The Diamond Invention book

In 1950, De Beers had a worldwide monopoly on the production of natural diamonds. It directly controlled all the pipe mines in the world– there were only seven, and they were all in southern and central Africa– and it had arrangements, either direct or surreptitious, with the governments of all the major diamond-producing countries to buy whatever diamonds were found in those regions by native diggers or fortune hunters. It also had the financial and political resources to preemptively buy out any new diamond discovery in most parts of the world.

There was, however, another threat to the diamond invention that emerged that year: the possibility that diamonds could be produced in a laboratory or even a factory. A team of scientists at the De Beers Research Laboratories had come to the conclusion that it was only a matter of time before a process was found for synthesizing diamonds. They had received information that both the United States and the Soviet Union were encouraging research aimed at mass producing industrial-grade diamonds. Converting carbon, which was one of the most common of all substances on earth, to diamonds was basically an engineering problem. It required constructing a vessel strong enough to withstand the heat and pressure necessary for inducing the synthesis. In a meeting with Sir Ernest Oppenheimer, they had themselves argued that advanced metallurgic alloys and high-pressure physics made the solution of this problem inevitable. They proposed that De Beers itself take the lead in developing this diamond-making technology, then through patents and licenses attempt to control synthetic diamond production. They warned that if an outside party made the breakthrough, De Beers might lose its monopoly position.

Sir Ernest had listened patiently to their arguments for a crash program on diamond synthesis. Then, after considering the matter, he turned them down, and said, “Only God can make a diamond.” His dogma notwithstanding, his scientific assessment of the situation proved wrong. Within two years, a diamond was produced in a laboratory in Sweden.

For at least 300 years scientists had experimented with the conversion of carbon to diamonds. For example, as early as 1694, Florentine academicians gathered around a terrace to witness the following experiment: A magnificently cut diamond was placed in a crucible under a powerful glass lens. As the sun’s rays focused on it, it began giving off acrid black vapors. A few minutes later, it disappeared in a cloud of smoke, leaving not a trace of diamond in the crucible. The academicians suggested that the diamond was pure carbon, and under the fiery heat it had turned to the gaseous form, carbon dioxide. But they could not prove this assertion.

A century later, an English chemist, Smithson Tennant, burned a diamond in a sealed vessel filled with pure oxygen. It also decomposed into an acrid vapor. Through chemical analysis, Tennant was able to determine that this vapor was carbon dioxide, and that the weight of the carbon in the vapor exactly matched the weight of that of the diamond that had vaporized. From this and other experiments, it was scientifically established that a diamond was carbon.

If diamonds could be transformed through a simple chemical reaction into carbon, it followed that carbon, through a reverse process, could be converted to diamonds. From the nineteenth century onward, the idea that the commonest of elements, carbon, could be turned into rare diamonds in the laboratory intrigued both scientists and confidence men and led to a wide range of experiments as well as dubious claims.

In 1880, a twenty-five-year-old Scottish chemist named James Ballantyne Hannay, working in a laboratory in Glasgow, attempted to achieve this sought-after synthesis by exploding carbonaceous material. He first sealed a mixture of powdered carbon, bone oil, and paraffin in coiled tubes, and then placed the tubes into a furnace. When the heat and pressure built up sufficiently, the tubes exploded and splattered the furnace walls with white-hot debris. After waiting for the furnace to cool, Hannay carefully scraped a number of minute particles off the sur~ace with a tweezers and found that these specks scratched glass-one test of a diamond. Triumphantly, Hannay claimed that he had manufactured diamonds and sent about a dozen specimens to the British Museum of Natural History in London.

At the time, however, most of Hannay’s contemporaries doubted that he had, in fact, achieved the synthesis of carbon to diamond crystals. Some scientists argued that he had mis-analyzed the crystals that had resulted from his experiments as diamonds, and others openly insinuated that Hannay had himself put the diamonds into the tubes to fraudulently create a reputation for himself. Since the crystals that Hannay claimed were produced through his process were too minute to be used in either jewelry or industrial tools, the issue of whether or not these were authentic diamonds remained a purely academic one. More than a half century later, however, Hannay’s crystals were rediscovered by the British Museum and, under X-ray analysis, proved to be diamonds of an extremely rare variety called “Type II.” The fact that Type II diamonds were not generally recovered from mines at the time of Hannay’s experiments indicated that he had indeed manufactured them.

Hannay was not the only experimenter in the nineteenth century who claimed success in synthesizing diamonds. In both Russia and France, scientists achieved similar results in the laboratory by applying heat and pressure to carbon. They were not able to persuade their peers, however, that the microscopic crystals their ingenious experiments yielded bore more than a passing resemblance to diamonds. The main effect of these early experiments was to induce an element of fear in the bankers who had invested heavily in natural diamonds. In 1905, for example, a self-styled French inventor named Henri Lemoine informed Sir Julius Wernher that he had discovered a process for mass-producing gem-sized diamonds from lumps of coal. Sir Julius, a British banker who was one of the four life governors of De Beers Consolidated Mines, feared that unless such an invention were brought under control it would wreck the diamond industry. Even the mere rumor of its existence could cause a selling panic among the investors in De Beers. Under these circumstances, he decided that there was only one prudent course of action: He would demand a demonstration, and if the invention worked, he would buy it-and then delay or suppress it.

Lemoine proved most cooperative. He agreed to sell the invention in exchange for a royalty and money to further develop it. He also invited Sir Julius to his laboratory in Paris to witness personally the synthesis of gem-sized diamonds.

Several weeks later, Sir Julius arrived at the Paris laboratory, which was located in the basement of an abandoned warehouse. He was accompanied by Francis Oats, the top executive at De Beers, and two other associates. Lemoine seated the group around a huge furnace and then left the room.

A few minutes later, the French inventor reappeared stark naked. He said that he had removed all his clothes so that they could see that he was concealing no diamonds. Then, like some medieval alchemist, he proceeded to pour various unidentified substances into a small crucible and mix them together. After displaying the mixture to the four gentlemen from London, he placed it in the furnace and threw a number of switches.

As the furnace blazed away, the naked inventor stood in front of it, and explained that the key to the synthesis was the secret formula of the ingredients in the crucible, which lie could not disclose. Then, after a quarter of an hour, he turned the switches off. Reaching into the furnace with a pair of tongs, he removed the white-hot crucible and placed it on a table in front of the men.

After it had cooled, he stirred the concoction with a pair of tweezers, and began plucking out from it well-formed though relatively small diamonds. In all, he produced some twenty gem diamonds, which he passed around for the group’s inspection.

Peering at them, one after another, through his jeweler’s loupe, Francis Oats found that they curiously resembled in color and shape the diamonds that were extracted from De Beers Jagersfontein mine in South Africa. Highly skeptical of the demonstration, Oats then demanded that Lemoine repeat the procedure.

Without any objections, Lemoine mixed another batch of ingredients in the crucible, and again cooked it for fifteen minutes in the furnace. This time he extracted from the smoldering brew thirty gem diamonds.

After examining this second batch of diamonds with their loupes, Sir Julius conferred with Oats in private. Oats suspected that the whole experiment was nothing more than a hoax. Sir Julius understood Oats’ doubts, but believed that there was still some chance that this French inventor had stumbled on the secret formula for diamonds. He therefore offered to advance Lemoine money to develop his invention on the condition that its existence remain secret.

Over the next three years, Sir Julius gave Lemoine 64,000 pounds sterling, an enormous sum of money. In return, Sir Julius received an option to buy the secret formula which had been deposited by Lemoine under seal in a London bank.

In 1908, however, a Persian jeweler admitted that he had sold Lemoine a supply of small, uncut diamonds from the Jagersfontein mine that exactly matched the description of the diamonds that had supposedly been manufactured in the furnace. Lemoine was then indicted and brought to trial for defrauding Sir Julius of 64,000 pounds sterling. Despite his continued protestation that his invention worked, Lemoine was unable to duplicate his experiment for the court, and when his secret formula was unsealed by court order it was no more than a mixture powdered with carbon and sugar. Before the court could pass judgment on him, Lemoine fled the country.

