S E C R E T TEL AVIV 002447
NEA/IPA INR/TNC TREASURY FOR GLASER, D.
E.O. 12958: DECL: 10/28/2018 TAGS: PREL, KPAL, KTFN, EFIN, IS SUBJECT: CASHLESS IN GAZA?
REF: A. 10/22/08 AGOR-BURNETT HOLMSTROM ET. AL. E-MAIL B. TEL AVIV 2144 C. TEL AVIV 2291 D. TEL AVIV 1742 E. TEL AVIV 1508 F. TEL AVIV 1075 G. TEL AVIV 624 H. 07 TEL AVIV 3201 I. JERUSALEM 1840
Classified By: DCM Luis G. Moreno for Reasons 1.4 (b) and (d)
1.(S) Since the Hamas takeover, Israel has designated Gaza as a &hostile entity,” and maintained an economic embargo against the territory. Under this designation, decisions on shekels in circulation in Gaza and the territorys economy in general are treated by the GOI as security matters, and therefore are subject to the same high levesl of uncertainty that the GOI uses to keep potential sources of security threat off-balance. Israeli officials have confirmed to Embassy officials on multiple occasions that they intend to keep the Gazan economy functioning at the lowest level possible consistent with avoiding a humanitarian crisis. The Palestinian Authoritys request for a guaranteed “floor” transfer rate of NIS 100 million per month will not be seriously considered by the GOI until after January 2009, when the Palestinian political situation becomes more clear. In any case, given the size of the population and economy in Gaza, GOI interlocutors find it implausible that the number of workers on the Palestinian Authority,s (PA) payroll there and the amount of money to be paid each month accurately reflect the current size of the territory,s civil service or its future government service requirements, nor do they agree with the PAs contention that these payments are buying loyalty. Furthermore, GOI officials doubt the effectiveness and authority of the Palestinian Monetary Authority (PMA) to regulate and police banks in Gaza. Israeli officials reject the PA,s argument that denying banks the liquidity to pay PA salaries in full bolsters the Hamas regime. While some acknowledge the gains to Hamas from a weakened formal banking sector in Gaza, they argue that such gains are small relative to the cost of giving Hamas greater access to shekels or the economic benefits they bring to Gazans. A USG policy that encourages the GOI to review its present policies (as requested by the Office of the Quartet Representative and the PA) while pressing the Israelis to approve as much funding each month as possible under security constraints, assisting the PA to improve its regulatory regimes and due diligence procedures, and continuing to foster direct dialogue between officials of the GOI and PA on Gaza issues in the monthly Joint Economic Commission meetings is our best bet for minimizing economic/political gains to Hamas in Gaza.
GAZA IS A HOSTILE ENTITY
2.(C) While the GOI believes that maintaining the shekel as the currency of the Palestinian Territories is in Israel,s interests, it treats decisions regarding the amount of shekels in circulation in Gaza as a security matter. Requests by Palestinian banks to transfer shekels into Gaza are ultimately approved, partially approved, or denied by the National Security Council (NSC), an organ of the Israeli security establishment, not by the Bank of Israel (BOI). As part of their overall embargo plan against Gaza, Israeli officials have confirmed to econoffs on multiple occasions that they intend to keep the Gazan economy on the brink of collapse without quite pushing it over the edge (see reftel &D8). The PAs request to set an NIS 100 million floor on monthly transfers to Gaza is being looked at, but no action will be taken until after January 2009, when the Palestinians political situation becomes more clear. Complicating the Gaza issue, and Palestinian banking as a whole, is Bank Hapoalim,s recent decision to terminate its correspondent banking relationship with the Palestinian banking sector (see reftel &C8). Hapoalim remains determined to stand by its objective to sever ties on November 30, though observers have their doubts that Hapoalim will follow through on the initiative (septel).
3.(SBU) The GOIs monetary policy towards Gaza is consistent with its declaration that Gaza is a “hostile entity.” Some observers have told Emboffs that political pressure arising from the issue of captured Israeli soldier, Gilad Shalit, may have influenced high-level Israeli officials to tighten their stance on monetary policy (see ref &A8). However, this has not been raised or confirmed by any high-level GOI contacts. The GOI position on cash to Gaza has remained negative since the Knessets declaration that it was a hostile entity.
