Thursday, October 22, 2009

The Smugglers Chapter Fourteen

Through the brilliant financial maneuvers of Sir Ernest Oppenheimer, the diamond cartel had succeeded in gaining control of virtually all the diamond mines in the world by the early 1950s. It had made its arrangements with the government of South Africa, the colonial administrations in Angola, the Congo and Sierra Leone, and with Dr. Williamson in Tanganyika. It was fully backed by the British, Belgian and the French governments, and it was recognized by every other government concerned as the official channel for the diamond trade. There were still unofficial channels, however, that the diamond cartel did not control: the smuggling routes that led from the diamond mines and diggings in southern and western Africa to entrepots such as Monrovia and Beirut. Since the African governments did not have either the techniques or resources at their disposal to interdict the diamond smugglers, Sir Ernest decided to recruit his own diamond soldiers. In December of 1953, he instructed his London office to track down and contact Sir Percy Sillitoe.

Sillitoe had been, until November of 1953, the head of the British counterespionage service known as MI-5. During the Second World War, he had organized one of the most ingenious spy operations in the history of espionage. It was called the double-cross system, and it involved converting all the German spies in England into British double agents. Since the Germans accepted the reports of these spies as bona fide intelligence, Sillitoe and his double committee, which included Harry Oppenheimer's tutor at Oxford, Sir John Masterman, were able to feed the Germans a false picture of British activities. After the war, Sillitoe worked closely with American and French intelligence. In 1950, however, the British government was severely embarrassed by the defection of two of its diplomats from Washington "Donald Maclean and Guy Burgess" to Moscow, and the British security services came under increasing criticism. Sillitoe, who had reached the age of sixty-five, was allowed to retire in the midst of the scandal. Since retired intelligence chiefs are expected to fade quietly away, Sillitoe moved to the seaside town of Eastbourne in southern England and worked in a local sweet shop owned by relatives, selling chocolates and other confectioneries.

When Sillitoe received the invitation from Oppenheimer, he was behind the counter of his sweet shop. Within a matter of days, he had abandoned the confectionery and was on a plane flying to Africa.

At the airport in Capetown, he was met by Oppenheimer's chauffeur and immediately driven to the village of Mulzenberg on the Indian Ocean. He arrived at a beautifully landscaped estate where Oppenheimer and his family were spending their Christmas vacation. In their initial meeting, Oppenheimer briefed Sillitoe on the smuggling problem. He explained that the smuggling of diamonds not only deprived De Beers of the value of the stolen diamonds, but far more serious, it threatened to undermine the monopoly prices for diamonds that De Beers had established. He estimated that somewhere between 10 and 20 percent of all the diamonds reaching cutting centers were smuggled goods. These illicit diamonds were undercutting De Beers' prices. Moreover, if diamond dealers and cutters had an alternate source from which to buy their diamonds, they would be less willing to accept De Beers' rigid conditions for doing business in the diamond trade. Oppenheimer was emphatic: He wanted the smugglers stopped.

Sillitoe admittedly had no knowledge about the diamond business, but he suggested that the techniques of counterintelligence that he had employed during the war against the Germans could effectively be used against smugglers. If some of the Individuals who illegally bought and sold diamonds could be identified, they could be "turned" into double agents for the cartel. These agents then could be used to manipulate the diamond smugglers higher up in the chain. To accomplish this feat for De Beers, Sillitoe suggested that he hire a half dozen top intelligence officers from the British secret service. These men would form the nucleus of a private intelligence service for the cartel.

After giving the matter some consideration, Oppenheimer accepted Sillitoe's proposal. De Beers would provide the financial support, and Sillitoe would have carte blanche to recruit an elite core of agents for the "International Diamond Security Organization," as it was eventually called.

Sillitoe's education in the diamond business began in 1954 with a tour of the mines. At the Kimberley mines, De Beers security officers briefed him on the various ways in which employees had smuggled diamonds out of the mining areas in the past. The methods ranged from using rubber band catapults to fling the diamonds over the barbwire fences to having a surgeon hollow out a niche in an ankle bone in which diamonds could be concealed under a bandage. The most common means was for individuals to simply swallow diamonds and then recover them once outside the compound. Because of the minute size of diamonds, it was virtually impossible to detect them except by X-raying the entire body. However, employees could not be subjected to constant X-rays without exposing them to lethal doses of gamma rays and thereby endangering their lives. X-ray examinations, therefore, could only be given to a small proportion of randomly selected workers each day. At best, the X-rav machine was a psychological deterrent to theft. Like the closed-circuit television cameras that conspicuously scanned back and forth at the mines, X-rays were another demonstration to black workers of the white man's magic. But once the employees understood that these electronic devices had only a relatively small chance of detecting smuggled diamonds, their value as deterrents was seriously impaired.

