De Beers Diamond Cartel

[Magda Hassan]

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The Dossier

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Namibia's diamonds, the De Beers' cartel, the Thirion Inquiry
and the victimisation
of Gordon Brown
Further evidence from four independent journalists

Max du Preez, one of Southern Africa's most admired reporters, has worked for the Financial Mail, the Sunday Times and SABC. He was also the founder of Die Vrye Weekblad, closed down by the apartheid government for its fearless reporting of business and political scandals. He lost his job at the Financial Mail for his persistent reporting of the Thirion scandal.In 2003 he published Pale Native memories of a renegade reporter a book length testimony of his life as a journalist in South Africa, old and new. This is how he outlined De Beers' behaviour in Namibia in that book."While I was working in Namibia, I had heard rumours that CDM, a Namibian subsidiary of the South African diamond giant De Beers, had been raping' the diamond deposits at Oranjemund. It was one of the richest diamond deposits in the world, and the mine was the backbone of the Namibian economy…."Anglo American was the one company you didn't mess with without consequences."I should admit that I harboured a deep resentment towards Anglo American. I had long believed one of the most destructive aspects of South Africa's racial policies was the migrant labour system. Black miners ... were housed in huge single sex labour compounds' or hostels'. Their families were not allowed to accompany them."Once in six months or once a year they were allowed to go home.No other facet of apartheid damaged the social fabric of black society as much as this system. Families were destroyed and social structures disturbed. Children grew up without fathers. The hostels became festering sores."The main culprits were the mining companies, the biggest of which was Anglo. Yet Anglo had the public image of being an opponent of apartheid. That's what irked me … ."Early in 1984, the issue of CDM's overmining' of the Oranjemund mine was again mentioned at hearings into government corruption in Namibia. This time I got hold of a solid source, Gordon Brown, a senior man at De Beers who had serious moral qualms about what they were doing to the mine. He started briefing me on the technical issues and gave me a number of documents with explosive content."An understanding of CDM's unique position in Namibia is important in order to grasp the overmining story. CDM mined the world's richest diamond fields in terms of an agreement with the South African administration in Namibia which was bound to act in compliance with a League of Nations mandate to protect the interests of the people of the territory … ."The Halbscheid agreement stated: "CDM when working an area pegged under this, shall conduct operatiaons as thoroughly and economically as it does on its other mining fields and shall carry on mining satisfactorily to the Administrator and not with a view to exhausting the superficial and more valuable deposits to the detriment of the low grade deposits.""… The idea was that the diamond field should provide Namibia with a source of revenue and employment for as long as possible. CDM, I wrote in my first piece in the Financial Mail, was in breach of the Halbscheid agreement because it was in mining-speak picking the eyes out of the mine' preferentially mining the richer deposits at the expense of the mine's future profits."I had CDM's own documents to back this up ….."The smoking gun was a document called A life of Mine Review, drawn up by the then manager at Oranjemund Jack Forster in September 1981 … . Foster used these words … To me this is best described as a power dive and unless we have a conscious change in strategy effective some time in the future, we will power the mine into the ground and we will be unable to conduct the reclamation and cleaning operation which could extend the life of the mine by three or four years.' Click on this link for further details."