BNC paper on the Israeli diamond industry by Yasmine Gado

I. Introduction

Israel is one of the world’s leading trading centers in rough and polished diamonds.1

While historically Israel was heavily involved in “cutting and polishing”—the process of manufacturing gemstones out of rough diamonds—today it is primarily a trading center that employs less than 3000 people.2 Thus, while Israel’s gross exports of all diamonds for 2008 and 2009 were $19.4 billion and $11.6 billion respectively,3 representing one third of its total gross exports for those years,4 net exports in value of polished diamonds were much smaller at $6.295 and $3.926 billion respectively.7 Israel’s top polished diamond exporter is L.L.D. Diamonds Ltd., owned by Lev Leviev and the primary destination for Israel’s polished diamond exports is the United States, which consumes half of the world’s retail diamonds by value8 and where a diamond ring is an integral part of the rite of marriage.9 The U.S. imports close to fifty percent in value of its diamond supply from Israel, an amount that accounts for fifty percent in value of Israel’s diamond exports, both as a whole and for polished diamonds separately.10

During the 1990’s, the image of diamonds suffered from revelations that brutal civil wars in Africa involving mass killing and maiming of civilians were being financed by the sale of rough diamonds—or so-called “blood diamonds.” In response, the industry joined forces with state governments and civil society organizations to form a joint initiative known as the Kimberley Process Certification Scheme (KP)11 which went into effect in

1 The term ‘rough diamonds’ refers to diamonds in the state in which they have been extracted from a mine, field or riverbed before being refined. The Kimberley Process defines rough diamonds as “diamonds that are unworked or simply sawn, cleaved or bruted.” Kimberley Process Core Document (hereafter KPCS Document) at p. 4, available at http://www.kimberleyprocess.com/. 2 http://www.cbs.gov.il/www/saka_y/02_01.pdf.3 http://comtrade.un.org.4 Israel’s overall gross exports for 2008 and 2009 were $61.3 and $47.9 billion respectively. http://comtrade.un.org.5 http://www1.cbs.gov.il/shnaton60/st16_01x.pdf.6 For $3.92 billion of net polished for 2009, see Rapaport, Leviev Still Israel's Top Diamond Co. Despite 42% Drop in Exports available at http://www.diamonds.net/news/NewsItem.aspx?ArticleID=29469. See also http://www1.cbs.gov.il/shnaton60/st16_01x.pdf. This Israeli government cite gives a slightly larger figure of $3.97: Ministry of Trade and Labor, Diamonds and Precious Stones Jewelry Administration, Facts and Figures 2009 available at http://www.israel-industry-trade.gov.il/NR/rdonlyres/AD2B220D-F05B-415A-A45E-4C1F8304A8FE/0/DIAMOND_2009indd.pdf. 7 Overall net exports for 2008 and 2009 were $51.3 billion and __ billion respectively. http://www1.cbs.gov.il/shnaton60/st16_01x.pdf 8 http://www.globalwitness.org/data/files/media_library/8/en/the_us_diamond_sector.pdf. 9 See Five Myths About Diamonds, by Tom Zoellner, The Washington Post (Jul. 4, 2010) (“The tradition of the diamond engagement ring was largely concocted in the 1930s by De Beers' ad agency N.W. Ayer & Son -- the same Madison Avenue shop that would later craft the wildly successful slogan ‘A diamond is forever.’ Through magazine advertisements and Hollywood product placements, American customers were sold the idea that even a man of modest means must give a diamond to his betrothed.”)10 UN Comtrade, comtrade.un.org; the same percentage holds for polished diamonds separately. http://www.israelidiamond.co.il/English/News.aspx?boneId=2521&objid=694111 This paper uses Kimberley Process, KP and KPCS interchangeably to refer to the Kimberley Process Certification Scheme.

2003. The KP is essentially an import-export certification scheme that requires member states to certify that rough diamonds exported from their territory are conflict-free, which they are entitled to do if they implement certain internal controls and trade only with each other. Conflict diamonds are defined by the KP as rough diamonds used by rebel movements to finance armed conflict aimed at undermining legitimate governments.12

Although the KP was purportedly established to protect the human rights of civilians, the definition does not extend to human rights abuses committed by member states even if those abuses are financed by their diamond sectors. The KP also does not cover exports of polished diamonds, leaving a gap which allows Israel’s polished diamond exports to be certified despite its government’s commission of serious human rights abuses.

This paper is a study of the Kimberley Process and (a) whether Israel’s diamond industry is compliant under current standards, (b) if so, the type of expansion of the KP that should be advocated to ensure Israel’s human rights abuses are taken into account and what such an advocacy campaign could achieve and (c) alternative legal mechanisms available to target individual Israeli companies or nationals. There is ambiguity regarding the extent to which human rights abuses by member governments can be addressed within the KP framework. NGOs are seeking to clarify that member states are or should be penalized under KP mechanisms for committing human rights abuses in connection with their diamond sectors. However, penalizing Israel for its abuses would require that the KP address any abuses by its members, for example by making compliance with human rights law a precondition of KP membership. A campaign for such an expansion would face enormous obstacles given the KP’s difficulty in enforcing even its current standards, although it would raise awareness about the limitations of the KP and the extent of Israel’s involvement in the diamond industry. Mechanisms outside the KP that may be used to target the Israeli government or private actors for human rights abuses in the supply chain of rough diamonds imported into Israel include judicial remedies, mediation, voluntary mechanisms, and intergovernmental and financial mechanisms; some of these mechanisms are described in Section IV.

12 Kimberley Process Core Document (hereafter KPCS Document), p. 4, available at http://www.kimberleyprocess.com/.

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II. The Kimberley Process

A. History

Most of the world’s diamonds are mined in Australia, Botswana, Canada, Namibia, Russia, and South Africa—countries that are “peaceful and politically stable.”13 The focus of the Kimberley Process at its inception was on the rough diamond trade in Sierra Leone, Angola, and the Democratic Republic of the Congo,14 estimated at 3 to 4 percent of global trade in 2000.15 During civil wars in those countries in the 1990’s rebel groups used the proceeds of the sale of rough diamonds to acquire weapons used against civilians, committing large-scale atrocities that caught the world’s attention. Approximately 3.7 million people ultimately lost their lives in the diamond-fueled wars, at least 6.5 million were displaced, and millions suffered displacement and gross human rights abuses.16

In January 1998, the London-based NGO Global Witness published a study revealing that UNITA (the National Union for the Total Independence of Angola) was using the sale of rough diamonds to fund their role in the Angolan conflict.17 According to the report, UNITA exported rough diamonds by air and through neighboring countries which eventually made their way into the legitimate trade at major diamond importing centers. The report implicated the industry giant De Beers, which at the time controlled about 80% of the world’s diamond supply, in buying diamonds from UNITA.

De Beers Consolidated Mines, founded in 1888 by British enterpreneur Cecil Rhodes, built a monopoly on the world’s supply of rough diamonds by marketing diamonds from its own mines, and purchasing rough diamonds from the rest of the market not under its control, which it termed “outside market purchasing”. By stockpiling these diamonds, De Beers was able to create an artificial scarcity18 that enabled it to manipulate the price of diamonds worldwide. De Beers markets its diamonds through its London-based Diamond Trading Company (formerly named the Central Selling Office) which sells 13 Ingrid J. Tamm, Diamonds in Peace and War: Severing the Conflict - Diamond Connection, World Peace Foundation WPF Program on Intrastate Conflict Carr Center for Human Rights Policy (2002) at p.16, available athttp://www.hks.harvard.edu/cchrp/Web%20Working%20Papers/WPF-Tamm%20Diamond%20Report.pdf14 Id. 15 Id. It should be noted that while conflict diamonds are a relatively small segment of the total diamond market, they are “actually a subset of the larger category of illicit diamonds — these are diamonds that have either been smuggled to countries where they will receive higher prices, stolen from mines, and/or used in money laundering, tax evasion, and other criminal activities. Indeed, illicit diamonds may represent up to 20 percent of the global diamond trade.” It was hoped the KPCS would curb illicit diamonds as well as conflict diamonds. Id.16 Ingrid J. Tamm, Diamonds in Peace and War: Severing the Conflict - Diamond Connection, World Peace Foundation WPF Program on Intrastate Conflict Carr Center for Human Rights Policy (2002) at p.16, available at http://belfercenter.ksg.harvard.edu/files/wpf30diamonds.pdf.17 Global Witness, A Rough Trade, The Role of Companies and Governments in the Angolan Conflict 3 (Jan. 12, 1998).18 Until the large diamond discoveries in Africa in the mid-19 th century, diamonds were in fact extremely rare.

