Identifier
Created
Classification
Origin
10BANGUI9
2010-01-20 09:19:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Bangui
Cable title:  

DIAMONDS IN THE CAR: DELETERIOUS TO DEVELOPMENT

Tags:  PGOV PREL PHUM PINR KCOR ECON EFIN EMIN CT 
pdf how-to read a cable
VZCZCXRO2702
PP RUEHBZ RUEHDU RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHROV RUEHTRO
DE RUEHGI #0009/01 0200919
ZNR UUUUU ZZH
P R 200919Z JAN 10
FM AMEMBASSY BANGUI
TO RUEHC/SECSTATE WASHDC PRIORITY 1125
INFO RHMFISS/AFRICOM
RUEAIIA/CIA WASHINGTON DC
RUCNFUR/DARFUR COLLECTIVE
RHEFDIA/DIA WASHINGTON DC
RUEHLO/AMEMBASSY LONDON 0216
RHEHAAA/NSC WASHINGTON DC
RUEHFR/AMEMBASSY PARIS 0556
RUCNDT/USMISSION USUN NEW YORK 0198
RUEHZO/AFRICAN UNION COLLECTIVE
RUEHGI/AMEMBASSY BANGUI 1423
UNCLAS SECTION 01 OF 04 BANGUI 000009 

SENSITIVE
SIPDIS

DEPT FOR AF/C
USUN FOR DMUERS
PARIS FOR RKANEDA
LONDON FOR PLORD
NAIROBI FOR AKARAS
AFRICOM FOR JKUGEL
INR FOR JPEKKINEN
DRL FOR SCRAMPTON
EEB FOR BROOKS-RUBIN
USAID FOR GMYERS

E.O. 12958: N/A
TAGS: PGOV PREL PHUM PINR KCOR ECON EFIN EMIN CT
SUBJECT: DIAMONDS IN THE CAR: DELETERIOUS TO DEVELOPMENT

REF: A. A - 10 Bangui 02 and previous

B. B - 07 Bangui 167

C. C - 09 Bangui 207

D. D - 09 Bangui 273 and previous

BANGUI 00000009 001.2 OF 004


UNCLAS SECTION 01 OF 04 BANGUI 000009

SENSITIVE
SIPDIS

DEPT FOR AF/C
USUN FOR DMUERS
PARIS FOR RKANEDA
LONDON FOR PLORD
NAIROBI FOR AKARAS
AFRICOM FOR JKUGEL
INR FOR JPEKKINEN
DRL FOR SCRAMPTON
EEB FOR BROOKS-RUBIN
USAID FOR GMYERS

E.O. 12958: N/A
TAGS: PGOV PREL PHUM PINR KCOR ECON EFIN EMIN CT
SUBJECT: DIAMONDS IN THE CAR: DELETERIOUS TO DEVELOPMENT

REF: A. A - 10 Bangui 02 and previous

B. B - 07 Bangui 167

C. C - 09 Bangui 207

D. D - 09 Bangui 273 and previous

BANGUI 00000009 001.2 OF 004



1. (SBU) SUMMARY: The Central African Republic (CAR) is at the
bottom of the UN's Human Development Index while at the same
time possessing vast mineral wealth that could fuel economic
growth. Diamonds, in particular, make up roughly 45 percent of
all exports from the CAR. Yet, despite participation in the
Kimberly Process (KP),the diamond trade remains the most opaque
sector of the Central African economy. Sadly, these resources
are largely lost due to extensive official corruption,
widespread mismanagement, and rampant smuggling. The root of
the problem lies with CAR government officials, at the highest
level, who, although they desire the international seal of
approval for diamond sales that the KP provides, do not wish to
see a transparent production and export process eat into the
fruits that corruption and other dubious practices allow.
Disturbingly, it is also increasingly evident that that diamonds
are a driving factor in the continued violence in northeast CAR
(Ref A). END SUMMARY.

