Why did the De Beers Diamond cartel recently close its highly-secretive unit in Antwerp, the Outside Buying Office (OBO)?


The Smugglers


Diamonds are found in river beds in vast alluvial area of West Africa. And De Beers' historic problem in maintaining a cartel has been creating artificial scarcity by preventing diamonds from flooding the market.

In the past, De Beers, to protect its diamond market, made arrangements with governments and mercenaries to prevent natives from selling these "loose" diamonds. But since some of them got through to buyers outside the cartel, De Beers created an agency to buy them up, the Outside Buying Office. This operation was a relatively expensive way of suppressing leakage since it involved maintaining a network of agents throughout Africa. Then, in 1999, De Beers found a surrogate who would perform this function without cost to it-- The United Nations.

The UN, to be sure, had the best intentions. It wanted to suppress the sale of diamonds in African conflict zones on the theory that they helped finance insurgencies in Sierra Leone and Angola. So the U.N. Security Council imposed a global ban on "undocumented" diamonds-- now called "blood diamonds." Here the interest of the UN and De Beers coincided, since the diamonds the UN was sanctioning came from the very river beds the De Beers did not control. With the UN policing the leakage of diamonds, De Beers could do away with its Outside Buying Office, which it closed in 2000.


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