Canadian diamond industry vulnerable to 'blood diamonds': audit

The Canadian diamond industry could suffer because the country's fight against "blood diamonds" is so inadequately funded, warns a newly released audit.

'At risk is the economic future of the expanding Canadian diamond industry, with a 2005 estimated annual production of $1.7 billion Cdn and the reputation of the department.' —Natural Resources Department audit

The Natural Resources Department polices Canada's trade in diamonds to enforce the Kimberley Process, an international effort to curb the black market in raw diamonds that often finances bloody conflicts, mainly in Africa.

But since Canadian legislation came into effect in 2003, the department has scrambled to find the dollars to ensure no blood diamonds slip into or out of the country.

"The current business model for the Kimberley Process is not sustainable because of uncertain funding," says an internal January 2007 audit, obtained by the Canadian Press under the Access to Information Act.

"At risk is the economic future of the expanding Canadian diamond industry, with a 2005 estimated annual production of $1.7 billion Cdn and the reputation of the department."

Canada's diamond industry has sparkled since the first mine opened in 1998 at Etaki in the Northwest Territories. The country is currently the world's third-largest diamond producer by value, after Botswana and Russia. New northern mines are expected to boost Canada's share of world production to at least 20 per cent by 2011.

Department lacks funding to block 'blood diamonds'

Despite the phenomenal growth of the industry, Natural Resources has struggled to assemble the $884,000 it needs annually to police for"blood diamonds."

The department's minerals and metals sector, responsible for enforcing Kimberley rules, is bracing for a $840,000 deficit for all its various programs in the current fiscal year, further straining available resources for diamond policing.

Sections of the Natural Resources audit detailing the causes of the funding problems have been blacked out as cabinet secrets. Canada has been a leader among the current 46 participants in the Kimberley Process, heading the international body in 2004 and chairing its various committees since then.

"Blood diamonds" are typically alluvial — that is, washed downstream by rivers and streams where they can be readily snatched from riverbed gravel and smuggled. Their small size, wide dispersal, durability and high cash value have helped make them an ideal financing tool for rogue militias.

Industry vulnerable to Eastern European crime groups: CSIS

Canada's own diamonds are different, mined in deep, kimberlite volcanic pipes, under controlled conditions. Even so, the Canadian Security Intelligence Service warned in 2004 that Eastern European crime groups could slip foreign stones into the mix, laundering crime dollars.

A spokesman for Natural Resources acknowledged enforcement funding is piecemeal, cobbled together from several sources, including Foreign Affairs.

But Robert Lomas said the new audit is unlikely to change the current funding approach. He said the domestic diamond industry does not fund Canada's Kimberley Process enforcement, which in 2005 included issuing 318 import certificates and 193 export certificates.

But he noted that the Department of Indian Affairs and Northern Development collects royalties on northern diamond mines that go into the federal government's general revenues.

A spokesman for Partnership Africa Canada, an Ottawa-based watchdog group that monitors the diamond trade, said he was not aware of the newly released audit.