Sokwanele (Harare)

15 November 2012

Zimbabwe: Reap What You Sow - Greed and Corruption in Marange Diamond Fields

Photo: Denford Magora
Zimbabwe diamond.

opinion

Reap What You Sow is the third investigation by Partnership Africa Canada into illicit activity in Zimbabwe's diamond sector. The report is divided into three main sections.

The first looks at ongoing trade irregularities and the lack of transparency of diamond revenues, and examines ways ZANU and the global diamond industry have interacted, before, during and after the Kimberley Process imposed an embargo on Marange stones in 2009. The second examines the various revenue streams of Obert Mpofu and concludes the Minister of Mines is utilizing monies and assets divorced from his ministerial salary and known business entities. The third offers policy suggestions and recommendations that would improve the management and public beneficiation of Zimbabwe's diamond revenues.

The biggest conclusion of this report is that despite government pronouncements to the contrary, the illicit trade of Marange diamonds is alive and well. A parallel trade in Marange diamonds continues to thrive, with the full knowledge and complicity of top officials in the Ministry of Mines, ZMDC, MMCZ and military.

The theft of Marange diamonds is perhaps the biggest single plunder of diamonds the world has seen since Cecil Rhodes. Conservative estimates place the losses due to illicit activity at over $2 billion since 2008.

PAC has found that while the mismanagement of Marange remains primarily a Zimbabwean problem, the global dimensions of the illegality has metastasized to compromise most of the major diamond markets of the world. Previously most of the illegal trade primarily involved South Africa, Mozambique, UAE and India. This remains the case, but greater vigilance by enforcement authorities should now extend to other centres, particularly Israel.

A summary of the report's other main findings include:

The lack of transparency surrounding Zimbabwe's diamond revenues is a matter of critical public interest. The whole-scale theft is depriving the national treasury of much needed revenues and amplifies concerns PAC and others have shared for some time that these revenues are funding a parallel government other than the legally constituted Government of National Unity.

At the heart of this illicit trade is Zimbabwe Defence Industries (ZDI), a government procurement agency linked to mining company Anjin--whose joint partner is a Chinese State-owned company. ZDI's former CEO, Tshinga Dube, also now runs another mining concern, Marange Resources. ZDI's controlling interest in these two companies means that top officials in Zimbabwe's military establishment are the biggest beneficiaries of Marange's riches--not legitimate State entities or the public good.

While artisanal smuggling continues, as does a smaller organized trade by political elites, the biggest conduit of smuggled Marange goods happens inside the confines of the legal KP system. This is largely done through a sophisticated price manipulation scheme that sees Marange goods trade in centres like Dubai and Surat, India at twice the price they were sold for. This theft is perpetrated largely by Indian buyers and their Zimbabweans allies, with whom they are believed to share the spoils.

Concerns about revenue transparency go to the heart of a country's compliance with the Kimberley Process minimum requirements. Missing money means systemic breaks in that country's internal controls, including the reality that there is an illegal, parallel trade underway. Their subsequent trading makes a mockery of the Kimberley Process Certification Scheme and the diamond industry's System of Warranties, an honour system that promises diamond shipments are untainted by violence and in keeping with KP standards.

While Minister Mpofu is not the only ZANU official benefitting from Marange's riches, his role as the chief guardian of Marange raises the most concern. His unexplained wealth is emblematic of wider problems of revenue transparency associated with this promising national resource. PAC has identified expenditures of over $20 million--mostly in cash--made by Minister Mpofu over the last three years. This figure is a conservative assessment and does not include his philanthropy, which exceeded $500,000 in 2012 alone.

Minister Mpofo's confirmed landholdings also place him in the top five landowners in the country, and second in his home province of Matabeleland only to the Oppenheimer family. His possession of land belonging to government agencies is likely in contravention with Zimbabwean law. The terms of the Land Acquisition Act--the legislation responsible for the dispossession of most white-owned land--explicitly limits expropriations to private and commercially held farmland, not state assets.

A diamond trading company, Three Waters Investments, operates from one of Minister Mpofu's Bulawayo properties at 10 Livingstone Road. This raises a perception-real or perceived-that a company, and possibly individuals, associated with the Minister is obtaining a pecuniary benefit from an industry over which Mpofu has fiduciary responsibility. It also raises questions about what role he personally played in procuring diamonds for this company and facilitating their export.

The report makes several recommendations aimed at improving the management of, and public beneficiation from, Marange diamonds. They include:

The Zimbabwean parliamentary committee on mines and energy should revisit and publicize the terms and conditions of each of the joint ventures approved between 2009 and 2012, including disclosing the ownership structures of the company and individuals who sit on the boards of directors. If the contracts are found to contravene Zimbabwean law or not be in the public's good, mining licenses should be rescinded and/or renegotiated.

Any current or future joint ventures in Marange that involve serving or recently retired members of the army, police, or other security agencies in either leadership or ownership positions should be made illegal. A suggested "cooling off period"--the length of time after leaving a security force during which an individual could not be associated with a mining company--could be five years.

In order to give the public clarity and assurances that diamond revenues are properly accounted for, the Ministries of Mines and Finance should come to an agreed and publicly disclosed understanding of what each diamond mining company exports on a quarterly basis, and what taxes were collected. The Government of Zimbabwe and all companies operating in Marange should also regularly disclose in a full and transparent way all diamond production, trade and payments figures.

Zimbabwe should undertake to create a mandatory and publicly available registry of assets for elected officials, senior government appointees and their spouses. For the duration of an individual's term of public service any companies in which they have a share should be publicly disclosed and placed in a blind trust.

The Ministries of Finance and International Trade should force all companies listed and operating in Zimbabwe's extractive sector to publicly divulge the ownership structure and location of any foreign held trust accounts. Doing so would lessen the opportunity for public officials or their family members to hide pecuniary relationships to companies they may have oversight over.

The Kimberley Process's failure to appropriately respond to Marange's challenges, adds pressure on Industry to prove its commitment to the ethical and legal sourcing of diamonds, something that is lacking in the WDC's warranty system. With this in mind the World Diamond Council should commit itself to the Responsible Jewellery Council's Chain of Custody efforts that track diamonds from mine-site to market. Moreover, it should undertake to mainstream 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.

Should the global diamond industry--particularly in India and UAE-be unwilling to adopt comprehensive measures to protect itself from legal and illicit Marange diamonds owned by the Zimbabwean military or those shown to be undermining governance or contributing to violence, the United States, European Union and any other willing country should develop legislative measures aimed at protecting their manufacturing and consumer markets from these diamonds.

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