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diamonds to a select number of diamond purchasers at dictated prices at “sights” held ten times a year. Unfortunately for De Beers, maintaining its monopoly meant purchasing rough diamonds from any source, including during the 1990’s, UNITA. De Beers did not close its Angolan buying offices until 1999, after the UN Security Council (UNSC) imposed an embargo on diamonds mined by UNITA.19 In 2000, under continued pressure over the conflict diamond issue, De Beers announced it would abandon its “supply management model,” cease buying on the outside market, and sell only diamonds sourced from its own mines, from its partners in Botswana and Namibia, and from Russia and Canada.20

The events in Angola played out similarly in Sierra Leone and DRC (except that no embargo was imposed in DRC).21 The diamond embargoes were not effective because of the ease of diamond smuggling. Diamonds smuggled out by rebels in all three countries reached the major trading centers through smuggling via the Central African Republic, Rwanda, Guinea, Congo-Brazzaville and South Africa, among others.22 (Today the only country under a diamond embargo is Cote D’Ivoire, where the rebel group Forces Nouvelles controls mines in the north of the country. Smuggling of ivorian diamonds continues despite the ban through smuggling routes that pass through surrounding countries that are KP members.23)

In May 2000 officials of Southern African states, NGOs and industry representatives met in Kimberley, South Africa to begin discussions about how to prevent the use of diamond sales to fund armed conflict.24 In December of that year, the UN General Assembly (UNGA) adopted unanimously a resolution supporting these efforts.25 The result, after three years of intensive negotiations among over thirty states, the diamond industry and

19 S.C. Res. 1173, U.N. Doc. S/RES/1173 (June 12, 1998). 20 New York Times, The Diamond Game: Shedding Its Mystery, by Lauren Weber (April 8, 2001). 21 In Sierra Leone the RUF, the Revolutionary United Front, financed its war on the government (and atrocities on civilians) with the sale of diamonds mined in areas it controlled; the proceeds were used to buy weapons from Eastern Europe and neighboring countries. Security Council Resolution 1306 of July 5, 2000 imposed a diamond embargo in Sierra Leone. However, the RUF smuggled out the diamonds through Liberia which led to UNSC sanctions on Liberia in May 2001. In a more complex war in DRC, conflicts between government forces and three rebel groups, along with militias and soldiers from neighboring states caused a humanitarian disaster, sustained by rebel groups’ sales of diamonds smuggled out through neighboring Uganda, Rwanda, and Burundi and Republic of Congo. Tamm, note 14 supra at 10-15. The UN did not impose a diamond embargo on DRC.22 See id at 16.23 See Section III.B.1. infra.24 Global Witness, Return of the Blood Diamond, p. 5, available at http://www.globalwitness.org/media_library_detail.php/996/en/return_of_the_blood_diamond_the_deadly_race_to_con.25 A/RES/55/56, available at http://kimberleyprocess.com/documents/united_nations_en.html.

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civil society organizations26 was a voluntary joint initiative designed to stem the trade in conflict diamonds.

B. The KP Certification Scheme 27

The KP is an import-export certification scheme that requires participating governments to certify the origin of rough diamonds, and implement internal controls sufficient to ensure that no conflict diamonds enter the global supply chain from their respective territories. KP member states are required to enact domestic legislation to implement the scheme, and may only trade with each other. Membership is voluntary, open to any nation willing and able to fulfill its requirements.

Conflict Diamond Definition

The precise definition of conflict diamonds are “rough diamonds used by rebel movements or their allies to finance conflict aimed at undermining legitimate governments, as described in relevant United Nations Security Council (UNSC) resolutions.”28

Certificate

Every export shipment of rough diamonds from a member’s territory must be transported in a tamper and forgery resistant container which also contains a certificate bearing the title “Kimberley Process Certificate” and stating that “the rough diamonds in this shipment have been handled in accordance with the provisions of the Kimberley Process Certification Scheme for rough diamonds.” The certificate must identify exporter and importer and be validated by the local exporting authority, state the country of origin for parcels29 from the same origin, the name of the issuing authority, date of issuance and expiry, carat weight/mass and value in US dollars, and the number of parcels in the shipment.

Trading Partners and Procedures26 These include Global Witness and Partnership Africa Canada, as well as a coalition of groups (Global Witness, Medico International, Netherlands Institute for Southern Africa, and the Netherlands Organization for International Development) making up the Fatal Transactions Campaign and the U.S.-based Campaign to Eliminate Conflict Diamonds (“a coalition of 73 NGOs coordinated by Physicians for Human Rights and including faith-based, development, and prominent humanitarian/human rights advocacy organizations such as World Vision, Oxfam, Amnesty International, and Human Rights Watch.” Tamm, supra note __ at 18 and 23.27 This summary is based on the Kimberley Process Core Document (hereafter KPCS Document), p. 4, available at http://www.kimberleyprocess.com/. 28 KPCS Document at p. 4. In 2001, the UNGA defined conflict diamonds as ‘diamonds that originate from areas controlled by forces or factions that are opposed to legitimate and internationally recognized governments and are used to fund military action in opposition to these governments or in contravention of Security Council decisions.’ United Nations Department of Public Information, Conflict Diamonds: Sanctions and War, General Assembly Adopts a Resolution on “Conflict Diamonds” (Mar. 21, 2001), available at http://www.un.org/peace/africa/diamond.html.29 “Parcel” means “one or more diamonds that are packed together and that are not individualized.” KPCS Document at p. 4.

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Members agree that no shipment of rough diamonds is imported from or exported to a non-member, that shipments of rough diamonds imported from a member contain a duly validated Certificate, that confirmation of receipt is sent promptly to the relevant exporting authority,30 and that the original certificate is accessible for at least three years.

The KP recommends (but does not require) that all diamond buyers, sellers, exporters, agents and courier companies involved in carrying rough diamonds should be registered and licensed and required for five years to keep daily records of their transactions, listing the names and license numbers of buying or selling clients and the amount and value of diamonds sold, exported or purchased. Other recommendations include physical inspection of packages to ensure they have not been tampered with and the contents conform to the KP certificate; notification of the importing authority of an impending shipment and confirmation of receipt by the importing authority, and declarations by exporters that they are not shipping conflict diamonds.

Internal Controls

Each KP member must design a system of internal controls sufficient to eliminate the presence of conflict diamonds inside its territory. These include laws and administrative processes with penalties for non-compliance and collection and sharing of production, import and export data. More extensive measures are needed in diamond producing countries especially those (like Sierra Leone, DRC and Angola) that contain extensive “alluvial diamonds”—deposits that are scattered through fields and riverbeds and mined with simple tools, known as artisanal mining. Because artisanal mining can be performed by almost anyone, it is very difficult to control and regulate. (Industrial mining of carrot-shaped vertical mines known as “Kimberlite Pipes” is much easier to regulate).

Monitoring and Review Visits

Members are required to report at annual meetings on how the KP is being implemented within their respective jurisdictions, and provide additional information and clarification upon request. The KP sends a “peer review” mission composed of industry, civil society and government representatives to each member every three years or whenever there are credible indications of significant non-compliance. The results of these missions are confidential. If a compliance or implementation issue arises, all Participants are informed of the concern and discuss how to address it.

Members and Official Observers

While only states are KP members, the KP was not created by treaty and is not a UN institution (although the members sought and received affirmation by both the Security Council and General Assembly while establishing the scheme).31 Currently, there are 49 30 The confirmation should as a minimum refer to the certificate number, the number of parcels, the carat weight and the details of the importer and exporter. KPCS Document, Annex 1 at p.12.31 Clive Wright, Tackling Conflict Diamonds: The Kimberley Process Certification Scheme, International Peacekeeping, Vol.11, No.4, Winter 2004, pp. 697–708, 702 (citing UNGA resolutions).

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members, representing 75 countries (with the EU and its member states representing one participant).32

The KP is chaired by member states on an annual rotating basis, but the chair’s role is essentially limited to convening annual plenary meetings. Israel is the current chair. While participation in the KP is voluntary, as a practical matter, since almost all diamond trading states are KP members participation is mandatory for any state wanting to participate. The price of diamonds exported from a non-member would be dramatically lower than diamonds in the legitimate KP-sanctioned diamond market.33

While only states have voting power, industry and civil society play an important role in the KP as official observers. They attend all KP meetings and participate in all working groups and committees.34 The diamond industry is represented by the World Diamond Council (WDC)35 and civil society mainly by Global Witness and Partnership Africa Canada, the two NGOs that helped found the scheme and are its chief monitors.

Consensus Voting

All decisions are made by consensus only (except for suspensions or expulsions where the state in question may not vote) giving every member an effective veto.

