Tales of Soft Money — The Forever Stones — Part II
War and Love
As the world headed for war, it soon became clear for all involved governments that they urgently needed diamond reserves in order to convert industries for war purposes; the industrial-grade stones were needed for sophisticated production of war vehicles, planes and rockets. This had the American government in conflict with De Beers, which refused to sell or even send parts of their inventory to US due to the fear that a war once over would lead to a devastating diamond supply glut. Upon strongly requesting British authorities to intervene with the stubborn diamond dealers, even the mighty US was rebuffed; in declassified letters, Americans filing these requests complained that De Beers had managed to populate the entire diamond wing of the British state apparatus. And so it was instead arranged that De Beers was going to sell industrial-grade diamonds on a monthly basis to the American factories that built many of the same airplanes that protected De Beers' diamond storage facilities.
On top of the refusal to properly supply the Americans, it was highly incredible to the latter to discover that, what more and more looked like a supply chain of industrial-grade diamonds to Hitler's war effort, seemed orchestrated by De Beers - a company full of people that arguable had everything to lose should the Axis win. Also here, Epstein refers to now unclassified documents that details how American spies in Africa managed to pinpoint Hitler's diamond supply to the mines in Belgian Congo, that at the time was in the hands of the British and more precisely, controlled by De Beers. The situation, in other words, was similar to that of Saladin's conquest of the Holy Land with the supposed help of high-quality weapons produced in the very nations that had sent out warriors to defend it in the first place.
An OSS (Office of Strategic Services) chief in Accra reported to Washington:
We have now come to the conclusion (a) that our assistance was requested in this program so that the Diamond Trading Corporation [De Beers entity] might discover how much we actually knew of the ramifications of the De Beers world monopoly, and (b) that the OSS/Accra recommendations for a Security Committee were sabotaged, not by the British Government, but by the representatives of the Diamond Trading Corporation Ltd., London, through their domination of the Diamond Committee of the Ministry of Economic Warfare. 
By playing this dangerous game, De Beers not only survived the Depression, but emerged financially strong in the 1940's.
Around this time, the company, through the firm N. W. Ayer & Son, had started conducting extensive diamond marketing in Hollywood movies as well, inculcating young Americans with the connection between love and diamonds. A subtle and long marketing push culminated in the classical caption "A Diamond Is Forever", written under a picture of two young lovers on a honeymoon. De Beers later adopted the slogan as official logo, and it was also proclaimed the slogan of the century in 1999 and is still often included in case studies taught in business schools around the world.
Although the devastating war might have been over, the end of the 40's provided new troubles for De Beers. Doctor John Thornburn Williamson, a Canadian geologist, had spent the most part of a full decade prospecting of what today is Tanzania. In 1943 he found a mineral often associated with diamond pipes, and traced its source at Mwadui. He had discovered the largest diamond deposit in the world. Oppenheimer initially tried to buy the land but was rebuked by Williamson, and so again the monopoly was in danger.
By 1946, Williamson had 6 000 workers and their families living at the mine, all defended by armed guards, barbed wire and defensive fortifications. It quickly produced something to the effect of 1.5 million carats per year, which put De Beers production market share as low as 65%. To counter the threat, Oppenheimer used his London 'sights' - the recurring uncut diamond sales to important diamond-cutting clients. Suddenly, clients who had done business with Williamson found themselves uninvited to these events. Williamson was subsequently squeezed and saw his cash reserves diminish due to being forced to store his uncut diamonds when De Beers clients stopped buying. Simultaneously, De Beers put pressure on British officials to threaten Williamson with nationalization. In 1947, Williamson saw no other way out than to sign a contract where his output was sold exclusively to the Diamond Trading Company in London.
Here, Epstein points out that during Ernest Oppenheimer's lifetime, De Beers never discovered a single new mine, and it is generally thought that some of its prospecting expeditions, when finding traces of diamond pipes, chose to not go public with it in order not to upset the delicate global demand and supply balance. Epstein writes:
By the time Sir Ernest died in 1957, he had turned the diamond invention into a powerful instrument for preserving the price of diamonds. By merging the mines in South Africa with the syndicate in London, he created a double-edged sword, production and distribution, for maintaining his control over the diamond industry. Through secret arrangements that he patiently and meticulously made with independent mine owners, he managed to channel almost all of the world's uncut diamonds through this system. 
