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Diamond market and war: A historical aspect

07 march 2022

Historical analogies are not a very reliable analytical tool, but sometimes, they make you think about the motives of conflicts, the understanding of which may be more important and more interesting in the long term than up-to-date operational forecasts.

On 22.06.1948, the Council of Ministers of the USSR adopted Resolution No. 2792-1150ss, according to which all diamonds captured in the Soviet occupation zone in Germany were transferred to Gokhran. This document summed up the long-term work of the specialized trophy brigades that were part of the Trophy Committee under the State Defense Committee. The Trophy Committee was established in April 1943 under the chairmanship of Marshal K. Voroshilov who did not get military credit in World War 2 but was a very capable administrator. In parallel with the Trophy Committee, there was also a “Voroshilov Commission” dealing with the war reparations and the use of German prisoners-of-war at the USSR enterprises1. After the liquidation of these institutions, K. Voroshilov continued to control the captured diamonds in the rank of a Deputy Chairman of the USSR Council of Ministers; the last of the archival documents we found on the captured diamonds with his signature dated 19492.

The USSR received about 400,000 carats of industrial diamonds as trophies. This quantity is staggeringly great considering that the average annual consumption of rough diamonds by the entire USSR industry from 1941 to 1945 was 109,600 carats3. And those were only rough diamonds captured in the Soviet occupation zone. Of course, part of rough diamonds was simply not found, some part was destroyed during the bombing of industrial facilities (unfortunately, diamonds can burn), and a significant part of rough diamonds remained in the Allied occupation zone. Nevertheless, the German military industry manufacturing huge amounts of most advanced weapons at that time at a continuously accelerating pace could afford to keep these strategic rough diamonds in its warehouses in the quantities equal to four (most likely, more) volumes of rough diamonds consumed annually by USSR that was the Germany’s main enemy. Germany did not mine rough diamonds after the First World War and did not control any deposits on the planet. Who was its supplier? And what were the conditions for delivering the rough diamonds?

For almost forty years after World War 2, instead of answering these questions they had kept utter silence or said fantasies that had nothing to do with reality. The documents of the Trophy Committee and “Voroshilov Commission”, especially since the documents of Gokhran were (and to a large extent are still) kept in secret in the Soviet and Russian archives, the same situation with similar sources was in the archives abroad. The absence of primary sources forced serious authors to take on faith a thesis actively promoted by researchers directly or indirectly influenced by De Beers and saying that “During World War 2, the Central Selling Organization (CSO) blocked the supply of rough diamonds to Hitler’s Germany, which caused significant damage to the aggressor’s military industry”4. This statement had been repeated many times for decades and actively promoted by the owners and senior management of the diamond monopolist.

In the early 1980s, Harvard University professor Edward Jay Epstein, a historian and investigative journalist, achieved the declassification of some documents of the Ministry of Defense, Ministry of Justice and the Office of Strategic Services (the predecessor of the CIA) of the United States, which showed that a significant source of industrial diamonds for the Third Reich was the Forminiere company operating in the diamond mines located in the Belgian Congo and affiliated with De Beers. Epstein’s version was described in the book “The Rise and Fall of Diamonds: The Shattering of a Brilliant Illusion” (1982)5. In 2003, Janine Farrell Roberts, a British and Australian researcher, published the book “Glitter & Greed: The Secret World of the Diamond Cartel” where Epstein’s version of the cooperation of De Beers with the Nazis was significantly substantiated. It is noteworthy that these two books have never been translated into Russian and have never been published in Russia.  

Today, the Trophy Committee’s documents that are at our disposal allow us to confirm the data of Janine Roberts that Germany received about 500,000 carats of industrial diamonds annually during the war years. Curiously, the USSR received about the same amount from England supplied under the Lend-Lease programme. Both for the industry of the Soviet Union and for the industry of Germany, those supplies were clearly excessive, but while the USSR stored the surplus in Gokhran, Germany generously supplied the rough diamonds to the Japan’ military-industrial complex, mainly to its aviation sector. The combined annual consumption of Germany and Japan during the war was approximately 350,000 carats of industrial diamonds. These almost equal volumes of rough diamonds supplied to the USSR and Germany were a clear indication that the supplies came from the same source, since De Beers controlled over 95% of the world diamond market in those years. But one detail that brings the necessary completeness to the historical picture should be added to Epstein’s and Roberts’ data.