In 1948, Soviet scientists began to experiment with the concept of growing diamond crystals from “seeds,” just as rock candy crystals are grown from a single molecule of sugar. To accomplish this end, a minute fragment of diamond was bombarded by carbon iodine gas, and gradually, carbon molecules attached themselves to the structure of the diamond “seed,” thereby enlarging the crystal. These experiments were conducted at the time under a veil of complete secrecy.

Meanwhile, in Sweden, engineers at ASEA, an engineering company, focused their efforts on constructing a hydraulic press which could produce the enormous pressures necessary for the synthesis of diamonds. They used six cone-shaped pistons which, when they came together, formed a perfect sphere. Although the attempts to convert carbon in the form of graphite into diamonds in this press failed, the engineers succeeded, in 1953, in converting a mixture of iron and carbon into some forty diamond crystals. ASEA executives decided, however, to keep the results secret while they developed a more commercial process for directly converting graphite to diamonds.

The real engineering triumph came in the United States, however. In Schenectady, New York, a team of research scientists at the General Electric Company devised a hydraulic press which was far more powerful than the one in Sweden. It had the ability to generate pressures of more than a million pounds per square inch, and its tungsten carbide walls could contain temperatures of over 5000 degrees Fahrenheit. Equations worked out at Oxford by Sir Francis Simon and R. Berman had predicted that at these pressures and temperatures graphite would be directly converted into diamond crystals.

Then in 1954, the General Electric scientists began feeding graphite into the press. After enormous amounts of pressure were applied, they recovered minute diamonds-one millimeter in length. Under X-ray examination, it became clear that the amorphous carbon molecules in graphite, which resembled a hairnet, had been rearranged under the heat and pressure into a tetrahedron diamond structure. These were not false diamonds; they were the same as mined diamonds. The next problem for the General Electric scientists and engineers was to invent a commercial process through which these diamonds could be manufactured more cheaply than equivalent diamonds extracted from a mine. They began experimenting with different catalysts-nickel, iron, tantalum-which when placed in the press with the graphite would allow the reaction to take place faster and at less cost in terms of energy expended. By the end of the year, the engineers had designed a system of belts and presses that would continuously turn out diamonds at costs competitive with those of producing natural diamonds.

Up to this point, the General Electric experiments had been a closely guarded secret, but in February of 1955 General Electric decided to issue a press release outlining its achievements in diamond synthesis. Suddenly, the world knew that diamonds could be easily manufactured.

The shares of De Beers stock plummeted after the news of the General Electric invention. To be sure, General Electric’s diamonds were too small and discolored by the catalyst to be used as gems, but as General Electric spokesmen had pointed out, they were perfectly suitable for industrial purposes such as grinding and shaping tools. Since these “Industrial” diamonds had accounted for one-quarter of its total profit, De Beers faced potentially disastrous competition from this American industrial giant. Even though General Electric had not yet claimed the capacity to synthesize larger and better quality diamonds, many investors feared they soon would.

De Beers outwardly attempted to maintain a facade of world patents before the South Africans did. In mid-September, the Administration acceded to this urgent request, and General Electric took out the patents on its technology for synthesizing diamonds. The science of diamond-making was no longer secret.

De Beers, even though it was five years behind General Electric in perfecting the commercial manufacturing process for diamonds, was not yet defeated. It still possessed a worldwide marketing network for industrial diamonds and vast financial resources. After first attempting to litigate the patent rights, De Beers finally agreed to pay General Electric some $8 million plus royalties for the right to manufacture diamonds under the process invented by General Electric. It then entered into a series of cross-licensing agreements with General Electric which made it difficult, if not impossible, for other companies to compete in synthetic diamonds. To further enhance its position, Harry Oppenheimer arranged to buy the Swedish factory from ASEA, as well as all its patents and technology. By 1961, in addition to the Swedish presses, De Beers had seventy-five hydraulic presses in operation in South Africa squeezing out diamonds, and then it opened another factory in Shannon, Ireland. De Beers called its synthetic diamond division Ultra High Pressure Units, Inc.

While De Beers and General Electric were dividing up the markets in the Western world, the Soviet Union created its own massive synthetic diamond industry in Kiev. The Soviets used the basic General Electric process, but they built the hydraulic presses on a much larger scale. As a result, the Soviets had a capacity to manufacture over 10 million carats of diamonds a year.

By the mid-1960s, the diamonds pouring out of synthetic presses in South Africa, the United States and the Soviet Union were measured not in carats or ounces but in tons. Initially, man-made diamonds were not larger than bits of sand and were used almost exclusively as abrasive grit for grinding wheels and diamond saws. Gradually, however, techniques were developed for bonding the minute crystals of diamonds together into larger units that were used for a large range of industrial purposes. Indeed, except for drilling bits and wire-drawing dies, which still required natural diamonds, synthetic diamonds were adapted for most industrial purposes.

Again the diamond invention was threatened. In October of 1966, Harry Oppenheimer flew to New York where he met with William Courdier, the General Electric executive in charge of synthetic diamond production, and other senior General Electric executives. Because of American antitrust laws, however, General Electric refused to go along with any strategy for coordination or controlling of synthetic diamonds. De Beers had to find new means of protecting its invention.

By 1970, more than half the diamonds produced in the world were man-made. Unlike prices for gem diamonds, which rose steadily during the postwar period, the prices of industrial diamonds dropped sharply. If it were not for the fact that the world’s consumption of industrial diamonds had actually quadrupled between 1955 and 1970, and a host of new uses had been found for diamond abrasives, natural diamonds would no doubt have been wholly replaced by synthetic ones. Even with this vast expansion of the market for industrial diamonds, the price fell to less than 50 cents a carat for diamond abrasives.

Furthermore, in the midst of this heated competition, Dr. Bernard Senior, one of the four scientists who achieved the diamond synthesis for De Beers, resigned from De Beers laboratory with the intention of going into the diamond-making business himself. Since his employment agreement prevented him from competing with De Beers in South Africa, Dr. Senior moved to the island of Mauritius and established there the Southern Cross Diamond Company for the purpose of manufacturing diamonds. In response to this new threat, De Beers quickly moved to impound Dr. Senior’s bank accounts in South Africa, and placed great, and in some cases irresistible, pressure on companies in South Africa not to ship Dr. Senior the supplies he needed for his factory. In addition, it filed a large number of legal actions designed to harass Senior’s company. Eventually, because of such actions, the Southern Cross Company ceased to be a serious threat to De Beers.

There was, however, further disturbing news from America. General Electric announced in May 1970 that its scientists had accomplished De Beer’s worst nightmare. They had synthesized gem-quality diamonds that weighed over one carat. Even the scientists conducting the experiment were surprised by the incredible results. The synthesis required, it was explained, two distinct phases. First, graphite was converted in an ordinary hydraulic press to diamond crystals no larger than a grain of sand and weighing only 1500th of a carat. Then, in the second stage of the process, these crystals were put at either end of a metal tube which also contained a carbonaceous solution. The tube was left in a specially constructed hydraulic press that could maintain enormous heat and pressure for as long as a week. Under these conditions, the carbonaceous solution became unstable and released carbon atoms, which would eventually move to the cooler ends of the tube and attach themselves around the diamond “seed.” Gradually, the crystals would begin to grow in size. After 167 hours, when the press was opened, there were blue-white diamonds of gem quality that weighed between .60 and 1.1 carats. Presumably, if the press had been kept closed longer, the crystals would have grown even larger. The General Electric vice-president for research and development summed up the achievement as a “goal that has tantalized and frustrated scientists for nearly two centuries. . . . This comes very close to fulfilling the dreams of alchemists.”

Under closer scrutiny, it was found that the General Electric diamonds were not of perfect quality, but they were equal, if not superior, to most commercial-grade gems. After they were cut and polished, these man-made diamonds could not be differentiated from natural diamonds by the naked eye. In fact, even an expert, using a jeweler’s loupe, could not discern any difference. (The only telltale difference between the General Electric diamonds and natural ones was that the former tended to phosphoresce under an ultraviolet lamp, whereas the latter tended not to.)

