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How South Africa's Oppenheimer family helped fuel a cartel that cultivated the scarcity myth — and in turn inflated the monetary value — of the world's diamond supply.

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00:00:00Last year, Americans spent more than $10 billion on diamond jewelry.
00:00:14Nobody's aware that diamonds and all the associations we have with diamonds
00:00:21is a product of a marketing strategy.
00:00:23It's completely invisible, transparent.
00:00:25If you measured in terms of how all the myths associated with this advertising campaign
00:00:31have been deeply inculcated in people, it's reached deeply into the popular imagination,
00:00:37this is probably the most successful campaign in history.
00:00:40Tonight on Frontline...
00:00:42Diamonds? Aren't they a girl's best friend? Did something change?
00:00:46Are diamonds what we think they are? Precious and rare?
00:00:50I wound up discovering it was just the opposite.
00:00:52Everywhere where there's carbon, which is everywhere, you find diamonds.
00:00:57Frontline examines the cartel that controls the diamond trade.
00:01:01The supply, the price, and the myth.
00:01:04What makes this cartel different is it's controlled by a single company.
00:01:10Tonight, the Diamond Empire.
00:01:13Funding for Frontline is provided by the Corporation for Public Broadcasting.
00:01:26And by annual financial support from viewers like you.
00:01:32This is Frontline.
00:01:36In the spring of 1992, more than 100 wealthy benefactors from around the world were invited to the Hotel Pierre in New York City to a fundraiser for AIDS research.
00:02:03Elizabeth Taylor, the High Priestess of the Mystique of Diamonds, had invited them personally to an auction of fine jewelry that raised more than a half million dollars.
00:02:18The evening itself was a glittering tribute to the allure of diamonds.
00:02:24I'm wearing the diamonds because my sweetheart has given them to me and it means love and it means forever.
00:02:31Diamonds? Aren't they a girl's best friend? Did something change?
00:02:35Diamonds? Diamonds? They're a woman's best friend.
00:02:39Diamonds?
00:02:41But what we think about diamonds is in fact a myth.
00:02:45At the center of that myth is an illusion.
00:02:48That diamonds are valuable because they are rare.
00:02:52When writer Edward Epstein set out to investigate the diamond trade, he discovered that diamonds aren't rare at all.
00:03:02Well, what I learned was that the diamond business wasn't a business of extracting, as I originally expected, something of enormous value and then simply seeing how much of this object you could get out of the ground and selling it.
00:03:21That was what the business appeared to be when I started my venture.
00:03:26That their real business was restricting what came out of the ground, restricting what was discovered, restricting what got cut, restricting what actually found its way into the retail market.
00:03:39And at the same time, through movies, through advertising, through Hollywood, through the manipulation of perceptions, creating the idea that there was this enormous demand for these shiny little objects that they seem to have an abundant supply.
00:03:56So I wound up on this voyage of discovery, starting off with the idea that there was this object of great value.
00:04:05And it was just a question of how many could you get out.
00:04:08And I wound up discovering it was just the opposite.
00:04:13This is the story of how that grand illusion was created.
00:04:17And the story of how one family gained control of the world's diamond trade.
00:04:22And for nearly a century, has maintained its hold on an empire that defines the very idea of what diamonds really are.
00:04:35New York is the center of the world's richest diamond jewelry market.
00:04:44It's a $10.8 billion industry.
00:04:49Around 47th Street, there are 25,000 people buying, selling, cutting, polishing, and marketing diamonds.
00:04:58From the most glamorous jewelry to cheap mail order.
00:05:07Very few in the diamond business will talk freely about what they do.
00:05:11There is a great deal of money at stake.
00:05:14There is also a great deal of uncertainty.
00:05:17But that's something top dealers like William Goldberg take in their stride.
00:05:24It's fascinating.
00:05:25It's amazing.
00:05:26A lot of men that I know that are 10 years younger than I am, can't wait to retire.
00:05:31And I can't wait to get here in the morning at 8 o'clock.
00:05:35To produce these beautiful works, you know, these beautiful pieces of art from what looks like a pebble on the beach.
00:05:41And then to nurse it through all its stages.
00:05:45And then to finally come up with some of these wonderful things is just a joy.
00:05:50Goldberg is one of the elite dealers who specialize in rare and precious stones.
00:05:56He has a team of cutters working just off Fifth Avenue.
00:06:00Some of the diamonds they handle will sell to royalty and movie stars for a million dollars or more.
00:06:09This stone took us one of the longest ever eight or nine months.
00:06:13It was the most impossible task.
00:06:16Every time we had new surprises.
00:06:18Nature is very funny when it comes to these things.
00:06:21You know, there were new hidden imperfections which we didn't think existed before,
00:06:25which always seemed to sneak in.
00:06:28We paid in excess of $10 million for this diamond.
00:06:35Everyone here is a very highly skilled technician.
00:06:38And some of them have very specific jobs to do.
00:06:41This man, for example, he's cutting the 85 carat stone.
00:06:45Right now it's around 36 and a half carats.
00:06:48He's putting the finishing facets on the bottom of the stone.
00:06:51The man behind him, brillianteer, put the finishing facets on the top of the stone.
00:07:07These gentlemen are very skilled and they bring out the final fire in the diamond.
00:07:13The brillianteer.
00:07:16This stone is going to be a gem.
00:07:18This stone started out 38 carats.
00:07:20It's down to 21 now.
00:07:22Around 21, yeah.
00:07:24Harvey's working the stone out.
00:07:26There's a lot of problems.
00:07:27There's a lot of balancing to do.
00:07:29It's coming out nice.
00:07:31You can see the shape.
00:07:32It's going to be a gorgeous marquee.
00:07:34Moishe's shaping the stone using a diamond that's attached to this stick
00:07:41and another diamond that's rotating on the spindle.
00:07:44And he's shaping both at the same time.
00:07:46They measure diamonds by weight in carats five to the gram.
00:07:55Their value depends on color, clarity, and cut.
00:08:00Flawless stones which are pink, blue, or yellow bring the highest prices.
00:08:06The best can top $100,000 a carat.
00:08:10This stone will sell for a million dollars.
00:08:14Diamond is among the hardest known substances.
00:08:17But many carats must often be ground away to cut a rough stone
00:08:21into a traditional marquee or brilliant.
00:08:24The smallest mistake is inordinately expensive.
00:08:28It calls for expert planning from a rough designer.
00:08:32I will try and find the largest, most pure stone in here.
00:08:39Matter of fact, this stone will probably end up being three different stones
00:08:43because of the imperfections that I can find.
00:08:46For example, I do see a pear shape, and I do see an emerald cut, and I do see an oval.
00:08:55The most important thing is bringing out the beauty.
00:08:58De Beers is very proud to continue the diamond decade by presenting its program for 1992.
00:09:10Most of the world's rough gem diamonds come through organizations run by the South African company De Beers,
00:09:15known in the United States by its famous advertising slogan,
00:09:18A diamond is forever.
00:09:21Fewer than 200 diamond merchants qualify for a site, the privilege of buying directly from De Beers.
00:09:27Everyone else must buy in turn from them.
00:09:31We're site holders. We get a site every five weeks from De Beers.
00:09:36If you can come up with a huge sum of money, it certainly would not qualify you to be a site holder.
00:09:42It's rather the man that started 25 years ago with very little,
00:09:46with one or two cutters who has 15 or 20 now here,
00:09:49and who is constantly on the scene buying,
00:09:53and he's the man who means to stay here with his children to follow him.
00:09:57He's the man that qualifies to be a site holder.
00:10:00It's like being admitted to a club.
00:10:06The headquarters of that club is London.
00:10:09Because it is a virtual monopoly, De Beers cannot operate legally in the United States.
00:10:14All site holders must travel here to buy their rough gems,
00:10:19to a building known only as 17 Charterhouse Street.
00:10:24This is a fortress where 80% of the world's gem diamonds are sorted, graded, and sold.
