The recent Washington, D.C., conference on conflict diamonds was billed as a chance to stand back and marvel at all that had been accomplished. Speakers hailed the “odd coalition” of human rights groups, the diamond industry, and governments that created the Kimberley Process. “This is a good-news story out of Africa,” Assistant Secretary of State Walter H. Kansteiner III said at the event, which was sponsored by the Center for Strategic and International Studies (CSIS). “It makes me smile when I see De Beers and Global Witness all sitting around the table, agreeing with each other.”

But by the conference’s end, the smiles were fewer and the exchanges testier, and it was clear that all is not rosy in odd-coalition-land. Nongovernmental organizations (NGOs) again complained that Kimberley is not strong enough and threatened a damaging consumer campaign if things didn’t change. And just so the industry knew the NGOs meant business, they played what could be their most damaging card yet— linking diamonds and terrorism.

Links to al Qaeda. In a 70-page fact- and footnote-packed report, London-based NGO Global Witness laid out its case that terrorists have regularly used diamonds for money laundering, particularly after the Sept. 11 terrorist attacks threw a spotlight on the groups’ funding. (The report can be downloaded at www.globalwitness.org/reports.)

“It should come as no surprise that al Qaeda made a strategic decision to use diamonds to fund its operations,” the report says. “Easy to transport and conceal, they are already the favored method of payment or bribe in many illegal transactions.” The report argues that “al Qaeda was able to take advantage of existing [conflict] diamond smuggling routes to build their own diamond trading structure.”

As the report acknowledges, most of the evidence is not new. It does seem to prove contact between mostly fringe traders and known terrorists—among them, three planners of the 1998 U.S. embassy bombings in Kenya and Tanzania. Much space is devoted to Wadih El Hage, identified as Osama bin Laden’s former personal secretary, whose notebooks are full of the names and addresses of gem traders.

The report largely avoids “naming and shaming” specific traders, except for two Lebanese second cousins—Aziz Nassour and Samih Ossaily—who already have been fingered as conflict diamond dealers by the United Nations. (Ossaily is awaiting trial in Belgium.) The report also examines the long-rumored link between Lebanese buyers in Sierra Leone who traded gems with the country’s rebels and another terrorist group, Hezbollah, best known for suicide bombings in Israel.

The report ends with the now-standard criticism of the industry: “The trade has not learnt the key lesson on conflict diamonds, which is the failure to take full responsibility for the problems in its own sector. …The diamond industry and governments have either claimed [the link between diamonds and terrorism] was too minor or too difficult to solve, or worse, adopted a ‘see-no-evil’ mentality. … No longer can they claim ignorance.”

The “bad-news story” for the jewelry business didn’t end there. Global Witness linked terrorism not only with diamonds but also with gold and tanzanite. It was unimpressed with the industry’s damage control efforts for the latter, calling the Tucson tanzanite protocols “seriously flawed.” And according to a footnote, there’s even evidence that “al Qaeda [has] also shown an interest in amethyst, rubies, sapphires, and emeralds.”

Trade reaction. Just how true are all these accusations? In the past, State Department officials have indicated there is no evidence linking diamonds and terrorism, but lately they have been noncommittal. U.S. special negotiator for conflict diamonds Judson Bruns told JCK he’s still studying the topic. Clearly, some in the Bush administration take the link seriously: One of the visitors at the conference worked for the Homeland Security Office.

The trade reaction to the Global Witness report was predictably mixed. Many worried it would lead to damaging publicity, although the report got surprisingly little coverage given its hot-button topic. At press time, the only newspaper to pick it up was London’s Financial Times.

The World Diamond Council said the report simply underscores the need for the Kimberley Process. “We have been working hard to create a global system to prevent abuse of diamonds by violent criminals,” said Cecilia Gardner, WDC general counsel. “We are sensitive to these reports and find them totally abhorrent. Anyone dealing in this matter should be prosecuted to the fullest extent of the law and barred from the trade.”

But Belgium’s Diamond High Council, which has been the most combative industry group on the conflict issue, slammed the report as a rehash. “This is all just a compilation of things that have been out for the last two years,” said spokesman Youri Steverlynk. He added that while the report proves some diamond traders have shady connections, that doesn’t mean there’s a “structural link” between the trade and terrorists. “If you have evidence of something, pass it on to the Belgium Justice Department and let them do their job,” he said. “But to say an entire industry is involved is unfair and irresponsible.”

Others feared the focus on terrorism could expand the “conflict” issue. Kimberley was formed to ferret out conflict diamonds—stones fueling wars in Africa. The diamonds used by terrorists fall into the larger category of “illicit” stones, which includes, for example, gems stolen from mines. Everyone agrees that if Kimberley works correctly, it should help stanch the flow of illicit stones. But if Kimberley morphs into a tool to control the illicit trade, the industry could be subject to even more onerous regulations, and gem dealers could end up as tightly regulated as banks. As a result, some have become keenly sensitive to the differences between the two categories. The CSIS conference was originally geared toward “illicit” diamonds until the Israeli delegation demanded that it be changed.

Remarkable changes. Amid all this, it’s easy to lose sight of the fact that some truly remarkable changes have taken place. The week of the conference, Congress finally passed a bill that makes the United States part of the Kimberley Process. The long-delayed legislation passed by a lopsided margin in the House and unanimous consent in the Senate. President Bush signed it on April 25.

Then there’s the near-total implementation of Kimberley itself. The process has, amazingly, received the blessing of nearly 70 governments, the United Nations Security Council, and the World Trade Organization. Some even claimed early success. “We have a lot of people desperate to join Kimberley,” noted Kennedy Itamutenya, diamond commissioner for Namibia. “What does that tell us? The process is working.”

Much of the Washington conference turned into a debate about whether the current Kimberley glass was half-empty (the position taken by the NGOs) or half-full (the position of everyone else). The NGOs repeated their call for an independent monitoring entity—a proposal many nations oppose, arguing that it would violate their sovereignty.

Then there’s the thorny question of who participates. Kimberley was set up so that any country caught laundering stones could be banished from the system, but deciding who goes on the blacklist has proven tricky. “I don’t see that there is any serious checking of whether countries have fulfilled even the basic requirements for membership,” complained Ian Smillie of NGO Partnership Africa Canada. “We have let some countries in the tent that are seriously infected by criminality. Burkina Faso is a member, and they’ve been named and shamed [as a transit point for conflict diamonds] many times. Congo-Brazzaville is in there even though it produces no diamonds.”

Many at the meeting sympathized with these concerns but insisted they would be addressed in time. “Better can be the enemy of the good,” said David Viveash of Canada’s Department of Foreign Affairs and International Trade. “Let’s not underestimate what we already have achieved as the result of Phase I. We can always revisit the issues.”

But the NGOs were clearly unhappy. “The question is not whether you plug the holes in the Kimberley Process,” said Smillie. “It’s whether the boat can stand.”

It’s hard to tell where the issue goes from here. The Washington conference felt like both an end-of-the-road and a prelude to “The Industry vs. NGOs, Round III.” For now, it appears the trade may face some rocky roads ahead.

“There are a lot of weaknesses and deficiencies in the current system,” warned Corinna Gilfillan, a campaigner for Global Witness. “It’s very difficult for NGOs to say [Kimberley] will solve the problem. And everything will be for nothing if at the end of the day, NGOs are convinced the system is not credible.”

To an industry that’s spent three years and millions of dollars trying to contain this issue, that might be the most terrifying thought of all.