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The Diamond Empire

Original Air Date: February 1, 1994
Produced by Laurie Flynn
Directed by Gavin MacFadyen

 

ANNOUNCER: Last year Americans spent more than $10 billion on diamond jewelry.

HERBERT CHAO GUNTHER, Marketing Consultant: Nobody's aware that diamonds and all the associations we have with diamonds is a product of a marketing strategy. It's completely invisible, transparent. If you measure it 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.

ANNOUNCER: Tonight on FRONTLINE--

PARTY GUEST: Diamonds? Aren't they a girl's best friend? Did something change?

ANNOUNCER: --are diamonds what we think they are, precious and rare?

EDWARD EPSTEIN, Author, "The Rise and Fall of Diamonds": I wound up discovering it was just the opposite. Everywhere where there's carbon, which is everywhere, you find diamonds.

ANNOUNCER: FRONTLINE examines the cartel that controls the diamond trade -- the supply, the price and the myth.

THOMAS HELSBY, Kroll Associates, Corporate Investigators: What makes this cartel different is it's controlled by a single company.

ANNOUNCER: Tonight, "The Diamond Empire."

NARRATOR: In 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 fund-raiser for AIDS research. Elizabeth 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. The evening itself was a glittering tribute to the allure of diamonds.

1st PARTY GUEST: I'm wearing the diamonds because my sweetheart has given them to me and it means love and it means forever.

2nd PARTY GUEST: Diamonds? Aren't they a girl's best friend? Did something change?

3rd PARTY GUEST: Diamonds? Diamonds! They're a woman's best friend.

NARRATOR: But what we think about diamonds is, in fact, a myth. At the center of that myth is an illusion, that diamonds are valuable because they are rare. When writer Edward Epstein set out to investigate the diamond trade, he discovered that diamonds aren't rare at all.

EDWARD EPSTEIN, Author, "The Rise and Fall of Diamonds": Well, 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. That was what the business appeared to be when I started my venture. But 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 and, 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 seemed to have in abundant supply. So I wound up on this voyage of discovery starting off with the idea that there was this object of great value, and it was just a question of how many could you get out, and I wound up discovering it was just the opposite.

NARRATOR: This is the story of how that grand illusion was created, and the story of how one family gained control of the world's diamond trade and for nearly a century has maintained its hold on an empire that defines the very idea of what diamonds really are.

New York is the center of the world's richest diamond jewelry market. It's a $10.8 billion industry. Around 47th Street there are 25,000 people buying, selling, cutting, polishing and marketing diamonds, from the most glamorous jewelry to cheap mail-order.

Very few in the diamond business will talk freely about what they do. There is a great deal of money at stake. There is also a great deal of uncertainty, but that's something top dealers like William Goldberg take in their stride.

WILLIAM GOLDBERG, William Goldberg Diamond Corp.: It's fascinating. It's amazing that a lot of men that I know that are 10 years younger than I am can't wait to retire and I can't wait to get here in the morning at 8:00 o'clock to produce these beautiful works-- you know, these beautiful pieces of art from what looks like a pebble on the beach. And then to nurse it through all its stages and then to finally come up with some of these wonderful things is just a joy. NARRATOR: Goldberg is one of the elite dealers who specialize in rare and precious stones. He has a team of cutters working just off 5th Avenue. Some of the diamonds they handle will sell to royalty and movie stars for a million dollars or more.

Mr. GOLDBERG: This stone took us one of the longest ever, eight or nine months. It was-- it was the most impossible task we-- every time, we had new surprises. Nature is very funny when it comes to these things. You know, there were new hidden imperfections, which we didn't think existed before, which always seemed to sneak in. And we paid in excess of $10 million for this diamond.

ROBERT BOGEL, William Goldberg Diamond Corp.: Everyone here is a very highly skilled technician and some of them have very specific jobs to do. This man, for example, he's cutting the 85-carat stone. Right now, it's around 36-and-a-half carats and he's putting the finishing facets on the bottom of the stone. The man behind him brillianteered-- put the finishing facets on the top of the stone. These gentlemen are very skilled and they do-- they bring out the final fire in the diamond, the brillianteering.

This stone's going to be a gem. This stone started out 38 carats. It's down to 21 now?

CUTTER: It's around 21, yeah.

Mr. BOGEL: Harvey's working the stone out. There's a lot of problems. There's a lot of balancing to do. It's coming out nice. You can see the shape. It's going to be a gorgeous marquis. Moishe's shaping the stone, using a diamond that's attached to this stick and another diamond that's rotating on the spindle, and he's shaping both at the same time.

NARRATOR: They measure diamonds by weight, in carats, five to the gram. Their value depends on color, clarity and cut. Flawless stones which are pink, blue or yellow bring the highest prices. The best can top $100,000 a carat. This stone will sell for a million dollars. Diamond is among the hardest known substances, but many carats must often be ground away to cut a rough stone into a traditional marquis or brilliant. The smallest mistake is inordinately expensive. It calls for expert planning from a rough designer.

Mr. BOGEL: I will try and find the largest most pure stone in here. Matter of fact, this stone will probably end up being three different stones because of the imperfections that I can find. For example, I do see a pear shape and I do see an emerald cut and I do see an oval. The most important thing is bringing out the beauty.

TELEVISION COMMERCIAL: De Beers is very proud to continue the diamond decade by presenting its program for 1992.

NARRATOR: Most of the world's rough gem diamonds come through organizations run by the South African company De Beers, known in the United States by its famous advertising slogan, "A diamond is forever." Fewer than 200 diamond merchants qualify for a sight, the privilege of buying directly from De Beers. Everyone else must by, in turn, from them.

Mr. GOLDBERG: We're sight-holders. We get a sight every five weeks from De Beers. If you can come up with a huge sum of money, it would not-- would-- certainly would not qualify you to be a sight-holder. It's rather the man that started 25 years ago with very little, with one or two cutters, who has 15 or 20 now here and who is constantly on the scene, buying and-- and who-- and he's the man who means to stay here, with his children to follow him. He's the man that qualifies to be a sight-holder. It's like being admitted to a club.

NARRATOR: The headquarters of that club is London. Because it is a virtual monopoly, De Beers cannot operate legally in the United States. All sight-holders must travel here to buy their rough gems, to a building known only as 17 Charterhouse Street. This is a fortress, where 80 percent of the world's gem diamonds are sorted, graded and sold.

A sight-holder sends his request for the grade of diamonds he needs, but there are no guarantees. It is De Beers that decides whether or not he gets them. It's a decision that can make or break his business.

DE BEERS EMPLOYEE: This is your sight for October.

