Flawless: Inside the Largest Diamond Heist in History (11 page)

Even before the 1400s, when Belgian craftsmen invented the techniques for cutting diamonds into the shapes that are well known and treasured today, the stones were considered priceless and powerful. Because of their hardness and their ability to refract light, they were often considered to have mystical powers, such as invisibility and immortality.

No one is certain when diamonds were first discovered. The first mention of them is found in the
Arthashastra
, an economics manual from India believed to have been written around the fourth century BCE. For thousands of years, India was believed to be the sole source of diamonds. Then they were discovered in Brazil in 1725. Even as early as the late nineteenth century, these two countries were considered the only places to look for diamonds.

Diamonds, in fact, can be found the world over. Back when life on Earth consisted of single-celled organisms, diamonds were propelled from their subterranean birthplace during the volcanic throes of a young planet’s growing pains. As the earth ventilated itself, volcanic eruptions spewed through the earth’s crust, showering ash, magma, and rocks for dozens, and even hundreds, of miles. The deepest of these explosive events originated far below the diamond stability field and punched through successive layers as they rose to the top. Anything intercepted along the way, including diamonds, was mixed together and went along for the ride.

Not all diamonds survived the trip up a river of magma. It was a precarious journey that required everything to go right for them to make it to the earth’s surface intact. Eventually, these former magma flows developed into kimberlite or lamproite pipes. Shaped like carrots, these diamond pipes tended to be much younger than the diamonds they carried, anywhere from 50 million to 1.6 billion years old. If the magma did not travel upward fast enough, the diamonds turned into graphite by the time they finished their journey.

These ancient volcanoes are gone, but the pipes they created are still there, lined with the long-ago cooled and hardened miasmic stew of geological debris of kimberlite. Not all volcanoes contained kimberlite, and not all kimberlite contains diamonds—but plenty does.

Centuries of erosion have loosened these eight-sided super-hard crystals, allowing them to migrate across spans of hundreds of miles. The resulting alluvial deposits produce diamonds from just under the ground, sometimes from beneath just a foot or two of dirt over broad areas. The diamond-bearing kimberlite pipes themselves can contain the stones as far down as men can dig.

Diamond pipes are found in countries all over the world, including Australia, Canada, the United States, Brazil, India, Russia, and throughout Africa, but geologists didn’t learn how to start actively looking for them until diamonds were discovered in abundance in South Africa in the 1860s. By that time, the diamond industry was well established, particularly in Antwerp. There was lingering disagreement over where, exactly, the practice of cutting and polishing diamonds into gemstones had first taken root, in Brugge or Antwerp. There were partisans on both sides of the issue, but Antwerp seems to have won the right to claim that it was the birthplace of modern diamond manufacturing. Its merchants in the late nineteenth century sold expensive diamond rings to captains of American commerce to give to their spouses, but they also sold low-quality diamonds suited for industrial uses, particularly to manufacturing companies.

Now as then, diamonds’ hardness makes them valuable as tools. The Chunnel between London and Paris, for example, was created with a bore drill the size of a house that was studded with thousands of diamonds, making it strong enough to chew through solid rock like a spade through soil. These were not, however, the sort of diamonds that would ever have been found around Elizabeth Taylor’s neck—they were low-quality stones whose characteristics weren’t conducive to being fashioned into gemstones. In fact, 80 percent of all diamonds pulled out of the ground are not bound for jewelry companies, but for equipment manufacturers.

The price for industrial diamonds is not high compared to that of gemstones. Because of their rarity, for a long time gem-quality diamonds commanded prices that few outside royalty could afford. It wasn’t until 1866, when a young Boer shepherd found a large diamond in South Africa, a fortuitous discovery that led to a diamond-mining boom there, that they became far more common than anyone expected. As any student of economics knows, the first thing that happens when a market is flooded with goods is that the price plummets.

But one Englishman, and one company, prevented that from happening.

Cecil Rhodes established the famous Rhodes Scholarship at his alma mater, Oxford University, and expanded the British Empire in Africa with the formation of a country that also bore his name, Rhodesia. But for diamond merchants the world over, his most important accomplishment was the foundation of De Beers Mining Company in 1880. De Beers maintained price stability in the global diamond market for more than a hundred years and laid the foundation for the modern diamond industry.