Statistics

Members are required to provide quarterly aggregate statistics on rough diamond exports and imports; the number of certificates validated for export; imported shipments accompanied by certificates; exports and imports by origin and provenance wherever possible; and rough diamond production by carat weight and by value. Most of this data is confidential; only annual production, export and import data appears are available on the public portion of the KP website.

Industry System of Warranties 32 http://kimberleyprocess.com/.33 See, e.g., All Africa, “Zimbabwe: Dumping KP Too Costly,” by Farai Mutsaka (Jul. 8, 2010) (quoting a diamond analyst: “Zimbabwe could still find ready buyers for Marange diamonds outside KP-controlled markets. … We will have those rebel countries such as Iran and many others in the Far East ready to buy, but only because they will be buying the diamonds at a bargain. They will get the diamonds for next to nothing’ … Zimbabwe won't get fair value because those who buy outside the KP, virtually illegally, will only buy if they buy at low prices. The diamonds will be disposed of at heavily discounted prices.”) available at http://allafrica.com/stories/201007090640.html.34 The three Working Groups are Monitoring (of KP compliance), Statistics (ensuring timely reporting and analysis), and Diamond Experts (technical problems in KP implementation), while the two Committees are Participation (handling new members) and Selection (of Vice Chair and Chair). Members of the Working Groups and Committees include member nations, the World Diamond Council, and the two most involved NGOs – Global Witness and Partnership Africa Canada.http://kimberleyprocess.com/structure/working_group_en.html 35 The International Diamond Manufacturers’ Association and the World Federation of Diamond Bourses issued a joint, “zero tolerance” resolution on conflict diamonds, and created the World Diamond Council to represent the interests of all aspects of the diamond industry in the work to eliminate conflict diamonds. The Essential Guide to Implementing the Kimberley Process 11-12 (2003), available at http://www.worlddiamondcouncil.com/wdcbk.pdf

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The KP covers international shipments only. To complement the KP, the WDC established a system of warranties that applies to all in-country sales. Members are required to state on all invoices for the sale of rough diamonds, polished diamonds, and jewelry containing diamonds: “The diamonds herein invoiced have been purchased from legitimate sources not involved in funding conflict in compliance with United Nations Resolutions. The seller hereby guarantees that these diamonds are conflict free, based on personal knowledge and/or written guarantees provided by the supplier of these diamonds.”36 (The warranty system has proven to be ineffective; “personal knowledge” is not much of a warranty.37)

The warranty must accompany all transactions through the supply chain to traders, polishers, dealers, and manufacturers. Member companies agree to independent auditing to verify compliance and adopt a code of conduct, enforced by expulsion, by which they agree to trade only with companies that provide the warranty and not to be involved in the sale or purchase of conflict diamonds.38

D. Effectiveness of the KP: Strengths and Weaknesses

In a sense the very existence of the KP is a success given that skeptics had claimed it would be impossible to regulate the diamond industry or track the movement of diamonds across borders. As a collaborative effort involving industry, civil society and states, it is inclusive of all stakeholders each of whom desire a market free of blood diamonds. (The participation of states and industry appears to be based more on politics and profit than altruistic motives.39)

Member states and industry view the KP as highly successful, citing the reduction of conflict diamonds on the market from between 3 to 4 percent in 2000 to 1 percent or lower today.40 This reduction is due mainly to the cessation of the civil wars in Africa that inspired the scheme. Other strengths and successes include the peer review system, the 36 http://www.worlddiamondcouncil.com/press/wdc%20letter%20111902.html37 See Global Witness, Broken Vows: Exposing the “Loupe” Holes in the Diamond Industry’s Efforts to Prevent the Trade in Conflict Diamonds (Nov. 2006): the US diamond jewellery retail sector, which accounts for over half of global diamond jewellery retail sales, were not carrying out the basic steps of the system of warranties.” In an earlier report, Global Witness reported similar disappointing results in a survey of diamond jewellery retailers in the UK, US, Australia, Belgium, France, Germany, Italy, and Switzerland. See Déjà vu: diamond industry still failing to deliver on promises (Oct. 2004), available at http://www.amnesty.org/en/library/asset/POL34/008/2004/en/2a036928-d571-11dd-bb24-1fb85fe8fa05/pol340082004en.pdf.38 They agree not to knowingly buy or sell conflict diamonds or buy diamonds from suspect or unknown sources, known violators of conflict diamond restrictions, non-KP member countries, or any region subject to a government warning that conflict diamonds are emanating from or available for sale in the region unless the diamonds have been exported in compliance with the KPCS. 39 See, e.g., Ian Smillie, HUMAN RIGHTS, DIAMONDS AND THE KIMBERLEY PROCESS (Oct. 9, 2009) (referring to the KP’s failure to suspend Zimbabwe, “Australian diplomats paid quiet visits to the governments of team members recommending against any action that might damage the interests of a diamond mining company with Australian connections in Zimbabwe. For these governments and the others that are currently active behind the scenes, business and politics trump human rights”) available athttp://www.diamonds.net/news/NewsItem.aspx?ArticleID=27951

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significant increase in official diamond revenues in certain producing countries in Africa like Sierra Leone, the public availability of statistics that help identify money laundering through the diamond trade, and the suspension of DRC for non-compliance in 2004.41

Despite these achievements, however, the credibility of the KP is at an all-time low. Partnership Africa Canada has declared that “by all indications and from evidence gathered … the Kimberley Process is failing”.42 Its KP representative and a key architect of the scheme, Ian Smillie, resigned in protest in June 2009 declaring he could no longer “contribute to a pretense that failure is success.”43 Human Rights Watch stated last year that the KP had “utterly lost credibility” over its response to human rights abuses in Zimbabwe44 and Global Witness has even hinted at withdrawing from the scheme also over Zimbabwe.45

Among the KP’s failures and shortcomings are (a) ambiguity as to whether and how to address human rights abuses by member governments (b) consensus voting, which allows any member to block reform, (c) the voluntary nature of the scheme which relies upon the cooperation of corrupt governments, (d) monitoring and enforcement failures due to lack of political will, (e) weak internal controls, (f) the exclusion of cut and polished diamonds from the definition of conflict diamond and (g) weak monitoring of industry.

Governmental Human Rights Abuse

Zimbabwe

Almost all these flaws are reflected in the KP’s handling of actions by its member Zimbabwe where the government has militarized the country’s Marange mine fields, considered by some to contain the world’s largest diamond deposits.46 Over the past three years, police and military stationed in Marange have terrorized diamond diggers 40 Tamm, supra note 14 at 7 (3 to 4 percent in 2002); Wexler, Lesley M., Regulating Resource Curses: Institutional Design and Evolution of the Blood Diamond Regime, FSU College of Law, Public Law Research Paper No. 408. (November 23, 2009) (4 in 2000 to 1 percent in 2007) available at http://ssrn.com/abstract=1511767).41 Press Release, Kimberley Process, Kimberley Process Removes the Republic of Congo from the List of Participants (July 9, 2004).42 For PAC, the problem is lack of accountability inherent in the KP system. “There is no KP central authority. The “chair” rotates annually and has virtually no responsibility beyond a convening function. Problems are shifted from one “working group” to another; debates on vital issues extend for years. “Consensus” in the KP means that everyone must agree; a single dissenter can block forward movement. Nobody takes responsibility for action or inaction, failure or success; the Kimberley Process has no core body apart from its annual “plenary meeting” and thus nobody is held responsible for anything.” Diamonds and Human Security, Annual Review 2009, available at http://www.pacweb.org/Documents/annual-reviews-diamonds/AR_diamonds_2009_eng.pdf.43 Smillie’s entire address is here: http://www.diamonds.net/news/NewsItem.aspx?ArticleID=27951; see also Irin News, GLOBAL: Credibility of Kimberley Process on the line, say NGOs (Jun. 22, 2009), available at http://www.irinnews.org/Report.aspx?ReportId=8494944 http://www.hrw.org/en/news/2009/11/06/kimberley-process-zimbabwe-action-mars-credibility. The statement was made before the KP had suspended exports of Zimbabwe diamonds; it later did, but now allows exports of diamonds originating from certain concessions.45 New York Times, Group Allows Limited Sales of Zimbabwe Diamonds (July 16, 2010), available at http://www.nytimes.com/2010/07/17/world/africa/17diamonds.html?_r=1.