Mr. EPSTEIN: In this shoebox is basically the diamonds that they're going to cut that month. And in this mixture of diamonds, there are large diamonds, there are small diamonds, there are colored diamonds. There's what De Beers wants to be on the market. So they distribute to the cutters what is in short supply and withhold from the cutters what is in abundance, so they control the market through this and there are all sons of hidden signals in this box, like if, suddenly, the sight-holder, as the person's called, gets many diamonds worth hundreds of thousands of dollars, he'll know he did a special favor and he's being rewarded for that favor. The other hand, if he finds he's been given a large number of uneconomical diamonds to cut, he'll realize he's fallen out of favor.

NARRATOR: Even the world's top dealers are at the mercy of De Beers's central selling organization. William Goldberg usually has special requests alongside the ordinary stones, but even he does not know what to expect.

DE BEERS EMPLOYEE: Here are the regular goods and two boxes of specials. So, see you later.

Mr. GOLDBERG: Fine. Thank you very much.

DE BEERS EMPLOYEE: Okay.

Mr. GOLDBERG: See you later.

A-ha! See, this is very interesting. These are greens that come from Botswana and this is a regular, cut-and-dried and bread-and-butter item. And quite often, these are-- these are priced in such a way that there's very little profit to be made on these goods. For whatever reason, at any given moment, they make a policy decision. I've been very angry and cussed a lot and been very upset, but that's-- that's how the cookie crumbles. I have no-- I have no options.

INTERVIEWER: What can you do when that happens?

Mr. GOLDBERG: Just cuss and fret and look forward to the next-- that things will change at the next sight.

INTERVIEWER: Can you leave all that on the table and say, "I'm just-- I'm not interested, I'm not going to make a profit this month"? Can you do that?

Mr. GOLDBERG: I-- I told you on the way over here, we can leave some of the specials, but it's just-- it's not in the-- we just don't leave the regular goods. Somehow, it's-- it's-- it doesn't work that way.

NARRATOR: On a hill in Johannesburg, South Africa, is the private estate of the family that controls the diamond empire. These are the Oppenheimers. In two generations they have built one of the most powerful industrial cartels of the 20th century.

THOMAS HELSBY, Kroll Associates, Corporate Investigators: The diamond cartel has lasted for 70 years and shows no sign of weakening. What makes this cartel different is it's controlled by a single company, a single commercial organization, and that's De Beers. And De Beers itself is controlled by another South African company, Anglo American. Interestingly, Anglo American is controlled by De Beers and that interlocking ownership is what allows one small family company, E. Oppenheimer's & Sons, who own just a small shareholding in Anglo American, to control the whole edifice.

NARRATOR: The diamond mines of southern Africa are the heart of the diamond empire. Diamonds are crystals of carbon, formed in the heat and pressure 1,200 miles below ground. Where volcanoes have brought them to the surface, they can be dug out of the rock. But many have been washed down rivers to the sea and these, the alluvial diamonds, can be picked up along the riverbeds and shorelines.

Sand and gravel are brushed out of the crevices, or scooped in huge quantities out of the hillside, and the rough diamonds are simply sorted out from the rest. There are extinct volcanoes throughout Africa, Asia, Russia, Australia and America and they are littered with diamonds. For a commodity which sells at thousands of dollars a carat, the supply seems truly staggering. Diamonds can even be picked out of these shallow waters along the African coast.

JOHN GURNEY, Offshore Mining Executive: You 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. If you look at what's on the land-- and there's three or four raised beaches on land that have produced more than 100 million carats of diamonds. In one of our concessions alone -- and it's not one of the bigger concessions -- we have mapped 22 beach levels, so you're again going to come out to a number which is of the order of a billion carats or in excess of that.

NARRATOR: Because diamonds are so plentiful, it makes De Beers's virtual monopoly an astonishing feat. Its history begins at Kimberley, South Africa, in 1871. Until that year, mines had been few and diamonds truly rare, mostly from India and Brazil. But the Kimberley find was huge. Among those who rushed to make their fortunes were two young Englishmen.

JOHN RUDD, Former Director, De Beers Industrial Diamonds: Charles Darnel Rudd, my great-grandfather and Cecil Rhodes met here in October, 1871. They were early in the rush here and they would have found an anthill, a mining camp, and as Rhodes described it, as Stilton cheese as the claim holders dug down into this enormous diamondiferous Kimberlite pipe. But their eyes were more directed towards De Beers's mine, which is about a mile over the horizon there, and that's where they dealt with the farmer De Beer and they bought that term out for 6,000 pounds. The thoughts of Rhodes immediately began to concentrate on the amalgamation of all these individual claim-holders. And by 1880, he had amalgamated all the claim-holders on his mine, the De Beers mine, and that began the amalgamation of all the diamond mines and the formation of De Beers Consolidated Mines began in 1888.

NARRATOR: What Cecil Rhodes had launched was a diamond cartel. It was based on an earlier French scheme to monopolize copper -- buying up mines, restricting supply and raising prices. From its first headquarters in Kimberley, De Beers bought out almost every other large mine in South Africa. But shortly before the First World War, diamonds were found over the border, to the north, in German southwest Africa. A young German-born diamond dealer in South Africa went there to investigate. His name was Ernest Oppenheimer.

ALBERT ALLETZHAUSER, Oppenheimer Biographer: Ernest Oppenheimer, in 1914, two months before the outbreak of war, went there to survey the territory and came back with a report that was mind-boggling and subsequently hidden from the public, the fact that this was the richest diamond field in the history of the world. It was an alluvial field, meaning diamonds were on the surface. You could go pick them up. And, in fact, they put what they termed back then "natives," black natives-- each put a tin can around their neck and 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. This is how rich the fields were.

NARRATOR: Oppenheimer saw an opportunity and seized it. The German landowners, afraid of expropriation as World War I came to an end, agreed to merge their companies with his. Because both British investors and American financier J.P. Morgan had stock in his venture, Oppenheimer called his company the Anglo American Corporation. Within a few years, it was clear that he had landed a supply of diamonds to rival even the mines owned by De Beers.

Mr. ALLETZHAUSER: Coming into the 1920s, Ernest Oppenheimer then said to De Beers, who controlled, for the most part, the diamond syndicate, diamond cartel-- he said to them, "Listen, I am going to flood the world market unless you make me chairman of the company." And in 1929, he was made chairman of De Beers. That is the basis of the Oppenheimer fortune.

NARRATOR: Oppenheimer's mine, a private estate three times the size of New Jersey, became an exclusive territory known as the "forbidden zone." It was the bedrock of a world-wide De Beers diamond empire, which the Oppenheimers began to build.

Mr. EPSTEIN: The 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, that diamonds existed everywhere in the world. Everywhere where there's carbon, which is everywhere, you find diamonds.