In the 1950's, a push by De Beers to stop what was an ever increasing tide of smuggled diamonds to cutters, resulted in the recruitment of British MI-5 personnel for the newly created International Diamond Security Organization. By applying similar methods that had been used in the war to turn German spies into double agents, the organization sought to strangle the supply leakage once and for all.
Some earlier methods of smuggling diamonds out from the mining facilities included swallowing them, shooting them over the barbed fence with make-shift hand catapults, or hiding them in the body with the help of a surgeon. The X-raying of workers, once effective as it initially seemed like magic for many black workers, had a diminishing effect as the workers got used to the procedure and as it became generally understood that the machinery could not always detect hidden diamonds. It was also not possible to X-ray workers too often due to the dangers of radiation. The closed-circuit cameras set up around the mines had their obvious limitations as well.
Sillitoe, a retired head of MI-5, suggested various improvements. One was the utilization of radioactive paint on diamonds, that could subsequently be followed with a Geiger counter (this had been applied to Soviet diplomats in London). With this method, Sillitoe managed to stop a few thefts, but he also realized that the vast majority of leakage came from western and central Africa, not from the South African mines. The main reason was that while the South African mines were 'pipes' that could be physically restricted, much production further north was a result of diamond-rich stream beds or river banks that the natives had access to. To counter this, Sillitoe hired armed mercenaries that intercepted smugglers with diamonds on their way out of the country. De Beers also set up primitive offices all around the jungle to encourage smugglers to sell back the supply. In 1957, Sillitoe judged his mission completed and disbanded the International Diamond Security Organization. Many of its members continued to work for the cartel through other entities.
In the newly free country of Zaire, a new problem arose for De Beers since the friendly Belgians now had left. A deal had to be made with President Mobutu to sell all Zaire's diamonds to De Beers in order to keep the monopoly intact. Realizing that it was also in his interest to decrease smuggling (and so keep global prices high), Mobutu massacred thieves more thoroughly than even the hated Belgians, and in one noted instance 200 students on a camping trip were shot, mistaken for diamond smugglers.
The Beginning of the End?
The 1950's saw the first seed of a sudden idiosyncratic threat to the whole industry: lab-grown diamonds (also known as synthetic diamonds). It officially started with General Electric proclaiming in 1955 that they had managed to create diamonds out of carbon- something that De Beers quickly countered by commissioning A.W. Ayer & Son to dispel any public ideas that such stones were anything other than replicas. The process itself included an immensely powerful hydraulic press which could replicate the extreme pressures and temperatures of the depth of the planet.
General Electric's success came not as a complete surprise. The research arm of De Beers had earlier concluded that the breakthrough had been just a matter of time, especially since both USA and the Soviet Union allocated resources to the synthetic production of the kind of diamonds their industries needed. This was however especially embarrassing for De Beers, as Ernest Oppenheimer in the years before he died had proclaimed that only God could create a diamond. The company now faced synthetic diamonds with more or less the exact same chemical and molecular structure as some of the diamond found in their mines.
General Electric scientists, eager to reduce the cost of diamond production to under that of the mined counterparts, started experimenting with different catalysts that they mixed with the essential graphite, in order to hasten the whole procedure. They succeeded with this the very same year. Even though the output consisted of very small and discolored diamonds, it still caused De Beers' stock price to decline since their industrial-grade diamond market share was in real danger. The car producers of the world didn't care much for a clear, sparkling effect of the diamonds they used for their machines.
De Beers went on a buying spree. While striking deals with General Electric about the use of the technology, De Beers had acquired a large number of hydraulic presses that by 1961 were churning out industrial-grade diamonds. This new synthetic diamond division was named Ultra High Pressure Units Inc. Meanwhile, the Soviet Union set up massive presses in Kiev, and not long thereafter those could produce up to 10 million carats of synthetic diamonds per year. It was then understandable that total industrial-grade output of diamonds from presses all over the world soon measured in tons rather than carats. In 1970, only half of all diamonds produced in the world were man-made.
Also in 1970, General Electric announced that its scientists had managed to create gem-quality diamonds, one carat or larger. It was an achievement worth comparisons to alchemy or at least to the dreams that scientists had had for centuries. After some careful observations it was established that the gem-quality was not exactly perfect, but definitely in line with most commercial gems. And even more curiously, experts initially had a hard time discerning any difference between it and mined diamonds. De Beers put their hopes on the high costs of actually manufacturing such large stones synthetically.
