Ongoing smuggling, money laundering benefits Zimbabwe political elite.
Partnership Africa Canada (PAC) alerted the global diamond industry to ongoing smuggling in Zimbabwe, adding that money laundering and a lack of transparency directly benefits certain members of the country’s ruling party.
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In a report titled “Reap What You Sow: Greed and Corruption in Zimbabwe’s Marange Diamond Fields,” released to coincide with the start of Zimbabwe’s International Diamond Conference on Monday, PAC claimed that the diamond industry’s efforts to detect and interrupt smuggled Marange diamonds continues to fail, thus compromising the entire supply chain.
The Marange mines caught the world’s attention in late 2008 when the government launched an operation to evict illegal miners from the area that resulted in serious human rights abuses, including the deaths of more than 200 miners, Human Rights Watch reported at the time.
The incident sparked a three-year debate at the Kimberley Process Certification Scheme regarding Zimbabwe’s right to export its Marange production and its participation in the scheme. In November 2011, the Kimberley Process lifted the export restrictions.
There are currently four operating mines in the Marange fields, including Mbada Diamonds, Marange Resources, Chinese company Anjin and Dubai-based Diamond Mining Company (DMC). The combined production of the mines is estimated at about 1.3 million carats per month in 2012. Zimbabwe’s diamond production reached 8.5 million carats valued at $476.2 million in 2011, according to Kimberley Process data.
While PAC noted that no recent mass murder has occurred in and around the Marange diamond fields, it confirmed ongoing corruption associated with the mines. The group indicated that there has also been gross negligence on the part of trading centers in Dubai, Israel and India, where the trade turns a blind eye to illegal rough imports and the ineffectiveness of the Kimberley Process to monitor the rough pipeline.
The chief beneficiary
PAC concluded that one man, in particular, was benefiting from Zimbabwe’s diamond mining trade: Obert Mpofu (pictured), the country’s minister of mines and a member of President Robert Mugabe’s ZANU-PF ruling party. The report claimed that Mpofu is the chief custodian of the Marange fields, where he presides over the concessions he awarded to dubious individuals without mining experience and under questionable terms, offering no accountability or due diligence.
Tendai Biti, Zimbabwe’s finance minister, who is a member of the Movement for Democratic Change (DMC), which currently has a power sharing agreement with ZANU-PF, has claimed a shortfall of hundreds of millions of dollars worth of diamond revenue at the treasury.
PAC stressed that it is impossible to determine an exact amount of missing revenue from the mines in part due to the lack of transparency of diamond sales overseen by Mpofu. The group pointed out, however, that Mpofu’s ministerial salary of $800 a month stood in great contradiction to his expenditures of $20 million incurred in the past three years for property, stores, banks and farms – nearly all paid in cash. PAC stated that Mpofu did not respond to its interview requests.
Others cashing in
The report indicated that the corruption extends beyond Mpofu to other executives at the Marange mines and ZANU-PF loyalists. Concerns were raised that Robert Mhlanga, the chief executive of Mbada Diamonds, was laundering Marange proceeds after he paid inflated prices in a series of multi-million dollar real estate deals in South Africa, PAC explained.
“Many top securocrats loyal to President Robert Mugabe and his party, the Zimbabwe African National Union (ZANU), are also, in the parlance of corruption watchers, ‘eating well,’” the report claimed. “This is particularly the case for those associated with Zimbabwe Defence Industries – a state-owned company aligned with Chinese mining company Anjin – or who oversaw military operations in Marange. Many are known to own, or be building mansions in Harare’s tonier neighborhoods that would exceed their publicly funded salaries.”
PAC concluded that unexplained wealth is indicative of a much wider problem for Zimbabwe, especially considering how such a promising future of diamond wealth could benefit the entire country and its people. Not only does the lack of revenue transparency deprive Zimbabwe’s treasury but it amplifies concerns of a parallel government operating in the country and fails a minimum standard set by the Kimberley Process, the report cautioned.
Earlier this year, Global Witness, which quit the Kimberley Process over the lack of progress at the organization, published a report claiming that Zimbabwe’s diamond mines are financing Mugabe’s military.
A local & global problem
While PAC previously published reports on Zimbabwe’s diamond industry in 2009 and 2010 as a result of the carnage in Marange, this year, the group warned that the Marange issue has taken on a more international flavor. “While the mismanagement of Marange diamonds remains primarily a Zimbabwean problem, the global dimensions of illegal trading has developed to compromise most of the major diamond markets,” the authors wrote.