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and local communities through killings, assaults, rapes, arbitrary detention and forced labor.47 Miners are divided into syndicates supervised by police who demand bribes and beat or kill miners outside their control.48 In autumn 2008, the army launched Operation “You will not return” during which soldiers killed over 200 people with machine guns and helicopter gunships. The military took over the mine fields from the police and continued the forced labor of locals (including children) and beating and killing of independent miners. It is also facilitating illegal smuggling of diamonds through Mozambique (a non-KP participant) and South Africa.49

In June 2009, the KP sent a peer review team to Zimbabwe which confirmed the violence and the government’s role in smuggling. Despite the fact that the smuggling alone is grounds for expulsion, the team recommended suspension for at least six months.50 The Zimbabwe government responded by arresting a local NGO worker who had reported government abuses to the peer review team,51 and the recommendation caused deep divisions within the KP. NGOs wanted total suspension and as noted earlier PAC’s most senior representative resigned. At the November 2009 plenary meeting, DRC, Namibia, Russia, South Africa, and Tanzania easily blocked a total suspension—which they viewed as “neo-colonial interference” and a US plan for regime change—since only one opposing vote was needed to do so.52 The KP voted for a “Joint Work Plan” designed to bring Zimbabwe back into compliance and a partial suspension covering only diamonds from Marange; the agreement was characterized by Global Witness as a “weak compromise deal that has failed to achieve any of its aims” of ending the military presence, government smuggling and violence.53

At a June 2010 meeting in Tel Aviv Zimbabwe was still the focus of discussion, and the partial suspension held after fierce debate. Some states and industry representatives argued the limitation in the conflict diamond definition (to rebel movements attacking legitimate governments) denied the KP the authority to address “non-conflict”

46 Return of the Blood Diamond, p. 6: “Although estimates of the reserves contained in this area vary wildly, some have gone so far as to suggest that it could be home to one of the world’s richest diamond deposits.”47 Id.48 Id.49 Id.50 Id.51 In June 2010 a local human rights worker who reported on the military’s violence to the KP review mission was arrested and charged with “publication of falsehoods prejudicial to state.” Voice of America, Zimbabwe Mines Minister Says Human Rights Groups Tried to Bribe Him, Jun. 28, 2010. He was released on bail on July 2010 and his case is still pending, after previously being denied bail. BBC News, Zimbabwe 'blood diamond' activist freed on bail Jul. 13, 2010; AFP, Zimbabwe diamond activist wins bail, Jul. 12, 2010.52 De Beers Diamond Dialogue 11 “Kimberley Process Credibility, Zimbabwe and the Joint Work Plan” Section 2.4 (Jun. 28, 2010) (hereafter “De Beers Dialogue”) available athttp://www.reports-and-materials.org/Diamond-Dialogue-28-Jun-2010.pdf.53 “Six months on, little progress has been made in meeting even those targets that the plan does set: the military presence remains in the majority of the Marange fields, diamonds continue to be smuggled out into neighbouring countries and Zimbabwe has breached the agreement by exporting shipments of diamonds from Marange to the United Arab Emirates.” Return of the Blood Diamond at p. 10.

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government human rights abuses54 and that other human rights mechanisms outside the KP are more appropriate.55 The NGOs argued that Zimbabwe had not met the KP’s standards on internal controls and should be suspended on that basis alone.56 (However, they still advocate for clarification of members’ commitment to uphold human rights, pointing to language in the KP’s core document indicating the scheme was adopted for that very purpose.57). A month later, just prior to another KP meeting in Russia, the European Parliament adopted a resolution regarding the situation in Zimbabwe and called for a "revision of the Kimberley Process to take proper account of human rights principles".58 What came out of the Russia meeting was further monitoring, and another partial suspension permitting the export of a limited amount of Zimbabwe diamonds originating outside Marange.59 An auction of these diamonds was held in August.60

Consensus voting, polarization among members, uncertainty around its mandate and lack of political will have all resulted in the KP’s failure to firmly address the corruption and human rights abuses by Zimbabwe’s government. Following on other serious enforcement failures (discussed below), the KP’s weak response has badly undermined its credibility.61 The outcome in Zimbabwe may very well determine the future relevance (and possibly existence) of the KP.

Israel

Israel is another member engaged in flagrant human rights abuse (although presumably not of participants in its diamond sector which according to government statistics is made up entirely of Jewish males62). While Israel exports rough diamonds, its more lucrative exports of polished diamonds are excluded from the KP mandate by definition, not only because of the limitation to rough diamonds, but also because the Israeli government and

54 De Beers Dialogue, supra note 51, Section 1 (debate over “the degree to which serious, non-conflict related human rights abuses are included in the definition of conflict diamond”). 55 It is potentially important to acknowledge some of the latent limitations of the KP. Many NGO aims (for example relating to the broader human and civil rights situation in Zimbabwe) arguably fall outside its scope. The danger is that if potentially “unrealistic” expectations are placed on the KP, it will ultimately undermine the successes that it has achieved within its more narrowly interpreted boundaries. As an alternative, NGOs and other critics of Zimbabwe might consider focusing on other tools, initiatives and avenues to address broader political and human rights issues–and so not undermine the KP itself. Nonetheless, NGO critics maintain that human rights are in fact within its remit–and that it is a pure issue of basic KP implementation and compliance. De Beers Dialogue, Section 2.9 at p.3.56 See De Beers Dialogue, Section 2.4 at p. 2.57 The KPCS Document preamble refers to ‘the devastating impact of conflicts fuelled by the trade in conflict diamonds on the peace, safety and security of people in affected countries and the systematic and gross human rights violations that have been perpetrated in such conflicts.’58 European Parliament, Texts Adopted, European Parliament resolution of 8 July 2010 on Zimbabwe, notably the case of Farai Maguwu, available at http://www.europarl.europa.eu/sides/getDoc.do?type=TA&reference=P7-TA-2010-0288&language=EN&ring=B7-2010-0443. 59 New York Times, Group Allows Limited Sales of Zimbabwe Diamonds (July 16, 2010), available at http://www.nytimes.com/2010/07/17/world/africa/17diamonds.html?_r=1.60 AFP, Zimbabwe opens auctions after 'blood diamond' ban, (August 10, 2010), http://www.google.com/hostednews/afp/article/ALeqM5i5DS5dPGOonNG28B8IGdryzYHNYw. 61 New York Times, Group Allows Limited Sales of Zimbabwe Diamonds (Jul. 16, 2010), available at http://www.nytimes.com/2010/07/17/world/africa/17diamonds.html?_r=1.62 http://www.cbs.gov.il/www/saka_y/02_01.pdf.

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its military are not rebel groups, and Israeli military action in Palestine is not directed at “legitimate governments” but to non-state actors (and most often civilians).

NGOs have called for inclusion of polished diamonds in the KP framework since at least 200663 on the grounds that conflict diamonds may be smuggled into cutting and polishing factories and released into the polished diamond market. In 2005 Global Witness addressed the possibility that inadequate controls at cutting and polishing centers were allowing conflict diamonds to enter the legitimate diamond trade64 and made recommendations to strengthen controls by management, governments and KP authorities.65 In response to the report, the KP issued a recommendation that member governments monitor the volume of rough diamonds entering cutting and polishing centers and regulate license holders working at the centers.66  Global Witness and other NGOs have not, to my knowledge, explicitly advocated the inclusion of cut and polished diamonds because they themselves may be sold to fund armed conflict.

Enforcement Failures of the KP

Zimbabwe is only the latest crisis following a string of major enforcement failures. According to Global Witness, “100 percent of Venezuela's diamonds are smuggled, Guinea has reported an eyebrow-raising 500 percent increase in diamond production year on year [indicating smuggling from surrounding countries]; Lebanon is exporting more rough diamonds than it imports despite having no local deposits and there is also 63 In 2006, Amnesty International called for “tighter controls of diamond cutting and polishing centres [ ] arguing that conflict diamonds may infiltrate the legitimate diamond trade by being smuggled into these centres and laundered through them.” Amnesty recommended that (a) governments with cutting and polishing centers supervise imports of rough diamonds and exports of polished diamonds from such centres and conduct audits to compare stocks against company records, (b) that they should require cutting and polishing companies to record details of their imports of rough diamonds, their manufacture of polished stones and their residual rough diamonds for export and to submit these details to the government periodically. Amnesty International Position Paper, Kimberley Process: An Amnesty International Position Paper (2006) available at http://www.amnestyusa.org/document.php?lang=e&id=ENGPOL300572006.64 In a study of Armenian cutting and polishing centers, Global Witness reported that supervision at the centers was not adequate to ensure that conflict or illicit diamonds were not being laundered through factories, and that insufficient expertise existed among customs and KP authorities to ensure the identification of possible conflict diamonds or to adequately value the imported diamonds. Making it Work: Why the Kimberley Process Must Do More to Stop Conflict Diamonds (Nov. 15, 2005) available at http://www.globalwitness.org/media_library_detail.php/143/en/making_it_work_why_the_kimberley_process_must_do_m.65 These included (a) registration of diamond traders, (b) records of diamond transactions, (c) adequate regulation and oversight at the centers to prevent conflict diamonds from being laundered (i.e. smuggled into factories, polished and exported outside the KP); (d) verifying their KP compliance through third-party audits of their systems of control and submission of their records to authorities to review and (e) requiring trading companies that contract with their factories to provide third-party audits verifying their compliance. One method they urged was to compare the rough diamonds that enter the factory and the polished diamonds that exit the factories against records kept by the company, to help identify anomalies that indicate illicit trade. Id. at 4-5.66 Specifically, the KP recommended that governments account for the volume of rough diamonds used for cutting and polishing in their jurisdiction, require information on criminal convictions for persons applying for a license, make the identities of license-holders public, ensure verifiable recordkeeping by rough diamond buyers and sellers, and, where possible, to conduct checks to reconcile invoices with Kimberley Process certificates and to compare trade with annual stock declarations. Id.