Sillitoe found that these security procedures were far too passive to prevent sophisticated thefts. He suggested instead that De Beers employ more aggressive and imaginative methods; for example, radioactive paints had been successfully used for the surveillance of enemy agents in England. (In one case, this paint had been applied to the shoes of a Soviet diplomat in London, and then his trail had been followed by means of a Geiger counter.) Sillitoe proposed that a few diamonds be radioactively "labeled" with an invisible paint and then be conspicuously left around in areas where employees were likely to steal them. Assuming that the radioactive bait would be snatched up, a Geiger counter would click the moment the diamond passed through the gates of the compound. The thief then would not be arrested but followed, and in time the radioactive diamond would be sold to an intermediary. The intermediary could then be followed with the Geiger counter. Once located, he could be turned into an informer.

Such exotic security measures resulted in the recovery of only a few diamonds, however. Sillitoe next learned that the cartel's problem was not the trickle of diamonds being stolen from its South African mines but the flood of diamonds that were smuggled out of west and central Africa every year. With two of his staff assistants, Sillitoe traveled to areas outside South Africa from which most of the diamonds seemed to come. He went to Aquatia in Ghana, Freetown and Yengema in Sierra Leone, Bakwanga and Luluaburg in the Belgian Congo, and Dar-es-Salaam and Mwadui in Tanganyika. In each of these countries, he was able to make contact with the intelligence officers whom he had previously worked with in his capacity as head of British counterintelligence. Most of these countries were still British colonies in 1954, and his former comrades in arms were willing to extend him a good deal of unofficial cooperation. The first objective, as Sillitoe's deputy explained, was "to set up an intelligence network which would penetrate this underground railroad round the world."

In South Africa, most diamond mines were volcanic pipes, which could be isolated behind electrified ten-foot high barbwire fences. In central and west Africa, however, most diamonds were "mined" from streambeds that meandered over tens of thousands of miles of jungle. To recover these diamonds, natives needed only a shovel and a pan. Even though the governments had granted concessions to various diamond mining companies associated with De Beers, and had in theory banned anyone else from digging for diamonds, it was in practice impossible to enforce these regulations.

The problem was particularly difficult in Sierra Leone, where the river banks were littered with diamonds. Not only was the government unwilling to police this vast area to prevent illicit digging but the local authorities explained to Sillitoe that most natives believed "the soil of Sierra Leone belonged to the Sierra Leoneans," and not the diamond companies. At night, gangs of "pot-holers," as they were called, would dig up the river banks and disappear at daybreak with the diamondiferous gravel. The pot-holers would then either sell their diamonds to Lebanese traders or directly to Mandango tribesmen, who, in turn, smuggled them across the open border to Liberia. By one means or another, it was estimated that more than half of Sierra Leone's diamonds were sold in Monrovia as "Liberian" diamonds. Even though Liberia had in reality no diamond mines of any significance, fictive "mines" were created in the jungles to account for this enormous production of diamonds.

After carefully studying the situation, Sillitoe concluded that it would be futile to attempt to end the illicit mining in Sierra Leone by pot-holers. Even if Sierra Leone's under staffed colonial police could be induced to arrest thousands of these diggers, other natives would take their place panning the rivers and mudholes. Instead, he decided to concentrate his efforts on controlling Lebanese middlemen who were behind the illicit traffic.

Initially, Sillitoe's men recruited a number of clandestine agents in Sierra Leone and Liberia who would pretend to be independent diamond buyers. After making contact with the Lebanese, these agents offered to buy large quantities of smuggled diamonds at much higher prices than the cartel's real competitors were offering.

The quantity of diamonds available on the illegal market staggered Sillitoe. He found he needed more than $5 million in "buy" money to maintain the intelligence operation, and to obtain such a large amount of hard currency in a British colony required the permission of the British government. Sillitoe managed, however, to persuade the British authorities that diamonds were an important factor in Britain's precarious balance of payment equation, and he was then quickly granted permission to spend hard currencies to buy up smuggled diamonds.

By making major purchases of diamonds in black markets, Sillitoe's agents were able to ferret out the middlemen trafficking in diamonds. Then, through surveillance and intercepted mail, they traced the traffic from the diamond fields of Sierra Leone through the entrepots of Liberia to the wholesale markets in Belgium. It turned out that reputable European merchants, who were also customers of the cartel, had been surreptitiously financing the African smugglers and one of the principal buyers of the smuggled goods was the Soviet Union, which then critically needed industrial diamonds to retool its factories.