00:10:37A site holder sends his request for the grade of diamonds he needs,
00:10:40but there are no guarantees.
00:10:43It is De Beers that decides whether or not he gets them.
00:10:47It's a decision that can make or break his business.
00:10:56Good afternoon, gentlemen.
00:10:58Good afternoon.
00:10:59This is your site for October.
00:11:04In this shoe box is basically the diamonds that they're going to cut that month.
00:11:11And in this mixture of diamonds, there are large diamonds, there are small diamonds, there are colored diamonds.
00:11:18There's what De Beers wants to be on the market.
00:11:22So they distribute to the cutters what is in short supply and withhold from the cutters what is in abundance.
00:11:32So they control the market through this.
00:11:34And there are all sorts of hidden signals in this box.
00:11:39Like if suddenly the site holder, as the person's called, gets many diamonds worth hundreds of thousands of dollars,
00:11:50he'll know he did a special favor and he's being rewarded for that favor.
00:11:54On the other hand, if he finds that he's been given a large number of uneconomical diamonds to cut, he'll realize he's fallen out of favor.
00:12:05Even the world's top dealers are at the mercy of De Beers' central selling organization.
00:12:19William Goldberg usually has special requests alongside the ordinary stones.
00:12:24But even he does not know what to expect.
00:12:28Here are the regular goods and two boxes of specials.
00:12:34See you later.
00:12:35Thank you very much.
00:12:36See you later.
00:12:37See, this is very interesting.
00:12:52These are greens that come from Botswana.
00:12:55And this is a regular cut and dried bread and butter item.
00:12:58And quite often, these are priced in such a way that there's very little profit to be made on this goods.
00:13:08For whatever reason, at any given moment, they make a policy decision.
00:13:11I've been very angry and cussed a lot and been very upset.
00:13:15But that's how the cookie crumbles.
00:13:19I have no options.
00:13:21What can you do when that happens?
00:13:23Just cuss and fret and look forward to the next, the things will change at the next night.
00:13:30Can you leave all that on the table and say, I'm just, I'm not interested.
00:13:33I'm not going to make a profit this month. Can you do that?
00:13:40I told you on the way over here, we can leave some of the specials.
00:13:45But it's just, it's not in the, we just don't leave the regular goods.
00:13:49Somehow it's, it's, it doesn't work that way.
00:14:02On a hill in Johannesburg, South Africa is the private estate of the family that controls the Diamond Empire.
00:14:09These are the Oppenheimers.
00:14:12In two generations, they have built one of the most powerful industrial cartels of the 20th century.
00:14:19The Diamond Cartel has lasted for 70 years and shows no sign of weakening.
00:14:24What makes this cartel different is it's controlled by a single company, a single commercial organization.
00:14:32And that's De Beers.
00:14:34And De Beers itself is controlled by another South African company, Anglo American.
00:14:38Interestingly, Anglo American is controlled by De Beers.
00:14:42And that interlocking ownership is what allows one small family company,
00:14:48E. Oppenheimers & Sons, who own just a small shareholding in Anglo American to control the whole edifice.
00:14:53The Diamond Mines of Southern Africa are the heart of the Diamond Empire.
00:15:09Diamonds are crystals of carbon formed in the heat and pressure 1200 miles below ground.
00:15:18Where volcanoes have brought them to the surface, they can be dug out of the rock.
00:15:22But many have been washed down rivers to the sea.
00:15:27And these, the alluvial diamonds, can be picked up along the riverbeds and shorelines.
00:15:38Sand and gravel are brushed out of the crevices.
00:15:42Or scooped in huge quantities out of the hillside.
00:15:45And the rough diamonds are simply sorted out from the rest.
00:15:50There are extinct volcanoes throughout Africa, Asia, Russia, Australia, and America.
00:15:57And they are littered with diamonds.
00:16:00For a commodity which sells at thousands of dollars a carat,
00:16:04the supply seems truly staggering.
00:16:08Diamonds can even be picked out of these shallow waters along the African coast.
00:16:15You can go to other coastlines and expect to find a few diamonds, but I think you can't build up a scenario that's as optimistic as one can build up for the west coast of South Africa.
00:16:30If you look at what's on the land, and there's three or four raised beaches on land that have produced more than a hundred million carats of diamonds.
00:16:37In one of our concessions alone, and it's not one of the bigger concessions, we have mapped 22 beach levels.
00:16:47So you're again going to come out to a number which is of the order of a billion carats or in excess of that.
00:16:53Because diamonds are so plentiful, it makes De Beers virtual monopoly an astonishing feat.
00:17:05Its history begins at Kimberley, South Africa in 1871.
00:17:11Until that year, mines had been few, and diamonds truly rare, mostly from India and Brazil.
00:17:21But the Kimberley find was huge.
00:17:26Among those who rushed to make their fortunes were two young Englishmen.
00:17:30Charles Dunnell Rudd, my great-grandfather, and Cecil Rhodes met here in October 1871.
00:17:38They were early in the rush here, and they would have found a anthill, a mining camp,
00:17:47and as Rhodes described it as stilt and cheese, as the claim holders dug down into this enormous dominiferous kimberlite pipe.
00:17:58But their eyes were more directed towards De Beers mine, which is about a mile over the horizon there.
00:18:07And that's where they dealt with the farmer De Beers, and they bought that farm out for 6,000 pounds.
00:18:16The thoughts of Rhodes immediately began to concentrate on the amalgamation of all these individual claim holders.
00:18:27And by 1880, he had amalgamated all the claim holders on his mine, the De Beers mine.
00:18:37And that began the amalgamation of all the diamond mines, and the formation of De Beers' consolidated mines began in 1888.
00:18:49What Cecil Rhodes had launched was a diamond cartel.
00:18:55It was based on an earlier French scheme to monopolize copper, buying up mines, restricting supply, and raising prices.
00:19:02From its first headquarters in Kimberley, De Beers bought out almost every other large mine in South Africa.
00:19:10But shortly before the First World War, diamonds were found over the border to the north in German Southwest Africa.
00:19:17A young German-born diamond dealer in South Africa went there to investigate.
00:19:24His name was Ernest Oppenheimer.
00:19:27Ernest Oppenheimer in 1914, two months before the outbreak of war, went there to survey the territory.
00:19:36And came back with a report that was mind-boggling and subsequently hidden from the public.
00:19:44The fact that this was the richest diamond field in the history of the world.
00:19:49It was an alluvial field, meaning diamonds were on the surface, you could go pick them up.
00:19:55And in fact, they put what they termed back then natives, black natives, each put a tin can around their neck.
00:20:04And they lined them up, and they get on their hands and knees, and they just pink, pink, pink, put the diamonds into the tin cans as they walked on their hands and knees.
00:20:15This is how rich the fields were.
00:20:18Oppenheimer saw an opportunity and seized it.
00:20:21The German landowners, afraid of expropriation as World War I came to an end, agreed to merge their companies with his.
00:20:31Because both British investors and American financier JP Morgan had stock in his venture, Oppenheimer called his company the Anglo-American Corporation.
00:20:40Within a few years, it was clear that he had landed a supply of diamonds to rival even the mines owned by De Beers.
00:20:49Coming into the 1920s, Ernest Oppenheimer then said to De Beers, who controlled, for the most part, the diamond syndicate, diamond cartel.
00:21:02He said to them, listen, I am going to flood the world market unless you make me chairman of the company.
00:21:11And in 1929, he was made chairman of De Beers.
00:21:14That is the basis of the Oppenheimer fortune.
00:21:23Oppenheimer's mine, a private estate three times the size of New Jersey, became an exclusive territory known as the Forbidden Zone.
00:21:33It was the bedrock of the worldwide De Beers diamond empire which the Oppenheimers began to build.
00:21:39The true genius of diamonds came through the Oppenheimer family and came even with Harry Oppenheimer, who is running it today, where they realized that diamonds, as originally conceived, coming from only three or four mines, was wrong.
