3 December 2012

Zimbabwe: Anxiety Grips KPCS Plenary

ZIMBABWE has garnered enough democratic might to thwart a plot by the United States to keep Marange diamonds out of the global market after it rallied a sizeable number of the Kimberley Process Certification Scheme (KPCS) Member States behind its cause before the body convened in Washington DC for its 10th Annual Plenary.

In terms of the KPCS constitution, Plenary decisions ought to be reached strictly by consensus.

Established in 2003 as a voluntary coalition of governments, companies, investors and civil society focused on fighting conflict diamonds and restoring consumer confidence in diamonds, the KPCS has today managed to cleanse about 99 percent of global rough diamond supply through its certification requirements and system of warranties, a record of its kind in the resource sector.

USA, the current chair of the global watchdog which comprises 76 other member countries, is lobbying for an expanded definition of "conflict diamonds" purportedly to prepare the organisation to cope with contingent challenges of the future.

More specifically, the US envisages a definition that encompasses elements other than armed conflict and armed violence that impacts on the diamond industry, and in that list it has included human rights, financial transparency and economic development.

KPCS chair Ambassador Gillian Milavanovic, in addition, has called for "site-by-site" KP safeguards and "additional certification standards" in cases where armed conflict or armed violence is "demonstrably related to rough diamonds".

"The US proposal to change the definition contains these elements," Ambassador Milavanovic said in her address to the inaugural Zimbabwe Diamond Conference held in Victoria Falls recently.

"It works exclusively through existing KP processes, notably with respect to assessments and decision-making. From my perspective as KP Chair, this is an attractive proposal. I urge you to read it carefully, and indeed to read carefully all the proposals that will come before the KP plenary for decision."

Although the US has enlisted the support of the World Diamond Council, it faces stiff resistance from Zimbabwe and other KPCS member states, which are opposed to the conflict-plus suggestions for fear of stifling global supply and undermining consumer confidence. The US assumed KPCS' chairmanship in November last year at the body's last annual plenary held in Kinshasa, the Democratic Republic of Congo, in a give-and-take deal brokered by the EU for the purpose of reaching consensus, under which the US would be allowed to chair the Process provided it would not stand in the way of Zimbabwe's diamonds.

As agreed, the US did not block the decision, although it did not vote for it.

Before its next plenary, Zimbabwe put on its boxing gloves contending that the US has insidiously inverted KPCS's decision on Marange diamonds outside plenary, and is further seeking to suppress its right to issue KPCS certificates for the stones, hiding behind an expanded definition and taking advantage of its chairmanship to impose its bidding.

In arguing its case at the conference, Zimbabwe pointed out that the US betrayed its bilateral "plot" against Marange diamonds in February when it imposed sanctions on Mbada Diamonds and Anjin, the largest diamond producers, less than two months after a landmark decision by the KPCS Plenary to sanctify Marange gemstones as duly conflict-free.

Mbada Diamonds and Anjin joined the Minerals Marketing Corporation of Zimbabwe and the Zimbabwe Mining Development Corporation on OFAC's list of Specially Designated Nationals, which has been extended every year since 2003 when former US President George Bush Jnr issued Executive Order 13288 to expand Zimbabwe's sanctions regime to a list of targets.

The Zimbabwe Democracy and Economic Recovery Act of 2001, which has been updated to the Zimbabwe Transition to Democracy and Economic Recovery Act, forms the principal sanctions document laying down financial and related restrictions on Zimbabwe. Executive Order 13288 of 2003 gives the OFAC powers to designate individuals and entities that the US government accuses of undermining democratic institutions and processes in Zimbabwe as well as those perceived to pose a threat to US interests in the country.

The restrictive measures, which the government of Zimbabwe considers "odious", "unjustified" and "illegal", have the effect of soiling the risk profile of mining companies and their marketing agent, scuttling buyers and bidding down the price of the stones.

They also make it overly risky to insure and transport the rough diamonds exported, let alone to process payments, as transactions involving Specially Designated Nationals are under constant surveillance from OFAC.

Government has reported that OFAC has to date frozen over US$30 million as it was being wired to Zimbabwe by diamond buyers.

The US Government's Executive Orders empower OFAC to act on all "prohibited transactions". According to OFAC, the list of "prohibited transactions" includes, but is not limited to, "exports (direct and indirect), imports (direct and indirect), trade brokering, financing and facilitation, as well as most financial transactions".

These sanctions extend to any person, organisation or entity found to be owned, controlled or acting on behalf of any Zimbabwe entity included on the SDN list.

Any US person, organisation or entity found in violation of the Executive Order or regulations pursuant to it or found making any attempt to side-step the sanctions is considered guilty of a criminal violation, which attracts a fine of up to US$500 000 and/or a jail term of up to 10 years.

During the two-day conference, apparently arranged to seek solidarity from KPCS member states, diamond and diamond-related institutions and other stakeholders, Zimbabwe questioned the rationale of the sanctions, given that Marange gemstones have been granted KPCS's seal of approval.

In their contribution to the discussions, various KPCS member states stressed that the watchdog body was not only satisfied with compliance issues, but was also agreed that the producing mines were a "model" to be emulated by other members in terms of security measures and compliance procedures.

Peter Meeus, the chairperson of the Dubai Diamond Exchange, further argued that sanctions on a large producer like Zimbabwe would upset the mechanics of demand and supply in the global diamond market, which is already "in bad shape".

"The (global) diamond industry is in bad shape," Meeus said.

"If we have sanctions on a large producer, the effects will be fatal on the industry." Currently ranked fifth largest producer by volume, Zimbabwe is tipped to account for about 30 percent of the global rough diamond supply by 2015. The Marange question took a dramatic turn and almost degenerated to a feud on the last day when Zimbabwe and its sympathizers stirred up a tide against the US and its diplomats, including Ambassador Milavanovic, who had been invited in her capacity as KPCS Chair.

Abbey Chikane - a member of the KP Monitoring Team who served as the KP Monitor to Zimbabwe from November 2009 to November 2010 - also accused Ambassador Milavanovic of abdicating her role as KPCS Chair and making decisions with implications on the diamond industry outside Plenary.

With support from KPCS Member States, Chikane challenged her to take the Marange question up with the US Government on behalf of the watchdog body prior to Plenary.

The view received unanimous endorsement from all the diamond and diamond-related bodies that attended the conference, including the WDC, and all civil society organisations save for the Zimbabwe Environmental Lawyers Association, which also came under an avalanche of criticism from KPCS Member States for misrepresenting facts about the Marange question. -

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