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significant illicit cross-border movement of precious stones between Sierra Leone and Guinea” yet none of those countries have been suspended and while inspection teams have been dispatched and reports commissioned, no action has been taken.67

PAC’s scathing 2009 Annual Review noted serious noncompliance among nine members, as well as ineffective peer review visits:68

[Peer review] recommendations are ignored, and there is little or no follow-up —this has been the case in the past with DRC and Angola. And, as this Annual Review notes, some reviews are completely bogus. In 2008, a bloated, nine-member team visited Guinea, a country beset by corruption, weak diamond controls, and almost certain smuggling. The team spent less than two hours outside the capital and its report remained unfinished for almost 11 months. A team visited Venezuela in 2008 but its makeup, agenda and itinerary were dictated entirely by the Venezuelan government. NGOs were barred and there were no visits to mining areas or border towns. Zimbabwe, rife with smuggling and gross diamond-related human rights abuse, consumed months of ineffectual internal KP debate. In the end, the KP agreed on a review mission, but only after being publicly shamed into action by NGO and media reports. The result is a lowest-common-denominator “consensus” and continuing inaction.

Other cases of flagrant non-compliance have been ignored until they became media scandals: fraud and corruption in Brazil; Ivorian conflict diamonds smuggled through neighbouring countries; 100% of Venezuela’s diamonds smuggled out of the country. In two of Africa’s largest diamond producers — Angola and DRC— internal controls are so weak that nobody can be certain where exported diamonds really come from. In addition, production and trade statistics from Lebanon, Guinea and the Republic of Congo (Brazzaville) raise serious questions. In most cases problems are detected by NGOs or UN expert panels because the KP has no central capacity for study and research. Procrastination is the default position. Elaborate measures were taken in 2008 to allow Venezuela to remain a KP participant — despite its flagrant non-compliance — on the understanding that it would suspend exports and imports until it had regained control of its diamond industry. This effectively endorsed a situation in which all diamonds were being smuggled out of the country.

During the negotiations for the KP, PAC and Global Witness had urged that it be made legally binding through a UNSC Resolution, and pushed for better monitoring measures.69 These enforcement failures raise serious doubts about the viability of a voluntary approach that depends for its effectiveness on ethical behavior by corrupt governments.

Weak Internal Controls

Another weakness in the KP is the exclusion from its mandate of internal trade, the so-called “earth to export gap.”70 By focusing primarily on the certification of diamonds in the export-import process, the KP leaves a gap in the international regulation of the 67 Reuters AlertNet, “Scheme to control blood diamonds ignoring abuses – campaigners”, by Astrid Zweynert, http://www.alertnet.org/db/an_art/57939/2009/05/26-170349-1.htm. Venezuela suspended itself from the KP but is selling diamonds by smuggling through neighboring countries.68Diamonds and Human Security, Annual Review 2009 available at http://www.pacweb.org/Documents/annual-reviews-diamonds/AR_diamonds_2009_eng.pdf.69 Global Witness, Partnership Africa Canada, and Fatal Transactions, “Kimberley Process Meeting: A Good Watchdog But Crucially Lacking Teeth” Press Release, Nov. 29, 2001.

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“phase in which the miners mine the rough diamonds and sell them, through middlemen, to companies where they are then entered into the export-import phase.” As noted earlier, this issue is particularly problematic in countries with artisanal mining. The KP has encouraged members to require that all mines be licensed and to ensure that private mining companies employ sufficient security measures to prevent smuggling; however, these measures are extremely difficult to enforce.

Weak Industry Compliance

Global Witness complains that the diamond industry has failed at self-regulation and that independent third party auditing of every step in the supply chain of polished diamonds is needed, as well as greater government oversight.71 They also urge that government monitoring of industry compliance be made an explicit minimum requirement of KP membership and that peer reviews should include an evaluation of such monitoring.72

Reforms Needed

To summarize, comprehensive reform of the KP is needed, including at a minimum, the elimination of consensus voting that allows any member to block enforcement and reform, the addition of binding human rights provisions on members not just in its diamond sector but in all of its actions, the inclusion of cut and polished diamonds in the definition of conflict diamond, improved monitoring by member states of their diamond industries, and implementation of mechanisms to ensure in-country transactions do not allow conflict diamonds to enter the legal trade.73

III. The Israeli Diamond Industry and the Kimberley Process

A. Description of the Industry

1. Polished Diamonds

In 2009, Israel exported $3.92 billion in net value of polished diamonds.74 According to government figures, L.L.D. Diamonds Ltd., owned by Lev Leviev, is by far Israel’s

70 Gretchen Vetter, The Forgotten Million: Assessing International Human Rights Abuse in the Artisanal Diamond Mining Industry, 16 Transnat’l L. & Contemp. Probs. 733, 746 2006-2007. Id.71 Speech by Ely Harrowell of Global Witness at the KP Tel Aviv meeting in June 2010, available at http://www.globalwitness.org/media_library_detail.php/999/en/the_kimberley_process_10_years_on_global_witness_p. 72 Id.73 Kimberley Process Meeting: Renewed Calls for Improvements in Monitoring as KP Fails Where It’s Critical, Diamond Intelligence Briefs (June 30, 2009) available at 2009 WLNR 14539502; Global Witness, Press Release, Blood Diamonds- Time to Plug the Gap (June 19, 2009); The Kimberley Process Civil Society Coalition, Press Release, Campaigners Call for Urgent Action on Zimbabwe Blood Diamonds and Wider Reform of the Kimberley Process to Prevent Abuse (Oct. 29, 2009) available at http://www.pacweb.org/Documents/Press_releases/2009/KP_Plenary-Zimbabwe-2009-10-29-eng.pdf. 74 Rapaport, Leviev Still Israel's Top Diamond Co. Despite 42% Drop in Exports available at http://www.diamonds.net/news/NewsItem.aspx?ArticleID=29469. (Israeli government site in Hebrew: http://www.moital.gov.il/NR/exeres/810BA782-0771-42CB-8E54-79C49197F8F3.htm.)

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largest polished diamond exporter.75 L.L.D.’s $241 million in polished diamond exports in 2009 was a 42 percent decline from its $417 million in net exports in 2008.76 While the drop reflected the industry’s overall weakness in 2009, the decline in Leviev’s exports was greater than the 37 percent overall decline in Israel’s polished exports.77 After Leviev, the top five polished diamond exporters are Leo Schachter Diamonds ($215 million), A. Dalumi Diamonds ($138 million), Yerushalmi Bros. International ($136 million) and MID House of Diamonds ($72 million).78

The top 25 exporters account for 40 percent of Israel’s total polished diamond exports, or $1.58 billion.79 The government’s top 25 list excludes 11 companies that wish to keep their identity confidential, and which had combined exports of $274 million.80 This raises the possibility that the state may own a share in some of these companies, but I found no other evidence to suggest this. (Israel and Argentina strongly objected to the auditing of private companies during the negotiations establishing the KP.)