00:21:58The diamonds existed everywhere in the world, everywhere where there's carbon, which is everywhere you find diamonds.
00:22:10Most every famous diamond in the world is represented in this case.
00:22:13They are worth many millions of dollars and trails of blood.
00:22:16While the public continued to imagine that diamonds were rare and romantic, De Beers was mining enormous quantities.
00:22:24Ernest Oppenheimer saw that more huge fines might force prices to go plummeting downwards.
00:22:29In 1930, a De Beers mining engineer warned,
00:22:32the diamond market is dependent for its smooth function on the maintenance of the illusion in the minds of the general public that the diamond is a rare and valuable stone.
00:22:44A De Beers director agreed, for goodness sake, keep out of the newspapers in Parliament the quantity of diamonds that can be produced and put on the market.
00:22:54But as the colonies developed, diamonds began turning up all over Africa.
00:23:03Local people knew where to find them.
00:23:08Eddie Fortune is one of the small claim miners in South Africa.
00:23:13In the year 1931, in the morning I used to leave chimney three o'clock per bicycle.
00:23:18And then I used to ride about 31 miles.
00:23:21I had a little shack out on the diggings and I used to work there.
00:23:26I didn't have trouble selling diamonds because my quality was very good.
00:23:30It was very big demand.
00:23:32I never found a big diamond.
00:23:33The biggest I found was a 38 carat.
00:23:37But small diamonds, the medium size is 10s, 12s, 15s, plenty of them.
00:23:42To keep control, De Beers had to prevent the little mines from putting too many diamonds on the market.
00:23:55The simplest answer was to buy them up.
00:24:01Certain companies came and they bought out the small diggers, you see.
00:24:04That's how they developed and became a big company, De Beers.
00:24:15But alluvial diamonds, washed along the river banks, were much more difficult to control.
00:24:21A film inspired by De Beers in the 1950s portrayed its adventurous young traders setting up buying offices in the jungle.
00:24:29These young graduates, Oxford graduates, basically a buying office was them, a bunch of porters with food on their head and a cash box on their head.
00:24:42And they put a box down the middle of a clearing and they'd start buying diamonds in the local currency.
00:24:47So they'd ship in all these guys to do this, to prevent smuggling.
00:25:00There is always a competition between the Anglo American De Beers group and other dealers all over the world for a bigger slice in the world diamond markets.
00:25:13And this did not suit Anglo American. They wanted the whole trade for themselves.
00:25:20Fuad Kamil claims he contracted to work as a detective for the cartel in the 1950s and 60s, investigating unlicensed diamond dealing and smuggling from its mines.
00:25:33Diamonds going out of Sierra Leone and other African diamond markets were going to what Anglo American described as black markets.
00:25:46That is Antwerp, Amsterdam, Germany, some parts of the United States and Israel.
00:25:52And Israel.
00:25:53Now, these people were labeled black markets by Anglo American.
00:25:59But in their own countries, they were respectable diamond dealers.
00:26:07To get information, Kamil says he broke the law and even kidnapped people who fell under suspicion.
00:26:13And those that had diamonds, I took them as prisoners.
00:26:20I interrogated them, got information from them.
00:26:25I kept them as long as I wanted, week to week, some of the months, and released them when I wanted.
00:26:33There was beatings, there was punishments without food.
00:26:42We did everything we could to extort the information from them.
00:26:47There was a stage where no one dared to pass from there, diamonds or no diamonds.
00:26:54So to put it bluntly, we were a terrorist group.
00:26:57That's what it amounts to.
00:27:01The cartel denies that Kamil worked for either De Beers or Anglo American,
00:27:07and says his accusations are part of a vendetta against them.
00:27:14By the 1950s, the diamond cartel had amassed enormous power,
00:27:19taking control of diamonds at the source,
00:27:21making deals with colonial powers,
00:27:25building its network mind by mind, country by country.
00:27:34The 30th of June 1960, this was a city of radiant joy,
00:27:38as the people celebrated Congo Independence Day,
00:27:42a happy occasion full of bright hope.
00:27:44In the 1960s, the rise of African nationalism presented new challenges to the cartel.
00:27:56The army of the young republic marches back.
00:27:59The Congo's first democratically elected leader, Patrice Lumumba,
00:28:03was critical of the colonial mining arrangements,
00:28:06and the local Belgian mining company supported army actions against him.
00:28:10A new chapter begins in the dark and tragic history of the Congo...
00:28:20The coup against the leftist leader was backed by the CIA,
00:28:24and it ended in Lumumba's murder.
00:28:27Colonel Mobutu, taken to Mobutu's headquarters...
00:28:29Mobutu Sesiseko emerged as the dictator of what became Zaire.
00:28:34At first, he too sounded like an African nationalist.
00:28:37Mobutu had made what seemed like very left-wing radical statements,
00:28:43talking about the colonial exploiters threatening to nationalize all sorts of foreign mining property.
00:28:49And in flies American businessman Maurice Templesman.
00:28:53Maurice Templesman is an independent diamond dealer and a key intermediary for De Beers.
00:28:58When a matter of, oh, ten days,
00:29:02Maurice Templesman holds consultations in Brussels with key officials,
00:29:07meets with the U.S. Embassy in Kinshasa,
00:29:12has consultations with the U.S. State Department,
00:29:15speaks with Mobutu,
00:29:17flies on to go meet with Mr. Oppenheimer of De Beers in South Africa,
00:29:22in what, according to what is certainly shown by a number of declassified U.S. State Department documents,
00:29:31to be an attempt to stitch together a relationship between the De Beers Empire and the Mobutu regime.
00:29:39So, it's very clear that from the very beginning of the Mobutu regime,
00:29:44Templesman had an important role in, to put it most charitably,
00:29:49advising and guiding Mobutu on how to deal with companies like De Beers.
00:29:55The Oppenheimers, through Templesman,
00:29:58arranged to have the exclusive supply of diamonds shipped to their offices in London.
00:30:02De Beers has done well on Zaire's diamonds.
00:30:13So has President Mobutu.
00:30:18For many years, there was a pattern and a practice whereby, at regular intervals,
00:30:25Mobutu would send some of his agents to Miba, the diamond company,
00:30:30to take a look at the most recent production,
00:30:34and to select out the best gem-quality stones to be flown off,
00:30:41presumably to be sold for his account in Antwerp.
00:30:47Madame Mobutu also has an eye for diamonds.
00:30:50This is somebody who's traveling on a diplomatic passport,
00:30:54who just gets whisked right through customs, doesn't get stopped.
00:30:57However, there was one occasion a few years ago, when Madame Mobutu went off to Belgium,
00:31:03and she forgot some of her luggage.
00:31:06She sent her secretary, apparently, back to Kinshasa, or back to Gabatelit,
00:31:10where Mobutu has his main palace, to get the luggage.
00:31:13The secretary went into customs, didn't show the right kind of documents,
00:31:17was stopped and inspected, and, according to the Belgian reports,
00:31:20was found carrying six million dollars worth of diamonds.
00:31:24You just need one word. The word is kleptocracy.
00:31:28I'm not the person who invented that word, I wish I did,
00:31:32but it's been used by political scientists to describe governments
00:31:39whose fundamental organizing principle is one of theft.
00:31:43Mobutu spends huge sums on an army to keep himself in power.
00:31:53He himself is one of the richest men in Africa,
00:31:56while his people are among the poorest.
00:31:58Zaire has substantial diamond resources, as well as other mineral resources,
00:32:05and the revenues generated from those resources
00:32:09could have gone to benefit the Zairean people, and they haven't.
00:32:15The revenues have gone for two purposes.
00:32:18They've either been siphoned off to Mobutu's private bank accounts,
00:32:20or they've been used to provide benefits for foreign governments or foreign companies,
00:32:29in the hope that those foreign governments and foreign companies
00:32:33will then be supportive of Mobutu and help him remain in power.