Sillitoe realized that the illicit diamond traffic could not be ended decisively as long as the smugglers had high rewards for their goods and only minimal risks of being captured. He therefore decided to raise the stakes for the smugglers by hiring private armies of mercenaries to ambush their diamond caravans in the jungles.

The most resourceful of these mercenaries was Fred Kamil, a Lebanese trader then in his twenties. Kamil had for years extracted money from smugglers on the route that led through the swamps from Sierra Leone to Liberia and which was known as the "stranger's trail." With a group of gunmen, he also waylaid merchants and travelers who came down the narrow trail. In 1956, Sillitoe's organization offered Kamil a highly attractive deal. He would be supplied with information from undercover informers about the exact movements of diamond shipments from Sierra Leone to Liberia to facilitate his ambushes. In return, he would turn the diamonds over to a De Beers subsidiary, and he would receive one-third of their value in cash. Kamil agreed to the alliance, since it would also mean that he would have police protection in Sierra Leone.

Many of the ambushes were bloody affairs. A caravan of a dozen or so Mandango tribesmen would emerge from the jungle in Sierra Leone and head for the bridge across the Mao River, which was the Liberian border. Suddenly, mines and flares would be detonated all around them. Then Kamil's mercenaries would open fire with hunting rifles. The tribesmen, who were not hit, would instantly surrender and turn their diamonds over to the mercenaries. It was a "diamond war," Kamil later explained in his account of these exploits.

As the risks of smuggling diamonds to Liberia greatly increased, and caravan after caravan was intercepted and plundered by mercenaries, the Lebanese dealers saw little alternative but to sell their contraband diamonds in Sierra Leone. This meant that the dealers had to pay a tax on the diamonds. The Sierra Leone government facilitated these transactions by lowering the export tax on diamonds.

Once the illicit diamonds had been contained in Sierra Leone, De Beers established a string of buying offices in the jungle. Each buying office was no more than a corrugated iron hut with a barred slit through which their agent did business with the pot-holers. Each agent was given a set of sample diamonds, with which he compared those diamonds offered for sale, and a strongbox full of Sierra Leonean currency. When he ran out of currency, he radioed the cartel's office in Freetown, and a plane was sent out to drop another box of currency next to his trading post. De Beers sent some of its most promising recruits in London into the jungles of Sierra Leone to train as diamond buyers. In short order, the potholers became fully accustomed to dealing with these well tailored buyers in the strange huts.

By 1957, Sillitoe decided that he had successfully completed his mission for the cartel. He quietly disbanded his International Diamond Security Organization, though many of his agents and mercenaries continued working directly or indirectly for the cartel, and he returned to his chocolate shop in Eastbourne.

Sierra Leone, despite the counterintelligence successes of Sillitoe, again became in the late 1960s a serious threat to the De Beers monopoly. In 1968, to mute criticism about its dealings with the cartel, the government created a state owned diamond company called Dominico to which all the diamonds found in that country had to be sold. Dominico, in turn, sold half its diamonds to a London corporation which in turn sold these diamonds to De Beers' Diamond Trading Company. The remaining half was in theory at least sold to three independent American dealers: Maurice Tempelsman, who received 27 percent, Lazare Kaplan, who received 3 percent, and Harry Winston, who received the other 20 percent. In reality, however, both Tempelsman and Kaplan resold their share to the Diamond Trading Company in London, which effectively gave the cartel control of 80 percent of the Sierra Leonean diamonds. Winston, who like Kaplan and Tempelsman was a major customer of the cartel was temporarily permitted to sell his share in New York.

As part of the window dressing for this deal, Tempelsman agreed to open a diamond-cutting factory in Sierra Leone's capital of Freetown. These cut and polished diamonds would then be sold to tourists as Sierra Leonean gems. As it turned out, however, Sierra Leonean diamonds were too difficult to be cut by inexperienced labor, and De Beers, which was Tempelsman's silent partner in the venture, therefore provided the factory with semi-finished diamonds from its London stockpile, which could be easily polished by Sierra Leonean labor. An Israeli cutter was brought in to supervise the diamond cutting, and a number of Sierra Leoneans were trained by him as polishers. The "factory" became a favored part of the official tours provided for important visitors to Sierra Leone. (Visitors who purchased "Sierra Leonean" diamonds from the factory or the retail stores in Freetown were, of course, not told the true origins of these diamonds.)