NEWSREEL: Most every famous diamond in the world is represented in this case. They are worth many millions of dollars and trails of blood--

NARRATOR: While the public continued to imagine that diamonds were rare and romantic, De Beers was mining enormous quantities. Ernest Oppenheimer saw that more huge finds might force prices to go plummeting downwards. In 1930, a De Beers mining engineer warned, "The 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." A De Beers director agreed, "For goodness sake, keep out of the newspapers and parliament the quantity of diamonds that can be produced and put on the market."

But as the colonies developed, diamonds began turning up all over Africa. Local people knew where to find them. Eddy Fortune is one of the small-claim miners in South Africa.

EDDY FORTUNE: In the year 1931, in the morning, I used to leave Kimberley 3:00 o'clock by bicycle and then I used to ride about 31 miles out to a little shack out on the diggings and I used to work there. I didn't have trouble selling diamonds because my quality was very good. There was very big demand. But I never found a big diamond. The biggest I found was 38 carats. But small diamonds and medium-sized -- 10s, 12s, 14s -- plenty of them.

NARRATOR: To keep control, De Beers had to prevent the little mines from putting too many diamonds on the market. The simplest answer was to buy them up.

Mr. FORTUNE: Certain companies came and they bought up the small diggers, you see. That's how they developed and became the big company, De Beers-- bought out everything.

NARRATOR: But alluvial diamonds washed along the riverbanks were much more difficult to control. A film inspired by De Beers in the 1950s portrayed its adventurous young traders setting up buying offices in the jungle.

Mr. ALLETZHAUSER: These 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, and they'd put a box down in the middle of a clearing and they'd start buying diamonds in the local currency. So they'd ship in all these guys to do this, to prevent smuggling.

FOUAD KAMIL, Former Diamond Detective, Anglo American: There is always a competition between the Anglo American-De Beers group and other dealers all over the world for a bigger slice of the world diamond markets. And this did not suit Anglo American. They wanted the whole plate for themselves.

NARRATOR: Fouad 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.

Mr. KAMIL: Diamonds going out of Sierra Leone and other African diamond markets were going to what Anglo American described as "black markets," that is, Antwerp, Amsterdam, Germany, some parts of the United States and Israel. Now, these people were labeled "black markets" by Anglo American, but in their own countries, they were respectable diamond dealers.

NARRATOR: To get information, Kamil says he broke the law and even kidnapped people who fell under suspicion.

Mr. KAMIL: And those that had diamonds, I took them as prisoners. I interrogated them, got the information from them. I kept them as long as I wanted, week to week, some of them months, and released them when I wanted.

There was beatings. There was punishments without food. We did everything we could to extort the information from them. There was a stage when no one dared to pass from there, diamonds or no diamonds. So to put it bluntly, we were a terrorist group. That's what it amounts to.

NARRATOR: The cartel denies that Kamil worked for either De Beers or Anglo American and says his accusations are part of a vendetta against them.

By the 1950s the diamond cartel had amassed enormous power, taking control of diamonds at the source, making deals with colonial powers, building its network mine by mine, country by country.

NEWSREEL: Thirtieth of June, 1960. This was a city of radiant joy, as the people celebrated Congo independence day, a happy occasion full of bright hope.

NARRATOR: In the 1960s, the rise of African nationalism presented new challenges to the cartel.

NEWSREEL: The army of the young republic marches by.

NARRATOR: The Congo's first democratically elected leader, Patrice Lumumba, was critical of the colonial mining arrangements and the local Belgian mining companies supported army actions against him.

NEWSREEL: A new chapter begins in the dark and tragic history of the Congo.

NARRATOR: The coup against the leftist leader was backed by the CIA and it ended in Lumumba's murder.

NEWSREEL: --Colonel Mobutu. Taken to Mobutu's headquarters--

NARRATOR: Mobutu Sese Seko emerged as the dictator of what became Zaire. At first, he, too, sounded like an African nationalist.

STEVE ASKIN, Writer, "Diamond Registry Bulletin": Mobutu had made what seemed like very left-wing, radical statements, talking about the "colonial exploiters," threatening to nationalize all sorts of foreign mining property. And in flies American businessman Maurice Tempelsman.

NARRATOR: Maurice Tempelsman is an independent diamond dealer and a key intermediary for De Beers.

Mr. ASKIN: In a matter of, oh, 10 days, Maurice Tempelsman holds consultations in Brussels with key officials. He meets with the U.S. embassy in Kinshasa, has consultations with the U.S. State Department, speaks with Mobutu, flies on to go meet with Mr. Oppenheimer of De Beers in South Africa in what, according to-- what is certainly shown by a number of declassified U.S. State Department documents to be an attempt to stitch together a relationship between the De Beers empire and the Mobutu regime. So it's very clear that from the very beginning of the Mobutu regime Tempelsman had an important role in, to put it most charitably, advising and guiding Mobutu on how to deal with companies like De Beers.

NARRATOR: The Oppenheimers, through Tempelsman, arranged to have the exclusive supply of diamonds shipped to their offices in London. De Beers has done well on Zaire's diamonds. So has President Mobutu.

Mr. ASKIN: For many years, there was a pattern and a practice whereby, at regular intervals, Mobutu would send some of his agents to Miba, the diamond company, to take a look at the most recent production and to select out the best gem-quality stones to be flown off, presumably to be sold for his account in Antwerp.

NARRATOR: Madame Mobutu also has an eye for diamonds.

Mr. ASKIN: This is somebody who's traveling on a diplomatic passport, who just gets whisked right through Customs, doesn't get stopped. However, there was one occasion a few years ago when Madame Mobutu went off to Belgium and she forgot some of her luggage. She sent her secretary, apparently, back to Kinshasa or back to Gbadolite, where Mobutu has his main palace, to get the luggage. The secretary went into Customs, didn't show the right kind of documents, was stopped and inspected. And, according to the Belgian reports, was found carrying $6 million worth of diamonds.

You just need one word. The word is "kleptocracy." I'm not the person who invented that word. I wish I did. But it's been used by political scientists to describe governments whose fundamental organizing principal is one of theft.

NARRATOR: Mobutu spends huge sums on an army to keep himself in power. He himself is one of the richest men in Africa, while his people are among the poorest.

STEPHEN COHEN, Former U.S. Human Rights Official: Zaire has substantial diamond resources, as well as other mineral resources, and the revenues generated from those resources could have gone to benefit the Zairean people and they haven't. The revenues have gone for two purposes. They've either been siphoned off to Mobutu's private bank accounts or they've been used to provide benefits for foreign governments or foreign companies, in the hope that those foreign governments and foreign companies will then be supportive of Mobutu and help him remain in power. I mean, essentially, Mobutu's used the wealth of Zaire for two purposes: to enrich himself and to enrich his foreign supporters.