THE PAYROLL DILEMMA: WHO IS ACTUALLY RECEIVING PA PAYCHECKS IN HAMAS-CONTROLLED GAZA?
4.(S) The PA contends that Hamas, ability to pay its workers, salaries each month combined with the inability of the PA to do so causes further deterioration in support for PA/Fatah relative to Hamas (reftel &I8). The GOI, on the other hand, believes that many of the estimated 77,000 wage earners on the PAs payroll may actually be Hamas members or affiliates. Israeli security analysts argue that a considerable portion of the civil service salaries that the PA attempts to pay each month to its Gazan employees actually find their way to Hamas or Hamas supporters (see reftel “D”). They have therefore determined that full coverage of the payroll is contrary to Israel,s security interests, even if Hamas gains some political advantage from being able to pay its salaries in full. Whether money finds its way into the territory by means of the PA payroll or the Hamas payroll, says the GOI, Hamas experiences a net increase in its funding. Israeli analysis suggests that it is best to deny the terrorist regime a larger pool of funds in Gaza, no matter the origin, preferring to minimize Hamas, ability to purchase weapons or equipment for use against Israeli civilians. Thus, they reject the PA,s argument that denying banks the liquidity to pay PA salaries in full bolsters the Hamas regime (see reftel &I8).
5.(S) Furthermore, GOI officials, while often praising the credentials of PA technocrats, doubt the effectiveness and authority of the Palestinian Monetary Authority (PMA) to regulate and police Palestinian, and especially Gazan banks. This double standard in the treatment of Gaza and the West Bank by the GOI is yet another example of how Gaza is becoming increasingly isolated from the West Bank, despite the best efforts of the PA/Fatah to maintain unity. These issues come to the fore at the end of every month when the PA tries to make payment to its &employees8 in Gaza.
HOW MUCH MONEY DOES GAZA ACTUALLY HAVE?
6.(S) Observers speculate as to the amount of shekels circulating in Gaza. The BOI has established a history of routinely approving all requests from the Palestinian banks to exchange spoiled shekel notes from Gaza for new notes. This is not a security issue as it does not increase the total number of shekels in circulation. In order to support a minimal level of commerce and provide for minimal necessities such as food, utilities, and medical supplies, analysts agree that there must also be a certain outflow of cash from the territory to Israel, the West Bank, or other countries. The September 11, 2008 report of the International Crisis Group Middle East Briefing estimates this outflow as 30 percent of Gaza,s total shekel holdings each month. Unfortunately, since Gaza tends more and more towards a cash economy based upon movement of goods through its tunnels to the Sinai, it becomes increasingly difficult to estimate this amount with accuracy. Udi Levi (strictly protect), a high-ranking official in the Israeli security establishment, commented to Econcouns in October that at least 1.8 billion shekels are currently unaccounted for in Gaza.
WHO APPROVES THE INTRODUCTION OF NEW CASH TO GAZA?
7.(C) The NSC, an organ of the Israeli security and intelligence community, ultimately has the final say in permitting new liquidity into Gaza. When the PA or a Palestinian commercial bank ask to move shekel bank notes into Gaza, the request is usually submitted to the BOI. The BOI defers to the NSC though it may act in an advisory capacity to inform the NSC on the state of the Gazan economy or possible consequences of action or failure to act. When the NSC ultimately approves a particular amount, the IDF routinely permits the cash to enter Gaza. In determining how much new liquidity can enter Gaza at any given time, the NSC considers several factors, including the humanitarian situation in the territory. The NSC abides by the principal that Gaza should receive just enough money for the basic needs of the population but it is not interested in returning the Gazan economy to a state of normal commerce and business. The agency tries to approve a reasonable amount of new money for entry into the territory each month; however, it will not permit any large scale transfer of assets from Ramallah-based banks to their branches in Gaza for fear of improving the purchasing power of entities wishing to harm Israel. NSC officials have been unable to advise econoffs of any particular formula used in arriving at a figure, but the fluid state of Gazan, PA, and Israeli politics make it difficult to anticipate factors that might have a bearing on the decision from month to month.
SO WHAT SHOULD THE USG DO?