00:32:36I mean, essentially, Mobutu's used the wealth of Zaire for two purposes,
00:32:41to enrich himself and to enrich his foreign supporters.
00:32:45Despite De Beers deal with Zaire,
00:32:51some mines in the country are beyond its control.
00:32:54These wildcat miners are fighting over a new claim.
00:32:58The diamonds they find will likely be smuggled out of the country
00:33:02to the few markets the cartel still doesn't control.
00:33:04You're talking about a country which is certainly one of the two largest diamond producers in the world,
00:33:20where you have this wild west kind of atmosphere,
00:33:24and looking at it from the outside, I would guess that this is the most difficult relationship over the years,
00:33:31that a company like De Beers could have with an African government.
00:33:36This is an area of intense digging in Kapamba.
00:33:40In neighboring Angola, regulated diamond mining is a casualty of its devastating civil war.
00:33:46In 1992, wildcat miners there swarmed the diamond-rich dry riverbeds,
00:33:52picking up small fortunes in alluvial diamonds.
00:33:54De Beers has spent an estimated half-billion dollars to keep them from flooding the market and depressing prices.
00:34:02Stripping and removing the ore.
00:34:06Each time diamonds are found in an inconvenient place,
00:34:11they begin the diamond cartel through intermediaries, through law firms they hire,
00:34:16ways to think, how can we prevent these diamonds from reaching the market?
00:34:23And declaring something a national park, tying things up in litigation.
00:34:29These are just the methods, and there's an infinite number of different methods you could use
00:34:35once you understand what the objective is.
00:34:38The objective is to prevent mines from being developed that are outside their control.
00:34:44Murfreesboro, in southwest Arkansas, is the home of America's only diamond mine.
00:34:55At the inauguration, Hillary Clinton wore a diamond found in this mine,
00:35:01which was discovered at the turn of the century.
00:35:03But today, the 100-acre site is mined only by tourists and amateur prospectors.
00:35:08Commercial mining was abandoned here in the 1920s, even though geological surveys showed the mine had great promise.
00:35:18The Justice Department investigated allegations that Ernest Oppenheimer had illegally influenced the closing of the mine
00:35:26to keep its diamonds off the market.
00:35:28Okay, we're going to get out of here and see what it's going to go for.
00:35:37According to the Justice Department records, Sam Rayburn and other principals of the Arkansas Diamond Corporation met in the office of J.P. Morgan.
00:35:48In attendance to that meeting was Sir Ernest Oppenheimer.
00:35:54As a result of that meeting, what transpired is unknown, but the mine superintendent was telegrammed to shut the mine down and prepare it for a sustained closure.
00:36:09And as a result, major operations never resumed at the Arkansas Diamond Mining Plant.
00:36:20The Justice Department was unable to determine whether the mine had been closed illegally or simply because it was unprofitable.
00:36:27But in 1992, a new preliminary geological study indicated the mine may in fact have commercial potential.
00:36:36Like most deposits, it will produce few gemstones, but many smaller stones could be found.
00:36:43They are important because they're used in cutting tools.
00:36:47Industrial diamonds are a multi-billion dollar business in their own right.
00:36:51Got one, Mr. Fred.
00:37:00Got one.
00:37:02It's yellow.
00:37:08Light yellow.
00:37:11Like a triangle.
00:37:14Triangle in shape.
00:37:15Yeah.
00:37:16I'm going to dig a hole right next to it.
00:37:20Industrial diamonds have a strategic importance because they're used in the making of weapons.
00:37:26After the Arkansas mine closed, it meant that the U.S. military depended, like everyone else, on De Beers in London.
00:37:34When the Second World War started and Britain was faced with Nazi occupation,
00:37:38American strategists wanted to transfer a stockpile of diamonds to this side of the Atlantic, but De Beers hesitated.
00:37:48The story of De Beers during World War II was truly shameful when they denied the United States, which was an ally of Great Britain and an ally of South Africa in prosecuting the war.
00:38:05When it denied the U.S. free access to required quantities of industrial diamonds.
00:38:24Defense production in factory and arsenal begins far behind the assembly line.
00:38:27Apparently fearful that diamond prices would fall if a military stockpile were sold off after the war, the Oppenheimers refused to allow any diamonds out of their control.
00:38:38De Beers claims it was only following the advice of the British government, but the cartel's actions were criticized by the U.S. Justice Department.
00:38:45Only after complicated arrangements where the Beers insisted on retaining control of those industrial diamonds by placing the supply organization in Canada was some accommodation reached so that the United States could obtain the quantities of industrial diamonds needed for the war effort on its own behalf and the behalf of its allies.
00:39:12Meanwhile, however, the Nazis did appear to be getting a steady supply of diamonds and the Americans were very concerned to find out where they came from.
00:39:25We were able to get documents, secret documents declassified from the National Archives in Washington that describe the investigation that they mounted into smuggling of diamonds out of the Congo.
00:39:40A U.S. intelligence officer, Henry Lee Staples, led the American investigation into the smuggling.
00:39:45Before he died, he worked with his son on a memoir of those days.
00:39:51He had assigned an agent, Teton, was his code name, and he had, through whatever means those agents have, determined that the largest source of leakage was the Formini air mine.
00:40:09And the diamonds that were leaked from the Formini air mine went to various points in Africa and from there were, by various routes, smuggled into Germany.
00:40:22Belgian Red Cross parcels were loaded with illegal diamonds and then sent to Switzerland and from Switzerland to Belgium, which was, of course, occupied by the German forces.
00:40:34The Allies knew that without the Congo stones, Hitler had only an eight-month supply of industrial diamonds.
00:40:41But their hardest task still lay ahead. How could the smuggling be stopped?
00:40:47The Formini air mine is, of course, one of the producers that is signed up in the cartel.
00:40:53Its production is exclusively marketed through the cartel. And indeed, the company which controls the mine, Sebeka, had as one of its principal shareholders, Ernest Oppenheimer.
00:41:06So that, as De Beers, they were faced with the problem of either shutting down their mines entirely so there'd be no leakage, or operating their mines and making profits, and leakage would be inevitable.
00:41:21And as they were a business, they elected to continue in the diamond business, even though it meant, inevitably, no matter what they did, and I'm not sure they did that much, but no matter what they did, diamonds would get through.
00:41:37It was impossible to stop diamonds from getting to Hitler. And what the diamond cartel then tried to do is prevent any investigation which would have revealed the very embarrassing reality that diamonds were getting to Hitler.
00:41:55The investigation was terminated, and the agent, Teaton, was convinced the investigation was terminated as a result of influence by the cartel on the British government.
00:42:07We were able to obtain declassified documents in Washington showing his cables complaining that his investigation had been apported early.
00:42:16In its extensive investigation of the cartel's behavior during World War II, the Justice Department also concluded De Beers had overcharged the United States for the industrial diamonds it did supply.
00:42:30One U.S. official complained,
00:42:32This form of profiteering is the more obnoxious because it has been accompanied by pious public professions of sacrifice and patriotic foregoing of profit.
00:42:43And De Beers' wartime advertising did appeal to American patriotism.
00:42:48Buy our gems, the ad said, because they pay for mining, which produces the industrial diamonds America needs to win the war.
00:42:55I was born three billion years ago, of fire and light.
00:43:06Cornering the world's supply of diamonds was a stunning achievement.
00:43:10No less extraordinary was the cartel's success in creating a demand for its huge stockpile of diamonds.
00:43:15Who am I? The eternal gift of love between man and woman. I am a diamond. I am forever.
00:43:29The De Beers campaign is probably one of the most successful campaigns.
00:43:34I mean, measured in terms of the growth in the market.
00:43:37In the 1930s, they were selling a rather insignificant amount of diamonds in America.
00:43:44By the early 80s, they were selling close to two billion dollars worth.
00:43:52De Beers first targeted American consumers through the movies.