NARRATOR: Despite De Beers's deal with Zaire, some mines in the country are beyond its control. These wildcat miners are fighting over a new claim. The diamonds they find will likely be smuggled out of the country to the few markets the cartel still doesn't control.

Mr. ASKIN: You're talking about a country which is certainly one of the two largest diamond producers in the world, where you have this Wild West kind of atmosphere, and looking at it from the outside, I would guess that this is the most difficult relationship over the years that a company like De Beers could have with an African government.

NARRATOR: In neighboring Angola, regulated diamond mining is a casualty of its devastating civil war. In 1992, wildcat miners there swarmed the diamond-rich dry riverbeds, picking up small fortunes in alluvial diamonds. De Beers has spent an estimated half billion dollars to keep them from flooding the market and depressing prices.

Mr. EPSTEIN: Each time diamonds are found in an inconvenient place, they begin, the diamond cartel, through intermediaries, through law firms they hire, ways to think, "How can we prevent these diamonds from reaching the market?" And declaring something a national park, tying things up in litigation -- these are just the methods and there's an infinite number of different methods you could use, once you understand what the objective is. The objective is to prevent mines from being developed that are outside their control.

NARRATOR: Murfreesboro in southwest Arkansas is the home of America's only diamond mine. At the inauguration, Hillary Clinton wore a diamond found in this mine, which was discovered at the turn of the century. But today the 100-acre site is mined only by tourists and amateur prospectors. Commercial mining was abandoned here in the 1920s, even though geological surveys showed the mine had great promise. The Justice Department investigated allegations that Ernest Oppenheimer had illegally influenced the closing of the mine to keep its diamonds off the market.

JOHN HENDERSON, Historian: According to the Justice Department records, Sam Rayburn and other principals of the Arkansas Diamond Corporation met in the office of J.P. Morgan. In attendance at that meeting was Sir Ernest Oppenheimer. As a result of that meeting -- and what transpired is unknown, but the mine superintendent was telegrammed to shut the mine down and prepare it for a sustained closure. And as a result, major operations never resumed at the Arkansas diamond mining plant.

NARRATOR: The Justice Department was unable to determine whether the mine had been closed illegally or simply because it was unprofitable, but in 1992 a new preliminary geological study indicated the mine may, in fact, have commercial potential. Like most deposits, it will produce few gem stones, but many smaller stones could be found. They are important because they're used in cutting tools. Industrial diamonds are a multi-billion-dollar business in their own right.

1st PROSPECTOR: Got one! Got one, Mr. Fred.

2nd PROSPECTOR: What?

1st PROSPECTOR: Got one. It's yellow, light yellow-- light yellow. [crosstalk]

2nd PROSPECTOR: Triangular in shape.

1st PROSPECTOR: Yeah.

2nd PROSPECTOR: I'm going to dig a hole right here, right next to--

1st PROSPECTOR: All right. All right.

NARRATOR: Industrial diamonds have a strategic importance because they're used in the making of weapons. After the Arkansas mine closed, it meant that the U.S. military depended, like everyone else, on De Beers in London. When the Second World War started and Britain was faced with Nazi occupation, American strategists wanted to transfer a stockpile of diamonds to this side of the Atlantic, but De Beers hesitated.

WALTER ADAMS, Professor of Economics, Michigan State University: The story of the 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-- when it denied the U.S. free access to required quantities of industrial diamonds.

NEWSREEL: Defense production in factory and arsenal begins far behind the assembly line.

NARRATOR: Apparently 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. De 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.

Prof. ADAMS: Only after complicated arrangements, where De 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.

Mr. HELSBY: Meanwhile, 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. We 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.

NARRATOR: A U.S. intelligence officer, Henry Lee Staples, led the American investigation into the smuggling. Before he died, he worked with his son on a memoir of those days.

HENRY STAPLES, Jr.: He 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 Forminier mine and the diamonds from the-- that were leaked from the Forminier mine went to various points in Africa and from there were, by various routes, smuggled into Germany. Belgian 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.

NARRATOR: The Allies knew that without the Congo stones, Hitler had only an eight-month supply of industrial diamonds, but their hardest task still lay ahead. How could the smuggling be stopped?

Mr. HELSBY: The Forminier mine is, of course, one of the producers that is signed up in the cartel. Its production is exclusively marketed through the cartel and, indeed, the company which controls the mine, Sobeca, had, as one of its principal shareholders, Ernest Oppenheimer.

Mr. EPSTEIN: So 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. And 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. It 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.

Mr. HELSBY: The investigation was terminated and the agent, Teton, was convinced the investigation was terminated as the result of influence by the cartel on the British government. We were able to obtain declassified documents in Washington showing his cables complaining that his investigation had been aborted early.

NARRATOR: In 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. One U.S. official complained, "This form of profiteering is the more obnoxious because it has been accompanied by pious public professions of sacrifice and patriotic foregoing of profit."

And De Beers's wartime advertising did appeal to American patriotism. "Buy our gems," the ads said, "because they pay for mining which produces the industrial diamonds America needs to win the war."

TELEVISION COMMERCIAL: I was born three billion years ago of fire and light.

NARRATOR: Cornering the world's supply of diamonds was a stunning achievement. No less extraordinary was the cartel's success in creating a demand for its huge stockpile of diamonds.

TELEVISION COMMERCIAL: Who Am I? The eternal gift of love between man and woman. I am a diamond. I am forever.

HERBERT CHAO GUNTHER, Marketing Consultant: The De Beers campaign is probably one of the most successful campaigns-- I mean, you measure it in terms of-- of the growth in the market-- in the 1930s, they were selling a rather insignificant amount of diamonds in America. By the early '80s, they were selling close to $2 billion worth.

NARRATOR: De Beers first targeted American consumers through the movies.

Mr. EPSTEIN: And they opened a Hollywood office and in the Hollywood office, they would give out diamonds to producers, in return for them putting the diamonds in the film in a way that was considered very favorable. Now, what was considered favorable was very simple: surprise. If a woman was brought in on the decision, she might have a lot of ideas of what she wanted, so what they wanted to do was create the idea that the man had to surprise the woman and present her with a diamond.

ACTOR: [Men on Her Mind, 1944] And now for the important question I wanted to ask you.

ACTRESS: Well, it's about time. I'm dying of curiosity.

ACTOR: You know I'm madly in love with you. I want you to marry me, Lily. You're in love with me, too, aren't you?

ACTRESS: Well, if I'm not, then I'm afraid I don't know what love is.

ACTOR: Here's your engagement present, darling.

ACTRESS: Oh, Jeffrey, it's beautiful!

