the special calendar that De Beers sends to some 250
chosen clients, there are ten circled days on which
diamonds are distributed. On these designated dates,
the clients, who include diamond-cutting factories in
New York, Tel Aviv, Bombay, Antwerp and Hong Kong, come
to Number Two Charterhouse Street in London to attend
what is called a "sight." These occasions, which occur
every five weeks involve the transfer of a pre-selected
number of diamonds from the De Beers stockpile to the
diamond-cutting industry around the world. At the sights
in 1980, for example, De Beers distributed more than
$2 billion worth of uncut diamonds that would eventually
be resold in the retail market for more than $8 billion.
The block-long building
at Number Two Charterhouse Street is the headquarters
of the Diamond Trading Company.. Its four-story-deep
vault holds most, if not all, the world~s supply of
uncut diamonds. As clients arrive at the fortress-like
entrance, they are met by uniformed guards and are escorted
to a reception room on the second floor. One by one,
the clients are then taken to private viewing rooms,
which all face the northern light. Each room is equipped
with an electronic scale for weighing diamonds, a magnifying
glass for evaluating their quality and a telephone for
consulting their associates.
After a brief wait,
a guard delivers a small cardboard box to each room,
weighs the contents on the scale and then leaves. Inside
the box are a number of paper envelopes containing uncut
diamonds that look like bits of broken glass. The type,
quality, and exact weight of each diamond is marked
on the outside of the envelope. On a sheet of paper
accompanying the box is the price of the diamonds. The
price of a diamond is heavily dependent on its quality.
A discolored flat diamond weighing one carat may be
worth no more than $50; but a flawless, colorless and
octahedron diamond of the same weight may be worth $10,000.
The price tag for the entire box may vary between $1
million and $25 million.
In these 200-odd shoe
boxes are most of the diamonds that will eventually
be sold in engagement rings and other jewelry throughout
the world. The determination of who gets which diamonds
in their shoe boxes completely shapes and orders the
multibillion-dollar diamond business. The man who makes
this decision at Number Two Charterhouse Street is E.
M. Charles, a tall, gray-haired man whom everyone in
the trade calls Monty.
Monty Charles has been
close to the Oppenheimer family since he was a child.
In the 1930s, his father owned an inn at Brae that was
a favorite weekend retreat of Otto Oppenheimer, an uncle
of Harry, who was then the director of the Diamond Trading
Company in London. Oppenheimer took a liking to young
Monty Charles and persuaded him to come to London to
work for him as a sorter of diamonds. When the Second
World War began, Monty Charles enlisted in the British
Army. Soon afterward he was captured by the Japanese
and forced to take part in the infamous death march.
He was one of the few British officers who survived
In 1945, he was released
from a Japanese prisoner-of-war camp. When he returned
to England, he was again employed by the Oppenheimers
at the Diamond Trading Company. A hard, determined man,
he rose within years to the position of managing director.
Nominally, he worked under Sir Philip Oppenheimer-Otto's
cousin, but as far as most of the clients were concerned,
Monty Charles was the court of last appeal for them.
Before each sight takes
place, Monty Charles has to decide how many diamonds
of each quality will be distributed m all, and then
how this supply will be divided up among different clients.
To begin with, before each sight is held, Monty Charles
has to himself have a dependable picture of world demand
for diamonds. A full-time staff of economists and researchers
are employed by the Diamond Trading Company to track
such crucial indicators as the rate of family formation
in the United States and Japan, the economic conditions
in each country, and the amount of income after taxes
that might be available to buy diamonds. From this,
the demand for diamonds is estimated. Next, market analysts
calculate the number of diamonds that jewelry stores,
wholesalers and diamond cutters already in their inventories
and how many diamonds are in the "pipeline," as the
route all diamonds between De Beers and retailers take
is called. N. W. Ayer, the cartel's advertising agency,
assists here by surveying retail stores and asking in
telephone interviews about the quantitles of the diamonds
that they have on hand. Diamond Trading Company executives
are responsible for also making regional assessments
based on reports from De Beers' partially owned subsidiaries
in Israel, Belgium, India and Portugal. Through this
private intelligence system, the Diamond Trading Company
is able to ascertain the categories of diamonds that
are either in short supply or are a glut on the market.