De Beers reacted to the synthesis of gem diamonds in the same calm tone in which it had reacted fifteen years earlier to the synthesis of industrial diamonds. It claimed that it had known for “several years” that gem-sized diamonds could be created under laboratory conditions, but that since the cost of production would be “many times greater than finding and obtaining the natural product,” it was convinced that such a synthesis would prove to be “economically impractical.” Publicly, De Beers insisted that it would not alter its “plans for the future.”

General Electric also attempted to reassure American diamond dealers that General Electric was not about to flood the market with synthetic gem diamonds. Its spokesman told dealers: “Keep your diamonds. . . . We are not competing. We have no reason to harm the diamond industry.”

Despite these disclaimers, General Electric had evaluated the feasibility of manufacturing gem diamonds. It eventually decided against it for two reasons. First, there was a problem of what economists call “opportunity costs.” Manufacturing gem diamonds required tying up the press for nearly a week. In that same period, the presses could produce batches of powdered diamonds for industrial purposes every three minutes. Even though diamond powder could be sold for roughly only one percent what gem diamonds could be sold for, it would still be far more profitable to use the press for powder rather than gems.

To be sure, General Electric recognized that it would be possible to develop catalysts that would accelerate the time needed to produce gems and to engineer more efficient presses that would allow more diamonds to be grown in the same cycle. However, even if it were possible to mass-produce gem diamonds at costs comparable to those of industrial diamonds, there would be a more serious problem. If the public realized that diamonds could be manufactured in unlimited quantities in a factory, the entire market for diamonds might suddenly collapse. A senior General Electric executive who was involved in the decision not to manufacture gem diamonds explained to me, “We would be destroyed by the success of our own invention. The more diamonds that we made, the cheaper they would become. Then the mystique would be gone, and the price would drop to next to nothing.” General Electric decided not to invest hundreds of millions of dollars in presses to produce gem diamonds. Although their chief rivals had decided not to go ahead with manufacturing, it now became a war against time for the De Beers cartel. The science and technology that made it possible to manufacture real diamonds threatened to create a supply of diamonds that was beyond the control of De Beers.

The diamond invention, which had given value to diamonds for more than a half century, could survive only as long as this new invention, diamond synthesis, did not become commercially feasible. De Beers thus set out to retard it through secret agreements and financial interventions.

In the winter of 1978, diamond dealers in New York City were becoming increasingly concerned about the possibility of a serious rupture, or even collapse, of the pipeline through which De Beers’ diamonds flowed from the cutting centers in Europe to the main retail markets in America and Japan. This pipeline, as every dealer knows, is a crucial component in the diamond invention made up of a network of brokers, diamond cutters, bankers, distributors, jewelry manufacturers, wholesalers and diamond buyers for retail establishments. Most of the people in this pipeline are Jewish, and virtually all are closely connected through family ties or longstanding business relationships. New York City’s diamond district, where nearly half of all the gem diamonds in the world are bought or sold, is a key juncture in the pipeline.

The diamond district is located mainly in a single block on 47th Street between Fifth and Sixth Avenues. If one walks along the street level, he sees mainly retail stores with such enticing advertisements as, “We Buy Retail; Sell Wholesale.” These stores are meant mainly for tourists. The real diamond exchange, involving the sale of billions of dollars worth of loose diamonds, takes place in “clubs” and offices discreetly located on the upper floors of these buildings. Most of the smaller dealers are members of the Diamond Dealers Club, at 30 West 47th Street. Although the name evokes images of a plush and luxurious meeting place, the Diamond Dealers Club more closely resembles a tawdry cafeteria, with its linoleum floor and rows of bare tables. The 2,000-odd members, many of whom are Hasidic Jews, sit across the tables from one another like players at a chess tournament, their gaze fixed on an assemblage of tiny diamonds spread out on a piece of paper in between them. Every few moments a diamond sale is made, the diamonds on the table are sealed in the paper. In the center of the room there is a glass booth where diamonds are officially weighed after the transaction is agreed upon. Meanwhile, a loudspeaker system pages members to the telephone where they conduct further business. (Most of the members have no other office than the “club.”) The club also provides a room for the afternoon prayer and a kosher restaurant.

The larger dealers do their business not in the trading hall of the diamond club but in their own well-protected offices. Almost all these offices have closed-circuit television cameras to identify visitors, and at least three sets of locked doors through which the visitor must pass. The rule in the diamond district is that no stranger is ever admitted to these private offices. Since dealers commonly carry on their persons millions of dollars worth of diamonds, such stringent precautions are an indispensable part of the profession. The New York dealers are dependent on the flow of diamonds from London to the diamond-cutting factories in Tel Aviv. In the nineteen-seventies, however, a crimp emerged in the pipeline when Israeli diamond dealers, rather than processing and passing the diamonds on to New York, stockpiled them. Since diamond prices were then rapidly increasing at the time, and Israeli currency depreciating by more than 50 percent a year, it became more profitable for Israeli dealers to retain the diamonds that they received from London than to cut and sell them for paper money. These Israeli dealers, moreover, could borrow money from the banks on their diamonds at relatively low interest rates. As more and more diamonds were taken out of circulation at the Tel Aviv end of the pipeline, an acute shortage began in New York, driving prices up. By 1979, these Israeli stockpiles began indeed to threaten the entire diamond invention.

Until the Second World War, the diamond invention rested on three legs: production, centered in Africa; distribution, based in London; and diamond cutting, located almost exclusively in Antwerp. The German invasion of Belgium, however, knocked out one of the legs of the tripod-Antwerp. Oppenheimer had provided the Belgian cutting factories there with the lion’s share of De Beers diamonds, and he could count on them not to resell the diamonds to speculators or other “weak hands.” But with the fall of Antwerp, the diamond-cutting industry left De Beers’ universe of control.

Since many of the cutters in Antwerp were Jewish, the British-mandated territory of Palestine (Israel) became a natural focal point for the displaced industry. The birth of this new Israeli industry began in 1939 when two Jewish refugees in tattered clothes arrived at the port of Haifa in Palestine. When the customs officer on duty searched through their meager personal belongings, he discovered an envelope containing what looked like hundreds of tiny bits of broken milk glass. He puzzled over them for a moment, and then questioned the refugees about these odd fragments.

The refugees nervously explained that they were both diamond cutters from Antwerp, and the objects in the envelope were, in fact, rough diamonds which they hoped to cut and polish in Palestine. To do this, they told the customs officer they would need a small loan to set up a rudimentary work shop. Did the officer know anyone who might help them, they asked.

The customs officer had never before seen an uncut diamond; indeed, few people in Palestine in 1939 had ever seen one. He therefore took the packet of diamonds to Oved Ben Ami, the mayor of neighboring Natanya. Ben Ami, a short, sprightly man in his early thirties, was one of the most enterprising of the Jewish pioneers in Palestine. A decade earlier, Natanya was nothing but a marsh between Tel Aviv and Haifa, but Ben Ami, fearing that the Arabs might settle there and drive a wedge between the two Jewish cities, decided to found a Jewish settlement there. He put all his energy into raising money and recruiting settlers, and by 1939 he had succeeded in building a small city. It had, however, no industry. On seeing the diamonds, Ben Ami became interested in the possibility of establishing a diamond industry in his town of Natanya, and he asked to see the refugees.

The two men explained to Ben Ann that very little capital was necessary for cutting and polishing diamonds. All that was needed, in fact, was good sunlight, skilled labor, a few rudimentary tools and a supply of rough diamonds. They even demonstrated how a rough diamond was first cleaved, then cut and polished.

Ben Ami was impressed. He provided the men with a building in Natanya for their work and reached into his own pocket and lent them money for their personal expenses. He then did some further research into the diamond business.

Three requisites, sunlight, labor and tools, would be readily available in Palestine; the problem would be acquiring a steady supply of rough diamonds. He consulted a knowledgeable banker in Tel Aviv, and he found out that De Beers controlled virtually the entire world’s supply of diamonds. Since the cartel had an agreement with the government of Belgium, which specified that most of the diamonds would be sent to Antwerp to be cut by Belgian labor, this banker advised him that there was little possibility that the cartel would ever allow Palestine to compete with Belgium.