ACTOR: Oh, that's Milo.

ACTRESS: Milo?

ACTOR: Yes. He's wondering what's taking us so long.

ACTRESS: Wouldn't he be surprised if he knew!

ACTOR: I doubt if he'd be surprised at anything.

Mr. GUNTHER: Not only are we talking about what is a familiar process today of planting products in films -- I mean, we've all heard of the product endorsements and that sort of thing -- but we're talking about Hollywood in its golden age, where entire movies were created. They identified the biggest stars, actresses of that period, and they never appeared in public without their De Beers diamonds.

NARRATOR: Claudette Colbert and Merle Oberon were given special scenes to show off their De Beers diamonds. Diamonds Are Dangerous was conveniently retitled Adventure in Diamonds. But De Beers aimed even higher than Hollywood.

Mr. EPSTEIN: The 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. And, of course, the British royal family was more than willing to go along because diamonds came from British colonies.

NEWSREEL: From this, the largest man-made hole in the world, over 100 million pounds worth of diamonds have been recovered. In the De Beers sorting room, three million pounds worth of rough diamonds were on view.

Mr. GUNTHER: The 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. That's a tremendous coup for a public relations agent, to get the royal family to essentially become sales agents.

NEWSREEL: Caskets made of Kimberley blueground embossed with coronets contained a six-carat stone for Princess Elizabeth and a four-and-a-half-carat diamond for Princess Margaret.

TELEVISION COMMERCIAL: You must travel back in time one billion years to witness its birth.

NARRATOR: De Beers advertising set its diamonds in worlds of glamour and royalty, but its best-known slogan arose out of the fear that sales would be undercut if people began putting second-hand jewelry on the market.

Mr. EPSTEIN: So they had to create the idea that, one, you should never sell a diamond, even though its value would only increase and, secondly, that people should store and hoard these diamonds. So the whole idea that a diamond is forever is really their desperate hope that people will hold diamonds forever.

TELEVISION COMMERCIAL: It is love and its only promise is forever.

NARRATOR: In its message to dealers, De Beers reveals its key marketing strategy is to convince consumers to buy diamonds for every romantic milestone.

DE BEERS PROMOTIONAL VIDEO: Let's start with your bread and butter, the support behind the "rites of passage" -- the diamond engagement ring, diamond anniversary band and the 25th anniversary diamond. Our goal is to make diamonds a cultural imperative for all these important occasions in a woman's life. That's why we are continuing to support these segments, so that your 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.

Mr. GUNTHER: Nobody's aware that diamonds and all the associations we have with diamonds is the product of a marketing strategy. It's completely invisible, transparent. If you measure it 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.

DE BEERS PROMOTIONAL VIDEO: That's what we're here for, to respond to your requests and to help you sell more diamonds.

NARRATOR: De Beers's control of African stones and American consumers made it one of the most successful cartels in history, but it would face new challenges as diamond mines were discovered around the world. In the 1950s diamonds were found in a place where neither South Africans nor Americans could easily do business, in Siberia.

NEWSREEL: In 1947, geological prospecting panics entered the Yakutian taiga. Would this daring hypothesis be confirmed or not? The answer was given after seven years of persevering search: Yakut diamonds.

NARRATOR: If the Russians had dumped their diamonds on the market, it might have put an end to the cartel, but 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.

NEWSREEL: The workers gaze with pride at what they have accomplished.

Mr. HELSBY: Russian diamond production was a problem for the cartel. Russia, the communists, were anathema to the South Africans. Equally, the South Africans were an anathema to the Russians. This created a problem for the cartel because they couldn't be seen to be dealing with the Soviet diamond production. The cartel is an operation that's well used to cloaking their business operations in mystery. They simply set up a separate operation owned by a U.K. merchant bank across the street from their offices. The diamonds would appear to have found their way into the central selling organization without a problem.

NARRATOR: By the 1980s, Russian diamonds were pouring quietly through London, into the market. Harry Oppenheimer's son-in-law was seen at the Bolshoi. Officially coming from South Africa, he could not even have had an entry visa.

REPORTER: Could I ask you--

SON-IN-LAW: No. [crosstalk]

REPORTER: I'd like to ask you--

SON-IN-LAW: No.

REPORTER: --what you were doing in Moscow.

SON-IN-LAW: No. Now, just go away. You're being thoroughly unreasonable. You spoke to me politely and I said no. I have nothing to say. Thank you very much.

REPORTER: You don't think it's interesting that--

SON-IN-LAW: I have nothing to say.

REPORTER: Were you just there for the ballet?

Mr. HELSBY: The other interesting feature of the Russian diamond production was that there was an extraordinarily large proportion of medium-sized stones in the quarter- to half-carat size. De 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 low-size stones. And 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.

NARRATOR: As 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. India soon developed into the world's greatest cutting center. There are 750,000 cutters in workshops around Surat, perhaps 100,000 of them children under 13. They place 58 exact cuts on a diamond less than half a carat, smaller than a broken pencil lead. Many children work a 12-hour day, six days a week. They earn 4 cents a stone.

DALE BEARMAN, Jewelry Manufacturer: The Indian diamonds have made it possible to make a low-priced jewelry that looks like a lot. It's called "more flash for less cash." This is the expression that's used in the industry, and this seems to be the trend. We perceive popular retail price points to top out at about $500 -- this is what most of our customers are demanding now -- and starting as low as $75, $80. We just got in some new samples today. These are examples. Here's a ring that sells for $70. There is $2 worth of diamond in this ring. But the fact that we can market it as an article with a genuine diamond makes it more salable. Here's another ring. This is a $90 ring. There's a $1 diamond in here. It's a white finish that makes it appear like diamonds. There's only one diamond in the center.

NARRATOR: When 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. Until then, the cartel had co-opted diamond sources largely in Russia and African countries. Could they repeat the success in a country that was modern and democratic?

NEVILLE LEGG, Pan African Congress, Australia/Asia: The Ashton project certainly had huge reserves which, if it had gone into independent hands, would certainly have challenged De Beers's monopoly. Now, I know that the Indian government had made representations to Australia to take over the marketing. I, myself, met with one independent diamond trader who was visiting from London and he was also putting in his bid and trying to persuade the Australian government that, in fact, as said, there were enormous benefits for Australia and it was not in the interest to further reinforce a monopoly.

NARRATOR: But De Beers pressured Australia by threatening to reduce diamond prices in the categories of stones the new mine would produce. At the same time, the Oppenheimers bought stock in key Australian companies. De Beers chairman, Harry Oppenheimer, flew in to cement alliances and the cartel began to lobby the government and mold public opinion.