For example, if small yellow diamonds appear to be in
excess supply, they are omitted from the boxes in the
About ten days before
each scheduled sight, the staff makes a final determination
of the total number of diamonds to be distributed in
each category. The sorters then take this quantity of
diamonds out of the vault and lay them on tables, according
to size, shape and color in the sorting room on the
third floor of the Diamond Trading Company. The massive
display of glittering diamonds is truly extraordinary:
When, for example, I was shown around the sorting room,
in January of 1979, there were more than a quarter-billion
dollars worth of gem diamonds heaped onto the tables.
Moving among these
tables strewn with diamonds, Monty Charles and his staff
decide which clients are to receive which diamonds.
About a month before a sight takes place, clients submit
requests for the number and types of diamonds they want.
Most clients receive, however, not what they asked for
but what Monty Charles decides to give them. There are,
after all, only a limited number of really lucrative
diamonds distributed at each sight, and those clients
who receive a large share of them will prosper-and be
able to expand their businesses. For the major diamond
dealers, the objective is to increase the allocation
of valuable diamonds that they receive in their shoe
box at each sight. It is, as one dealer put it, "the
name of the game." But it is Monty Charles who spells
out the rules of the game.
The first rule: No
one may question the authority of the Diamond Trading
Company to decide who gets- which diamonds. Monty Charles,
as director of the operation, must be accepted as the
sole arbiter of both the number and quality of the diamonds
placed in each box. Since the number of uncut diamonds
a manufacturer receives roughly determines his volume
of business, and the quality of diamonds determines
his profitability, the allocation of diamonds is a crucial
factor in surviving in the diamond business. Yet no
client may request a larger-or smaller-consignment of
diamonds than he receives. Nor may he seek redress from
the Oppenheimers or any higher executive of De Beers.
Monty Charles's decision is final.
The second rule: There
shall be no haggling over price. The price for each
of the 2,000 classifications of diamonds is fixed by
De Beers, and determines how much money the mines in
Africa and Siberia will be credited for the diamonds
that they shipped to the Diamond Trading Company. De
Beers can change the price at will, without any advance
notice, or add a "surcharge." Since the price that De
Beers charges its clients at sights is usually at least
25 percent below the wholesale price for uncut diamonds,
the privilege of being invited to a sight is worth about
one-quarter of the value of the box. Even when wholesale
diamond prices are depressed, clients are still expected
to pay the fixed price, which may be above prevailing
market prices. This is the price for admittance to future
sights. If a client refuses to pay this price, he may
not receive an invitation to future sights. For example,
when wholesale prices fell in the 1974 recession, one
large distributors of diamonds in the United States,
refused to pay more than the fair market price for its
box. As a penalty, it was not invited to another sight
for three years, causing it to lay off workers, close
factories and forgo profits, and when it allowed to
attend another sight, it found that Monty Charles had
filled its box with low-quality diamonds that were only
marginally profitable to cut, which it now accepted.
The third rule: Take
the entire box or none at all. Diamond mines produce
diamonds of all sizes, shapes, colors and clarities.
Some diamonds, such as the octahedron-shaped clear stones,
are relatively easy and profitable to cut and polish
into jewels. Other diamonds, such as the twisted crystals
called macles, require enormously skilled labor and
yield low profits. If manufacturers were allowed to
choose only the more profitable diamonds in their box,
De Beers would be left with all the unprofitable diamonds.
Monty Charles therefore arranges a "series" of diamonds
for each client in which the less profitable diamonds
are mixed in with the more profitable gems. Under no
circumstances may clients pick from this series the
diamonds they want. They must accept all-or none.
The fourth rule: No
client may resell the diamonds in his box in their uncut
form without a special dispensation from Monty Charles.
To maintain its international monopoly over the supply
of diamonds, De Beers must control the world stockpile
of uncut diamonds. If it permitted its clients to resell
their boxes, some outside party could amass its own
stockpile by bidding for the boxes. This actually occurred
in 1977, when Israeli dealers paid a premium of up to
100 percent to De Beers clients for their unopened boxes.
Many clients, seeing the opportunity to double their
money overnight, took advantage of this windfall. The
result was that by 1978, the stockpile in Israel was
rapidly approaching in size De Beers' own stockpile
in London. If the Israelis suddenly panicked and threw
their uncut diamonds on the market, the price would
collapse. If the Israelis continued to amass diamonds,
they would be in a position to offer their own sights
and undercut the mechanism De Beers had invented for
controlling the market. De Beers succeeded by gradually
forcing the diamonds out of Israeli hands in 1979. To
prevent a recurrence, Monty Charles insisted that clients
must immediately cut and polish all the diamonds supplied
to them in their boxes and then return the cardboard
containers to assure that no one was selling their sealed
boxes. He dramatically demonstrated that violators of
this edict would be severely punished by purging some
forty clients from the sights for reselling some of
their uncut diamonds. His retribution was not lost on
the other clients.