Even though the cartel and the Sierra Leone government were satisfied with this complicated arrangement for dividing the diamonds, a number of powerful Lebanese businessmen in Freetown believed that they were being unfairly cut out of the lucrative trade. They demanded a share of the diamonds but were turned down. The dispute came to a dramatic head on November 13, 1969, when a band of masked men with submachine guns brazenly held up the truck delivering the rich October shipment of diamonds to the sorting office in Freetown. The security officers from the mine put up no resistance, and the masked men walked off with the diamonds. A private plane at the airport then flew the cache of diamonds to Europe, where they were sold for an estimated $10 million to a consortium of diamond dealers.

In investigating this well-planned and professionally executed robbery, the cartel quickly established that the thieves had had inside information about the time and place of the delivery, and that the police had permitted them to escape from the country. The more they looked into the circumstances surrounding the crime, the more the cartel's investigators found abundant evidence of corruption in high places. The coverup seemed to involve everyone from petty police officials to )Justices of the Supreme Court. From what the investigators could piece together from the cartel's network of informers, it appeared that a group of Lebanese businessmen were behind the robbery. Further inquiries showed, however, that these Lebanese had powerful connections with the highest officials in the government and therefore there was virtually no possibility that any action would be taken against them.

Since De Beers could not easily eliminate the Lebanese from their positions of power in Sierra Leone, it decided to make a deal with some of them. The single most powerful Lebanese entrepreneur in Sierra Leone was Jamil Mohammed. He had an African mother and Lebanese father, and in the 1950s had been reputed to be the financier behind many of the gangs of illicit diamond diggers. In any case, he made an immense fortune in diamonds and invested it in real estate, rice and fishing. Then he became a partner with the Soviet Union in a lucrative venture that allowed their trawlers to fish in Sierra Leone's waters and operate out of Sierra Leone's ports. By 1969, he had become the richest man in Sierra Leone and more or less the godfather who looked after the interests of the Afro-Lebanese community. And he now became the man with whom the diamond cartel decided to deal directly in Sierra Leone.

Accordingly, the division of Sierra Leonean diamonds was suddenly revised in early 1970. The cartel would still receive, through its allies, 80 percent of the total production. The remaining 20 percent would, however, be taken away from Harry Winston, and most of this consignment would instead be given to Jamil Mohammed. Jamil Mohammed would then sell his share back to the cartel for a substantial profit. The net effect of this new arrangement was that the cartel received nearly 100 percent of Sierra Leone's diamonds, and Jamil Mohammed, the cartel's new man in Sierra Leone, received a fixed percentage of the revenue from these diamonds. There were no more robberies in Sierra Leone and a marked decrease in smuggling.

The only problem that the cartel had in Sierra Leone now was that the production was gradually decreasing. As the riverbeds and mudholes were exhaustively panned, fewer and fewer diamonds were found. By 1978, Jamil Mohammed, vexed by the decline in output, made new demands on the cartel. He asked for a larger share of all the giant diamonds found in Sierra Leone (some weighed more than a hundred carats). These giant diamonds still could be sold directly to dealers in Antwerp and New York at enormous profits. When the cartel refused to increase his share of these giant diamonds, Jamil Mohammed threatened to sell his share of diamonds on the open market. The cartel now began to regard Jamil Mohammed "as a monster of our creation," as one of De Beers' executives put it.

It was, however, necessary to come to terms with strong men like Jamil Mohammed in Africa to preserve the diamond invention. Eventually, his share was increased, and he was given access to the great diamonds.

The smuggling problem was not restricted to Sierra Leone. Sir Ernest Oppenheimer had always considered the vast undeveloped diamond fields of the Congo to be the single greatest threat to the cartel. So long as the Belgians ruled this area, he was able to assure, through secret arrangements with the Belgian government and banking houses, that diamond smugglers would be ruthlessly stamped out in the Congo. The situation changed radically for the cartel after Belgium abruptly granted the colony Independence in I 960 and it became the independent nation of Zaire. De Beers now had to persuade its President, Mobutu Sese Seko, that it also was in his interest to prevent diamonds from being smuggled out of the country. Working through intermediaries in the capital of Kinshasa, De Beers arranged a deal whereby Zaire would sell all its diamonds to a privately held corporation, which, in turn, would deliver these diamonds to De Beers Diamond Trading Company in London. The corporation would pay an immense tax to the Zairean government and distribute an important share of the profits in the diamonds to Zairean stockholders who were closely associated with the Mobutu government.

