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