matter. No private or institutionalcustomer relinquished relations with the bank as a result of the issue.² earnings per share and return on capital employed - displayed a similar decline in the

course of 2001. In addition to the affair surrounding conflict diamonds, ABN Amro wasalsoconfronted with allegations of financing deforestatation practices on palm oilplantations and questionable mining practices.- Effect on Labour market: For ABN Amro·s attractiveness as employer declined in thecourse of the years. In 1998,ABN Amro took in second place and it maintained thisposition for two years running, only to slide back to third place in 2001. The changingperception of potential employees became manifest in 2002 when the bank slid to fifthposition, falling behind companies like Ahold and Shell .



.De beers & conflict diamonds

Prior to action being taken by the United Nations Security Council in 2000, De Beerswas buying conflict diamonds from guerilla movements in three African countries,

thereby financing regional conflicts. The initial focus of the UN's investigation was onUNITA movement in Angola, which was found to have bartered uncut diamonds forweaponry, thereby allowing the civil war to continue in 1998 despite internationaleconomic and diplomatic sanctions being in effect through United Nations SecurityCouncil Resolution 1173.

In 1999, under pressure from the United Nations, De Beers decided to stop all outsidebuying of diamonds in order to guarantee categorically the conflict-free status of DeBeers diamond, effective from 26 March 2000.

De Beers states that 100% of the diamonds it now sells are conflict-free and that all DeBeers diamonds are purchased in compliance with national law, the Kimberley ProcessCertification Scheme[and its own Diamond Best Practice Principles. The Kimberleyprocess has helped restore the reputation of the industry, as well as eliminating sourcesof excess supply.



Conclusions & Initiatives taken

Self-regulation -self regulation in the diamond sector is most effective. Strict regulations should be inplace and business relations are maintained only with reputable companies, such as De

Beers and Ascorp- ABN Amro could pay more attention to its social responsibility in the internaldiamond trade by playing a much more active role in regulating the diamond trade itfinances.Amro Intiatives -ABN Amro occupied a prominent position in the World Diamond Council (WDC), theorganisation by means of which the diamond industry intended combat the trade inconflict diamonds and promote legal trade. On 14 July 2000, four diamond banks in Antwerp, including ABN Amro, announcedtheir commitment to refrain from financing any activities related to the illicit trade in

diamonds from conflict areas (such as Liberia, Angola, Sierra Leone).14 On 20 July 2000, ABN Amro joined the World Business Council for SustainableDevelopment (WBCSD). The WBCSD is a coalition of approximately 130 companies in20 countries. These companies are committed to sustainable development, namely theintegration of economic growth, environmental protection and social advancement. Active participation in the ¶Kimberley Process· whereby certification and monitoringsystems were developed to prevent trade in conflict diamonds. ABN Amro now endorses all UN resolutions to end the trade in conflict diamondsandillicit diamonds. In July 2000, at a conference on the diamond trade, the World Federation of DiamondBourses (WFDB) and the International Diamond Manufacturers Association (IDMA) jointly submitted a resolution on conflict diamonds. This resolution called for aninternational certification and monitoring systems to regulate the import and export ofrough diamonds. It proposed that rough diamonds be sealed in the countries of originbefore being exported to the trade and/or cutting centres. The resolution was approvedbythe delegations, including ABN Amro. ABN Amro has had corporate values since 1997. The four values are: integrity,teamwork, respect and professionalism. A more detailed code of conduct is beingdeveloped.15 Since November 2001, broader social business principles complement thecorporate values. The company regards these principles, which include human rights,as guideline for ethical and social issues. The creation of long-term shareholder value

rests on two mutually reinforcing pillars: performance and reputation.16 The principlesform the point of departure for dialogue with stakeholders. The bank will also be assessmiddle management on their compliance with the code of conduct. As from 2003, partof their income will be determined by it.

De beers Action

On 2 June 2000, the South African diamond firm De Beers, and supplier to ABN Amro,



took far-reaching steps to prevent diamonds from African war zones entering themarket. Thelargest diamond firm in the world decided to withdraw completely fromAngola.8 Buyers to whom De Beers supplied rough diamonds were presented with acontract which included sanctions on trading in diamonds from conflict areas.9 DeBeers changed its rough diamond purchasing policy to prevent ¶conflict diamonds·

turning up at the sales branch of De Beers in London, the Central Selling Organisation(CSO). De Beers also decided to close all buying offices in Africa and to stop purchasingAfrican diamonds on the open market.

It concerned only a small quantity of diamonds, De Beers and ABN Amro wanted toavoid embarrassing the whole diamond industry and themselves. In 2001, the Board ofDe Beers introduced a universally applicable code of conduct. ABN Amro also launchedinitiatives so as to preserve the trust of its stakeholders and fulfil its role as sociallyresponsible bank. One of the initiatives was to assist in the ¶Kimberley Process·10during which the diamond industry set up a certification and monitoring system to

combat the illicit trade in conflict diamonds.11 On 1 January 2003, the system waslaunched which only permits trade in certified diamonds..



Bibliography

1) http://en.wikipedia.org/wiki/De_Beers 2) http://www.ib-sm.org/CaseABNAmro.pdf

3) http://en.wikipedia.org/wiki/Blood_diamond

4) ww.econ.umn.edu/~lepetyuk/Econ1101/DeBeers.pdf

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