Undervaluing the stones led to major losses for SA and small-scale miners who rely on the industry
SA’s Gupta family is the subject of a sprawling commission that’s probing years of theft of state resources. An investigation uncovers new details about how the family’s close allies systemically undervalued and sold off tens of millions of dollars worth of diamonds.A Gupta-linked company undervalued diamonds it sold on behalf of Alexkor, a firm owned by the South African government.
Local diamond divers near the river’s mouth carry out much of the mining for these precious stones. But the process of extracting, transporting and selling off the diamonds is firmly under the control of a state-owned mining company called Alexkor. By systematically undervaluing the diamonds and inviting select bidders to the auctions, Scarlet Sky, which never obtained a trading licence, was able to furnish these bidders with cheap stones. In so doing, it contributed to major losses for the state treasury and for the small-scale miners Alexkor pays for the diamonds, many of whom have relied on the industry for generations.
But their dealings with Alexkor, a state-run entity set up in 1992 to mine diamonds along SA’s northwest coast, would prove far more extensive. After becoming minister, Gigaba set Alexkor in a new direction, directing the diamond company to diversify into coal and lime. A man named Mervyn Carstens was appointed as the PSJV’s CEO in August 2012 and Gigaba appointed Rafique Bagus as its chairperson the next month.According to Bishop, cellphone records show Bagus spoke to Gupta brothers Ajay and Rajesh regularly, making 33 calls to them between mid 2015 and early 2016.
In October 2014, after the two Gupta contacts were installed at its top table, the PSJV started shopping around for a new company to market and sell its diamonds. As reported, the process to select this new partner was beset with irregularities, including the fact that the contract winner, Scarlet Sky Investments 60, had no track record in the industry.
Asked about the due diligence performed for Scarlet Sky, he said: “In terms of the due process followed, once preferred bidders are selected, it was the responsibility of management to do the necessary due diligence. This was done and reported to the board of directors through the chair of the cender Committee. The tender evaluation meeting and board meetings are meticulously minuted and all this information is available in those documents.
Nathan would prove central to Scarlet Sky’s dealings with the PSJV and complaints about their practices that would later come to light. A 2019 government report into Alexkor’s activities, known as the Gobodo report, included prices of diamonds sold by Scarlet Sky. Craythorne said his analysis of the numbers showed 30% of the lots sold at auction by Scarlet Sky were below the reserve price — in some cases by up to 90%.
But experts say undervaluation in the diamond industry is a common tactic, allowing purchasers to pay lower taxes and other fees in the country of origin and then later sell the diamonds at higher market prices abroad. In many cases, the institution that undervalues the diamonds for the purchasers’ benefit would then receive a kickback from the purchaser off the books.
Another 10% of the diamonds were set aside for the State Diamond Trader, a state-run agency set up to sell diamonds on the government’s behalf. Carstens was appointed as the State Diamond Trader’s chairperson in 2016, while still serving as CEO of the PSJV, effectively making him seller and buyer of Alexkor’s diamonds.
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