In June 1945, the Soviet military intelligence “hit the jackpot”. SS Oberfuhrer Erich Purucker, Hitler’s adviser on jet aviation, was detained and brought to Moscow. Purucker was a highly qualified engineer and a competent “military and economic officer” (as he was called in the interrogation protocols) aware of the subtle nuances of the functioning of the Third Reich’s defense industry. For obvious reasons, he turned out to be very talkative and was very eager to “provide great services to the Russian state in all areas of industry and economy”6.

The information provided by Purucker made several volumes and served as guidelines for the “trophy teams” hunting for German developments, primarily in the field of jet engine construction. Among other information, Purucker described in detail the logistics chains of the alloying material supply to the German factories for the production of heat-resistant alloys necessary for the manufacture of turbojet engines, as well as industrial diamonds and diamond tools for their processing. According to his testimony, the traffic of rough diamonds smuggled from the Belgian Congo and going through Tangier and Cairo could be considered a channel of secondary importance. The main supplies went through Francoist Spain directly... from Great Britain. This channel functioned reliably for almost the entire war - from 1940 to 1944. Moreover, not only industrial diamonds were supplied through this channel, but also the diamond tools necessary for processing turbine blades, as well as their production technology developed by the English engine manufacturing companies.

Information about the supplies of strategic goods by American and British companies through Spain to Hitler’s Germany during the war became a revelation to the Soviet leadership. The scale of supplies was impressive even without rough diamonds, for example, the Nazis received about 50,000 tonnes of Texas oil from Standard Oil every month through Franco, and several tankers of this company were sunk by the German Kriegsmarine. Puruker was prepared for the role of a witness at the Nuremberg International Military Tribunal on this sensitive topic. But he did not testify at it, as it was decided to hold on to an important “trump card”. For his silence, two major British brokers of industrial diamonds who collaborated with the Nazis “paid” to the USSR - but that is another story.

So, ready-made diamond tools should be added to the 400,000 carats of the industrial diamonds captured in Germany, without which it would be impossible to manufacture turbojet engines. Part of these tools were made in Britain and some tools were manufactured using British technologies. In 1946, large-scale production of RD-10 (JUMO-004) and RD-20 (BMW-003) turbojet engines was launched in the USSR. Those perfect copies of German turbojet engines were produced for three years using German equipment and German technologies, as well as the captured diamond tools. The USSR did not produce its own diamond tools for processing parts made of heat-resistant alloys until 1959.

But the real “cherry on the cake” is the fact that industrial diamonds and diamond tools were obtained by Germany and the USSR free of charge during the war years. The deliveries to the USSR were made under the Lend-Lease programme. And shortly after the war, the Belgian bank Société Générale affiliated with De Beers made out a $25 million invoice to Germany for the diamonds delivered but not paid for. So, the profit of the supplier was not an immediate gain - the idea was much more interesting: the two parties that received free rough diamonds (as well as other strategic goods) were expected to “beat” each other half to death, so that they would lose the opportunity to pretend to take any serious position in the resource markets. One of the most impressive results of WW2 was the almost complete cutting off of Germany and Japan from pricing mechanisms in the markets of oil, industrial metals and other strategic raw materials, including rough diamonds. Can anyone today name a German or Japanese mining or oil and gas company capable to compare with Anglo-American, Rio Tinto, Chevron, British Petroleum, BHP, etc. Are the two largest economies in Europe and Asia not interested in this business?

And does anyone remember today about “Deutsche Diamanten-Gesellschaft mbH”? But once, it was a very serious competitor for De Beers at the dawn of the diamond market.

Sergey Goryainov, Rough&Polished

 

1 Filitov A. M. “Voroshilov Commission” - the Leading Body of Soviet Planning for Germany during the Great Patriotic War. Collection «Victory. Vol 10. Diplomatic Agreements during the “Great War”». M., 2015. Pages 89-94.
2 The State Archive of the Russian Federation. F. R5446. Inv. 51a. File. 4684.
3 The State Archive of the Russian Federation. F.5446. Inv.48a. File. 825. Sh. 102.
4 Teslenko V.V. Organization of Trade in Precious Stones. M., INFRA-M, 1997, P. 90.
5 https://www.edwardjayepstein.com/diamond/chap9.htm
6 The State Archive of the Russian Federation. F. R7317. Inv. 12. File 45.