On 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 the ordeal.
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 next sight.
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 market.
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 profit.
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.