General Electric itself stood at a crossroads. Either it continued to churn out small but profitable industrial-grade diamonds with their presses, or it utilized the presses for the much more time consuming process of creating gems for jewelry. In the end, the company decided not to follow the second course. One senior General Electric executive involved with this decision told Epstein:
We would be destroyed by the success of our own invention. The more diamonds that we made, the cheaper they would become. Then the mystique would be gone, and the price would drop to next to nothing. 
The Supply Squeeze of the 70's
Having earlier described the distribution network in which rough diamonds moved to diamond cutters who subsequently cut and polished the gems, and where said gems then moved to select retailers, it should be apparent for the reader that a disruption of this 'pipeline' could have large consequences on diamond prices. Such a disruption occurred in the latter part of the 70's, when Israeli diamond merchants - all part of the De Beers delicately manufactured supply line - started retaining the stones instead of exchanging them into rapidly depreciating Israeli paper money. As a consequence, the whole Diamond District in New York was strapped for diamonds and a general price increase was the logical consequence. By 1979, according to Epstein, the Israeli stockpiles had grown so large that they threatened the whole mirage of supply and demand.
The German threat to Belgium some decades earlier had displaced the entire diamond cutting market in Antwerp, which by now had established itself in Israel, or more specifically in Netanya, instead. Some of the re-settlement had luckily occurred on time, before Hitler's armies ravaged that country. Jews working in the diamond industry still had to face the reality of strict British quotas when applying for immigration to Palestine, but the thought of parts of the diamond pipeline falling into Hitler's hands persuaded the British that it was also in their interest to have that pipeline diversify geographically. Visas for European Jewish cutters were approved.
As to diverting supply to Palestine, that issue was trickier. De Beers representatives in London knew that they had enough supply of cut diamonds to last many years despite disruptions in upcoming diamond cutting and polishing, and the company also had a binding contract with the Belgian government on exactly where their uncut diamonds should be processed. But as Ben Ami, the driving force of this diamond cutting relocation effort, started to pester the British a little too much about the monopolistic details of the diamond network, De Beers finally caved and promised him a temporary supply of uncut stones. Ben Ami, after flying to Belgium, only managed to attract half the amount of cutters that he wanted as they deemed Palestine more dangerous to them (due to Rommel's forces) than they did neutral Belgium. One week after returning to Israel, the Germans invaded the Low Countries and captured the diamond centers.
The war sent so many Jewish refugees to Palestine so that by the end if it, thousands of cutters had been trained or assembled there. De Beers started to supply them with uncut diamonds en masse. A free Belgium later wanted their part of the business back however, and so De Beers divided the market by letting Antwerp get the larger, more profitable stones, while the newly formed country of Israel would get the smaller stones, which were profitable there due to the abundant, cheap labor at the time.
An so, as their small-stone (or melee diamond) industry prospered, the Israelis ultimately wanted a cut of the larger diamonds as well - something De Beers refused them. The Israelis then started to buy up smuggled diamonds out of Africa, but also uncut diamonds from clients of De Beers. By 1977, the situation in Israel was out of De Beers' control as they realized the Israelis, because of reasons outlined earlier, were sitting on a diamond stockpile rivaling their own. A stockpile that could completely disrupt the supply and crash the market price of diamonds. One retaliatory action later taken was the forcing of multiple Israeli banks to stop forwarding cheap credit to the local diamond cutters. The Oppenheimers sat on the boards of banks with local subsidiaries. At the same time, De Beers cut the supply of diamonds to forty of their clients that had been found re-selling that supply to their Israeli counterparts. All of this forced the partial liquidation of the Israeli diamond stockpile, which greatly depressed prices again and had many Israeli dealers going bankrupt. Israeli banks inherited much of the diamond collateral and De Beers had yet again overcome an obstacle.
In part three of this series, focus will shift towards the fall of the De Beers diamond monopoly, and to the latest synthetic diamond development and the future of such gems.
 Epstein, E.J. (2011). The Rise and Fall of Diamonds. Amazon Digital Services LLC. Chapter: Diamonds for Hitler.
 Ibid., Chapter: The Arrangement.
 Ibid., Chapter: Infringement On The Patent.