Israel’s main destination for exports of polished diamonds is the United States, the world’s largest importer of polished diamonds. Israel’s market share of US polished diamond imports has remained steady at around fifty percent for the decade ending 2008 (declining to 45% in 2009).81 After the U.S., the top destinations for Israeli polished diamonds are currently Hong Kong, Belgium, China and India.82

2. Rough Diamonds

The KP reports that overall, Israel purchases around $5 billion in value of rough diamonds annually, and exports around $4 billion.83 In 2008, Israel exported $4.2 billion in rough diamonds in 2008 and imported $5 billion.84 As noted earlier, Israel is no longer the cutting and polishing center it used to be and is currently focused on trading.85 Some Israeli companies export rough diamonds to cutting and polishing factories in countries with cheap labor, mostly to India.86 A small amount of rough diamond exports are

75 Rapaport, note 73 supra.76 Id.77 Id.78 Id.79 Id.80 Id.81 http://www.israelidiamond.co.il/English/News.aspx?boneId=2521&objid=694182 http://www.israelidiamond.co.il/ImportExpport.aspx?id=92&boneid=150783 Kimberley Process Certification Scheme, https://kimberleyprocessstatistics.org/public_statistics. 84 More precisely, Israel exported $4,197,589,593 in value of exports of rough diamonds and 17,927,981.30 carats in volume. https://kimberleyprocessstatistics.org/static/pdfs/AnnualTables/2008GlobalSummary.pdf.85 http://www.israelidiamond.co.il/english/diamantaires_results.aspx?searchString=&cmbOperationTypes=7&x=-333&y=-20686 This trend was noted by the Israeli diamond industry trade association in 2004: “The export of rough diamonds increased considerably, by some 38%, from 1.6 billion dollars in 2002 to 2.2 billion dollars in 2003. In volume, the increase in rough diamonds export was 27%, from 12.2 million carats in 2002 to 15.5 million carats in 2003. The increase in rough export reflects the trend of increased manufacturing abroad, which now surpasses manufacturing in Israel.” 2004: A Year of Great Opportunity and Challenges, The Israeli Diamond Industry, available at http://www.israelidiamond.co.il/English/news.aspx?BoneId=1082

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industrial diamonds, constituting between $2.5 and $5.5 million annually over the past three years.87

According to U.N. statistics, the majority of rough diamonds are purchased by Israeli companies at trading centers in Belgium (Antwerp) and London.88 The largest source by far is Antwerp, the largest world diamond trading center,89 where Israeli purchases have consistently ranged between $2-3 billion annually over the past five years.90 After Antwerp, Israel’s remaining rough diamond imports are purchased mainly from Switzerland, Russia, and South Africa.91

Outside of these legitimate purchases, there have been reports of smuggling of illicit rough diamonds from Cote D’Ivoire and allegations of human rights abuses at mines co-owned by Lev Leviev in Angola and Zimbabwe (discussed in Part III.).

3. Use of Profits

Since Israel’s top 25 diamond exporters are private companies (and an additional 11 top exporters are confidential), data on where their profits are going is not readily available. One exception is Lev Leviev, who is using at least some of his profits to finance the construction of illegal settlements in the West Bank. Diamonds are generally not traceable once polished92 which also makes it difficult to track how profits from Israeli polished diamonds are being used.

4. Human/Labor Rights Abuses

The Israeli Central Bureau of Statistics breaks out employees of various industries by gender and by Jewish and non-Jewish religious affiliation. According to these statistics, only Jewish males are employed in the diamond industry, likely due to tradition.93 I was unable to find evidence of cutting and polishing factories located in the OPT. Given that the cutting and polishing industry is centered in the Hasidic community, it seems likely some of this activity would be conducted in East Jerusalem.

B. Israeli Compliance with Current KP Standards

The KP sent a peer review mission to Israel in May 2004. Review mission results are confidential and I did not find reports that any compliance issues were discovered by the review mission. However, a UN expert panel has reported evidence of smuggling from Cote D’Ivoire by Israeli nationals. 87 comtrade.un.org.88 Id.89 Tamm, supra note 14 at 26.90 91 comtrade.un.org. 92 In rare cases, identification can be made if the diamond is hallmarked in some way, or has an unusual cut or shape that a particular manufacturer has developed and possibly patented. Some experts may be able to tell the country of origin where the diamond was mined, but that would not be an indication of where it was crafted.93 http://www.cbs.gov.il/www/saka_y/02_01.pdf

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1. Israeli Smuggling from Cote D’Ivoire

Among the various failures cited by PAC in its 2009 Annual Review94 is the illicit trafficking of diamonds from Cote D’Ivoire, the only country still subject to a diamond embargo. The embargo was imposed in 2005 after a failed coup in 2002 by the rebel group Forces Nouvelle sparked a civil war that divided the country into a “rebel-held north and a government-controlled south.”95 Diamonds in the northern and central regions fell under rebel control, and the government suspended exploration and sales of diamonds.96 For this reason, the KP was never implemented in Cote D’Ivoire although it was a founding member.

As with other diamond embargoes, this one has not been successful in preventing smuggling. In fact, production in the rebel-controlled Ivorian mines has been increasing, with diamonds being smuggled out through neighboring Guinea, Ghana, and Liberia, all KP members. The diamonds enter the legitimate trade by being laundered into these neighboring countries’ production or by entering later through trading and cutting and polishing centers. Illicit Ivorian diamonds continue to appear in the major trading centers of Antwerp, Dubai, and Tel Aviv (including a recent $20 million shipment to Antwerp).97

A UN Group of Experts on Cote d'Ivoire suspected that (in addition to a long list of suspicious activity by others) Israeli nationals are smuggling out rough diamonds from Cote D’Ivoire through Liberia. The Israeli government provided incomplete responses to the experts’ requests for information.98 The UN report recommended that the Israeli government investigate the possible involvement of Israeli nationals and companies in the illegal export of Ivorian rough diamonds.99 I was unable to confirm whether the Israeli government investigated the allegations.

If the smuggling is or becomes continuous and systematic Israel would arguably fail its duty to implement adequate internal controls which would merit a peer review visit, but given the KP’s enforcement issues this would be unlikely.

2. Israeli Connection with Mirange Mines

Global Witness has uncovered evidence suggesting that an Israeli financier is behind one of two joint venture companies operating in the Marange mine fields in Zimbabwe.100

According to its recent report on Zimbabwe, licenses to mine in Marange have been awarded to two joint venture companies, Mbada Diamonds and Canadile Miners. Each

94 See note 67 supra.95 Conflict Diamonds and Peace Process in Cote D’Ivoire, Bonn International Center for Conversion (2008): available at http://www.bicc.de/index.php/publications/bicc-focus/focus-ivory-coast.96 Id.97 Id. 98 Id., para 10 at p. 11.99 United Nations Group of Experts on Côte d’Ivoire dated 9 October 2009 (S/2009/521), available at http://www.un-casa.org/CASAUpload/ELibrary/S-2009-521.pdf. 100 Return of the Blood Diamond, supra note 23 at 13.

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venture is comprised of two investors, one private and the other the state mining company, Zimbabwe Mining Development Corporation (ZMDC). The private investor in Canadile Miners is Core Mining and Mineral Resources Ltd., a South African company.

ZMDC did not play a substantive role in choosing the investors (as they should have) but were presented by the government with the investor names: Mauritius-registered Grandwell Holdings Ltd and Core Mining. ZMDC was told the investors had already been approved by the Ministry of Mines and Mining Development. ZMDC representatives did carry out due diligence investigations into Core Mining, Grandwell Holdings Ltd and Grandwell’s parent company New Reclamation Group Ltd.

Minutes of a ZMDC committee meeting in August 2009, uncovered by Global Witness, state that ZMDC’s due diligence team that visited the offices of Core Mining was “incapacitated and could not successfully do its evaluation”.101 The same minutes reported that “Core Mining advised that they had a principal domiciled in Israel and that principal shall be responsible for financing the entire project. They emphasized that the principal’s name must remain confidential”.102 Global Witness wrote to Core Mining to ask for their comments on this. In response, Core Mining contradicted the ZMDC’s account, stating that “no funding is coming from a principal domiciled in Israel”. If an Israeli financier is involved, it is likely to be Lev Leviev’s company. (Core Mining business associates also have criminal backgrounds.103)

The joint ventures were set up under the auspices of the Joint Venture Plan (discussed earlier) that was agreed in June 2009 after revelations of the violence in Marange. Thus, investment in these companies is currently sanctioned by the KP and legal under Zimbabwe law. However, the human rights abuses in Zimbabwe could be grounds for a lawsuit against the company among other remedies, discussed in the next section.

IV. Alternative Mechanisms Outside the KP

Mechanisms that NGOs may use to target companies involved in human rights abuses generally include: (a) intergovernmental mechanisms: UN, ILO and regional government mechanisms; (b) judicial mechanisms: domestic civil liability and domestic and international criminal liability; (c) mediation mechanisms such as the OECD Guidelines for Multinational Enterprises; (d) corporate and financial institutions mechanisms such as the World Bank, regional development banks, export credit agencies, private banks

101 Id.102 Id. 103 For example, two men widely reported to be senior executives of Canadile Miners, representing Core Mining, also appear to be the directors of a recently registered mining and mineral export company, Saman Incorporated Ltd, based just over the border from Marange in the Mozambican diamond smuggling boom town, Vila de Manica, through which vast quantities of illicit Marange diamonds have been laundered in recent years. These two individuals were arrested in Marange on suspicion of diamond smuggling in February 2010, although the charges against them were later dropped. Core Mining has denied that either man is employed by or affiliated with Core Mining or Canadile Miners, although they do admit that one is a minority shareholder in Core Mining, and that the other used to be married to one of Core Mining’s directors. Core Mining further stated that they were not aware of any business relationship between Saman Incorporated and Core or Canadile. Id. at 14.