00:43:55And they opened a Hollywood office. And in the Hollywood office, they would give out diamonds to producers.
00:44:05In return for them, putting the diamonds in the film in a way that was considered very favorable.
00:44:14Now, what was considered favorable was very simple. Surprise.
00:44:17If a woman was brought in on the decision, she might have a lot of ideas of what she wanted.
00:44:25So what they wanted to do is create the idea that the man had to surprise the woman and present her with a diamond.
00:44:36And now for the important question I wanted to ask you.
00:44:39Well, it's about time. I'm dying of curiosity.
00:44:41You know I'm madly in love with you. I want you to marry me, Lily.
00:44:45You're in love with me too, aren't you?
00:44:48Well, if I'm not, then I'm afraid I don't know what love is.
00:44:52Here's your engagement present, darling.
00:44:55Oh, Jeffrey, it's beautiful.
00:45:00Well, that's Milo.
00:45:02Milo?
00:45:04Yes, he's wondering what's taking us so long.
00:45:06Wouldn't he be surprised if he knew?
00:45:08I doubt if he'd be surprised at anything.
00:45:10Not only are we talking about what is a familiar process today of planting products in films.
00:45:17We've all heard of the product endorsements and that sort of thing.
00:45:20But we're talking about Hollywood in its golden age, where entire movies were created.
00:45:27They identified the biggest stars, actresses of that period, and they never appeared in public without their De Beers diamonds.
00:45:35Clodet Colbert and Merle Oberon were given special scenes to show off their De Beers diamonds.
00:45:49Diamonds are dangerous was conveniently retitled Adventure in Diamonds.
00:45:56But De Beers aimed even higher than Hollywood.
00:45:59The British Royal Family was another idea of what, in the American mind, represented the ultimate in how you should behave and how you should behave aristocratically and well.
00:46:15And, of course, the British Royal Family was more than willing to go along because diamonds came from British colonies.
00:46:28From this, the largest man-made hole in the world, over 100 million pounds worth of diamonds have been recovered.
00:46:37In the De Beers sorting room, 3 million pounds worth of rough diamonds were on view.
00:46:42The Royal Family was lobbied heavily and successfully so, so that the English royalty, Queen Elizabeth, started wearing diamonds, you know, and she basically left all of her other gems off.
00:46:55That's a tremendous coup for a public relations agent to get the Royal Family to essentially become sales agents.
00:47:02Caskets made of Kimberley blue ground, embossed with coronets, contained a six-carat stone for Princess Elizabeth and a four-and-a-half-carat diamond for Princess Margaret.
00:47:13Where's Margaret?
00:47:17You must travel back in time one billion years to witness its birth.
00:47:22De Beers' advertising set its diamonds in worlds of glamour and royalty.
00:47:28But its best-known slogan arose out of the fear that sales would be undercut if people began putting second-hand jewelry on the market.
00:47:35It is rare.
00:47:36So they had to create the idea that, one, you should never sell a diamond, even though its value would only increase.
00:47:44And secondly, that people should store and hoard these diamonds.
00:47:49So the whole idea that a diamond is forever is really their desperate hope that people will hold diamonds forever.
00:47:57It is love, and its only promise is forever.
00:48:02We're planning to attract your customer by building on our Rites of Passage program.
00:48:08In its message to dealers, De Beers reveals its key marketing strategy is to convince consumers to buy diamonds for every romantic milestone.
00:48:19Let's start with your bread and butter.
00:48:22The support behind the Rites of Passage, the Diamond Engagement Ring, Diamond Anniversary Band, and the 25th Anniversary Diamond.
00:48:30Our goal is to make diamonds a cultural imperative for all these important occasions in a woman's life.
00:48:36That's why we are continuing to support these segments so that newer products like the Diamond Anniversary Band and the 25th Anniversary Diamond will become as obligatory as the Diamond Engagement Ring, bringing your customers back again and again.
00:48:50Nobody's aware that diamonds and all the associations we have with diamonds is a product of a marketing strategy that's completely invisible, transparent.
00:49:00If you measured in terms of how all the myths associated with this advertising campaign have been deeply inculcated in people, it's reached deeply into the popular imagination, this is probably the most successful campaign in history.
00:49:15That's what we're here for, to respond to your requests and to help you sell more diamonds.
00:49:22De Beers' control of African stones and American consumers made it one of the most successful cartels in history.
00:49:37But it would face new challenges as diamond mines were discovered around the world.
00:49:41In the 1950s, diamonds were found in a place where neither South Africans nor Americans could easily do business, in Siberia.
00:49:54In 1947, geological prospecting parties entered the Yakutian Taiga.
00:50:00Will this daring hypothesis be confirmed or not?
00:50:03The answer was given after seven years of persevering search.
00:50:15Yakut diamonds.
00:50:20If the Russians had dumped their diamonds on the market, it might have put an end to the cartel.
00:50:25But in 1957, while De Beers was very publicly opening a new building for its central selling organization in London, the Oppenheimers were very privately beginning to do business with the Russians.
00:50:40Workers gaze with pride at what they have accomplished.
00:50:44Russian diamond production was a problem for the cartel.
00:50:55Russia, the communists, were anathema to the South Africans.
00:51:00Equally, the South Africans were an anathema to the Russians.
00:51:04This created a problem for the cartel because they couldn't be seen to be dealing with the Soviet diamond production.
00:51:11The cartel is an operation that's well used to cloaking their business operations in mystery.
00:51:18They simply set up a separate operation owned by a UK merchant bank across the street from their offices.
00:51:25The diamonds would appear to have found their way into the central selling organization without a problem.
00:51:30By the 1980s, Russian diamonds were pouring quietly through London into the market.
00:51:35Harry Oppenheimer's son-in-law was seen at the Bolshoi.
00:51:40Officially coming from South Africa, he could not even have had an entry visa.
00:51:45Can I ask you?
00:51:46No, no, thank you very much.
00:51:49Can I ask you what you were doing in Moscow, please?
00:51:52No, I'll just go away, you're being thoroughly unreasonable.
00:51:55You spoke to me politely and I said, no, I have nothing to say.
00:51:58Thank you very much.
00:51:59Do you not think it's interesting?
00:52:01I have nothing to say.
00:52:03Were you just there for the ballet?
00:52:04The other interesting feature of the Russian diamond production was that there was an extraordinary large proportion of medium sized stones in the quarter to half carat size.
00:52:21De Beers then came up with perhaps one of the great new product inventions in jewelry history, the eternity ring, a ring that was designed to use up this excessive production of those sized stones.
00:52:38And it is perhaps amusing to think that at the height of the Cold War, the eternity ring that was being so successfully marketed in America was filled with stones from Siberia.
00:52:53As the Soviet Union became an important source of small stones, the problem for the diamond industry became finding cutters willing to work for low enough wages to make these stones profitable.
00:53:05India soon developed into the world's greatest cutting center.
00:53:12There are 750,000 cutters in workshops around Surat, perhaps 100,000 of them children under 13.
00:53:24They place 58 exact cuts on a diamond less than half a carat, smaller than a broken pencil lead.
00:53:31Many children work a 12 hour a day, six days a week.
00:53:36They earn four cents a stone.
00:53:38The Indian diamonds have made it possible to make low price jewelry.
00:53:43It looks like a lot.
00:53:45It's called more flash for less cash.
00:53:48This is the expression that's used in the industry.
00:53:51And this seems to be the trend.
00:53:52We perceive popular retail price points to top out at about $500.
00:53:59This is what most of our customers are demanding now.
00:54:02And starting as low as $75, $80.
00:54:06We just got in some new samples today.
00:54:09These are examples.
00:54:11Here's a ring that sells for $70.
00:54:12There's $2 worth of diamond in this ring.
00:54:16But the fact that we can market it as an article with a genuine diamond makes it more saleable.
00:54:23Here's another ring.
00:54:25This is a $90 ring.
00:54:27There's a dollar diamond in here.
