Diamonds in the Central African Republic: Trading, valuing and laundering

By Christian Dietrich
The first impression of the Central African Republic (CAR) on arrival in the capital, Bangui, is of a country forgotten by the rest of the world. There are few embassies, and those countries that do have political representation, with the exception of France, employ a minimum of expatriate staff. Most diplomatic representation is based in neighbouring Cameroon; even the French embassy in Bangui referred the author to its commercial affairs officer in Douala on diamond issues. While France is the primary donor of bilateral aid to the CAR, the country exists at a subsistence level in many respects, especially in the aftermath of multiple coup attempts centred in Bangui.

At first glance, the Central African Republic presents a seemingly straightforward case study in diamonds. Despite numerous coup attempts since 1996, the country has not been considered a producer of conflict diamonds like the Democratic Republic of the Congo (DRC) and Angola. The CAR's total diamond production, estimated at about US$100 million per annum, is derived from a handful of towns along two veins of alluvial diamond deposits in eastern and western portions of the country. The sheer volume of diamonds produced in the DRC and Angola has overshadowed the importance of the CAR's much smaller diamond economy.

The Study

This paper builds on findings contained in a previous publication of the Diamonds and Human Security Project: Hard Currency: The Criminalized Diamond Economy of the Democratic Republic of the Congo and its Neighbours. Much of the information featured in this report was collected during a visit by the author to Bangui in 2002. The paper begins with a conceptual survey of the CAR's diamond economy, including a description of diamond export taxes. It then examines the role of diamond export companies in relation to the external valuator. It considers the issue of fraudulent diamond exports, and government efforts to curb smuggling and to increase revenue from the diamond sector. Finally, the paper deals with the overlap between the diamond markets of the CAR and the DRC, and considers Bangui's possible role in the laundering of conflict and illicit diamonds.

The author would like to thank the many individuals, government officials, and private sector firms that provided valuable information during the course of the research. The opinions in this paper are those of the author and the Project, and do not necessarily reflect the views of organizations supporting the Project.

MAP - Diamond Areas in the Central African Republic

As the world's tenth largest producer of diamonds, the vast proportion of which are gem quality, the CAR's diamond sector provides a vital source of government income. Compared to the anarchy of the DRC's diamond economy, the CAR is relatively well-regulated and transparent. The government commands an impressive array of statistics concerning diamond production and trading through the Bureau d'Évaluation et de Contrôle de Diamant et d'Or (BECDOR). Moreover, there are only seven major diamond exporting companies, or bureaux d'achat, operating in the country, making an analysis of interests in the diamond economy relatively uncomplicated. Beneath this first level of scrutiny, however, a more detailed examination of the CAR reveals a less optimistic picture.

Diamonds represent one of the CAR's primary exports and thus play a prominent role in both the formal and informal economy. The CAR's diamond economy is based almost exclusively on informal alluvial production. The formal diamond sector, comprised of mechanized mining, constitutes less than 10 per cent of the country's official diamond exports - most of these licensed companies or operators work under 'autorisations exceptionnelles' that allow companies to obtain temporary mining and export licenses, and reduced tax obligations. Most companies, in any case, prefer to finance local diamond diggers rather than invest in industrial production. Comparatively, the DRC's formal mining sector accounts for 25 per cent of official exports, and Angola's formal sector accounts for nearly 50 per cent. The government of the DRC is a majority owner in the Minière de Bakwanga (MIBA), the country's largest single diamond producer, although the company has made no profits for many years due to endemic corruption. The CAR government, on the contrary, does not hold shares in mining companies. This is in compliance with privatization criteria recommended by international lending organisations.