Consequently, Mobutu moved even more vigorously against the smugglers than his Belgian predecessor. He deployed hovercraft patrol ships, which could skim over the water at forty miles an hour, and armed helicopter gun ships to police the diamond fields. These diamond soldiers tended to shoot first and ask questions only afterward. For example, in November of 1979, they spotted a group of young Zaireans walking through a diamond digging, and ambushed them, killing some 200 of them in a matter of minutes. They then learned that they were students on a camping trip, not diamond poachers.

Mobutu also moved to prevent diamonds from being pilfered in the sorting houses in Zaire. Since native sorters could not be effectively isolated from their family and friends, and therefore they could easily pass along diamonds that they swallowed or palmed, Mobutu arranged with the Diamond Trading Company to employ European sorters rather than Zaireans. In a matter of months, the number of gem diamonds recovered-and turned in-in the Zairean sorting house increased by 30 percent.

Most of Angola's diamonds were mined from meandering rivers in eastern Angola which allowed easy access to illegal diggers and smugglers. De Beers arranged for the rivers to be dammed and the riverbeds cordoned off behind barbwire. This prevented diamonds from being carried downstream. Then, to seal off the jungle border, De Beers arranged to hire the remnants of the Katanga gendarme, which had fled Zaire en masse after its rebellion against Mobutu had failed in the 1960s. Led by mercenaries, these soldiers tracked down smugglers in the anarchic border zone, and they received a bounty for the diamonds they recovered.

Even with the support of private armies and black governments, it was impossible for De Beers to eradicate completely native smugglers . To prevent even this trickle of gems from reaching Europe and competing with the cartel's prices, De Beers stationed undercover diamond buyers in Monrovia, Brazzaville, Burundi and other entrepots in Africa. Aside from buying back diamonds, this operation was designed to provide a constant flow of information that could be used against the diamond smugglers. One of the men chosen to head this undercover diamond buying was the Lebanese mercenary who had ambushed hundreds of smugglers in Sierra Leone, Fred Kamil.

In April of 1965, Kamil was flown by De Beers to Johannesburg and then driven by a major in the South African police to Oppenheimer's headquarters at 44 Main Street to meet Colonel George Cloete Visser, the head of security for the Anglo-American Corporation. According to Kamil's account, an agreement was "hammered out" which included: "Kamil would establish a network of investigators and informers which would operate secretly and independently, but under the direction of Anglo-American Corporation's Security." The priorities were: "(a) The identity and activities of the Corporation's employees in positions of trust, involved in illicit diamond buying. (b) The discovery and closure of diamond leakages from the Corporation's mining and protected areas. (c) The recovery of stolen diamonds."

As compensation, Kamil was to be paid his expenses plus one third of the value of all the diamonds that were recovered. It provided him with a powerful incentive to uncover stolen diamonds.

Kamil built a fairly extensive intelligence organization throughout southern Africa and made a small fortune recovering smuggled diamonds for the cartel. Then, in 1968, he began to suspect that some high-level De Beers executives were involved in siphoning off diamonds from the mines in Namibia. When he persisted in steering his investigation into this sensitive area, Colonel Visser abruptly terminated his arrangement with the cartel. Kamil suspected that he was fired because he was on the verge of exposing these executives.

Angry and embittered, Kamil returned to Beirut from where he wrote Harry Oppenheimer a series of letters demanding more compensation for his work. He received no response. Finally, in 1972, he devised a desperate plan to extort money from De Beers. He would hijack a South African airliner carrying Oppenheimer's son-in-law, Gordon Waddell, and demand that Oppenheimer personally meet with him and negotiate the ransom. With a Lebanese companion named AM Yaghi and a few hand grenades, Kamil managed to hijack a South African airliner, but the intended victim was not aboard it. Oppenheimer refused to meet with him-or ransom the jet. Kamil finally ordered the pilot to land in Malawi, where army troops shot out the plane's wheels. After a twenty-four-hour siege, Kamil surrendered.

Kamil served only a short time in prison in Malawi and was pardoned. Shortly thereafter, the Anglo-American Corporation paid him about $100,000 that was supposedly additional compensation for his past services. He came out of the diamond war a fairly rich mercenary.

Eventually, the diamond cartel established through a Swiss subsidiary the Outside Buying Office, or OBO, in Antwerp. Working at an arms-length distance, it provided funds to buying agents throughout West Africa to buy up or otherwise prevent gem diamonds from reaching diamond cutters.

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