When Rhodes arrived in South Africa in 1871, he was an asthmatic eighteen-year-old who hoped the country’s climate would be kinder to his delicate health than the damp chill of Europe. At the diamond fields, he discovered a frontier town of vagabond diggers who bored like termites into once-bucolic rolling hills and farmland, transforming the Orange and Vaal river valleys into a barely navigable series of pits and trenches that extended to the horizon.

Miners lived in tent cities and walked to their claims over wooden boards spanning deep holes, as it was an offense often punishable by violence to even walk on someone else’s claim, lest a diamond become embedded in the soles of hobnailed boots. Every inch of dirt contained a potential lifetime’s worth of wealth, and removing the soil from the pits took impressive ingenuity. Some prospectors strung parallel cables from the surface on which to balance the special wheels of jerry-rigged carts that were filled with dirt and then winched to the top. It often proved worth the effort. One of these holes, after it was expanded to include surrounding claims, eventually produced almost three metric tons of diamonds.

Rhodes saw early that there were so many diamonds to be had under the South African soil that if the disorganized mob of miners sold them all, the market would flood and prices would crash. In fact, prices per carat dropped from $14 to $3.75 by 1885. The secret of Rhodes’s success lay in his ability to buy out and consolidate the claims of the numerous miners who had preceded him to these rich diamond mines. He also established his first monopoly, one over the water pumps for three Kimberley area mines. When flooding occurred, miners had to deal with him to save their claims. As miners spent all their cash paying his rates, they eventually had no choice but to exchange shares in their claims for the use of Rhodes’s water pumps.

Between 1874 and 1875, depression hit Kimberley, with most miners thinking that their claims were depleted. Rhodes, and his main competitor Barney Barnato, though, believed the opposite—that these claims would grow richer with the removal of the soft “yellow dirt” on the surface as miners reached the hard “blue dirt” that lay underneath.

After the small players had been bought out, Rhodes then moved on to the large players and convinced his most powerful competitors to unite under the umbrella of his company, De Beers Consolidated Mines Limited, in order to control diamond production. Once he controlled the known South African mines, Rhodes drastically cut back on mining. As a result, he was able to increase the price of diamonds by 50 percent.

By 1890, while still in his mid-thirties, Rhodes was the most powerful mining tycoon in the world. He controlled more than 95 percent of the world’s production of rough diamonds.

Rhodes died at the age of forty-nine, but De Beers endured as one of the most successful monopolies in the history of human commerce. Almost a century after Rhodes’s death, in March 1999, Nicky Oppenheimer said in a remarkably frank speech, “I am [the] chairman of De Beers, a company that likes to think of itself as the world’s best known and longest running monopoly. We set out, as a matter of policy to break the commandments of Mr. Sherman [the U.S. senator for whom the Sherman Antitrust Act is named]. We make no pretense that we are not seeking to manage the diamond market, to control supply, to manage prices, and to act collusively with our partners in the business.”

Thanks to its aggressive marketing, De Beers defined cultural traditions for generations of husbands and wives, who formalized their love by exchanging diamond rings. And because it aggressively pursued new acquisitions throughout the past century, it artificially kept the price of diamonds higher than they would have been under a purely market-driven supply-and-demand model.

The mechanism for controlling the price was simple. As new diamond fields were discovered throughout the world, De Beers bought the claims or developed agreements with the mining company to sell their diamonds only to De Beers. The pitch made sense economically: selling to De Beers took the diamonds off the market, meaning they were worth more in the long run. Should the mining company decide to ignore De Beers’s offer and sell directly to wholesalers, it could depress prices across the industry if too many diamonds were in the market. That would benefit no one.

In 1889, Rhodes made a deal with a buying syndicate in London to handle all of the rough diamonds that De Beers mined. Ernest Oppenheimer, with his Anglo American Corporation of South Africa, used “the syndicate,” as it was known, to eventually take over De Beers itself. Once he did, Oppenheimer abolished the syndicate and replaced it with a single-channel distribution system within De Beers itself—the Central Selling Organization (CSO). This distribution system remains intact today as the Diamond Trading Company (DTC) and Oppenheimer’s descendants still run De Beers.