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and corporate shareholder mechanisms; and (e) voluntary commitments, including CSR initiatives and statements of individual companies.104

With the exception of domestic lawsuits, I do not cover remedies that can only be pursued by victims (or their advocates) of human rights abuses in mining operations such as those in Angola and Zimbabwe.105 These include the intergovernmental mechanisms listed above and domestic and international criminal liability. In addition, as the diamond companies are private companies, shareholder mechanisms do not apply and since information on their methods of raising capital is not readily available I do not discuss financial institution mechanisms since they may not apply.

As a sovereign, Israel is immune from suit in domestic courts. The examination of third state responsibility for (a) conducting trade with the Israeli State or private individuals or companies domiciled in Israel and/or (b) from permitting their individuals and companies within their jurisdictions from doing the same is an issue that goes beyond diamonds to the trade of any commodity. Such an analysis might include, as just one example, the question whether Israeli policies and practices meet the legal definition of apartheid and, if so, whether it would be illegal for States or private persons to trade with the Israeli state or those domiciled there. I have not included this analysis here because it requires substantial additional research that would make this a much larger paper.

Therefore, my discussion here briefly outlines (a) potential domestic civil tort suits in US and EU courts against private Israeli companies or individuals involved in the diamond trade; (b) how violations of voluntary commitments or company statements could be a basis for legal action; and (c) the OECD Guidelines and its National Contact Point mediation mechanism. I have made a few references to LLD Diamonds Ltd. since it is by far the largest Israeli diamond company, its parent and affiliates have worldwide operations in each step of the diamond pipeline from mine to cutting and polishing to retail outlets,106 and the profits of some of these activities are used to fund settlement construction. However, a comprehensive factual investigation would have to be conducted to determine whether this company or its parent or affiliates and/or their officials would be an attractive target.

A. Remedies against Israeli Individuals or Companies Involved in the Diamond Trade

1. Domestic Civil Lawsuits/Complaints: Supply Chain Human Rights Abuses

104 Each of these mechanisms are discussed from the FIDH’s recently released report “Corporate Accountability for Human Rights Abuses: A Guide for Victims and NGOs on Recourse Mechanisms” (hereafter, “FIDH Report”) available at http://www.fidh.org/Corporate-Accountability-for-Human-Rights-Abuses.105 As discussed in the paper, there is evidence Leviev is involved in mines in Zimbabwe. 106 Aside form the mine in Angola, “the company holds a stake in a mine in Angola, a jewelry factory in Moscow, Leviev's global retail chain and LLD’s primary polishing facility in Israel, as well as another in Namibia.” http://www.diamonds.net/news/NewsItem.aspx?ArticleID=29469.

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A domestic civil lawsuit may be brought against private Israeli individuals or companies involved in the diamond trade if it can be proven that human rights abuses are being committed by parties in the diamond company’s supply chain.107 Two possible forums are U.S. and EU domestic courts.

United States Courts

Victims of torture and other abuses by government or private security forces at the Catoca diamond mine in Angola (co-owned by Leviev) or the Marange mine in Zimbabwe (where Leviev is thought to be an investor) could bring tort suits against foreign investors in these mines if certain conditions are met. (The KP’s approval of the export of limited amount of diamonds from Marange does not immunize investors that become involved in human rights abuses there). It should be noted that it would be difficult to find an Angolan or Zimbabwean plaintiff willing to be involved in such lawsuits.

Alien Tort Claims Act: The ATCA provides foreign plaintiffs the right to sue U.S. or non-U.S. citizens to recover damages for torts committed anywhere in the world in violation of international law. Thus, victims of abuses by government or private security forces, such as extrajudicial killing and torture, at mines in Zimbabwe and Angola may sue foreign investors in these mines for damages under ATCA if the investors become implicated in the abuses by aiding and abetting108 or conspiring with the perpetrators, hiring them as agents, or entering into a joint venture109 with them.

In September 2010, in the case Kiobel v. Royal Dutch Petroleum,110 the U.S. Court of Appeals for the Second Circuit dismissed an ATCA claim against a corporation, reasoning that international law does not impose liability on private corporations. This case has thus foreclosed suits against corporations in the Second Circuit111 and other 107 As I mentioned earlier, if an argument can be made that Israeli government policies and practices meet the legal definition of apartheid, it would be worth looking into a possible suit in a US or EU domestic court against a private actor that trades with the Israeli state in diamonds or other commodities on the grounds that the actor is aiding and abetting an apartheid regime. 108 Most ATCA claims against corporations have rested on allegation of aiding and abetting and the types of actions that would give rise to aiding and abetting liability under the ATCA is currently in dispute in US courts. Some courts require that the plaintiff prove the corporation knowingly provided substantial assistance to the perpetrator of the human rights abuses (the “knowledge standard”), while others go further and require that the plaintiff prove the corporation provided the assistance for the purpose of committing the abuses (the “purpose standard”).109 Victims of government abuses in Zimbabwe and Angola would argue that by forming a joint venture with a government knowing it was using forced labor and committing other crimes against miners, the investors negligently and recklessly inflicted abuses on miners and was complicit in the killings, beatings and assaults because it was substantially certain those acts would occur based on a history of government violence.110 Further information on the decision is available here:http://www.earthrights.org/legal/eri-files-brief-human-rights-and-labor-groups-challenging-corporate-immunity-abuses?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+EarthRightsInternational+(EarthRights+International). 111 As the Second Circuit includes NY, obviously a suit against Leviev currently could not be brought there even though he has significant assets there; other states are still possibilities. Adalah-NY has compiled information on Leviev’s assets worldwide.

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courts that follow the court’s reasoning in Kiobel. Due to the uncertainty created by this decision, it would not be a good time to bring ATCA human rights litigation against corporations in any U.S. federal court until the issue is resolved by the U.S. Supreme Court or Congress. The Torture Victim Protection Act may still be used to establish jurisdiction, however.

Torture Victim Protection Act. The TVPA grants U.S. courts jurisdiction over claims by US and foreign victims of extrajudicial killing and torture against foreign public officials and private individuals acting under “color of law”—i.e. the killings were approved by foreign law or a foreign official. The victims of extrajudicial or torture by government or private security forces at mines in Zimbabwe and Angola may sue the foreign investors in those mines for damages in U.S. courts under the TVPA, if the investors became implicated in those abuses (through aiding and abetting, agency, conspiracy or joint venture). U.S. courts are divided as to whether corporations may be sued under the TVPA; however, corporate officials may definitely be sued. Unlike the ATCA, the TVPA requires that plaintiffs first exhaust any “adequate” remedies available under local law (although remedies in Angola or Zimbabwe are very likely inadequate).112

Corporations may raise a number of defenses to the above claims and a detailed analysis of these defenses can be found in my earlier paper for the BNC.113 Several that could be raised in the context of cases against Israeli companies or nationals involved in the diamond trade are (a) that the case involves a political question because because for example the U.S. through its participation in the KP permits the participation of foreign investors in Angola and Zimbabwe mining; (b) that the case involves questioning official acts of a foreign sovereign state (Zimbabwe or Angola) in its territory; (c) the case should be dismissed on grounds of forum non conveniens because of factors such as the location of the evidence and witnesses (in Zimbabwe and Angola) and the burden on the defendant of litigating in the U.S. court. Immunity and personal jurisdiction are additional objections defendants could raise. There are valid counterarguments, which I will not reproduce here but are discussed in detail in my earlier BNC Paper.114

112 Once foreign victims have acquired access to a U.S. court through the ATCA or TVPA, they may bring additional claims based on other U.S. laws. For example, foreign plaintiffs have added claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) which makes it unlawful for a corporation to form an enterprise to engage in certain wrongdoing and allows victims to sue for property damage. They also have included tort claims for wrongful death, battery, assault, infliction of emotional distress, negligently and recklessly causing harm to the plaintiffs. 113 Principles and Mechanisms to Hold Business Accountable for Human Rights Abuses , Badil Working Paper 11 (December 2009) (hereafter “Principles and Mechanisms”) available athttp://www.badil.org/index.php?page=shop.product_details&flypage=garden_flypage.tpl&product_id=120&category_id=2&vmcchk=1&option=com_virtuemart&Itemid=4.114 For instance, regarding the act of state doctrine plaintiffs could argue that violations of fundamental international norms such as those prohibiting torture and extrajudicial killing cannot be official acts of state. With respect to forum non conveniens, the plaintiffs could argue that the legal systems in Angola and Zimbabwe are inadequate to vindicate the plaintiffs’ rights, that the ATCA and TVPA specifically provide the plaintiffs with access to US courts to vindicate their interests and if applicable that the defendant has sufficient resources to defend the case in the U.S. without being overly burdensome. Personal jurisdiction issues here are complex. Generally, though, an Israeli national can be sued in a U.S. court where he/she resides or is present. An Israeli company doing significant business in the U.S. court’s jurisdiction can be