…. The morning of the publication of my story, Mulholland (the editor) walked to my desk, and slammed the magazine down and asked : What the hell do you think you are doing?'"He said I knew nothing about mining. It is clearly news to you that mining companies are in the business for a profit. I tried to explain about the 1923 agreement but he didn't want to discuss the merits. He warned me to drop the story."I checked with Gordon, who said my story was spot on … I vowed not to leave it there. A few weeks later, when Mulholland was out of town I wrote a follow-up story sticking to my line."Mulholland was livid. He accused me of damaging the reputation of the Financial Mail … . I told Mulholland that I thought it was my ethical duty to follow through with the story."CDM's … next move was to invite me to a briefing where they would explain everything … at 44 Main Street, the Anglo head office in Johannesburg. We met … in their impressive boardroom. Mulholland introduced me."As I heard the names and titles, it dawned on me that this was the entire upper hierarchy of the De Beers empire, including the chairman, the Oranjemund mine manager and the top man of the Central Selling Organisation in London … ."I wanted to explain the documents I had in my possession. Clearly annoyed, they explained some of the technical stuff and … at more than one point they said that the details would be difficult for a lay-person to comprehend. But Gordon had briefed me well, and I did follow the arguments."I started putting more documents on the table to counter what they were saying, especially the mine manager's statement that CDM was powering the mine into the ground' … Mulholland silenced me, thanked the De Beers bosses profusely and apologised for my stubbornness … I was ushered out."This showdown meant the end of my career at the Financial Mail."But it wasn't the end of the CDM story; it was the beginning although the FM would no longer take part in the expose."The FM's opposition magazine, Finance Week had by now taken up the story as had the Namibian press."Mr Justice Pieter Thirion soon expanded his inquiry into mal-administration in Namibia to include an investigation into the Diamond Industry and the workings of the Diamond Board."Gordon Brown came out of the shadows and gave devastating evidence before Thirion."The Thirion report published in March 1986, vindicated every word I had written, and more. The documents Brown had given me were extensively quoted in the report and they were given Brown's interpretation which I in turn used in my reports and in the sham briefing with CDM."Justice Thirion found that CDM had breached the Halbscheid agreement by excessively depleting the Oranjemund diamonds for at least twenty years."The excessive depletion of the deposit was preferential depletion of the more valuable deposits to the detriment of the low grade deposits. The probabilities are that the effect of the excessive depletion of the deposit will be to shorten the life of the mine and to detrimentally affect its profitability towards the end of its life."The next year Brown was the star of a powerful Granada documentary … . shown on ITV, titled The case of the disappearing diamonds. It found that De Beers had secretly stripped Namibia of 3 billion rands worth of diamonds through overmining. Brown went on to appear in the BBC documentary The Diamond Empire, and became a central figure in the authoritative book on violations by Southern African mining companies called Studded with diamonds and paved with gold."But Brown was to pay a heavy price for blowing the whistle on De Beers; first with the reports he gave me, then by giving evidence to Thirion, and finally by appearing in the documentaries."An elaborate trap was set for him. He was asked by an acquaintance, a dealer in rough diamonds … to evaluate a parcel of diamonds … . Brown was given an assurance that these were legal diamonds from Angola, and the necessary permits had been issued and the legal requirements complied with."The Diamond and Gold Branch of the Namibian police then pounced and arrested him on an illicit diamond buying charge. He was found guilty in court and sent to jail."Brown claims he was denied the fundamental right to a fair trial. He says his conviction was based on the perjured testimony of a single witness, a De Beers employee. This witness subsequently confessed in an affadavit made to Namibian justice department officials."Shortly after his incarceration, Brown was released on bail pending an appeal hearing. He tried his best to get the police and justice department to investigate prosecutorial irregularities and misconduct, but nobody would do anything."Brown says he then lost faith in the justice system in Namibia and decided to skip bail. He actually had to swim across the Orange River to his freedom in South Africa. He continued to work in the diamond industry in South Africa.As long as De Beers appointees sit on government regulatory bodies and their security people hold top position in the Gold and Diamond Branch of the Namibian Police", Brown told me, "no serious critic of De Beers can survive criminal charges from the police or De Beers themselves, and you certainly cannot expect a fair trial on such charges.'"That's what happens when you mess with Anglo American."