Historically, De Beers hoarded its rough diamonds in a vault in London. They came from mines in South Africa, Botswana, and Namibia, among others. De Beers’s agents also patrolled independent selling markets in West Africa, including Liberia, Ghana, Angola, and Sierra Leone, among others, to snatch up diamonds that came from mines it did not control. Those too went into the stockpile.

In London, the rough diamonds were sorted, valuated, and then sold by the DTC and its predecessors in amounts that were carefully calibrated to market conditions to a small group of preferred customers. The number of these customers fluctuated over the years. but were generally between one hundred and two hundred. The sales took place every five weeks.

The sales were called Sights—and the customers, Sightholders—but the name was misleading because the diamond purchases were arranged in advance, sight unseen. For the Sightholder, this was far from ideal. There were occasions when a Sight parcel was a disappointment considering the price paid. On others, however, Sightholders would be rewarded with a box filled with what were called “specials,” large diamonds that could be cut into several smaller ones. This system allowed De Beers to exercise a degree of control over those it did business with by rewarding them with specials or penalizing them with less than stellar boxes.

Although it was geared to favor De Beers, the system nevertheless made many people extremely wealthy. Diamantaires may have legitimately complained that De Beers treated them unfairly, but they couldn’t complain much about the industry De Beers had fashioned. The product they sold was artificially overvalued, but De Beers itself ensured throughout most of its existence that demand for it remained high with its unrivaled marketing clout. In short, De Beers transformed diamonds into the most treasured and valued gemstone throughout the world, and ensured that those who sold it became, by and large, immensely wealthy.

But it’s precisely because of the artificial value De Beers has bestowed on diamonds that they are targeted, as they have been throughout history, by bandits and thieves. Their small size and their portability can be both a blessing and a curse for diamantaires: a blessing because getting into the business requires very little investment in infrastructure compared with other valuable commodities like oil or timber, and a curse because the same small size allows them to be pocketed, or even swallowed. Because it’s possible to ingest millions of dollars’ worth of diamonds, theft becomes difficult to detect.

To combat the ease of theft, De Beers has developed increasingly stringent antitheft measures at its mines. In the days of Rhodes, the process diggers used to steal diamonds was as simple as waiting until the foreman looked the other way before pocketing or swallowing the stones rather than handing them over. Modern mining companies have all but eliminated the chance of theft in this manner. At kimberlite pit mines, gangs of men with pickaxes and shovels have been replaced by heavy machinery that excavates dirt by the ton. The dirt is no longer sorted by hand, with miners’ trained eyes picking out the diamonds from the quartz; these days, mechanically crushed rock is sifted along a conveyor belt that winds through a recovery plant. X-rays illuminate the diamonds amid the rubble, triggering little tubes along the belt that puff out quick bursts of air as the diamond goes by, blowing it into a bin. The rest of the soil is loaded into dump trucks and scattered back on the ground.

The problem of theft remains high, though, with deposits where the diamonds are scattered throughout the soil on the ground. In these enormous areas, diamonds have been scattered by eons of wind, rain, glaciers, and shifting soil. There is no cost-effective way to excavate an entire region of a country, so mining here requires that humans look for the diamonds. As a result, the potential for theft skyrockets.

Take, for example, De Beers’s operation in Namibia, where the huge stretch of alluvial deposits was located on the coast, an environment that caused them the most grief over the years in terms of theft. Once known as the “forbidden territory,” the sands and sea of Namibia’s Diamond Area 1 were the source of some of the highest-quality diamonds to be found, but because of the landscape and its access by sea, it was also one of the hardest to secure. The company ringed the area with high barbed wire fences and private security guards armed with rifles. Workers were subjected to full body searches that included random and frequent scans with low-dose X-ray machines. All employees had computerized security badges that tracked their movements through the compound; some were even required to live there in on-site dorms for up to six months at a time. That way, they only had to be searched via X-ray once in that period of time, on their way out. De Beers even instituted a policy of keeping machinery in the area permanently, a response to the discovery that one ingenious worker had smuggled diamonds out in the hollow bolts of his car. From that point forward anything that entered the diamond complex’s perimeter stayed there until it rusted away.