8.(S) Embassy Tel Aviv has encouraged the GOI to review its policy on Gaza liquidity, as requested by the Office of the Quartet Representative and the PA. As noted above, we do not expect that review to result in any changes until the political situation between Hamas and Fatah becomes more clear, presumably after January 9, 2009. In the meantime, we believe the USG should continue to encourage the Israelis to approve as much funding as possible each month, consistent with our mutual political/security objectives in Gaza. We should continue to assist the PA to improve its regulatory regimes and due diligence. Finally, the USG should continue to promote use of the Israeli-Palestinian Joint Economic Committee as the appropriate venue for resolving Gaza liquidity issues.
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STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN
E.O. 12958: DECL: 11/12/2018
TAGS: PGOV EMIN ASEC PHUM ZI
SUBJECT: REGIME ELITES LOOTING DEADLY DIAMOND FIELD
REF: 2007 HARARE 319
Classified By: Ambassador James D. McGee for reason 1.4 (d)
¶1. (C) The CEO of a British mining company described to us
how high-ranking Zimbabwean government officials and
well-connected elites are generating millions of dollars in
personal income by hiring teams of diggers to hand-extract
diamonds from the Chiadzwa mine in eastern Zimbabwe. They
are selling the undocumented diamonds to a mix of foreign
buyers including Belgians, Israelis, Lebanese, Russians and
South Africans who smuggle them out of the country for
cutting and resale elsewhere. Despite efforts to control the
diamond site with police, the prospect of accessible diamonds
lying just beneath the soil’s surface has attracted a swarm
of several thousand local and foreign diggers. The police
response has been violent, with a handful of homicides
reported each week, though that number could grow as diggers
arm themselves and attract police and army deserters to their
ranks. END SUMMARY
High-Ranking Officials Trading Diamonds
¶2. (C) On November 6, poloff met with Andrew Cranswick, the
CEO of African Consolidated Resources (ACR), the
publicly-traded British firm that had its Chiadzwa diamond
claim in the Marange district of Manicaland seized by the
government parastatal Minerals Marketing Corporation of
Zimbabwe (MMCZ) in 2006 (reftel). According to Cranswick,
there is a small group of high-ranking Zimbabwean officials
who have been extracting tremendous diamond profits from
Chiadzwa. Cranswick said that RBZ Governor Gideon Gono,
Grace Mugabe, wife of President Robert Mugabe, Vice President
Joyce Mujuru, Mines and Mining Development Minister Amos
Midzi, General Constantine Chiwenga and wife Jocelyn, CIO
Director Happyton Bonyongwe, Manicaland Governor Chris
Mushowe, and several white Zimbabweans, including Ken Sharpe,
Greg Scott, and Hendrik O,Neill, are all involved in the
Marange diamond trade.
¶3. (C) On October 14, econ specialist traveled to the
periphery of the no-go area around the Chiadzwa diamond site
located about 60 km southwest of Mutare in Manicaland.
Repeated inquiries about who was involved in the diamond
trade elicited many of the same names mentioned by Cranswick.
¶4. (C) Econ specialist also met with Manatsawani Mutasa, a
ZANU-PF Central Committee member and Manicaland resident, who
added that Justice Minister Patrick Chinamasa, Women’s
Affairs Minister Oppah Muchinguri, and Sabina Mugabe–sister
of President Mugabe–have also been profiting from the
purchase and sale of Chiadzwa diamonds.
How the Chiadzwa Diamond Trade Works
¶5. (C) The GOZ possesses the diamond mining rights to
Chiadzwa, but the Zimbabwe Mining Development Corporation
(ZMDC) does not do any extraction itself. The ZMDC brought
in some mining equipment in 2006 after seizing the mining
rights from ACR, but their efforts were minimal and soon
halted altogether. According to Cranswick, all extraction is
now being done by hand panners who merely sift the top meter
of soil. Some of these panners operate in teams that sell
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their diamonds to representatives of the above-named
officials and connected elites. Other panners are individual
operators who merely sell to the highest bidder. Often the
panners who are affiliated with a particular regime buyer,
will only sell a portion of their diamonds to that person’s
representative, holding back the remainder to sell for higher
prices to foreign buyers offering hard currency.
¶6. (C) The diamonds that are sold to regime members and
elites are sold for freshly printed Zimbabwean notes issued
by the RBZ. These diamonds are aggregated and resold to
foreign buyers for US dollars or rand in nearby Mutare, in
Harare, over the border in the Mozambican towns of Manica and
Chimoio, or even in South Africa. (NOTE: Econ specialist
reported that Mutare was awash with diamond money. The
Holiday Inn was booked with guests checking in for weeks at a
time. Food prices in shops near Marange were exorbitant, with
meat prices four times higher than in Harare. END NOTE.)