Although discouraged, Ben Ami refused to give up. He had determined that most of the world’s diamond business, including the De Beers cartel, was, as he put it, “in Jewish hands,” and he persuaded himself that most of these Jews would be sympathetic to the idea of creating a diamond industry in Palestine. He also realized that the Nazi armies were on the verge of overrunning Belgium and the Netherlands, and that many of the Jewish cutters, like the two refugees, might seek refuge in Palestine. He therefore dashed off a series of letters to the mayors of Antwerp and Amsterdam, as well as a number of guild officials in those cities, suggesting that they consider sending their Jewish cutters to Natanya for the duration of the war. He received, however, no reply until mid- 1940.

Ben Ami finally received a letter from a Jewish industrialist in Antwerp. The industrialist, who had obtained Ben Ami’s address from the mayor of Antwerp, offered to pay for the relocation of sixty Belgian diamond cutters in Palestine, Ben Ami could arrange the necessary entrance visas.

Since the British authorities had placed strict restrictions on the number of Jews allowed to enter Palestine, Ben Ami’s first task was to persuade the British to waive these quotas on immigrants. He asked Ben-Gurion, then head of the Jewish Agency, for help. Ben-Gurion’s first priority was saving Jews from the nations that had already been overrun by the Germans, and not from neutral countries such as Belgium.

Ben Ami went to the British high commissioner for Palestine. In presenting his case, he argued that since most of the diamonds in the world came from the British Empire, it was in the national interest of Great Britain to make sure that the skilled diamond cutters in Europe were not all captured by the Germans. As there was a distinct possibility that Germany would invade Belgium and Holland in the months ahead, he proposed that the British facilitate the immediate transfer of sixty diamond cutters to Palestine.

After studying the memorandum that Ben Ami had prepared on the subject, the high commissioner agreed that some precautions should be taken to protect the diamond trade. Cutting the tangle of red tape surrounding Jewish immigration to Palestine, he issued Ben Ami sixty visas for Belgian cutters.

The next problem for Ben Ami was persuading De Beers to send a supply of diamonds to Palestine. In London, he consulted Harry Abrams, the managing director of De Beers’ Diamond Trading Corporation. Ben Ami made the case that De Beers was about to lose its cutting centers in Antwerp and Amsterdam and it should look to Palestine as an alternative. Abrams coldly replied, “Don’t worry about us, Mr. Ben Ami. We have enough cut diamonds in our vault to last through the war … and then some.” Moreover, Abrams explained that De Beers had a binding agreement with the Belgian Government that prevented De Beers from sending diamonds to be cut anywhere else. Diamonds for Palestine were simply “out of the question.”

Ben Ami was not so easily put off. He sought out the assistance of Otto Oppenheimer, the brother of Sir Ernest, and appealed to him as a Jew to assist not merely the diamond industry but Palestine. Although Oppenheimer thought Ben Ami presumptuous, he finally wearily gave in and told Ben Ami, “I will be your ambassador and try to persuade De Beers.”

In fact, Oppenheimer was concerned that Ben Ami was stirring up the Colonial Office about the possible disruption of the diamond trade, and if he persisted, the British government might begin to scrutinize more closely the flow of diamonds around the world. To get rid of this persistent nuisance, Oppenheimer decided with Abrams to provide Ben Ami temporarily with a modest supply of diamonds that could be cut in Palestine.

Ben Ami then flew to Antwerp to recruit the sixty cutters. Even though war with Germany seemed imminent, he found it impossible to persuade the Jewish cutters to go to Palestine. They believed that the Germans, led by General Rommel, were on the verge of capturing Palestine, and they had no intention of leaving neutral Belgium. They were living in “a paradise of fools,” he concluded, and in the end, he managed to recruit only a half dozen cutters.

Ben Ami returned to Natanya considering his mission a failure. He had neither the master cutters nor the amount of diamonds he had hoped to obtain. However, within a week of his return, the Nazi armies blitzkrieged their way through the Low Countries. The British dispatched a destroyer to Antwerp in an attempt to seize the cutters’ stocks of diamonds before they fell into German hands, and a few of the Jewish cutters escaped with the British raiding party. But the cutting centers of Antwerp and Amsterdam were lost to the Allies-and De Beers-and Palestine now became an expedient alternative

In early 1941, Ben Ami received a message from George Prins, the broker who represented De Beers, saying that a consignment of diamonds had been allotted to Palestine. Before Ben Ami could receive them, however, he would have to pay ten thousand pounds sterling, which was the value De Beers established for them. Even though this was an enormous sum of money in Palestine in 1941, Ben Ami managed to convince a leading bank to advance it to him for the diamonds, which would serve as collateral. When the diamonds finally arrived in a small cardboard box, Ben Ami distributed them to the few trained diamond cutters. The diamonds themselves were relatively small stones, all less than a carat in weight, even in their uncut state. These melees, or medium-grade diamonds, required an enormous amount of labor to cut and finish, and had never been highly profitable goods in Antwerp or Amsterdam.

With a flow of Jewish refugees from Europe, Palestine had, however, an abundance of cheap labor. The diamond-cutting factories in Israel were organized along very different lines than those in Antwerp. Instead of assigning the task of cutting and polishing a. diamond to a single master craftsman, it was divided among six men. This division of labor, called the “chain of six,” made it far easier to train and employ diamond cutters and shortened the time involved in finishing the diamonds. Even though the process resulted in slightly inferior workmanship, the difference, especially on the medium-grade diamonds, was not noticeable to the naked eye.

By the end of the war, Palestine had suddenly become the world’s largest manufacturing center for diamonds, in terms of quantity, if not quality. During the war years, no less than 5,000 refugees had been trained as cutters, and De Beers had shipped more than $100 million worth of diamonds to Palestine. The rise of this Palestinian industry caused considerable concern in the more traditional cutting centers in Belgium.

After consulting the leading bankers and politicians in Belgium, De Beers decided that the only prudent policy for the cartel was to reestablish Antwerp as the world’s manufacturing center. Antwerp was, after all, less than an hour’s flight from London, and the dealers there had a long history of collaboration with the cartel. And Belgian interests still controlled the important mines in the Congo. Between 1945 and 1948, De Beers reduced the number of diamonds consigned to Palestine by as much as 70 percent. Moreover, the diamonds it continued to supply were smaller and of inferior quality to the medium-grade diamonds Palestine factories had received during the war. These sharp cutbacks had the intended effect of choking off the nascent industry.

In 1948, however, the Jewish state of Israel was established in Palestine. The new nation had only one viable industry-diamond manufacturing; and both the government and the Israeli banks decided that, despite the shortage of diamonds, that industry had to be aggressively supported. The major banks therefore extended virtually unlimited credit to diamond dealers to buy diamonds from the Belgian clients of De Beers. Since the Belgians preferred to manufacture the larger and more profitable stones, they were quite willing to make an instant profit on the smaller and less profitable stones in their consignments. The Israeli manufacturers made up for the higher prices that they paid for the diamonds by using cheaper labor. By the mid-1950s, Israeli manufacturers again dominated the melee, or small diamond, business-even though they had to buy most of their rough goods on the secondary market. The cartel quickly adjusted to the reality of the situation. Since Israeli manufacturers were determined to get diamonds by one means or another, De Beers decided that it, rather than the Belgian manufacturers, should realize the profits on the Israeli transactions. In an abrupt reversal of policy, De Beers began to supply a number of carefully chosen dealers in Israel with an abundance of melee diamonds. One dealer, Joseph Goldfinger, the cartel’s favored instrument in Israel, would be sent more than a hundred million dollars worth of small diamonds a year. De Beers also created its own subsidiary in Israel, Diamondel, to deal in rough diamonds. By 1965, Israel was receiving more than five-sixths of De Beers’ total allotment of melee diamonds.

