Africa-Press – Namibia. THE process of extracting, transporting, and selling off diamonds along the Orange River in South Africa is firmly under the control of a state-owned mining company called Alexkor.
Drawing on audit reports, auction records, witness testimony, and unpublished documents from an ongoing corruption investigation, the Organised Crime and Corruption Reporting Project (OCCRP) can show how a company controlled by an ally of the Gupta family was able to game South Africa’s diamond-selling system and manipulate Alexkor’s operations.
The Gupta-linked company Scarlet Sky Investments 60 was allowed to auction and sell off tens of millions of dollars worth of diamonds from the prized Alexander Bay area at reduced prices to dealers across the world.
Some were sold to a company owned by one of Scarlet Sky’s own shareholders, which means he obtained undervalued diamonds he could later resell at market prices.
By systematically undervaluing the diamonds and inviting select bidders to the auctions, Scarlet Sky – which has 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.
The OCCRP investigation reveals the prices at which those undervalued diamonds were sold, as well as details about how Gupta allies worked behind the scenes to influence Alexkor’s operations and cover their tracks, including a last-minute attempt to legalise Scarlet Sky’s activity through a regulatory sleight of hand.
Alexkor did not respond to a set of detailed questions sent by reporters.
BAGS OF CASH The Guptas have made previous ventures into the diamond industry.
But their dealings with Alexkor would prove far more extensive.
To exert influence over the company, the Guptas installed compliant officials in state bodies.
This latest game plan has been laid bare by the ongoing Judicial Commission of Inquiry into Allegations of State Capture, commonly known as the Zondo Commission.
Peter Bishop, a senior investigator for the commission, reported that the Guptas’ involvement with Alexkor began in late 2010, when Malusi Gigaba was appointed as South Africa’s public enterprises minister.
Gigaba would later be publicly linked to the Guptas.
In 2011, Alexkor joined with the Richtersveld Mining Company (RMC), a local firm representing the diamond miners in the Alexander Bay area, to create a joint venture called the Pooling and Sharing Joint Venture (PSJV).
Mervyn Carstens was appointed as the PSJV’s chief executive officer (CEO) in August 2012, and Gigaba appointed Rafique Bagus as its chairperson the following month.
Both men were close contacts of the Guptas and their associates.
According to Bishop, cellphone records show that Bagus spoke to the Gupta brothers Ajay and Rajesh regularly.
He also attended the wedding of Vega Gupta, reportedly the Gupta brothers’ niece, at South Africa’s famous Sun City resort.
Carstens was also in regular touch with Gupta associates, Bishop found.
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.
The process to select this new partner was beset with irregularities, including the fact that Scarlet Sky Investments 60 had no track record in the industry.
Kubentheran Moodley, a politically connected businessman who owns 60% of the company, also had no background in diamonds.
What Moodley did have, however, was connections to the Guptas and former president Jacob Zuma.
Moodley, a former adviser to the then-minister of mineral resources Mosebenzi Zwane, is known to be an associate of the Gupta family.
In testimony to the Zondo Commission, Gigaba denied all wrongdoing.
Contacted for comment, he directed the OCCRP to his testimony, in which he noted that knowing the Guptas did not make him complicit in their wrongdoing.
Reached by email, Bagus denied that he had assisted Scarlet Sky in obtaining the contract or that he had received any instruction from the Guptas and their affiliates to do so.
Carstens did not respond to attempts to contact him through his LinkedIn profile.
Attempts to reach Moodley by email were unsuccessful.
UNDERVALUED GEMS
The owner of the remaining 40% of Scarlet Sky was Daniel Nathan, a diamond trader who claims on his website to have over 30 years of experience in the industry.
A postal address provided by Nathan for Scarlet Sky was also used by at least two directors of Gupta-controlled companies.
In addition, Nathan was apparently linked to the Gupta network through his father, Selwyn Nathan.
Daniel Nathan would prove central to Scarlet Sky’s dealings with the PSJV — and to the complaints about their practices that would later come to light.
Early this year, Gavin Craythorne, a local diamond diver and industry activist who felt the Alexander Bay diamond divers were being cheated, testified to the Zondo Commission about their dealings with the PSJV, Scarlet Sky, and Nathan.
By analysing auction records, Craythorne estimated that Scarlet Sky undersold Alexkor diamonds by as much as 47% during its first year of operation in 2015.
That translates to diamonds with a fair market value of R783 million being sold by Scarlet Sky for just R414 million, Craythorne said.
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 that 30% of the lots sold at auction by Scarlet Sky were below the reserve price – in some cases by up to 90%.
As the auction host, Scarlet Sky was in a position to determine not only the reserve pricing for these diamonds, but who was able to buy them.
According to an unpublished affidavit submitted to the Zondo Commission and obtained by OCCRP, Daniel Nathan could see the top-three bids in these auctions and “could thus share this information with bidders and influence the outcome of the closed bidding process”.
Among the buyers were major diamond traders such as JDB Diamonds, Southern Cross Diamonds, and Ernest Blom Diamonds.
Reached by email for comment, Nathan replied: “All of these issues have been raised and addressed at length in affidavits that have been filed in the Commission of Enquiry into State Capture.
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REGULATORY SLEIGHT OF HAND The South African diamond and precious metal regulator confirmed in a Zondo Commission affidavit that Scarlet Sky has never been issued a diamond trading licence.
With investigations swirling around Scarlet Sky, Nathan attempted a sleight-of-hand manoeuvre to legalise its activities.
The maneuver did not prevent Scarlet Sky’s contract with the PSJV being ended last year.
Scarlet Sky is challenging the termination.
The South African government has also appointed new board members at Alexkor.
The company is technically insolvent and facing a litany of litigation.
Carstens was also suspended from his job as the PSJV’s CEO last year, but later won a R3,2 million settlement because the process was deemed unfair by South Africa’s Commission for Conciliation, Mediation and Arbitration.
The small-scale diamond miners who claim to have lost out from the dealings have not fared as well.
In the years after Scarlet Sky’s appointment, Craythorne and George Nicolaai, another diamond miner operating in Alexander Bay, decided to blow the whistle on their activities.
After going public, both men had their diamond-mining contracts cancelled.