In some cases, a select
number of clients are permitted to act as sub-distributors
for De Beers and resell their diamonds to small cutting
factories. Clients with such a dispensation are given
what is called a "dealer's sight" (as opposed to a "manufacturer's
sight"). They are expected to sell uncut diamonds only
to trustworthy manufacturers, and are held accountable
for any leakage of their diamonds into private stockpiles.
The fifth rule: Clients
will supply De Beers with whatever information, it needs
to assess the diamond market. Before attending a sight,
a client must fill out a detailed questionnaire, specifying
the number of uncut diamonds he has in inventory, the
number of diamonds in the process of being cut, the
number of diamonds previously sold, and all other relevant
details of his business. He further estimates his future
sales in each category. This data is processed through
the computer at Charterhouse Street and helps provide
a picture of the number of diamonds in the pipeline.
The entire System requires that no more diamonds be
released I from the stockpile than the public can absorb.
Indeed, to make sure
that its clients are not secretly disposing of or privately
stockpiling diamonds, the Diamond Trading Company requires
that they submit to a "diamond audit." In this procedure,
a De Beers representative pays a surprise visit to a
client's cutting factories to see the financial records,
the actual inventory of diamonds, machinery, and number
of employees at work. He then makes his own estimate
of how many diamonds the client is cutting per month.
If this tally does not square with the number of diamonds
the client had received at the London sights, the discrepancy
is reported to Monty Charles.
The sixth rule: Diamonds
must never be sold into "weak hands" In order to maintain
the illusion that diamonds never crease in value, price
wars and cutthroat competition must be avoided at all
costs. De Beers' clients are prohibited from selling
their diamonds to any wholesalers or retail Jewelers
who undercut prices at the retail level. If De Beers
finds any wholesalers or retailers engaging in what
it considers to be destructive competition, the manufacturers
who get their diamonds at the sights are expected to
immediately cut off the transgressor's supply. In this
respect, De Beers' clients are, forced to be silent
partners with De Beers in maintaining an orderly retail
The penalty for the
violation of this rule is subtle but effective. A client
who sells diamonds to "weak hands," or anyone of whom
De Beers disapproves, finds that the mix of diamonds
in his box becomes progressively less profitable for
him. For example, one manufacturer, who had been a client
of De Beers for two decades, had sold some diamonds
in 1977 to an Israeli diamond dealer who was considered
by De Beers to be a dangerous speculator. He then found
that his box, with a price tag on it of over $1 million,
contained mainly "rubbish," as he called it. He realized
that in deciding whether or not to accept it he had
a Hobson's choice. If he took these diamonds, he would
lose several hundred thousand dollars processing them.
On the other hand if he turned down the box, he would
lose his source for future diamonds and be forced to
close his cutting factory. It was a painful decision.
Finally, he nodded to his broker that he would accept
the diamonds. On the way out, he passed Monty Charles,
who shook his hand amicably and asked how he liked the
merchandise he had received. When the client expressed
some disappointment, Monty Charles reportedly answered,
"Perhaps you've been slightly naughty, but let's see
what we can do next time."
Aside from the penalties
that it can impose at will, De Beers also provides positive
incentives to clients who support the system-the "carat
and schtick" approach, as one Israeli client Joked.
Not only can the assortment of diamonds be arbitrarily
upgraded for a favored client but Monty Charles can
also add very lucrative "large stones" to a box. These
larger diamonds can usually be resold for a windfall
The sights in London
thus are not merely occasions for major gem manufacturers
to select the uncut diamonds that they wish to purchase
but an integral part of the mechanism through which
De Beers establishes and maintains the value of diamonds.
Through these ten events a year De Beers extends its
control from the diamond mines of Africa to the cutting
factories of Belgium, Israel, India, and the United
States. And through its clients-whose fortunes depend
heavily on the contents of the shoe boxes they receive-De
Beers is able to monitor and regulate the flow of diamonds
that pass through the world pipeline into the retail
market. The stakes are undisputably high in this game.