00:54:29It's a white finish that makes it appear like diamonds.
00:54:32There's only one diamond in the center.
00:54:33When diamonds were discovered in 1979 at Australia's Ashton Mine, the cartel machinery mobilized once again to bring this new find, the largest ever, into the fold.
00:54:55Until then, the cartel had co-opted diamond sources largely in Russia and African countries.
00:55:01Could they repeat the success in a country that was modern and democratic?
00:55:07The Ashton project certainly had huge reserves which, if it had gone into independent hands, would certainly have challenged to be as a monopoly.
00:55:16Now, I know that the Indian government had made representations to Australia to take over the marketing.
00:55:22I myself met with one independent diamond trader who was visiting from London.
00:55:28And he was also putting in his bid and trying to persuade the Australian government that, in fact, as I said, there were enormous benefits for Australia and it was not in the interest to further reinforce a monopoly.
00:55:42But De Beers pressured Australia by threatening to reduce diamond prices in the categories of stones the new mine would produce.
00:55:50At the same time, the Oppenheimers bought stock in key Australian companies.
00:55:55De Beers chairman, Harry Oppenheimer, flew into cement alliances and the cartel began to lobby the government and mold public opinion.
00:56:05Many Australian journalists were invited to South Africa sponsored by De Beers to go on, I suppose, tours which were meant to promote De Beers image and soften the impact of De Beers penetration into the Australian economy.
00:56:25And soon after those tours took place, it became quite evident in the Australian media, mainly through the newspapers, that there was a very pro CSO approach being adopted by the media.
00:56:40So I think De Beers strategy worked quite well in that they'd softened up the Australian media and the media reciprocated by promoting very favorable stories to the De Beers takeover of the Ashton project.
00:56:52After a major political battle, the cartels scored a crucial victory.
00:56:59The bulk of Australia's output, mainly industrial grade and small gemstones, would flow through the cartels central selling organization in London.
00:57:09A small number of rare gemstones known as the Argyle pinks were Australia's own to market independently.
00:57:17They produce a variety of colors, which is very unique to this mine and out of the 36 million carats come some of the rarest diamonds in the world.
00:57:28The extraordinary thing is nature's thrown up these freaks, which are just unique and special.
00:57:33And, you know, they're something that we're all madly trying to get a hold of, can't get enough of.
00:57:42If you look at this small, very intense pink from Argyle and it's only, I think it's about 18 points, and then you compare it against this two character from Argyle, the two character is worth about $22,000.
00:57:59Now, if we could superimpose that color on that small pink into that two character, that two character would be worth at least a million dollars in today's market.
00:58:11Now, Argyle only gets maybe three, four, five of those stands a year maximum out of, remember, 35, 36 million carats of diamonds.
00:58:20The De Beers operation is essentially the control of the production of diamonds.
00:58:27They control the chain of supply of diamonds, and that's the way in which they control the diamond market.
00:58:35If somebody were to try to go around the cartel, the concern that they would have to have is how long it would last.
00:58:44Because, of course, De Beers in the past has been very successful at bringing all the producers into the cartel.
00:58:53Today, a century after it began, the diamond cartel still controls the production, the marketing, and the pricing of rough diamonds around the world.
00:59:12But that world is changing, and there are new threats to the Oppenheimer's dominance of the diamond trade.
00:59:17In its largest market, the United States, the cartel cannot operate openly.
00:59:32Its monopolistic control of the worldwide diamond trade violates U.S. antitrust laws.
00:59:37Section one of the Sherman Act says every contract combination or conspiracy in restraint of trade is hereby declared to be unlawful.
00:59:48The Sherman Act, in effect, says that as long as you have enough competitors and as long as they act independently, the public interest will be protected.
01:00:01But once you have conspiracy among them, the public interest will be undermined.
01:00:08Four times since the 1940s, the U.S. government has investigated De Beers and its associates under the Sherman Act.
01:00:16But bringing a South African company to American justice has proved almost impossible.
01:00:21We hired a South African solicitor to serve a notice on De Beers in South Africa.
01:00:29It took a while to get any South African lawyer who was willing to even serve the paper.
01:00:36Eventually, one agreed, and he wrote us an affidavit of his experience, which was that he took the court paper and took it to De Beers,
01:00:48and that the De Beers representative took the paper, ripped it into small shreds, threw it on the ground and stamped on it and then basically threw him out.
01:00:58And the cartel has successfully kept its executives beyond the reach of American justice.
01:01:04I'll tell you, when the red flag goes up from their lawyers, these guys are not allowed to set foot in the U.S.
01:01:10Name goes on a computer, beep, beep, beep, beep, beep, beep.
01:01:14I'm sorry, sir, we have to subpoena you.
01:01:17And under a subpoena in the U.S., you have no rights.
01:01:23You have to tell everything.
01:01:25You cannot lie.
01:01:27You cannot plead irrelevance.
01:01:29It's for them to decide what's irrelevant.
01:01:31It's not like a court where you have certain rights.
01:01:33And so on occasion, when I interview these guys, they always tell me, Al, Al, the best exit from the U.S. is always Chicago's O'Hara Airport.
01:01:44That's where we're ordered to get to immediately because they're the laxest in terms of immigration.
01:01:48We can get right out of the country.
01:01:49While a subsidiary once paid a nominal fine, De Beers has avoided prosecution in the U.S.
01:01:56Not only has the Justice Department found it impossible to touch the Oppenheimers in South Africa,
01:02:02it has been unable to penetrate the cartel's respectable London operation.
01:02:06It's well known that the British government has historically been vigorously opposed to any U.S. enforcement of antitrust laws
01:02:15against activity that takes place in Great Britain.
01:02:20And as we know, a great deal of what De Beers does takes place in Great Britain.
01:02:26Now, the United States has been extending its reach outside its boundaries,
01:02:34sort of as we have done by seizing General Noriega in Panama and prosecuting him with American laws.
01:02:40We've been doing this more and more.
01:02:43And I don't think it's inconceivable that at a certain point the fiction that the American diamond industry,
01:02:52the stores that sell and the merchants that sell the diamonds and sell most of the diamonds in the world
01:03:00and sell them to American customers, the idea that De Beers is not acting in cahoots with them in America by putting rules on them in London,
01:03:12then I think that fairly soon the Department of Justice will come to the idea that even though the diamonds are handed over in London,
01:03:21they're handed over with rules and stipulations which mean that De Beers is operating in the American market.
01:03:28And De Beers could be tried if they came to that decision, which I think is eventually they will.
01:03:35And the Justice Department may now be closing in on one alleged De Beers operation.
01:03:40Synthetic diamonds were developed long ago for use in industry. De Beers has its own factory in Ireland.
01:03:51Its biggest international rival is General Electric.
01:03:55The Sherman Act strictly limits how two giants like De Beers and GE can work together.
01:04:00But the relationship they developed in the 80s has been brought into question.
01:04:06GE developed this process for making a pure C-12 diamond.
01:04:11And I was widely quoted in the international press that this would be a several hundred million dollar opportunity for us.
01:04:20But to do it we had to grow gemstones.
01:04:23And we started a process for growing gemstones.
01:04:26And after a short period of time, we were making gemstones, three to four carats, flawless ease, which is a very high grade of diamonds.
01:04:39And because we were growing them synthetically, we had a number of advantages.
01:04:45We could make them all the same size and you could call them, you can make them blues.
01:04:50So you're very easy to grow a three or four carat blue diamond.
01:04:53Once having established our technical capability to do that, we started to look at the four billion dollar gemstone market.
01:05:02But as soon as Ed Russell began to edge beyond industrials and towards the valuable market for gems,
01:05:09he ran into resistance within GE from his own immediate boss.
01:05:13Glenn Heiner, who was at this time meeting with De Beers on a regular basis and having phone calls and what have you,
01:05:21simply killed the project and said we will not compete with De Beers, period.
01:05:26Soon afterwards, Ed Russell was fired.