--------------
No Dearth of Diamonds
--------------


2. (U) According to the US Geological survey's latest
statistics, the CAR is the 10th largest producer of gem diamonds
and 15th largest producer of industrial diamonds. Another
estimate from the UN put the CAR's gem diamond production at
number five worldwide. One expert asserts that at the rate of
current exploitation, the CAR will continue to produce quality
diamonds for the next 75 to 100 years. Today, all diamonds are
extracted via artisanal panning of open pits as opposed to
industrial mining, with the few remaining industrial diamond

operations suspended pending sale. Central African diamonds are
alluvial, meaning they are found in sand and gravel deposits
left by river flows. Diamonds are found throughout southwestern
CAR and in the more politically troubled northeast. Embassy
Bangui did an extensive report on the dynamics of diamond mining
the CAR in 2007 (Ref B) that remains relevant today.


3. (U) Prospecting is carried out by small groups of miners who
make 10,000-15,000 CFA ($20-$30) per carat for a rough stone on
the white market. Official total production averages 380,000
carats per year over the last four years. Only about five
percent of miners have licenses, which cost CFA 46,500/year
(about USD 100),far beyond the capacity of most artisanal
miners to pay. The collectors, next on the food chain, must pay
1.5m CFA per year (about USD 3,300) to legally purchase
diamonds.


4. (SBU) Most local diamond miners and traders simply pay a
bribe to local Ministry of Mines (MoM) officials or smuggle the
diamonds out of CAR. A 2003 Kimberley Process document, signed
by the CARG, estimates that fraudulent exports - smuggling in
particular - account for 30 percent of total exports, meaning
real production is at least 500,000 carats a year. A former
senior official from the MoM believes this number is still
reflective of reality in 2010. The current tax rate is
approximately 12 percent. According to a former Ministry of
Plans official, when the taxes and fees were lowered in the
past, the ``output'' of diamond buyers in Cameroon and Congo-B
plummeted, a clear indication that many CAR diamonds are
smuggled to avoid taxes. The CAR's geographic location also
makes it difficult to track illicit diamond smuggling: with
neighboring countries Congo-Brazzaville, Cameroon, Chad, and
Sudan not members of the Kimberley Process, it is difficult to
know how many stones end up on other markets monitored less
closely by the KP and other diamond industry watchdogs.

-------------- --------------

BANGUI 00000009 002.2 OF 004


CARG and Diamonds: Not Dedicated to Development
-------------- --------------


5. (SBU) Diamond smuggling and corruption touch the highest
levels of the CAR. In 2004, about a year after he came to power
in a coup, President Bozize was briefly detained in a German
airport with a briefcase full of diamonds. One former MoM
official described in detail the process by which many well
known political figures pay for artisanal miners to dig diamonds
- or simply buy them from collectors - and then use official
travel to carry the stones to Europe where they are then sold.


6. (SBU) The CARG has been liberal in its granting of diplomatic
passports and titles to citizens and non citizens alike whose
involvement in the diamond trade is well known. The most famous
example of this is Anglo-Pakistani Saifee Durbar. Durbar was
named deputy Minister of Foreign Affairs while resident in
London in an effort to protect him from a French arrest warrant
for fraud. French pressure did eventually force the CARG to
retract the title and diplomatic immunity and Durbar was
arrested in late 2009, but the trend continues with a spate of
new CAR diplomatic passports recently being issued to South
Korean nationals. Unfortunately, international diplomats are
known to participate in the trade as well, with the situation
being so severe that Embassy Bangui staff assumes that most of
the honorary consuls in Bangui must be engaged in the diamond
trade to some degree.


7. (SBU) At a more technical level, senior officials at the
Ministry of Mines are complicit in keeping diamond production
out of official channels in order to extract bribes from
collectors and consolidate control of their sale into a few
choice hands. Moreover, the closure of eight of the eleven
registered diamond buying houses by the Ministry of Mines in
September 2008 restricted legal trade to a small group of
merchants who are very closely tied to the highest levels of
government - and dramatically cut down competition. One contact
who runs a diamond business in Bangui asserted that the three
remaining diamond houses paid the MoM to take this action,
enhancing their oligopoly. This artificial restriction of the
legal market, combined with a global decline in diamond prices,
has caused widespread cases of severe malnutrition in the
southwest (Ref C).


8. (SBU) The 2009 CAR Mining Code is widely seen by the business
community as a dangerous, state driven money grab that will
discourage new investment at an industrial level. Some of its
more troublesome provisions are:

-- A bonus payment of an unspecified amount to fund a ``Mining
Development Fund'' controlled by the Minister of Mines. The
amount will be specified in a Mining Convention to be negotiated
with each company so it gives the Minister total discretion on
how much he demands, and more importantly, how much he declares.
The bonus must also be paid before any prospecting begins,
making it a very expensive gamble for any potential investor.