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EU State Courts

Regulation 44/2001 of the Brussels Convention has been described as the EU’s version of the Alien Tort Claims Act. Victims of corporate-related human rights abuses committed in connection with the foreign operations of a multinational corporation domiciled in an EU Member State have three options in deciding where to sue the company. First, the plaintiffs can sue a corporation in a court of the Member State where the corporation or its parent is domiciled (i.e. its headquarters or principal place of business).115 Second, plaintiffs can sue the company or its parent in the court of a Member State where the damage occurred or where the event giving rise to the damage occurred – such as a management decision that caused impacts outside the EU that caused the plaintiff’s injury.116 Third, the plaintiffs can sue the corporation or its parent in the court of a Member State where a branch, agency or other establishment of an EU-domiciled parent is located if the dispute arises out of the company’s operations.117

Plaintiffs suing EU-domiciled companies for damaging impacts of the company’s operations outside the EU would rely on the second basis of jurisdiction – where a management decision was taken that had harmful consequences outside the EU that injured the plaintiffs. The defenses that may be raised by defendants are similar to those in U.S. courts, such as forum non conveniens and immunity.

B. Voluntary Statements/Undertakings as a Basis for Legal Action

A company’s violation of its own voluntary statements and commitments regarding human rights can be legally challenged under unfair commercial practice laws which prohibit false or misleading advertising. These challenges against multinationals are typically brought by NGOs based in the company’s country of origin. Remedies are available in EU States and the U.S.

EU Remedies

In the EU, a company can be criminally convicted and fined for misleading commercial practices, which are defined in European Directive 2005/29/CE of May 11, 2005 to include (a) false statements that deceive or are likely to deceive average consumers and induce them to enter into a transactions with the relevant product that they would not otherwise have made and (b) non-compliance with with commitments in the company’s code or conduct if the commitment was not aspirational but firm and capable of being

sued for the conduct of an overseas corporate affiliate (for example, a Leviev affiliate or parent could be sued over the conduct of the entities formed to operate the diamond mines in Angola and Zimbabwe provided certain conditions are met. See Principles and Mechanisms, pp. 27-36.115 Regulation 44/2001, Articles 2§1116 Id, Article 5§3.117 Id, Article 5§5.

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verified, and the company claims to be bound by the code.118 This Directive has been incorporated into the laws of EU Member States.119

U.S. Remedies

In the United States, the Federal Trade Commission, a federal government agency, is responsible for preventing “unfair or deceptive commercial acts or practices” including false advertising. The Federal Trade Commission Act includes in its definition of false advertising affirmative statements about a product that are false or misleading or are made false or misleading by the omission of relevant information.120 The FTC typically orders corrective disclosure; companies are not punished (except in rare cases where the company continues its false advertising). The statute does not specifically address codes of conduct.

Application

World Diamond Council members (practically all diamond merchants) are required to provide a warranty that their diamonds were purchased from legitimate sources and are not conflict diamonds. If this warranty was proven false (i.e. there was no warranty made to the merchant by the previous seller), a complaint for false advertising could be made against the merchant making the warranty using the above remedies.

Statements about commitments to human rights also could be a basis for a legal complaint for false advertising if proven false. With respect to Leviev, while he has not been honest in the past (having claimed making a donation to Oxfam that Oxfam denied) to my knowledge he has not responded directly to accusations of human rights abuses at the Catoca mine in Angola, instead pointing to his philanthropic activities.121 I was unable to find a policy or code of conduct relating to human rights maintained by the Leviev Group or LLD.122

Voluntary Initiatives

LLD is not a member of voluntary initiatives such as the UN Global Compact, the Extractive Industry Transparency Initiative or the Diamond Development Initiative (while De Beers adheres to or supports all three). I also did not find the company (or any other Israeli diamond company) listed as adhering to the International Council on Mining and Metals or other fair trade initiatives. Thus, these initiatives provide no remedies to target the company.

118 Article 6.1, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2005:149:0022:0039:EN:PDF. See also FIDH, p. 521 for their discussion of this Directive and its application in specific cases.119 See FIDH, p. 522.120 15 U.S.C. Sec. 55, available at http://codes.lp.findlaw.com/uscode/15/2/I/55.121 http://nymag.com/news/intelligencer/31549/.122 They do not appear on a comprehensive list collated by the Business and Human Rights Resource Center and I did not find one on the Leviev Group website.

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C. Mediation Mechanisms: OECD Guidelines 123

1. OECD Guidelines for Multinational Enterprises

The OECD Guidelines are non-binding recommendations addressed by OECD governments to transnational corporations. They provide, among other things, that companies should “respect the human rights of those affected by their activities consistent with the host government’s international obligations and commitments” regarding human rights. Each adhering country has a “National Contact Point” (NCP), a forum where private parties can raise concerns about a company’s activities. The NCP is required to attempt to resolve the issue and if it cannot, it must make public recommendations regarding implementation of the Guidelines.124

Israel adheres to the Guidelines but because its human rights standards are so low, a complaint at its NCP that Israeli companies are involved in human rights abuses would not achieve much. Better alternatives are to lodge complaints of supply chain human rights and labor abuses by LLD Diaimonds to the NCP in Belgium (because of the Antwerp diamond exchange) or other countries where Israeli diamond traders are operating (such as the Netherlands where Leviev’s parent company is domiciled125).

V. Conclusion

Israel appears to be in compliance with the KP under its current standards despite its egregious human rights abuses. My research uncovered no evidence that issues were raised after the 2004 review mission, or other serious breaches such as widespread smuggling from Cote D’Ivoire or other nations, and for the moment Israeli companies are permitted by the KP to participate in joint ventures to mine in Zimbabwe’s Marange fields. Even if Israel was not in compliance, based on the enforcement issues discussed above, it is unlikely Israel would be disciplined. As discussed in Section IV, alternative mechanisms outside the KP may be used to target the Israeli government or private actors for human rights abuses in the supply chain of rough diamonds imported into Israel.

While the KP’s NGO Observers are pushing for a clarification that members are required to respect human rights in connection with their diamond sectors, they appear to have stopped short of making human rights compliance as to all their actions a condition of membership. In order to suspend Israel for its human rights abuses the latter would be required. Ideally, a campaign for such an expansion would be in partnership with the two

123 National Human Rights Institutions (or NHRIs), institutions established by the 1993 UN Paris Principles, are beginning to focus on business and human rights issues; however, to date their involvement has been very limited. This presents an opportunity for NGOs to be proactive, but as they are still undeveloped as a mechanism I have not discussed them here. A list of NHRIs and their accreditation are here: www.nhri.net/2009/Chart_of_the_Status_of_NIs__January_2010.pdf.124 The OECD Guidelines on Multinational Enterprises are described in detail with specific examples in the FIDH paper. See FIDH Chapter on Mediation Mechanisms, pp. 338-377, available here:http://www.fidh.org/IMG/pdf/section_III_mediation.pdf.125 This is according to information I obtained from Adalah-NY.

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principal KP Observers, Global Witness and Partnership Africa Canada, which have experience, access and impact through meetings, committees and working groups with the KP’s member States.126 Global Witness is very pessimistic about any type of expansion, and even to meeting their current mandate. However, even if a reform campaign has no realistic chance of succeeding, other benefits could be achieved, such as raising public awareness about the double standard that bans rough but facilitates polished diamonds that fund human rights abuses and about the extent of Israeli involvement in the global diamond industry (arguably improving the prospects of a consumer boycott). With the Zimbabwe situation still in flux, it may make sense to await the resolution of that issue before deciding whether to launch a major campaign.

126 Advocacy could also be directed to leading industry members including Terry Burman, chairman of Jewelers of America (JA), director of the Responsible Jewellery Council (RJC) and the WDC; Matt Runci, president and chief executive officer (CEO) of JA, chairman of the RJC, director of the WDC; Cecilia Gardner, president and CEO of the Jewelers Vigilance Committee (JVC), director of the WDC. Email addresses are: Terry Burman (tburman@jewels.com); Matt Runci (matt@jewelofam.org); Cecilia Gardner (clgjvc@aol.com). Industry leader Martin Rapaport is strongly committed to reform of the KP and actively trying to raise consciousness about the KP’s failings; he can be contacted at fairtrade@rapaport.com.

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