Mr. LEGG: Many Australian journalists were invited to South Africa, sponsored by De Beers, to go on, I suppose, tours which were meant to promote De Beers's image and soften the impact of De Beers's penetration into the Australian economy. And 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. So I think De Beers's 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.

NARRATOR: After a major political battle, the cartel scored a crucial victory. The bulk of Australia's output, mainly industrial-grade and small gem stones, would flow through the cartel's central selling organization in London. A small number of rare gem stones, known as the "Argyle pinks," were Australia's own to market independently.

CHARLES DEVENISH,, Perth Diamond Dealer: They 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. The extraordinary thing is nature's thrown up these freaks, which are just unique and special and, you know, they're-- they're something that we're all madly trying to get hold of, can't get enough of.

If 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-carater from Argyle, the two-carater is worth about $22,000. Now, if we could superimpose that color on that small pink into that two-carater, that two-carater would be worth at least a million dollars in today's market. Now, Argyle only gets maybe three, four or five of those stones a year, maximum, out of, remember, 35, 36 million carats of diamonds.

Mr. HELSBY: The De Beers operation is essentially the control of the production of diamonds. They control the chain of supply of diamonds and that's the way in which they control the diamond market. If somebody were to try to go around the cartel, the concern that they would have to have is how long it would last, because of course, De Beers, in the past, has been very successful at bringing all the producers into the cartel.

NARRATOR: Today, a century after it began, the diamond cartel still controls the production, the marketing and the pricing of rough diamonds around the world. But that world is changing and there are new threats to the Oppenheimers' dominance of the diamond trade.

In its largest market, the United States, the cartel cannot operate openly. Its monopolistic control of the worldwide diamond trade violates U.S. anti-trust laws.

Prof. ADAMS: Section I of the Sherman Act says, "Every contract combination or conspiracy in restraint of trade is hereby declared to be unlawful." The 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, but once you have conspiracy among them, the public interest will be undermined.

NARRATOR: Four times since the 1940s the U.S. government has investigated De Beers and its associates under the Sherman act, but bringing a South African company to American justice has proved almost impossible.

JOEL DAVIDOW, Former U.S. Justice Department Attorney We hired a South African solicitor to serve a notice on De Beers in South Africa. It took a while to get any South African lawyer who was willing to even serve the paper. Eventually, 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 and 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.

NARRATOR: And the cartel has successfully kept its executives beyond the reach of American justice.

Mr. ALLETZHAUSER: I'll tell you, when the red flag goes up from their lawyers, these guys are not allowed to set foot in the U.S. The name goes on a computer -- beep, beep, beep, beep, beep! "I'm sorry, sir. We have to subpoena you." And under a subpoena in the U.S., you have no rights. You have to tell everything. You cannot lie. You cannot plead irrelevance. It's for them to decide what's irrelevance. It's not like a court, where you have certain rights. And 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'Hare airport. That's where we're ordered to get to immediately, because they're the laxest in terms of immigration. We can get right out of the country."

NARRATOR: While a subsidiary once paid a nominal fine, De Beers has avoided prosecution in the U.S. Not only has the Justice Department found it impossible to touch the Oppenheimers in South Africa, it has been unable to penetrate the cartel's respectable London operation.

CARL SCHWARTZ, Former U.S. Justice Department Attorney: It's well known that the British government has historically been vigorously opposed to any U.S. enforcement of anti-trust laws against activity that takes place in Great Britain. And, as we know, a great deal of what De Beers does takes place in Great Britain.

Mr. EPSTEIN: Now, the United States has been extending its reach outside its boundaries, sort of as we have done by seizing General Noriega in Panama and prosecuting him with American laws. We've been doing this more and more. And I don't think it's inconceivable that, at a certain point, the fiction that the American diamond industry-- the stores that sell-- the merchants that sell the diamonds and sell most of the diamonds in the world and 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, then I think that fairly soon the Department of Justice will come to the idea that even though the diamonds are handed over in London, they're handed over with rules and stipulations which mean that De Beers is operating in the American market. And De Beers could be tried if they came to that decision, which I think is-- eventually they will.

NARRATOR: And the Justice Department may now be closing in on one alleged De Beers operation.

Synthetic diamonds were developed long ago for use in industry. De Beers has its own factory in Ireland. Its biggest international rival is General Electric. The Sherman Act strictly limits how two giants like De Beers and G.E. can work together, but the relationship they developed in the '80s has been brought into question.

EDWARD RUSSELL, Former G.E. Executive: G.E. developed this process for making a pure C-12 diamond and I was widely quoted in the international press that this would be a several-hundred-million-dollar opportunity for us, but to do it, we'd have to go to gem stones. And we started a process for growing gem stones and after a short period of time, we were making gem stones, 3 to 4 carats, flawless E's, which is a very high grade of diamonds, and because we were growing them synthetically, we had a number of advantages. We could make them all the same size and you could color them. You can make them blues, so it's very easy to grow a 3- or 4-carat blue diamond. Once having established our technical capability to do that, we decided to look at the $4 billion gem stone market.

NARRATOR: But as soon as Ed Russell began to edge beyond industrials and towards the valuable market for gems, he ran into resistance within G.E., from his own immediate boss.

Mr. RUSSELL: Glenn Heiner, who is, at this time, meeting with De Beers on a regular basis and having phone calls and what have you, simply killed the project and said, "We will not compete with De Beers," period.

NARRATOR: Soon afterwards, Ed Russell was fired. He's now suing G.E. for wrongful discharge and alleging it is involved in a cartel with De Beers.

Mr. RUSSELL: What happened after I was terminated, a price increase on all industrial diamond products was put in by G.E. and De Beers. They followed each other with identical prices that were-- were implemented.

NARRATOR: In his lawsuit, Russell claims G.E. fired him for blowing the whistle about its dealings with De Beers. The Justice Department has investigated and for more than a year, a federal grand jury has been hearing evidence on the price-fixing allegation. General Electric denies any wrongdoing, saying it met with De Beers only to discuss exchanging technology and fired Russell because of his poor job performance.

Back in South Africa, still the center of its power, the diamond cartel is also dealing with a political earthquake. What impact will the dismantling of apartheid have on the De Beers monopoly? Harry Oppenheimer, the man who ran the cartel for 25 years, has been a long-time critic of the South African government's apartheid policy.

HARRY OPPENHEIMER: --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, that they are, in fact, two aspects of the same thing, two sides of one coin.

DUNCAN INNES, Author, "Anglo American and the Rise of Modern South Africa": He himself has publicly come out against apartheid on many occasions and continues to do so. I think the problem is -- and this is where he's been criticized in the past. The problem is that the mining houses that he controlled made use of the migrant labor system. They made use of the compound system. They made use of the pass laws. They made use of all the institutions which, in fact, created apartheid. So in that sense, people question why, on the one hand, does this man oppose apartheid, but on the other hand, he makes money out of apartheid.