¶7. (C) The diamonds that are not sold to regime members and
elites, but instead are sold directly to foreign buyers,
actually constitute the majority of the diamond trade in
Chiadzwa. Cranswick said that around 85 percent of the
diamonds extracted from Chiadzwa are sold directly to foreign
buyers. Even so, he conservatively estimated that Mujuru,
Gono and the rest were probably each making several hundred
thousand dollars a month.
¶8. (C) Whether bought first by regime members or not,
eventually the diamonds are sold to a mix of Belgians,
Israelis, Lebanese (the largest contingent), Russians, and
South Africans. A well-known buyer named Gonyeti fronts for
Gono, as do two other buyers named Tendai Makurumidze and
Takunda Nyaguze, according to Mutasa. Once sold to
foreigners, the majority of the diamonds are smuggled to
Dubai and sold at the Dubai Multi Commodities Centre
Authority, a dedicated economic free-trade zone created in
2002 for the exchange of metals and commodities, most notably
gold and diamonds. Although Zimbabwe is a participant in the
Kimberley process, the diamonds from Chiadzwa are
undocumented and therefore are not in compliance with
Kimberley, which requires loose uncut diamonds to be
¶9. (C) The highest quality diamonds are not sent to Dubai,
but are shipped to Belgium, Israel, or South Africa for
cutting. Despite this wide dispersal, Chiadzwa diamonds are
very distinctive because of their age, color, and clarity and
can easily be traced back to the Marange mine, according to
Cranswick. He implicated Ernie Blom, president of South
Africa’s Diamond Merchants Association in the illicit trade
of Chiadzwa diamonds, and said that Blom had been known to
boast of his involvement in illegal Zimbabwean diamonds.
When asked why purportedly reputable diamond dealers would
involve themselves in Chiadzwa, Cranswick said that the site
was “massive” with tremendous profit potential that was
attracting numerous buyers. One such group consisted of
Russians who had recently bought US$500,000 worth of diamonds
at an MMCZ auction, paying US$29/carat. They bought eight to
ten carat rough diamonds, five to ten percent of which were
Diamond Trade a Violent Business
¶10. (C) The diamond frenzy in Chiadzwa has led to hundreds
and possibly thousands of homicides. Word of easy diamonds
spurred a rush of Zimbabwean and foreign diggers to the area
including Angolans, Congolese, Mozambicans, South Africans
and Zambians, as well as diggers from as far away as Sierra
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Leone and Cote D’Ivoire Cranswick estimated there are
currently around three or four thousand diggers swarming over
the 70 hectare Chiadzwa site. The police have unsuccessfully
tried to prevent the site from becoming overrun, and
routinely use live fire to chase away diggers. Anyone trying
to enter the area has to present a Zimbabwean national
identification card with a registration number that ends in
“75”, signifying the person is a resident of the Mutare
region of Manicaland.
¶11. (C) During the first weekend of November, police killed
at least five panners in Chiadzwa, according to the on-line
newspaper Zimbabwe Times. While usually operating on foot
with attack dogs, this time the police used a helicopter to
shoot at panners. Passmore Nyakureba, a lawyer with the
Zimbabwe Lawyers for Human Rights said, “This has become an
everyday scenario. Up to five people die every week as a
result of being shot at by police or after being bitten by
dogs.” Cranswick said that at the peak of the frenzy in
2007, up to a hundred panners were shot in a week.
¶12. (C) In response to aggressive police action, diggers
began arming themselves with handguns and in some cases
automatic weapons. They also formed loose gangs in an
attempt to protect themselves as well as “claimed” areas.
Cranswick said that some members of the police and army have
deserted in order to join the digging, and they typically
brought their firearms with them. Some former police even
still wear their uniforms as they search for diamonds.