Hard Currency, however, exposed the diamond interests of ranking politicians, including the President. CAR authorities argue that such interests are purely private, and have no impact on politics. An example was an apparently close relation between President Patassé and Antonio Teixeira, through Teixeira's companies, Central Africa Mining Company (CAMCO) and Central Africa Diamond Company (CADCO). According to CAR Ministry of Mines officials, Teixeira refused to pay tax on his operations between 1998 and 2000, citing an alleged partnership with Patassé¹. Teixeira subsequently left the CAR when the Ministry of Mines insisted on payment. Part of CAMCO's highly lucrative diamond concession is now held by a company that includes the involvement of a US Embassy official and a former CAR Minister of Defence.

Compared with Kinshasa, Bangui's parallel or informal economy seems starved of cash, and the vigorous diamond market in Kinshasa contrasts sharply with Bangui where the diamond export companies, or bureaux d'achat, are relatively devoid of diamond dealers, or collecteurs - the individuals who act as middlemen between exporters and miners. But the diamond anarchy of the DRC appears to be mostly absent in the CAR, at least in Bangui. The CAR government has recently implemented detailed mechanisms to monitor the internal diamond market from mine to export, through BECDOR, unlike either Angola or the DRC. Such a system can work in the CAR because its internal diamond trade is small enough to monitor.

BECDOR was established in 1982 to oversee the internal diamond market and to valuate official exports. BECDOR assesses the value of diamond parcels presented by the bureaux d'achat and companies exporting under Authorisations Exceptionelles in order to assess tax. BECDOR also maintains a database concerning all diamond production in the country. It estimates that there are approximately 50,000 licensed diamond diggers, or creuseurs, in the CAR. These diggers then sell to middlemen, or collecteurs, which number about 400 and operate independently, or in association with a bureau d'achat. Diggers may also sell directly to the bureaux d'achat, several of which finance alluvial mining operations. A digger will fill out a 'bordereau de production' to formalize his production, and when a parcel of diamonds is sold to a middleman or bureau d'achat, a duplicate receipt is furnished, with copies retained by the seller and the buyer. This bordereau d'achat indicates the name of the seller, license number, carat weight, value, and origin. If, for example, a collecteur buys from five different diggers, his sale to a bureau d'achat will be accompanied by five bordereaux d'achat. The sale of the diamonds by the collecteur to the bureau d'achat will then generate a single bordereau d'achat. This means that every diamond presented to BECDOR for valuation can be traced back to the seller. If the seller was a collecteur, then the origin of the diamonds can in theory be determined by the various bordereaux amassed by the collecteur. Loopholes in this system will be discussed below.

The total government tax paid by the bureaux d'achat is 11 per cent, higher than in neighbouring countries. This is divided as follows:

The bureaux d'achat believe that the tax is too high and threatens their profitability. The government believes otherwise. The Minister of Mines notes that despite gradual reductions in the export tax, from 20 per cent in 1982, the volume of diamonds passing through official circuits has not increased, suggesting that lowering taxes has not reduced smuggling in this case². Moreover, the government contends that the two per cent business tax (also called the 'IMF tax' since it is meant to help the government repay its foreign debt) is justified because there are no taxes on the import of foreign currency. The three per cent paid to the Public Treasury is paid only by the bureaux d'achat. This tax does not seem to be a burden for exporters, however, since prices paid to diamond sellers (middlemen or diggers) are simply reduced to compensate.

There is contention concerning the two per cent paid by the bureaux d'achat directly to Independent Diamond Valuators (IDV). This represents IDV's fee for providing a counter-valuation service to BECDOR, as well as for training BECDOR staff, which began in March 2002. If the CAR officially exports US$60 million worth of diamonds annually, the IDV contract would gross US$1.2 million, or US$100,000 per month. This is a major concern for the bureaux d'achat who believe that IDV will over-estimate the value of exports in order to increase profits. Conversely, under the previous system, exporters could 'persuade' BECDOR employees to under-estimate the value of diamonds, depriving the state of vital revenue.

Footnotes

¹ Interviews with officials in Ministry of Mines and a US Embassy official, Bangui 15 and 20 July 2002

² Interview with André Nalke Dorongo, CAR Minister of Mines, Bangui 14 July 2002

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