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Geoff Shuttleworth was one of South Africa's most skilled finance and mining reporters. He covered the Thirion crisis for Finance Week. In two major cover stories CDM under siege (Finance Week July 4 10 1985) and Forever?subtitled Rape of South West Africa (13 19 March 1986) he set out the dimension of the scandal and profiled the impact it was having on De Beers. Finance Week 4 10 July 1985"De Beers, operator of the world's most successful cartel, left the US to avoid giving testimony on its activities. Ironically it now finds itself cornered in its own backyard in South West Africa. Under the tin roofed magistrates court in Windhoek the reconvened Thirion Commission into maladministration and corruption is once again causing the mining giant a few problems. This time the Commission is hearing evidence on allegations that De Beers' wholly owned subsidiary Consolidated Diamond Mines (CDM) indulged in overmining the ultra rich deposits north of the Orange River."But it is not so much the Thirion Commission as the testimony of a former senior CDM official, Gordon Brown, that is causing the headache … . Brown … worked on CDM from 1968 to 1983. His last five years were as technical assistant to CDM's general manager … ."Brown's evidence is based on actual mining operations and decisions taken on the mine … ."Quoting from CDM documents Brown said that one of the reasons for overmining in the 1960's was to meet unrealistically high' production targets which were set by the De Beers board."As an example, in 1968 the target set (carat call) was 125,000 carats a month whereas productive capacity at CDM was only sufficient to produce 103,000 carats per month … ."The shortfall of 18% was met by overmining the rich upper terraces in the south of the mine. Because this area contained most of the largest stones, overmining depleted these high stone size reserves which should have been available for future mining … ."In a broader context, in the 1973 1980 period, CDM's contribution to De Beers group carat production was only 14%. But it's contribution to revenue was a staggering 47% and to group working profits around 50% ... ."Brown testified that overmining was recognised as an undesirable mining practice and it was brought to the board's attention on a number of occasions and in various management reports ... ."Overmining was also to produce maximum possible profits at CDM each year. Brown told the Commission that from the early 1970's, the mine's objective function became that of maximising profits each year ... ."In 1981 CDM management told the consulting engineer and board members that overmining was causing revenues to fall sharply and that unless steps were taken to change this, CDM's objective function, of maximising profits each year until the end of the mine's life, would have disastrous consequences." Finance Week 13 19 March 1986"The timing could hardly have been less fortunate. Last week state president PW Botha had hardly finished announcing in Cape Town that government was introducing UN-style independence this year to South West Africa/Namibia when in Windhoek transitional government minister Andreas Shipanga tabled the report of Justice Thirion's one-man commission into SWA mining."The effect, taking Thirion's findings on mineral exploration in conjunction with local leaders' own fears over marine exploitation and transport links, is to cast aspersions over the manner in which the territory has really been protected by SA ... ."Major findings of Thirion are:*De Beers' wholly-owned subsidiary Consolidated Diamond Mines of SWA (CDM) has been excessively depleting the diamond deposits of SWA.*SWA authorities whose job it was to have monitored the Halbscheid agreement never did so. The SWA Chief Inspector of Mines only became aware of the provisions of the Halbscheid agreement when they were pointed out to him by the commission.*Other mining companies operating within the territory were guilty of numerous offences. These included submitting incorrect, and incomplete information to government, inefficient mining, high grading, transfer pricing and a host of mining wrongs'."The disclosure of CDM's overmining could have serious consequences for the diamond monopolist De Beers. It will have to answer not only to SWA but also to non-South African CSO suppliers such as Western Australia, Botswana, Angola and Tanzania which also rely on De Beers for technical assistance."With De Beers reliant on non-SA suppliers for two thirds of its CSO diamond purchases, it depends on sustained good will to retain its diamond monopoly."While Thirion found CDM guilty of breaching its lease agreement, he also held that the SWA administration had been inept in monitoring mining activities."Specifically he noted that the Diamond Board does not exercise any control over the rate of depletion of the diamond deposits. That is left entirely to CDM's discretion which in practice is the discretion of De Beers.'"Thirion concluded that, despite the trappings and façade of state control effective control of all aspects of the mining and marketing of SWA's diamonds remains firmly in the hands of De Beers ... ."De Beers and CDM were also criticised by Thirion, along with the SWA administration for the way in which De Beers subsidiary Marine Diamonds was allowed to deprive the SWA fiscus of millions of rands by allowing exploration write-offs against tax ... ."Thirion made several recommendations which, if implemented, will tighten control of the SWA mining industry. Andreas Shipanga (mining minister) himself was stunned by the report's findings:" I personally went through these reports five times. One shudders to think about things which have been allowed to happen in this country. There is no doubt that mining policy will never be the same again. This is a damning report'," he believes ..."That the exploitation of SWA's resources have not been properly controlled or monitored hardly seems in doubt. The question is now whether the new government will seek compensation from SA and the companies which breached agreements over exploitation of its natural resources."

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Ken Owen another famous South African business journalist wrote about Thirion in the Cape Times. His piece was titled Cosy diamond industry state ties exposed."The Thirion Commission's investigation of the Namibian diamond industry has set off a dispute that sooner or later was bound to happen as the ties between industry and government are just too cosy."American consumer crusader Mr Ralph Nader's investigations in the United States showed that government agencies tended to develop symbiotic relationships with the industries that they are supposed to regulate, and that both parties become increasingly resentful of any public interference'."It is a formula for a public relations disaster when, as must happen sooner or later, a Nader or a Thirion comes along."'The Namibian diamond industry, represented mainly by CDM, the De Beers subsidiary, has been a classic case'."(Cape Times 13 March 1986)

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http://www.gordonbrownisinnocent.co.uk/thedossier.html

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