In the 1970s, repeated devaluations of Israel’s currency gave the Israeli diamond-cutting industry a competitive edge over its rivals in Antwerp and New York. Not only were the Israeli factories more efficiently organized to cut small diamonds but because of their devalued money, they also had vastly lower labor costs than the factories elsewhere. Not satisfied with dominating the melee diamond business, Israeli dealers began to bid for the larger stones. By 1975, diamonds accounted for nearly 40 percent of Israel’s nonagricultural exports, and nearly 20,000 workers were employed in the cutting factories. In Antwerp, by contrast, over one-fourth of all the diamond cutters were out of work, and hundreds of factories, unable to cope with the Israeli competition, faced bankruptcy.

De Beers became seriously concerned that the Israeli competition could disrupt the entire diamond trade. In early 1977, Sir Philip Oppenheimer dispatched his son Anthony to Tel Aviv, accompanied by other De Beers executives. Anthony Oppenheimer’s mission was to persuade the Israelis to curtail their expansion. He met with De Beers’ favored clients, the bankers who were extending credit to diamond dealers and the government officials who supposedly regulated the Israeli industry. He subtly warned them all that De Beers would not tolerate unbridled competition between Israel and Antwerp, and announced that De Beers intended to cut the Israeli quota of diamonds by at least 20 percent in the coming year.

This warning had the opposite effect of what had been intended. Rather than paring down production in line with this quota, Israeli manufacturers and dealers began building up their own stockpile of diamonds. They paid a premium of one hundred percent or more for the unopened boxes of diamonds that De Beers had shipped to Belgian and American dealers. (And by selling their diamonds to the Israelis, the De Beers clients could instantly double their money without taking any risks.) Israeli buyers also moved into Africa and began buying directly from smugglers. The Intercontinental Hotel in Liberia, which was then the center for the sale of smuggled goods, became a sort of extension of the Israeli bourse. After the Israeli dealers had purchased the diamonds, either from De Beers’ clients or smugglers, they received 80 percent of the amount they paid from Israeli banks in the form of a loan. Because of government pressure to help the diamond industry, the banks charged only 6 percent interest on these loans, well below the rate of inflation in Israel. By 1978, the banks had extended $850 million in credit to diamond dealers, an amount equal to some 15 percent of the entire gross national product of Israel. The only collateral the banks had for these loans were uncut diamonds.

De Beers estimated the Israeli stockpile to be more than 6 million carats in 1977 and growing at a rate of almost a half million carats a month. At that rate, it would be only a matter of months before the Israeli stockpile would exceed that of the cartel’s in London. If Israel controlled such an enormous quantity of diamonds, the cartel could no longer fix the price of diamonds with impunity. At any time the Israelis could pour these diamonds onto the world market, destroying forever the carefully nurtured mystique of the value of diamonds. The cartel decided that they had no alternative but to force liquidation of the Israeli stockpile.

By 1977, however, the situation in Israel was almost completely out of De Beers’ control. The Goldfinger organization, and other of De Beers’ leading distributors in Israel, told De Beers that even if they cut back on their purchases, independent dealers and speculators would step in to take up the slack. The distributors warned the cartel that as long as the banks were willing to finance diamond purchases with artificially low interest rates, there would be no effective way of stopping Israelis from accumulating diamonds as a hedge against inflation. If it wanted to bring the diamond speculation under control, De Beers would have to clamp down on the banks.

De Beers was not without influence in Israeli banking circles. Harry Oppenheimer sat on the board of directors of Barclays International Bank, which controlled Barclays Discount Bank in Israel. And E. J. G. Dawes, one of the managing directors of the De Beers operation in London, was on the board of directors of the Union Bank of Israel, which together with Barclays Discount Bank financed more than half of all the Israeli diamond purchases. De Beers made it clear to the Israeli bankers that it considered the present speculation to be extremely dangerous. Moreover, it warned that it was adopting a new strategy of imposing “surcharges” on diamonds, which might be abruptly withdrawn at any moment. Since these “surcharges,” which would range as high as 40 percent of the value of the diamonds, were effectively a temporary price increase, they could be extremely risky to banks extending credit to diamond dealers. For example, with a 40 percent surcharge, a diamond dealer had to pay $1,400 rather than $1,000 for a small lot of diamonds; however, if the surcharge was then withdrawn, the diamonds would be worth only a thousand dollars. Through this device, De Beers, in effect, announced that it was embarking on a policy of manipulating the prices of diamonds in order to trap speculators. Under these circumstances, the Israeli banks could not afford to advance 80 percent of the purchase price, including the so-called surcharge. They therefore required additional collateral from the dealers and speculators. Further, they began, under pressure from De Beers, to raise interest rates on outstanding loans.

Within a matter of weeks in 1977, interest rates on diamonds went up 50th percent. Moreover, instead of lending money based on what Israeli dealers paid for diamonds, the banks now would only lend money based on the official De Beers price for diamonds. If a dealer paid more than the De Beers price for diamonds-and most Israeli dealers were paying at least double the price in 1977-he would have to finance the increment from his personal funds.

To tighten the squeeze on Israel, De Beers abruptly cut off shipments of diamonds to forty of its clients who had been selling large portions of their consignments to Israeli dealers. This dramatic reprisal made De Beers’ 250 or so remaining clients aware of the risks involved in trafficking with Israel.

As Israeli dealers found it increasingly difficult either to buy or finance diamonds, they were forced to sell diamonds from the stockpiles that they had accumulated. As Israeli diamonds poured onto the market in 1979, prices began to fall at the wholesale level. This decline led the Israeli banks to put further pressure on dealers to liquidate their stocks to repay their loans. Speculators found themselves caught between rising financing charges and lower prices, and in a state approaching panic, began selling their diamonds regardless of the price they had paid. Hundreds of Israeli dealers, unable to meet their commitments, went bankrupt in the fall of 1980 as prices continued to plunge. The banks inherited the diamonds. De Beers had won the first round in the diamond war with Israel.

The most ominous threat to the stability of the diamond invention, however, came from the Russians. For the Soviet Union, diamonds in the postwar years were a strategic objective of the highest priority. When the Cold War began in 1947, the Soviet Union had no secure source of industrial diamonds. It was entirely dependent on the De Beers cartel for the diamond drilling stones it needed in order to explore for oil and gas, the diamond die stones it needed to produce precision parts and draw out fine wire, and the diamond abrasives it needed to grind machine tools and armaments. Without a continuous supply of these industrial diamonds, it would be impossible for it to rebuild its war-wrecked economy-or to effectively rearm its military machine. Stalin, fully realizing that his crucial supply of diamonds could be cut off at any moment by an embargo, demanded that Russian geologists and scientists develop a more dependable source of diamonds. Since no diamond mines had ever been found in the Soviet Union, there were only two possible ways of satisfying Stalin’s order: either pipe mines had to be uncovered in the unexplored regions of the Soviet Union through a vast program of systematic prospecting, or industrial diamonds had to be manufactured through a laboratory procedure.

The search for diamonds focused on the Siberian plateau in Yakutia province that lay between the Lena and Yenisei rivers, which Russian geologists concluded resembled geologically the “shield” of South Africa. Both formations had remained stable for cons of geological time, and neither had been deformed or “folded” by convolutions of the earth. Since kimberlite pipes had been found on the South African shield Russian geologists theorized that they might also exist in this Yakutian shield. The first party of diamond prospectors flew into Yakutia in late 1947. The expedition was ill-prepared for the punishing environment, however, and after suffering astounding privations on the tundra, it had to be abandoned. Moscow ordered the search to be continued, regardless of cost, and the following spring more geologists were flown into the wastelands of Yakutia. They were better equipped, with X-ray diamond detectors and other sophisticated prospecting gear, and they found a few microscopic diamond traces-but no pipe. Finally, in 1953, a young Russian geologist named Larissa Popugaieva, working in her laboratory in Leningrad, noticed that the prospecting samples from Yakutia contained an increasing percentage of tiny blood-red garnets called pyropes. Since she knew such garnets had been found in kimberlite ore formations in southern Africa, she proposed that prospectors, rather than searching for diamonds, follow the trail of the garnets. She then joined the diamond-hunting expedition in Yakutia, and intrepidly tracking the garnets, managed to find their source near the Vilyul River Basin within a matter of months. It was a volcanic pipe mine she named “Thunder Flash.” Unfortunately, however, the proportion of diamonds in the ore in Thunder Flash was not high enough for feasible production. Dozens of geologists, all looking for traces of blood-red garnets, then began scrutinizing the banks of the Vilyul River for more volcanic pipes (which the Russians call trubkas). In the spring, of 1955, another young geologist, Yuri Khabardin, came across a fox’s hole in a ravine with blue earth. He found that it had high diamond content, and excitedly began sending a message over his shortwave radio. It said cryptically, “I am smoking the pipe of peace.” In Moscow, the prearranged code was immediately understood to mean that the geologist had discovered and tested a kimberlite pipe.