-- 15 percent for the State in free carried interest in any
mining project (NOTE: Completely land locked, with no railroads
and with only 600km of paved roads, transports costs are massive
in the CAR. Additionally, according to business contacts, most
other countries that are more developed than the CAR only
require 10 percent. END NOTE).

-- 15 percent of the production for the State, whether in cash
or product.

There have been no industrial mining contracts, whether for
diamonds, gold, or uranium, signed since 2006.One long present
businessman saying that while many foreign companies have looked
into the CAR since that time, none were willing to invest in a
country with its toxic mix of infrastructure problems and

BANGUI 00000009 003.2 OF 004


government interference.


9. (SBU) Another example of the government's lack of desire for
transparency is evident in the MoM's treatment of the USAID
funded Property Rights and Artisanal Diamond Development (PRADD)
project. The PRADD project seeks to strengthen the KP by
helping mine owners map and certify their claims, evaluate the
worth of stones, and alleviate environmental degradation.
Mid-level functionaries at the MoM are enthusiastic about
strengthening CAR's KP credentials and formalizing the diamond
sector. Senior officials, however, are suspicious and
obstructive. They insist PRADD should buy the expensive patents
for miners, money that would go straight into their pockets.
They have blocked assistance to ``illegal'' miners, leaving them
to be exploited by corrupt MoM officials and the diamond buying
houses. They have even gone so far as to briefly arrest the
project head in mid 2008 for ``unauthorized travel,'' and have
delayed signing a new MOU.

--------------
Diamonds Driving Discord
--------------


10. (SBU) Although the situation in northeastern CAR is
complicated, fluid, and unclear, we are increasingly suspicious
that diamonds are playing a role fueling and funding the
conflict.

-- The virtual takeover of northeastern CAR by the Union of
Democratic Forces for Unity (UDFR) militia in 2007 has lead to
the de facto control of the economy by the Goula ethnic group
(Ref A). Diamonds, along with animal poaching and agriculture,
are the major commercial staples in the area, and the UFDR is
suspected to be heavily involved in the two former trades. The
UFDR is also thought to be deeply implicated in the diamond
fields of Sam Ouandja, with one of their largest contingents
based strategically outside of the town. The UFDR militia,
furthermore, stands accused of murdering two major Rounga
diamond merchants in 2008 and pushing others off the diamond
fields in the Vakaga prefecture in favor of those from their own
ethnic group. The UFDR controls the few roads in the region,
allowing them to control most of the trade to the rest of the
CAR and neighboring Sudan.

-- Diamonds may very well sit at the heart of the simmering
conflict between the government and the Patriotic Convention for
Justice and Peace (CPJP),an armed group dominated by the Rounga
(Ref D). The CPJP militia formed in 2008 after the Rounga were
expelled from their diamond fields in the Vakaga by the UFDR and
swiftly moved southwest to Ndele - traditional home of the
Rounga and location of diamonds deposits dating back to the
1950s. Though their leadership remains shrouded in mystery, a
number of well informed contacts believe the funding for the
militia comes from these diamond assets.

Both areas lack more than a basic economy and diamonds are used
to barter for products coming from Sudan and Chad.


11. (SBU) COMMENT: Although the CAR is so rich in gem diamonds
the stones are literally picked up off the ground by unskilled
laborers, most of this wealth is drained away by mismanagement
and corruption, or used to fuel violence. Sadly, the Central
African budget is deeply affected by the sanctioning of
smuggling and other irregularities at the highest levels and
retarding critical government lead development work. Through
projects such as PRADD, the USG is attempting to work with the
donor community and better elements in the CARG to increase
transparency and retain more diamond wealth in the rural
communities. Though details are difficult to obtain, Post would
appreciate assistance from neighbor posts and Washington in
collecting more complete information on the extent of CAR's
diamond smuggling problem, which would help us determine the

BANGUI 00000009 004.2 OF 004


true scope of the wealth that is lost to this country. This
information would be tremendously useful to have in
conversations with partners in the international community and
the CARG. END COMMENT.
COOK