NARRATOR: A hundred years ago, De Beers's founder, Cecil Rhodes, laid the groundwork for the cartel's success in South Africa.

NEWSREEL: Ironically, the famous empire builder, in his commercial activities, turning the early diamond rush into a vast industry, sowed the seeds of apartheid.

Mr. INNES: Particularly after they discovered the diamond mines, what they were looking for was to try and create a workforce for those mines. And the problem was that they needed unskilled workers, but the problem was that most of the available potential labor force were black people living on the land. And in order to get them into the mines, they had to find ways of forcing them off the land. And one of the mechanisms they adopted was passing various taxes, such as a poll tax, hut tax, even a dog tax, which forced people living on the land to pay cash to the government and they didn't have cash because they were not part of a cash economy. So they therefore had to go into the mines to earn the money to pay the taxes.

NARRATOR: In order to pay their taxes, many Africans had to leave their families behind and walk hundreds of miles to work in the mines. Once inside, a miner could not leave until his contract was over. De Beers's closed compounds became the model for the entire mining industry in South Africa. By the 1960s, these compounds had expanded into enormous complexes housing thousands of men.

GORDON BROWN, Former De Beers Employee: When I arrived in the mine in 1968, I was quite appalled by the conditions for the migrant laborers. The working hours were long. It was a 60-hour week. The conditions under which they worked-- they-- well, they were out in the open, very little protection against the cold and the wind. They weren't given much to eat. They were given half a loaf of brown bread and a flask of cold tea to last them throughout that 10-hour shift. Conditions in the hostels were not much better. There were no decent dining facilities. They had to eat in their rooms out of aluminum buckets. There was no real privacy. The hostels themselves were not very nice places to be in -- single-six hostels, 20 people to a room, in some instances.

NARRATOR: Many black miners still live in segregated compounds away from their families. In a country in which it is illegal to pick a diamond up off the ground and keep it, the miners union claims workers can be dismissed merely on suspicion of stealing diamonds. But today, De Beers says, everybody gets a proper hearing.

MENE DIPICO, National Union of Mineworkers: Any employee who could literally buy a new car is being investigated and people were dismissed summarily because they were suspected of dealing with diamonds. How can they buy a new car? So people were dismissed without a hearing, not a proper hearing, without an inquiry whatsoever. People were dismissed and the reasons given, which was there on paper, was "security reason" and that cannot be follow up, in terms of an appeal, and so on. And our people were very-- were very afraid to take De Beers at a higher level because in our country, De Beers is an empire.

NARRATOR: Ironically, the revulsion of the world to the brutality of the apartheid government contributed to the growth of the Oppenheimers' power inside South Africa.

Mr. INNES: When, in 1960, we had the Sharpeville massacre, a number of international companies in South Africa decided to get out of the country and the-- and many investors also withdrew. Overseas investors withdrew their investments from the stock exchange. Companies like Anglo American and other large corporations then bought up the shares on the stock exchange in order to prevent the exchange from collapsing, which would have generated a financial crisis. Instead of possibly allowing a financial crisis, which would have then forced the government into more difficulties and perhaps brought about an earlier end to apartheid, they actively supported the economy, and therefore gave the government a base from which it could protect itself.

NARRATOR: Companies in the Oppenheimer empire include breweries, paper mills, chemicals, farms and businesses of every description. Today the empire's interests represent up to 40 percent of the total value of the Johannesburg stock exchange.

But as his empire grew, Harry Oppenheimer tried to separate his reputation from that of the pariah government in South Africa. This 1979 De Beers film showed Oppenheimer the reformer.

Mr. OPPENHEIMER: --in 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. We are moving away from that system and we are making a great effort, and I think a very successful effort, to replace it by a system by which the workers in the mines will be permanently resident and will not be going backwards and forwards between the mines and their homes in quite different parts of the country.

NARRATOR: In spite of Oppenheimer's reforms, his early support of black labor unions and other liberal causes, he says he's been hesitant to use his business clout to influence the government's policies. He explained why in an interview with South African television.

Mr. OPPENHEIMER: I think one's got to put this in two ways. I mean, there's my own position, as an individual. I have never believed that the government's policies are right, particularly in the racial field. But I also would think it quite wrong, in my capacity as chairman of the Anglo American Corporation, to use that position in order to try to press the government into views which I believe in, but they don't believe in.

NARRATOR: In a few months, Nelson Mandela will lead the black majority to power in South Africa. But as the election nears, the ANC is sending strong signals that it needs the support of the white business community. So what will the new South Africa mean for the diamond empire?

Mr. INNES: Until there is legislation preventing the existence of these cartels, or until there's a major crack in the market, the cartel will survive. I do know that the ANC is thinking about anti-trust legislation in South Africa for the future, but whether they would include a company like De Beers in that or not is an open question, simply because De Beers is too powerful. If they were to include De Beers in that and De Beers were to stop producing diamonds, it would be very serious for our economy.

NARRATOR: Another challenge to the cartel's power is the political unrest in the former Soviet Union. Boris Yeltsin is unhappy with the terms of a five-year De Beers contract signed by Mikhail Gorbachev. In 1992, the Russian parliament investigated an allegation that De Beers had undervalued Russian diamonds.

MENDY KASZIRER, Former De Beers Sight-Holder: I think it's difficult to estimate how much they lost, actually, with De Beers. Could have very, very well been possible that if they would have sold the goods to somebody else, that they would have made also only the same price. There just wasn't anybody else who could get in. That's the difference and that's why we go back to the monopoly.

NARRATOR: Yevgeny Bishkopf oversees the country's diamond stockpiles.

YEVGENY BISHKOPF: [through interpreter] It'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. And we're going to negotiate with De Beers about reducing this quota. Let us hope that a mutually beneficial solution will be found. Let us not approach these issues from the point of view of, "What if they say no?"

NARRATOR: Russia has more leverage than other producers. It's diamond production is greater than South Africa's. Its deposits in the ground are immense and its stockpiles may exceed even those of De Beers.

Russia's instability and desperate need for hard currency are potentially devastating to De Beers. These millions of carats of diamonds, if suddenly dumped onto the market, could destroy the cartel.

Two years ago, the Oppenheimers opened an office in Moscow. They seemed to spare no effort to cement friendships and influence people in government circles, trying to keep the Russians inside the cartel.

Despite all the forces that threaten the diamond empire, the cartel seems to approach these latest challenges with a serene confidence.

Mr. OPPENHEIMER: I think you carry on with where you find yourself in life. I chose my father with discretion and I found myself in a certain position and, I mean, like the prayer book says, I have sought to do my duty in the station in which it pleased the Lord to call me.