PAC explained that while previously most of the illegal trade primarily affected South Africa, Mozambique, U.A.E. and India, it now appears that greater vigilance by the Kimberley Process and national enforcement authorities should extend to other centers, particularly Israel.
The U.S. specifically forbids any citizen or business to trade with entities who are on the Treasury’s Office of Foreign Asset Control (OFAC). That includes Mugabe and all of his family, Mpofu, the Zimbabwe Defence Industries, the Zimbabwe Mining Development Corporation (ZMDC), the Minerals Marketing Corporate of Zimbabwe (MMCZ), Mbada Diamonds and Marange Resources.
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Given that logistics and courier companies Brinks and Malca Amit refuse to ship Marange goods due to the sanctions, PAC determined that diamantaires now purchase diamonds in rand or euro and either charter planes to fly shipments from Harare to cutting centers or take the risk of entrusting shipments to individual couriers on commercial flights.
Recommendations
PAC concluded its report with several policy recommendations aimed at improving the management and economic outcomes in Marange.
The group urged the country to improve parliamentary oversight of mining contracts. It suggested that parliament should form a committee on mines and energy, revisit mining contracts, publicize the terms of those deals, disclose the ownership structure of the companies and name board members.
PAC also stressed the need to de-militarize diamond deals, especially with the approach of the Presidential elections slated for 2013. While violence in Marange is nowhere near the level experienced before 2011, PAC said concerns remain as the role of military and special security agents overseeing legal and illegal operations will grow more active in an election year.
Furthermore, PAC recommended that Zimbabwe should implement contract transparency for all agreements related to natural resources into its constitution, as was done in Niger in 2011. There should also be an agreed and publicly disclosed understanding of what each diamond mining company exports on a quarterly basis and what taxes were collected. PAC said the process should be de-politicized and that the adoption of transparency measures would assuage western and domestic fears of how diamond revenues are being mismanaged.
PAC argued for public disclosure of business holdings and assets of public officials to guard against conflict of interest for the duration of an individual’s term. Additionally, companies must divulge ownership structures to expose secret tax havens such as Mauritius, where Marange stakeholders are protected from public scrutiny.
The legislation route
Since enforcement efforts failed to detect and interrupt the flow of smuggled Marange diamonds, PAC told the diamond trade that the entire diamond supply chain has been, and continues to be, compromised by tainted goods.
“Greater cooperation among enforcement agencies is needed,” the researchers said. “With this in mind, willing Kimberley Process participants should work to tackle illicit and increasingly sophisticated criminal networks by creating a diamond smuggling profile.”
PAC suggested that the effort should be modeled after similar profiles used by customs and enforcement agencies to intercept drug and money-laundering networks, and that such a profile should be developed in close collaboration with the World Customs Organization, with which the Kimberley Process signed a memorandum of understanding in November 2010.
Since the Kimberley Process and the World Diamond Council’s (WDC) System of Warranties fail to track and respond to the illegal flow of Marange diamonds, PAC recommended that the WDC should commit itself to the Responsible Jewellery Council’s chain of custody efforts that track diamonds from mine-site to market. The WDC represents the diamond industry at the Kimberley Process.
This current failure has enabled smuggled diamonds to either reach trading centers with Kimberley Process certificates fraudulently obtained in second countries, or without one at all, the report stated.
Otherwise, PAC concluded that pressure will grow on the diamond industry to prove its commitment to the ethical and legal sourcing of diamonds. The report suggested the industry follow the best practices outlined by John Ruggie, the United Nations Special Representative for Business and Human Rights, and the OECD’s Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.
Lastly, PAC urged individual countries to adopt legislation to protect their manufacturing and consumer markets from Marange diamonds that are owned by the military or that undermine governance or contribute to violence.
”Such efforts would complement existing economic measures in those jurisdictions, which to date have stymied but not eliminated the trade of Marange goods to manufacturing centers like Surat, India nor blocked their subsequent entry into western consumer markets,” PAC stated.
The group advised that such legislation should be based on the Dodd-Frank Act in the United States, and should include the mandatory, and verifiable, disclosure by diamond industry members that all diamonds entering such markets do not originate from Marange, whether in rough or polished form.
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