Global Policy Forum

By Ilja Graulich

De Beers is to revamp its 70-year-old relationship with its best diamond customers, known as sight holders, by laying down new rules to control the flow of rough diamonds into the market.

The new rules aim to formalise the relationship between the De Beerscontrolled Central Selling Organisation (CSO) and its customers, and to prevent diamonds from war zones reaching the market. The most radical changes will see sight holders sign a written contract with the CSO.

The 125 sight holders meet in London 10 times a year to buy diamonds from the CSO. However, in the past, dealings were concluded on an informal basis and with verbal contracts, as is common in the rest of the industry.

De Beers controls about 60% of the worlds rough diamond market and is the single most important source of rough diamonds for manufacturers. Only a handful of people at De Beers had known of the plans for the changes. The news, released in diamond industry magazine Diamond Intelligence Briefs, hit the market with a bang. De Beers has confirmed the plans.

The magazine said that rather than having gentlemens agreements with its clients as in the past, the new arrangement would be comparable to the deals between General Motors and its dealers and franchise holders. General Motors idea is to follow agreed principles, adhere to sound business practices and protect its reputation. The CSO document will contain similar provisions, the magazine said.

Sources in Belgium, the biggest trading country in rough diamonds, say the news has caused an uproar. Sight holders are still digesting the news.

In the long run, though, the benefits of the formalisation of an age-old tradition may become clear to all. In the past, sight holders have been let down and, because of an unwritten rule, buyers would never refuse a parcel of gems for fear of losing the privilege of buying directly from De Beers. Now a formal agreement will give sight holders peace of mind as set rules will be stipulated in the contract.

Industry sources have also confirmed that the contract would contain clauses relating to dealings in conflict diamonds diamonds sold or mined by rebel groups in certain countries. It is envisaged that sight holders will give guarantees to De Beers that they are not dealing in conflict diamonds.

Earlier this year, De Beers said it would guarantee that all the diamonds it sold were conflict-free. At a conference in Israel recently, De Beers MD Gary Ralfe said, subject to legal advice, that De Beers was contemplating dropping those sight holders as clients who were caught dealing in conflict goods.

In terms of a contractual arrangement, sight holders will have no legal recourse against De Beers after being dropped from the preferred buyers list for breaking the rules.