Sifting Through a Dark Business.(fighting diamond industry's underground market, Democratic Republic of the Congo)(investigation for corrupt practice in deal between Emaxon Finance Corp. and Miba)(Industry Overview)

The world's $7 billion rough-diamond industry thrives on secrecy. Victor Kasongo would like to change that. He heads the Democratic Republic of the Congo's Center for Evaluation, Expertise and Certification--a government agency that regulates the country's big and murky diamond industry. A former Ernst & Young consultant, Kasongo, 41, wants to shed some light on a back-room business that, he says, "has been dark for many years." As part of his transparency and security effort, he's outfitted the agency's offices, towering 17 floors above the decaying capital of Kinshasa, with dozens of video cameras. Inside the office, government experts scrutinize rough diamonds that have been mined in Congo, assigning each of them a precise value. Kasongo says he will soon add a modern touch to his regulatory effort: digital broadcasts of the stone appraisals for buyers in Antwerp, Tel Aviv or Dubai.

Kasongo's reformist ideas have been sparked by the so-called Kimberley Process--the two-year-old international accord that aims to slow the flow of "blood diamonds" out of Africa. They are smuggled stones whose sales have funded rebel armies in Angola, Sierra Leone and Congo. Fifty-four nations have signed the Kimberley accord, which mandates that all rough diamonds be certified by their country of origin before they're exported. Governments around the world ban the trade of gems that are not certified.

But for all the good intentions, diamond-industry experts say the Kimberley Process has not yet done much to slow the trade of illegal diamonds. For one thing, regulators can do little to halt the theft of diamonds that never reach the certification stage. Congo is on a pace to export $600 million worth of certified diamonds this year, said Kasongo. But according to Congo's mining minister, Eugene Diomi Ndongala, about $400 million worth of stones are smuggled out of the country each year, mostly through neighboring Brazzaville. Those are stones that Kasongo's appraisers never get a look at.

Worse, the Kimberley Process may even provide a veneer of respectability to potential misconduct. "Yes, at a superficial level, the Kimberley Process looks good," says Nigel Morgan, a British security expert with extensive experience in Africa. "But it risks being a fig leaf for the same old tricks." In 2000, Morgan was hired to beef up security at Societe Miniere de Bakwanga, or Miba, the state- owned diamond company that accounts for about one quarter of Congo's legitimate exports. But after he pointed out irregularities at the company--chief among them the alleged theft of diamonds by Miba officials--he began receiving death threats and was forced to leave the country.

Congo would test even the savviest reformers. Its diamond industry is highly decentralized, with thousands of miners sifting through alluvial soil for the gem that will make them rich. A vicious five-year-old civil war, which diamonds helped finance, is winding down. Rebels have joined a "unity" government that includes four vice presidents and 61 ministers. Such an unwieldy, broad-based government, say African experts, is likely to perpetuate the old culture of corruption.

In fact, a controversial new diamond deal in Congo has already raised eyebrows among those hoping for more openness in the industry. The contract was secretly signed by government officials last April. It came to light three months later, after a feud developed between Congo's minister of mines and his deputy. The deal gives a company called Emaxon Finance Corp. the right to market 88 percent of Miba's rough-diamond production, which hovers around 600,000 carats a month, for four years. What's more, Emaxon gets a 5 percent discount on its purchase of Miba stones, which previously were sold at auction to the highest bidder. In exchange for the discount, Emaxon will lend Miba $15 million to ...