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 
 
 
¶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