01:05:31He's now suing GE for wrongful discharge and alleging it is involved in a cartel with De Beers.
01:05:36What happened after I was terminated, a price increase on all industrial diamond products was put in by GE and De Beers.
01:05:47They followed each other at identical prices that were implemented.
01:05:51In his lawsuit, Russell claims GE fired him for blowing the whistle about its dealings with De Beers.
01:06:01The Justice Department has investigated and for more than a year, a federal grand jury has been hearing evidence on the price fixing allegation.
01:06:09General Electric denies any wrongdoing, saying it met with De Beers only to discuss exchanging technology and fired Russell because of his poor job performance.
01:06:21Back in South Africa, still the center of its power, the diamond cartel is also dealing with a political earthquake.
01:06:41What impact will the dismantling of apartheid have on the De Beers monopoly?
01:06:48Harry Oppenheimer, the man who ran the cartel for 25 years, has been a long-time critic of the South African government's apartheid policy.
01:07:01There are more peaceful conditions in South Africa as a whole. We have to believe, and by our practice demonstrate, that the pursuit of business efficiency and the search for a free and just society are not contradictory objectives, but in fact two aspects of the same thing, two sides of one coin.
01:07:26He himself has publicly come out against apartheid on many occasions and continues to do so.
01:07:34I think the problem is, and this is where he's been criticised in the past, the problem is that the mining houses that he controlled made use of the migrant labour system.
01:07:46They made use of the compound system. They made use of the past laws. They made use of all the institutions which in fact created apartheid.
01:07:56So in that sense, people questioned why, on the one hand, does this man oppose apartheid, but on the other hand, he makes money out of apartheid.
01:08:08A hundred years ago, De Beers founder Cecil Rhodes laid the groundwork for the cartel's success in South Africa.
01:08:15Ironically, the famous empire builder in his commercial activities, turning the early diamond rush into a vast industry, sowed the seeds of apartheid.
01:08:24Particularly after they discovered the diamond mines, what they were looking for was to try and create a workforce for those mines.
01:08:33And the problem was that they needed unskilled workers, but the problem was that most of the available potential labour force were black people living on the land.
01:08:46And in order to get them into the mines, they had to find ways of forcing them off the land.
01:08:52And one of the mechanisms they adopted was passing various taxes, such as poll tax, hut tax, even a dog tax, which forced people living on the land to pay cash to the government.
01:09:06And they didn't have cash because they were not part of a cash economy.
01:09:09So they therefore had to go into the mines to earn the money to pay the taxes.
01:09:14In order to pay their taxes, many Africans had to leave their families behind and walk hundreds of miles to work in the mines.
01:09:33Once inside, a miner could not leave until his contract was over.
01:09:42De Beers closed compounds became the model for the entire mining industry in South Africa.
01:09:49By the 1960s, these compounds had expanded into enormous complexes housing thousands of men.
01:09:58When I arrived in the mine in 1968, I was quite appalled by the conditions for the migrant labourers.
01:10:04The working hours were long, the 60-hour week.
01:10:08The conditions under which they worked, well, they were out in the open.
01:10:13Very little protection against the cold and the wind.
01:10:17They weren't given much to eat.
01:10:18They were given half a loaf of brown bread and a flask of cold tea.
01:10:23They lasted them throughout that 10-hour shift.
01:10:25Conditions in the hostels were not much better.
01:10:29There were no decent dining facilities.
01:10:31They had to eat in their rooms out of aluminium buckets.
01:10:34There was no real privacy.
01:10:36The hostels themselves were not very nice places to be in single-sex hostels.
01:10:41Twenty people through a room in some instances.
01:10:44Many black miners still live in segregated compounds away from their families.
01:10:49In a country in which it is illegal to pick a diamond up off the ground and keep it,
01:10:54the miners' union claims workers can be dismissed merely on suspicion of stealing diamonds.
01:11:00But today, De Beers says everybody gets a proper hearing.
01:11:05Any employee who could actually buy a new car has been investigated.
01:11:12And people were dismissed summarily because they were suspected of dealing with diamonds.
01:11:17How can they buy a new car?
01:11:19So people were dismissed without a hearing.
01:11:22Not a proper hearing.
01:11:23Without an inquiry whatsoever.
01:11:25People were dismissed and the reasons given, which was there on paper, was security reason.
01:11:32And that cannot be followed up in terms of an appeal and so on.
01:11:35And our people were very afraid to take De Beers at a higher level
01:11:41because in our country De Beers is an umpire.
01:11:44Ironically, the revulsion of the world to the brutality of the apartheid government
01:11:57contributed to the growth of the Oppenheimer's power inside South Africa.
01:12:01When, in 1960, we had the Sharpeville massacre,
01:12:06a number of international companies in South Africa decided to get out of the country.
01:12:13And many investors also withdrew, overseas investors withdrew their investments from the stock exchange.
01:12:21Companies like Anglo-American and other large corporations then bought up the shares in the stock exchange
01:12:27in order to prevent the exchange from collapsing, which would have generated a financial crisis.
01:12:33Instead of possibly allowing a financial crisis, which would have then forced the government into more difficulties
01:12:41and perhaps brought about an earlier end to apartheid, they actively supported the economy
01:12:47and therefore gave the government a base from which it could protect itself.
01:12:53Companies in the Oppenheimer Empire include breweries, paper mills, chemicals, farms and businesses of every description.
01:13:05Today, the empire's interests represent up to 40% of the total value of the Johannesburg Stock Exchange.
01:13:19And now I'm going to press the button and let us see what happens.
01:13:23But as his empire grew, Harry Oppenheimer tried to separate his reputation from that of the pariah government in South Africa.
01:13:31This 1979 De Beers film showed Oppenheimer the reformer.
01:13:35In a decision taken by the De Beers company to move away so far as it was possible to do so and as quickly as possible from the system of migrant labor.
01:13:47We are moving away from that system and we are making a great effort.
01:13:53And I think a very successful effort to replace it by a system by which the workers in the mines will be permanently resident
01:14:03and will not be going backwards and forwards between the mines and their homes in quite different parts of the country.
01:14:11In spite of Oppenheimer's reforms, his early support of black labor unions and other liberal causes,
01:14:21he says he's been hesitant to use his business clout to influence the government's policies.
01:14:27He explained why in an interview with South African television.
01:14:31I think one's got to put this in two ways.
01:14:33I mean, there's my own position as an individual.
01:14:36I'd never believe that the government's policies are right, particularly in the racial field.
01:14:42But I also would think it quite wrong in my capacity as chairman of the Anglo-American Corporation,
01:14:49to use that position in order to try to press the government into views which I believe in, but they don't believe in.
01:14:59In a few months, Nelson Mandela will lead the black majority to power in South Africa.
01:15:09But as the election nears, the ANC is sending strong signals that it needs the support of the white business community.
01:15:16So what will the new South Africa mean for the diamond empire?
01:15:23Until there is legislation preventing the existence of these cartels, or until there's a major crack in the market, the cartel will survive.
01:15:33I do know that the ANC is thinking about antitrust legislation in South Africa for the future.
01:15:42But whether they would include a company like De Beers in that or not is an open question.
01:15:47Simply because De Beers is too powerful.
01:15:49If they were to include De Beers in that, and De Beers were to stop producing diamonds,
01:15:56it would be very serious for our economy.
01:15:58Another challenge to the cartel's power is the political unrest in the former Soviet Union.
01:16:09Boris Yeltsin is unhappy with the terms of a five-year De Beers contract signed by Mikhail Gorbachev.
01:16:16In 1992, the Russian parliament investigated an allegation that De Beers had undervalued Russian diamonds.
01:16:25I think it's difficult to estimate how much they lost actually with the bears.
01:16:32It could have very, very well been possible that if they would have sold the goods to somebody else,
01:16:38that they would have made also only the same price.
01:16:42There just wasn't anybody else who could get in.
01:16:46That's the difference.