The volcanic pipe that Khabardin discovered was called appropriately the Mirny, or Peace, pipe. The blue ground at the mouth of the pipe was slightly more than a half mile wide, and covered some seventeen acres. Compared to kimberlite pipes in southern Africa, the Mirny was not an immense pipe. (It was less than one-quarter of the size of the Premier mine in South Africa.) But Soviet planners in Moscow ordered a crash program for getting diamonds out of it.

Before the Mirny pipe could begin producing diamonds, engineers in Siberia had to find ways of overcoming the incredibly harsh conditions at the mine site. During the seven month-long winter in Yakutia, they found that steel tools became so brittle that they broke like match sticks, oil froze into solid blocks, and rubber tires shattered like fragile crockery in the sub-zero temperatures. Moreover, when the summer came, the top layer of permafrost melted into a swamp of uncontrollable mud.

Despite these natural impediments, engineers turned Mirny into an open-pit mine. Jet engines were used to blast holes in the permafrost, and enormous charges of dynamite were used to excavate the surface rock and loosen the underlying kimberlite ore. The entire mine had to be covered at night to prevent the machinery from freezing.

By 1960, huge steam shovels were loading the ore into trucks, which had to transport it some twenty miles to a separation plant (the permafrost at the site of the mine could not hold the weight of the plant). More pipes were later discovered on the very edge of the Arctic circle. To service these mines in the “pole of cold,” as this region is called by the Russians, the Russians erected an entirely new city, Aikhal. According to the descriptions in Russian periodicals, Aikhal stands, like some giant centipede, on ten-foot-high steel legs. Each of these steel legs is Imbedded into the permafrost to prevent the city from sinking into a quagmire of mud during the summer thaw. Even in winter, when the temperature falls to 80 degrees below zero, giant pumps cool the air beneath the buildings to prevent the heat of the buildings from causing any melting in the permafrost. All the buildings are interconnected by elevated passageways and wrapped in a heavy shroud of translucent plastic. Aikhal is, as one journal puts it, “a completely enclosed working environment.” This herculean effort had a single purpose: the production of diamonds.

Just as diamonds began to flow out of Siberia, Russian scientists in a laboratory in Kiev reported that they had found a commercial process for synthesizing minute diamonds that could be used as abrasive grit. The process, though similar to the one that General Electric had developed in the United States, was based on Russian research in high-pressure physics.

In the Siberian diamond mine, the gem diamonds, which had first been mined as a by-product of industrial diamonds, could now be sold abroad. In early 1962, the Soviet Union agreed to sell virtually all of its uncut gem diamonds to De Beers. Within a few years, diamond production was nearly ten million carats a year, and the Soviet Union exported some two million carats as gems. Diamonds became the leading Soviet cash export to the West. In 1968, Viktor 1. Tikhonov, the head of the Mirny Diamond Administration, said, “We call ourselves the country’s foreign exchange department.”

Meanwhile, in London, De Beers’ executives were mystified by the progressively larger shipments of Russian diamonds that they were receiving each year. In many ways, the Russian outpouring of diamonds involved a number of enigmas that could not be easily resolved on the basis of the available facts. First of all, the enormous production of diamonds from Mirny did not seem consistent with the relatively small size of the pipe mine. Specifically, De Beers’ geologists questioned how this Siberian pipe mine could produce five times the number of diamonds that comparable South African mines produced. For example, in 1978, the Finsch mine, which went into production in South Africa at about the same time as did the Mirny mine in Siberia, produced some two million carats of diamonds. That same year Mirny produced well over ten million carats of diamonds. Moreover, the Finsch pipe covered an area more than twice the size of Mirny, and it seemed unlikely to them that Mirny was yielding more than ten times the number of diamonds per surface acre as its South African counterpart. This disparity became even more puzzling when the different mining conditions in South Africa and Siberia were taken into account. The Finsch mine, which processes some 10,000 tons a day, 365 days a year, operated in an ideal arid climate. The machinery at the Mirny mine, on the other hand, must excavate ground that Is frozen solid seven months of the year in sub-freezing blizzards. Under these conditions, it seemed difficult to accept that the Russians could be excavating the tonnage necessary to produce ten million carats from a single pipe.

Russian geologists, when asked about this mysterious production from Mirny, initially suggested that the Siberian ore had an extraordinarily high grade of four carats a ton. This number greatly exceeded any grade of ore in the history of diamond mining in South Africa. Indeed, the Finsch mine, which had the richest grade of any De Beers mine, was yielding only about .8 carats a ton. The Russian technical journals further confused the issue by reporting that the grade of Mirny ore was not actually consistently high, and that at times it was as low as .05 carats a ton (which was inferior to any South African ore). The enigma of Mirny’s overproduction, therefore, was not satisfactorily resolved.

The constantly accelerating production from Mirny in the early 1970s was another aspect of the mystery. Diamond pipes are shaped roughly like funnels, with the ore body tapering off below the surface of the earth. This means that in pipe mines the amount of ore excavated declines at deeper depths. In South Africa, after a few years of initially high production, all the pipe mines enter a phase of gradual decline. In Mirny, however, after ten years of intensive excavations, the production of diamonds, instead of leveling off, accelerated. To be sure, part of these diamonds might have actually come from other Siberian mines, such as the Aikhal pipe and the Udachnaya pipe, which went into limited production. The sheer magnitude of the increased production, which went from io million carats in 1970 to 16 million carats in 1975, continued, however, to baffle De Beers analysts in London. Each year they predicted that Siberian shipments would decrease, but each year, despite the calculus of diminishing returns in diamond mining, the Russian consignments to London continued to increase.

There was an equally inexplicable pattern during these years surrounding Soviet purchases of industrial diamonds in Europe from De Beers and its clients. Diamonds in a pipe occur in a wide spectrum of sizes, shapes and different qualities. Usually, a small proportion are sorted out for gems; a larger proportion of the twisted, deformed, and discolored diamonds are sorted out for drilling stones, dies, and industrial tools; and the balance is ground for abrasive grit. For the Siberian mines to produce some 3 million carats of gem quality diamonds, which were exported to the West, they would also have to produce a substantially higher quantity of drilling stones, die stones and other industrial diamonds. On the basis of Russian gem exports, De Beers analysts assumed that the Russians would also have an enormous amount of industrial diamonds to export. Instead, they found to their surprise that they were heavily increasing their imports of almost all categories of industrial diamonds except for abrasive grit (which they manufacture). Since by 1975 the Siberian mines were assumed to be producing in excess of 10 million carats of industrial-grade diamonds– a quantity that could not possibly be entirely consumed by Russian industry, De Beers’ executives wondered what had happened to the millions of missing Siberian drill and die stones. When asked about this quirk in the diamond equation, Russian geologists explained that Siberian diamonds could not be used for certain industrial purposes such as drilling and drawing out wire because they contained air bubbles that often explode under heat and pressure. In other words, Siberian diamonds were flawed for the very purpose they had originally been needed-industrial stones. This explanation raised more questions about the nature of Siberian diamonds than it answered.