NARRATOR: After a century of maneuvers to control the supply and price of diamonds, the cartel's greatest accomplishment may be that it has transformed the illusion that diamonds are valuable into a hard reality. And the future of the diamond empire may now rest with the complicity of millions of consumers, all invested in the myth that diamonds will be valuable forever.

TELEVISION COMMERCIAL: Give her what her heart wants most -- a diamond.

Mr. EPSTEIN: People feel that a diamond is only desirable because it's a symbol of great sacrifice. A man will make a great sacrifice to a woman and take a portion of his wealth and buy a diamond.

ACTOR: [TV commercial] I know. You shouldn't have waited 10 years for this.

Mr. EPSTEIN: If a diamond cost relatively nothing -- say, $5 or $10, what a breakfast costs -- it would have the same esthetic value, but not the same value in the imagination that it has. So people like spending a lot of money on diamonds.

ACTOR: /TV commercial] --that I waited 25 years to give you this.

ANNOUNCER: /TV commercial] The 25th anniversary diamond -- a brilliant celebration of the loving marriage.

ACTRESS: [TV commercial] I've got goose bumps!

Mr. EPSTEIN: So like all deception, the person who's deceived plays a part in the deception, as well as the deceiver. It's not a one-person act. It's two people, the deceiver and the deceived, acting in collaboration.

ANNOUNCER: [TV commercial] More profound than words -- diamonds.

[De Beers, Anglo American and the Oppenheimer family all declined to be interviewed for this program.]

ANNOUNCER: Last July, FRONTLINE examined the trial of day care owner Bob Kelly, who was charged with sexual abuse of 12 children. His wife, Betsy, watched as he was convicted and sentenced to 12 consecutive life terms. Eight months later, Dawn Wilson, who worked at the day care and who had rejected a plea bargain, was also found guilty and sentenced to life. Betsy Kelly was to be tried next, at the end of this month, in Edenton, North Carolina.

In 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. Roswell Streeter spoke for the three jurors.

ROSWELL STREETER: [FRONTLINE, "Innocence Lost: The Verdict"] The evidence wasn't there. I didn't see no hard evidence.

ANNOUNCER: Dennis Ray voiced the opinion of the other nine jurors.

DENNIS RAY: [FRONTLINE, "Innocence Lost: The Verdict"] Once I heard the actual things that went on, the evidence was there.

ANNOUNCER: Some jurors also told FRONTLINE producer Ofra Bikel that the jury behaved improperly in the deliberation room.

Mr. STREETER: [FRONTLINE, "Innocence Lost: The Verdict"] It was not honest. It was contaminated. It was not fair, didn't follow the judge's instruction.

ANNOUNCER: They claimed that outside information was brought into the jury room, including a Redbook magazine article describing a pedophile.

Mr. STREETER: [FRONTLINE, "Innocence Lost: The Verdict"] That's what the article was about, a pedophile, and we wrote the characteristics of a pedophile on the board and, in so many words, we diagnosed Bob Kelly as a pedophile. Well, the majority of the jury diagnosed Bob as a pedophile.

ANNOUNCER: Last month, Robert Kelly was granted a hearing for a new trial, based on jury misconduct. Nine jurors, including Dennis Ray, took the stand and swore that there was no outside information in the jury room. He also denied every seeing Redbook magazine there, in spite of evidence showing he himself had taken notes from the magazine during deliberations.

DAVID RUDOLPH: It says in this article from Redbook that--

ANNOUNCER: David Rudolph, Kelly's appeal lawyer, questioned Ray about his notes.

Mr. RUDOLPH: Excuse me?

Mr. RAY: Power.

Mr. RUDOLPH: Sense of power.

Mr. RAY: That's right.

Mr. RUDOLPH: Exactly what you had on your list, correct?

Mr. RAY: Yes, sir.

Mr. RUDOLPH: The only explanation you have for this is that it's an amazing coincidence?

Mr. RAY: Yes, sir.

Mr. RUDOLPH: Well, you had another explanation for Ofra Bikel, didn't you.

Mr. RAY: What?

Mr. RUDOLPH: That the Redbook was in the jury room.

Mr. KAY: I said there was books in the jury room, yes, sir.

Mr. RUDOLPH: Did you not say that the Redbook was in the jury room and that you wrote the things up on the board, to Ofra Bikel?

Mr. KAY: No, I did not.

Mr. RUDOLPH: You're under oath, sir.

Mr. RAY: I do not remember saying that to her, no, sir.

Mr. RUDOLPH: Did you say it or not? You're under oath.

Mr. RAY: I do not believe I did.

OFRA BIKEL: [FRONTLINE, "Innocence Lost: The Verdict"] Mr. Williams kept talking about the Redbook magazine, correct?

Mr. RAY: There was an article in one of the Redbook magazines that was-- just happened to be there that someone started going through and it was-- they was listing some of the characteristics of a pedophile and we put it on a board.

ANNOUNCER: Bob Kelly's wife, Betsy, was at the hearing.

REPORTER: --kind of showed you contradicting yourself on the stand. What do you have to say about that?

Mr. RAY: I don't think so.

ANNOUNCER: In fact, the appellate court had already ruled that the presence of Redbook magazine in the jury room was not grounds for a new trial for Bob Kelly.

Betsy Kelly's lawyer, Joe Cheshire.

JOE CHESHIRE: It was, for a trial lawyer, an amazing thing to listen to and-- and it did-- it did enhance one's hopelessness at the-- at the ability of a defendant to get a fair trial in these kinds of cases.

ANNOUNCER: The next day, he met with Betsy Kelly. He told her the prosecution was looking for a deal and that she could plead "no contest" instead of "guilty." With 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. She had a day to think it over.

BETSY KELLY: I once again was hit between the eyes with the fact that everything that I ever believed in and everything I ever trusted was no longer there.

JUDGE: What is to your plea as to those offenses?

Mrs. KELLY: I plead no contest, sir.

ANNOUNCER: On January 21st, 1994, Betsy Kelly signed the plea bargain, still maintaining her innocence.

Mrs. KELLY: When I began this journey about five years ago, I was a very strong, a very optimistic, a very believing and a very innocent person. And 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.

ANNOUNCER: Last Friday, Betsy Kelly was taken to Raleigh prison for women to begin serving her sentence. The judge has not yet ruled on Robert Kelly's motion for a new trial.

Next time on FRONTLINE, the media feeding frenzy on the Michael Jackson story.

EDITOR: We practice a form of checkbook journalism, but so does everybody else.

ANNOUNCER: FRONTLINE examines the impact of the tabloids on American journalism in "Tabloid Truth."

Copyright (c) 1994 WGBH Educational Foundation