01:16:48And that's where we go back to the monopoly.
01:16:51Evgeny Bichkov oversees the country's diamond stockpiles.
01:16:56It's in Russia's interests to get a good price and sell the goods in order to cover the expenses of mining and make a profit.
01:17:06And we're going to negotiate with De Beers about reducing this quota.
01:17:10Let us hope that a mutually beneficial solution will be found.
01:17:14Let us not approach these issues from the point of view of what if they say no.
01:17:23Russia has more leverage than other producers.
01:17:26Its diamond production is greater than South Africa's.
01:17:29Its deposits in the ground are immense.
01:17:32And its stockpiles may exceed even those of De Beers.
01:17:37Russia's instability and desperate need for hard currency are potentially devastating to De Beers.
01:17:44These millions of carats of diamonds, if suddenly dumped onto the market, could destroy the cartel.
01:17:51Two years ago, the Oppenheimers opened an office in Moscow.
01:17:58They seem to spare no effort to cement friendships and influence people in government circles.
01:18:04Trying to keep the Russians inside the cartel.
01:18:07And I'll show you the Uralse.
01:18:17Ladies and gentlemen, I'm extremely grateful to Julian Ogilvy Thompson.
01:18:28Despite all the forces that threatened the Diamond Empire,
01:18:32the cartel seems to approach these latest challenges with a serene confidence.
01:18:39I think you carry on with where you find yourself in life.
01:18:45I chose my father with discretion.
01:18:48And I found myself in a certain position.
01:18:51And I mean like the prayer book says,
01:18:54I have sought to do my duty in the station which it pleased the Lord to call me.
01:19:00After a century of maneuvers to control the supply and price of diamonds,
01:19:07the cartel's greatest accomplishment may be that it has transformed the illusion
01:19:12that diamonds are valuable into a hard reality.
01:19:16And the future of the Diamond Empire may now rest with the complicity of millions of consumers,
01:19:22all invested in the myth that diamonds will be valuable forever.
01:19:28Give her what our heart wants most, a diamond.
01:19:32People feel that a diamond is only desirable because it's a symbol of great sacrifice.
01:19:40A man will make a great sacrifice to a woman and take a portion of his wealth and buy a diamond.
01:19:47I know. You shouldn't have waited ten years for this.
01:19:51If a diamond cost relatively nothing, say five or ten dollars what a breakfast cost,
01:19:59it would have the same aesthetic value but not the same value in the imagination that it has.
01:20:06So people like spending a lot of money on diamonds.
01:20:09And I waited 25 years to give you this.
01:20:15The 25th anniversary diamond, a brilliant celebration of the loving marriage.
01:20:19I've got goosebumps.
01:20:20So, like all deception, the person who's deceived plays a part in the deception as well as the deceiver.
01:20:29It's not a one-person act.
01:20:31It's two people, the deceiver and the deceived act in collaboration.
01:20:37More profound than words, diamonds.
01:21:01Last July, Frontline examined the trial of daycare owner Bob Kelly, who was charged with sexual abuse of 12 children.
01:21:10His wife, Betsy, watched as he was convicted and sentenced to 12 consecutive life terms.
01:21:16...a first-degree sexual offense. Guilty. Guilty. Guilty. Guilty. Guilty.
01:21:23Eight months later, Don Wilson, who worked at the daycare and who had rejected a plea bargain, was also found guilty and sentenced to life.
01:21:31Betsy Kelly was to be tried next, at the end of this month in Edenton, North Carolina.
01:21:36This is Kelly.
01:21:38In the Frontline program, Innocence Lost, The Verdict, three of Bob Kelly's jurors said they did not believe he was guilty, and they were wrong to convict him.
01:21:47Roswell Streeter spoke for the three jurors.
01:21:50The evidence wasn't there. I didn't see any hard evidence.
01:21:53Dennis Ray voiced the opinion of the other nine jurors.
01:21:56Once I heard the actual things that went on, the evidence was there.
01:22:02Some jurors also told Frontline producer Ofra Backell that the jury behaved improperly in the deliberation room.
01:22:09It was not honest. It was contaminated. It was not fair. It didn't follow the judge's instructions.
01:22:16They claimed that outside information was brought into the jury room, including a Red Book magazine article describing a pedophile.
01:22:24That's what the article's about, a pedophile. And we wrote characteristics of a pedophile on the board, and in so many words, we diagnosed Bob Kelly as a pedophile.
01:22:35Well, the majority of the jury was diagnosed Bob as a pedophile.
01:22:39Last month, Robert Kelly was granted a hearing for a new trial based on jury misconduct.
01:22:45Nine jurors, including Dennis Ray, took the stand and swore that there was no outside information in the jury room.
01:22:52He also denied ever seeing Red Book magazine there, in spite of evidence showing he himself had taken notes from the magazine during deliberations.
01:23:01David Rudolph, Kelly's appeal lawyer, questioned Ray about his notes.
01:23:07A, excuse me?
01:23:10Sense of power.
01:23:11Sense of power.
01:23:12Yes, sir.
01:23:13Exactly what you had in your list, correct?
01:23:15Yes, sir.
01:23:16The only explanation you have for this is that it's an amazing coincidence?
01:23:21Yes, sir.
01:23:24Well, you had another explanation for Ofer Backell, didn't you?
01:23:28What?
01:23:29That the Red Book was in the jury room?
01:23:31I said there was books in the jury room, yes, sir.
01:23:33Did you not say that the Red Book was in the jury room and that you wrote the things up on the board to Ofer Backell?
01:23:38No, I did not.
01:23:40You're under oath, sir.
01:23:41I do not remember saying that to her, no, sir.
01:23:43Did you say it or not? You're under oath.
01:23:45I do not believe I did.
01:23:46Mr. Williams kept talking about the Red Book magazine and Red Book.
01:23:50There was an article in one of the Red Book magazines that was just having to be there that someone started going through,
01:23:56and there was some of the characteristics of a pedophile, and we put it on a board.
01:24:02Bob Kelly's wife, Betsy, was at the hearing.
01:24:05It kind of showed you contradicting yourself on the stand. What do you have to say about that?
01:24:09I don't think so.
01:24:10In fact, the appellate court had already ruled that the presence of Red Book magazine in the jury room was not grounds for a new trial for Bob Kelly.
01:24:18Betsy Kelly's lawyer, Joe Cheshire.
01:24:20It was, for a trial lawyer, an amazing thing to listen to.
01:24:25And it did enhance one's hopelessness at the ability of a defendant to get a fair trial in these kinds of cases.
01:24:39The next day, he met with Betsy Kelly.
01:24:42He told her the prosecution was looking for a deal, and that she could plead no contest instead of guilty.
01:24:48With reduced charges, she would be sentenced to seven years, but with time already served, she would spend no more than a year in prison, probably less.
01:24:56She had a day to think it over.
01:24:58I once again was hit between the eyes with the facts that everything that I ever believed in and everything I ever trusted was no longer there.
01:25:11What is your plea as to those offenses?
01:25:17I plead no contest, sir.
01:25:20On January 21st, 1994, Betsy Kelly signed the plea bargain, still maintaining her innocence.
01:25:28When I began this journey about five years ago, I was a very strong, a very optimistic, a very believing, and a very innocent person.
01:25:43And as I sit here today, I've become very tired, I've become very disillusioned, I've become very unbelieving, but I'm very much the innocent woman that I was.
01:25:58Last Friday, Betsy Kelly was taken to Raleigh Prison for Women to begin serving her sentence.
01:26:05The judge has not yet ruled on Robert Kelly's motion for a new trial.
01:26:28Funding for Frontline is provided by the new trial,
01:26:57Frontline is provided by the Corporation for Public Broadcasting
01:26:59and by annual financial support from viewers like you.
01:27:07Frontline is produced for the Documentary Consortium by WGBH Boston,
01:27:11which is solely responsible for its content.
01:27:21This is PBS.