The De Beers sorters in London also noticed that the Siberian diamonds had some extraordinary aspects. For one thing, they tended to have a greenish tint to them and sharp angular edges, which differentiated them from most other consignments of diamonds in the De Beers vaults. Secondly, the diamonds were remarkably uniform both in size and shape. With very few exceptions, the entire consignment consisted of melees, or medium-grade diamonds ranging from one-tenth to seven-tenths of a carat in weight. The vast preponderance of these diamonds weighed about a quarter of a carat and fitted through a sieve opening that was one to two millimeters wide. Whereas African diamonds came to London in a multitude of shapes-round, square, oblong, flat, triangular and twisted-the Siberian diamonds tended to be mainly octahedrons with eight sharp edges. The consistent regularity of these diamonds made separating and evaluating them far easier.

By 1976, De Beers was choking on the ceaseless flow of greenish diamonds that arrived each month in London on the Aeroflot let from Moscow. De Beers had little choice but to accept the consignments. Otherwise, the Russians would almost certainly dump these diamonds, which now amounted to some 2 million carats a year of gems, on the world market, and cause a ruinous collapse in prices. There was, however, a limit on the number of small diamonds that De Beers could absorb. The De Beers board of directors was becoming increasingly concerned with the seemingly magical capacity of the Siberian mines. They wanted to know how many more millions of carats of diamonds would be produced; and also why previous De Beers estimates of waning production in Siberia had proved so wrong.

Before renewing its commitment to buy diamonds, De Beers asked the Russian authorities to allow a group of executives to visit the Siberian mines and make their own appraisal. The Russians agreed to the De Beers visit on the condition that Russian geologists be allowed to observe De Beers’ mines in southern Africa.

Sir Philip Oppenheimer, who had conducted most of the negotiations with the Russians in London, arrived in Moscow in the summer of 1976. He was accompanied by Barry Hawthorne, who was then De Beers’ chief geologist in Kimberley, as well as a De Beers mining engineer, cost accountant and sales executive. Every night for nearly a week the Oppenheimer party was taken to the best restaurants in Moscow by various officials for caviar-laden meals. They also met during the day leading geologists, mineralogists, engineers and mine managers. Despite these thorough briefings, Sir Philip insisted on personally inspecting the mines, some four thousand miles away in Siberia.

After some procrastination, the Soviet Diamond Administration finally organized air transportation to Yakutia for Oppenheimer and his associates. Fog delayed the flight for nearly a day, however, and by the time they had completed the arduous Journey to Mirny, they had to begin preparing for the return journey to Moscow, which had been very tightly scheduled. “We had about a twenty-minute tour of the mine,” Hawthorne recalled, “and seeing any other mine in Siberia was out of the question.” Even in that brief period of time, the Oppenheimer party was able to get some picture of the Siberian mining operation.

The mine itself, which looked like any open-pit mine in South Africa, was far less deep than they had calculated. This meant that less ore had actually been taken from this mine since 1960 than De Beers had assumed, further deepening the mystery of how the Russians produced vast quantities of gem diamonds.

The Oppenheimer party was next taken for a whirlwind tour of the treatment plant itself. They were “astounded,” as Hawthorne put it, to find that the Russians did not use water to separate the ore from the diamonds. In all the other diamond mines in the world, centrifugal baths are used to remove the non- diamondiferous material. An engineer explained that because it is too cold during the Siberian winters to prevent water from freezing, the ore at Mirny was first crushed by machines to a standard size and was fed through a battery of X-ray sorting machines. As a kimberlite geologist experienced with pipe mines in South Africa, Hawthorne found this explanation difficult to understand. In the De Beers diamond mines, more than 99 percent of the non-diamondiferous ore was washed away by the centrifugal baths, and thus only a minute fraction of the ore had to be processed through the X-ray machines. If they separated all the ore from the mine by X-ray machines, the separations would require over a thousand Sortex machines and millions of volts of electricity.

Hawthorne subsequently told me that he had not seen any of the Sortex machines or any evidence of power lines at the mine site. Moreover, judging from such standard mining parameters as the surface area of the open pit, the depth of the excavation, the height of the waste dumps, and the capacity of the earth-moving equipment and other machinery, he found it difficult to account for the vast quantity of diamonds that the Soviet Union had sold to De Beers. In 1978 alone, it delivered Some 2.5 million carats of gem diamonds-almost one-quarter of the world’s supply.

The enigma of the Russian diamonds became all the more perplexing when De Beers received fragmented reports about Russian advances in high-pressure physics. Even though the specifics of the Russians’ progress remained clouded in secrecy, it had become readily apparent to everyone in the diamond industry by the mid-1960s that Russian scientists had developed the technology for mass-producing synthetic diamonds for industrial purposes. Russian factories, located mainly in Kiev in the Ukraine, began to churn out a wide variety of diamond grit and other abrasives, which were offered for sale to European dealers; at international conferences, Russian technicians claimed that they had developed synthetic diamonds ten times larger than had been produced in the West.

In 1966, Henry Meyer, an English mineralogist attended a conference on crystallography in Moscow with Dr. Kathleen Lonsdale, one of England’s foremost crystallographers, and a member of the Soviet Academy of Science. During the meeting, a Russian scientist told of the enormous progress the Russians had made in the field of high-pressure physics-including the construction of a hydraulic press some ten stories high-and offered to show the English scientists some crystals that had been produced in the laboratory. That afternoon, both Dr. Lonsdale and Dr. Meyer accompanied him to a research facility on the outskirts of Moscow where he produced a tray of some half dozen small, white gem diamonds, all perfectly shaped and weighing approximately a quarter of a carat apiece.

Dr. Meyer, who specialized in analyzing the mineral inclusions in diamonds, closely examined the stones. They were not like any gem diamonds he had ever seen. The Russian scientist then explained that all these gems had been synthesized from carbon in a hydraulic press. He boasted that manufacturing gems was no longer a scientific problem in the Soviet Union but an economic one. Both English visitors were astounded at this casual disclosure. No laboratory in the West had come even close to synthesizing a gem diamond. (The General Electric breakthrough occurred later.)

In Johannesburg, De Beers’ scientists soon heard of the Russian breakthrough, but they assumed that Meyer and Lonsdale had merely witnessed a laboratory experiment in crystal-growing, rather than any sort of new invention of technology.

The following year, however, there was further confirmation. Professor Bakul, the director of the Soviet Synthetic Research Institute in Kiev, recruited Joseph Bonroy, one of the finest craftsmen in Antwerp, to cut and polish some highly unusual Russian diamonds. Bonroy, who specialized in sawing distorted and difficult-shaped stones, found these diamonds particularly difficult to penetrate. He saw that they were gem crystals of excellent purity and nearly ideal octahedron shape, but as he studied them, he found that they all tended to have very unorthodox sawing directions.

To assist Bonroy, Professor Bakul explained that all the diamonds, which weighed about one-half carat and were slightly tinted, had been synthetically manufactured In Kiev, He asked the Belgian cutter to keep secret the fact that the Russians had manufactured gem diamonds, since, as Bonroy later put it, “the hypersensitive diamond market would be rocked by news such as this.”

Bonroy found the solution to cutting the synthetic gems. When he completed the work, and polished and buffed the synthetic diamonds, they looked exactly like gem diamonds. Bonroy kept the secret of the Russian diamonds for four years. Then, in April 1971, he was asked to speak at a symposium in Kiev on the problems of cutting synthetic diamonds. Bonroy, concerned about the future of the diamond industry, asked Bakul whether the Soviet Union intended to mass-produce these synthetic gems.

The professor pondered the question for a moment and replied that the Russians still found it economically unfeasible to synthesize gem-quality diamonds. It was, however, not clear from his answer what the conditions were under which the Russians would use this technology to manufacture diamonds.

Even though the mysteries surrounding Russian diamonds were never fully resolved, De Beers succeeded in absorbing the constantly expanding production. Although at one point in the mid-1970s, it had to reduce its own production of diamonds from Namibia to accommodate Moscow’s, De Beers gradually developed new markets for diamond jewelry in both Asia and America.