Police Corrupted; Community Destroyed
¶13. (C) Cranswick said that the police were rotated into the
area on two-week shifts to control the mining and keep
unauthorized diggers out, but they were immediately
corrupted. Police officers routinely charged 100 rand or
US$10 a person for a day’s digging in Chiadzwa. The military
has largely avoided the area out of fear that commanding
officers would lose control of their troops, according to
¶14. (C) Cranswick maintained that local chiefs were on ACR’s
side in its pending court battle to win back its claim. They
realized that the “curse” of diamonds had wreaked havoc in
the community. Children were no longer attending school, the
environmental degradation was severe, lawlessness and
violence reigned, and the community was not benefiting from
the resource. According to an independent weekly newspaper,
three quarters of the schools in Marange, Buhera, and
Chimanimani districts failed to open this term because
teachers and students alike were digging for diamonds.
What’s At Stake?
¶15. (C) Chiadzwa has the potential of being a major source
of industrial and gem quality diamonds. What makes it so
commercially valuable is that it possesses a diverse mix of
different size and color stones, all within just a few meters
of the surface. It also has a high carat per hundred tons
(CPHT) ratio, a measure the industry uses to characterize the
diamond concentration. Cranswick told us he was
confidentially shown a report prepared for the De Beers
Corporation by noted geologist John Ward. The report
estimated that Chiadzwa had a CPHT of over 1,000. By
comparison, the Rio Tinto/Rio Zimbabwe-owned Murowa diamond
mine near Zvishavane in Midlands province has a CPHT of 120.
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¶16. (C) Eye witnesses and panners told us that they were
extracting both industrial and gem quality stones, but
predominantly the former. Cranswick believed that the site
had 30 to 40 percent industrial diamonds and the rest gem
quality, including very good quality five to 30 carat colored
diamonds. In his view, the area could be commercially
exploited for five to 25 years, including excavation of
diamond yielding hard rock that ran deeper than the one meter
depth currently being worked. Econ specialist also was told
that another diamond field was discovered this year within
five km of Chiadzwa at the village of Chirasika. Panners had
begun working the site and it had not yet become a
police-restricted area. We have no estimates for the
potential of this new diamond discovery.
¶17. (C) On October 27, Gono publicly declared that the
Zimbabwean economy could be turned around by stemming losses
caused by illegal mining at Chiadzwa. According to Gono, “A
reliable estimate shows that US$1.2 billion per month would
be realized from diamond sales in the country, enough to
solve the economic challenges the country is currently
facing.” Cranswick said that while the estimate is probably
exaggerated, Gono may be looking for a large one time
dividend by selling a share of the mine or the mining rights
to an outside investor. This would dwarf the relatively
small profits he is now accruing from the mine.
¶18. (C) ACR has offered the government a deal in which ACR
would take a 49 percent share of all diamond proceeds and
give the rest to the GOZ, but Cranswick did not seem
optimistic that the government would accept the deal.
Two Other Major Diamond Mines
¶19. (U) Murowa is a well-regulated mine operated by the
British multinational mining giant Rio Tinto, which since
2004 has held a 78 percent share in the open-pit Murowa
diamond mine in Zvishavane district, in southern Masvingo
province. Murowa is a deep kimberlitic deposit that requires
heavy machinery to extract the soil and rock.
¶20. (U) River Ranch is partially owned by retired General
Solomon Mujuru (husband of Vice President Joyce Mujuru) and
is located in Beitbridge in Matabeleland South. Mujuru
gained a 20 percent stake in the mine at the expense of a
local company, Bubye Minerals, which was pushed out to
Mujuru’s benefit. Bubye Minerals contested the ownership
change, but was thwarted by the Zimbabwean courts. It is
unclear if Mujuru purchased his stake.
¶21. (C) In a country filled with corrupt schemes, the
diamond business in Zimbabwe is one of the dirtiest. Mining
in general remains the largest single source of foreign
exchange, but the potential of Chiadzwa is being lost to
Zimbabwean corruption. While Gono talks about using diamonds
to stabilize the Zimbabwean economy, he would only do so if
he thought he could personally make more in the process. At
present, police trying to bring order to Chiadzwa are
benefiting Zimbabwean officials who see the diamond field as
a new source of illegitimate income; the people of Zimbabwe
are seeing little return.
¶22. (C) It is also clear that Cranswick is a businessman
trying to find any pressure point he can through which to
leverage his own claim. At the same time, he sheds light on
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an industry that is enriching many of the same old corrupt
Zimbabwean elite–and causing violence and deaths that so far
have received little attention. END COMMENT.