The De Beers arrangement with the Soviet Union was only for uncut diamonds. The Russians had always reserved a small percentage of its production from Siberia for its own Jewelry manufacturing. In the late 1960s, these Russian-cut jewels began to appear in ever-increasing number in the grading halls of Antwerp. Cut and polished in Russian factories in Moscow, Kiev and Sverdlovsk, the diamonds were called “silver bears,” and had some extraordinary features. To begin with, most silver bears were almost exactly the same size in girth, and weighed approximately two-tenths of a carat each. Moreover, each of them had the same octahedron shape, and they were nearly identically faceted and polished. It was almost as if, as one Belgian trader observed, the silver bears had all been cut from the same pattern.

Initially, diamond experts in the West were baffled by the inordinate regularity of the silver bears. How could miniature diamonds that could fit on the tip of a pencil point be so identically matched in size, shape and cut?

Louis Asscher, one of the renowned master cutters of Europe, attempted to resolve the question by microscopically examining a sample of silver bears. He had a lifelong experience with diamonds; his father, the third generation of the House of Asscher in Amsterdam, had re-cut the crown jewels for the British royal family in 1907, and he himself had invented and popularized the Asscher cut (the “brilliant cut” of a triangular diamond). When he studied the silver bears, he found that they all contained a similar striation mark on certain facets. He concluded that this tell-tale mark came from a machine, and he suggested that the Russians had invented an automated diamond-cutting machine that accounted for the silver bears.

A number of master cutters in Antwerp took issue with Asscher. They found that the Russian cut on the silver bear was “too good, too regular, too perfect,” as one of them put it, to be anything but the work of skilled human hands. The Antwerp experts theorized that the Russians had imposed draconian standards on their diamond cutters, and diamonds that failed to meet these criteria were simply ground to dust and used for industrial purposes. They recognized that in order to achieve such uniform diamonds, the Russians would have to sacrifice a considerable portion of the average “yield”-the weight of the finished gem-but they assumed this was a cost that the Russians were willing to pay in return for standardization.

As the Russians vastly stepped up their export of silver bears to Europe, the concern over Russian cutting techniques was replaced with a much more urgent one about their marketing objectives. The Russian diamond-trading organization opened up offices in rapid succession in 1969 in Antwerp, Zurich and Frankfurt. Italy began offering large discounts to American manufacturers, who needed a uniform product for their inexpensive assembly-line jewelry. In addition, reports reaching western Europe asserted that the Russians were training thousands of new diamond cutters at a center in Kostrana, some 180 miles north of Moscow.

The Russian trading organization itself conspicuously avoided releasing any meaningful data on the volume of its exports of polished diamonds to Europe. By 1970, however, diamond dealers in Antwerp reckoned that the Russians were putting at least a half million silver bears on the market each year. Manufacturers in Tel Aviv, as well as Antwerp, became increasingly apprehensive about these Russian diamonds. What they had first considered a novelty now seemed a threat to the very existence of their respective cutting centers.

The Soviet Union already was selling polished diamonds. For example, one New York dealer, Fred Knobloch, told me that he had been invited to Moscow on several occasions to buy cut diamonds by Russ Almaz, the Russian diamond-trading company. In Moscow, he described being escorted to a glass skyscraper at 29 Kalinin Prospect, where he was ushered into an austerely furnished room full of diamond buyers from Asian and European countries. A Russian official then emptied a canister of some 1,500 small polished diamonds, all under a carat in size. The official explained that the rules were the same as those insisted upon in London by De Beers, there was to be no bargaining, and cash had to be paid in advance of delivery. When Knobloch agreed to buy the lot of diamonds on the Russian terms, the Russian official said-ill perfect Yiddish-“Mazel und Brucha,” literally: “Good luck and blessings,” the same phrase that is used to conclude a deal on 47th Street in New York, Tel Aviv or Antwerp. A few feet away, at another table, he heard another Russian official saying “Mazel und Brucha” to a Japanese buyer. He realized then that the Russians were as capable as De Beers in conducting an international diamond business-right down to giving the traditional Jewish blessings.

In its public statements, De Beers desperately attempted to calm these fears in the trade. In its 1971 issue of the International Diamond Annual, it went to considerable lengths to explain: There has been no indication that the Russian authorities have the slightest intention of “dumping” their polished goods on Western markets. On the contrary, the Russian authorities appear to accept that the industry they have been at great pains to develop and establish would founder if the market for diamonds in the Western world were undermined or were not held in strong hands.

In their private deliberations, however, De Beers’ executives were far less certain as to whose “strong hands” the Russians wanted controlling the diamond trade. They certainly did not want to afford the Russians the opportunity of establishing direct relations with the American, Belgian, and Japanese wholesalers. If the Russians succeeded in bypassing the diamond distribution chain that De Beers had ingeniously devised over a half century, they obviously would be one step closer to taking over the diamond cartel from Dc Beers. The silver bear offensive raised a more immediate problem: the excess of silver bears had to be drained from the market and brought under control. De Beers therefore strongly encouraged a number of its own dealers to buy silver bears directly from the Russians and then, when market conditions were tight, redistribute them through their own marketing channels. The chief operative in this endeavor was Joseph Goldfinger, De Beers’ man in Tel Aviv.

Goldfinger had been born in Lithuania, and studied to be a rabbi at the Yeshiva before emigrating to Palestine in the mid-1930s. When the diamond industry began in Natanya during the Second World War, he trained as a cutter, and then began dealing in both uncut and cut diamonds. In 1949, he was invited by De Beers to attend their sight in London, and quickly proved himself to be both resourceful and dependable. Because the Israeli industry was expanding at a breakneck pace, De Beers needed a distributor in Israel who could shrewdly apportion its supply of melee diamonds among the hundreds of small manufacturers scattered around Tel Aviv. Goldfinger, who had demonstrated that he had both the requisite energy and judgment, was given a “dealer’s sight” in 1962, which meant that he received diamonds not only for manufacturing himself, but also for redistributing to other Israeli dealers. By 1973, he was receiving up to $20 million worth of diamonds in his box at the London sights, and he had become De Beers’ third largest client.

With this enormous sight from De Beers, Goldfinger became known as “Mr. Diamond” in Israel. He became heavily involved in every phase of the Israeli diamond industry and built up a network of wholesalers of polished diamonds that extended from Tel Aviv to Hong Kong and Tokyo. When the silver bear crisis arose, Goldfinger was logically the man that De Beers turned to: Not only did he have the vast experience in marketing small polished diamonds but he had a very strong interest in preventing the Russians from making inroads into this market.

The original plan, in 1973, was for Goldfinger to go to Moscow and to buy from Russ Almaz the selections of silver bears most in demand by American and Japanese manufacturers. Together with the uncut diamonds that De Beers was itself buying from the Russians, these purchases of polished diamonds would help reduce the Russian exports to Europe to manageable proportions.

The Soviet Union, however, in deference to Arab demands for a boycott against Israel, preferred not to deal directly with Goldfinger. Instead, it was arranged that I. Hennig, the broker next to De Beers on Charterhouse Street, would buy the diamonds in Moscow for Goldfinger’s account, and turn them over to Goldfinger in London. In early 1974, representatives of I. Hennig traveled to Moscow and were lavishly entertained by Dolnitsov, the head of AmRuz. The London brokers purchased substantial quantities of the silver bears for Goldfinger’s account, effectively withdrawing them from the market. On a subsequent trip to Moscow, the brokers were surprised to find that Dolnitsov had been replaced by a more dour official. No explanation for the change was offered. The arrangement remained intact, though, and the brokers were able to arrange delivery of some $2 million worth of silver bears a month. These preemptive buys succeeded in stabilizing the polished diamond market.

Even as De Beers extends its alliance with the Russians, it remains extremely vulnerable to any Russian policy change. For example, in 1980, the Russian trading company slashed its price without warning on its silver bears in Antwerp by 15 percent. To prevent prices from failing, De Beers compensated by distributing fewer such diamonds to its own customers. Like the Goldfinger preemptive buyout, this was, however, only a temporary expedient. If Russia continues to expand its own production of both uncut diamonds and silver bears, De Beers will be unable to stockpile or sell the increment– or maintain the diamond invention.