The development of the Soviet diamond project proceeded within a strict framework of the single-channel system of the world diamond market, created by Cecil Rhodes and buffed to perfection by the Oppenheimer clan. The USSR was included in the system as a De Beers controlled source of raw materials and never let to take part in pricing. All the strategic decisions of the Soviet leadership in developing the diamond industry were de facto subject to this principle. The success of De Beers in building relations with the Soviet Union after the landmark discovery of diamond deposits in Western Yakutia is so obvious, that inadvertently gives the impression that we see a logical development of the good old partnership, rather than an ugly alliance of ideologically irreconcilable adversaries prompted by short-term mercantile considerations.
But Russia's post-perestroika specialized literature (the relations between the USSR and De Beers were virtually not covered in open Soviet sources) claims that contacts between the Soviet leadership and owners of De Beers go back to 1959. It was then that Sir Philip Oppenheimer (Ernest Oppenheimer’s brother) paid a visit to Moscow which brought about an agreement to sell the first parcel of Yakut diamonds. The vast majority of foreign authors studying the history of the world diamond market stick to the same date.
The question as to where and how the Urals diamonds were used – the diamonds which were commercially mined since 1946 in the complete absence of diamond tools manufacturing and diamond-cutting industries in the USSR up to 1958 and 1961 respectively - remains open. The Urals diamonds left no trace in the public domain and the assumption that they were exported during many years with the participation of De Beers is just a hypothesis which has some indirect evidence, but so far has no conclusive proof. And prior to developing the Urals diamond fields the USSR had obviously nothing in common with the rough diamond market.
With the rough diamond market - no, it could not. But the world market of polished diamonds was among top priorities for the leadership of the Communist Russia from the earliest years of its existence. The fact is that under the post-revolutionary economic collapse which gripped the country the main and almost only export item for the young Soviet state in the early 1920s was treasures expropriated from the "exploiting classes": bullions, coins, jewelry, all kinds of antiques and precious stones, and in the first place - diamonds. Thus, in 1921 the most significant foreign trade revenue for the Soviet Russia came from selling antiques which yielded 9 million gold rubles, followed by diamonds which fetched 7 million gold rubles. But this is what is proved by documented data only.
In truth, the amount and ways to release Russian diamonds to the market were simply monstrous. Walter Krivitsky (Samuel Ginsberg, a functionary of the Comintern in 1918-1921 and later an operative of the Soviet secret police. – Editor.) recalled: "The usual procedure was an order of the Political Bureau of the OGPU to deliver a bag (sic!) containing confiscated diamonds to the Comintern..." And apparently "a bag" was not a hyperbole. Here is an extract from the memoirs of James Reich, chief of the Comintern’s Western European Bureau: "Gold and jewelry were everywhere: precious stones taken out of their settings lay in piles on the shelves - someone apparently tried to sort them and left. There were boxes full of rings. Others contained gold settings without stones. Ganetski (Jacob Furstenberg, Deputy People's Commissar of Finance and Director of the People's Bank of the RSFR in the 1920s. – Editor.) swept the flashlight around, smiled and said: "Choose!" He then explained that all these jewels taken by Cheka from individuals by force Dzerzhinsky, on behalf of Lenin, handed over here for secret needs of the party. I was very uncomfortable to select things: how to evaluate them? After all, I did not understand gems. "Do you think I understand more?” Ganetski said. “This place is opened only to those who are trusted by Lenin. Just choose them by sight, as many as you see fit. Lenin has written that you should take plenty." I started to take stones while Ganetski kept saying: "Take more…" So I filled a whole suitcase (sic!) with gems skipping gold for it was bulky..." Boris Bazhanov, the former secretary of Stalin, in his "Memoirs" mentions some "Diamond Fund of the Politburo” - a huge stock of exceptional quality diamonds - and complains that "its fate is unknown." Since today, many decades after the publication of Bazhanov’s memoirs, the fate of this asset is still unknown, it is reasonable to assume that it could not escape the common fate, and in "bags," "suitcases" and other containers exotic for diamond business had been moved to the shores of the misty Albion.
This kind of export entailed a natural result - world diamond prices plummeted and major diamantaires which were De Beers’ clients started to experience legitimate concern. In order to stabilize prices De Beers was forced to reduce its diamond output in South Africa in 1921 in a substantial way - at least by 25%. However, the export of Russian diamonds at dumping prices continued to increase: the enterprising Bolsheviks and their Comintern colleagues discovered more and more "windows" and "channels" in the Baltic States, Poland, Finland, in the Far East, and Turkey... The wave of diamond smuggling engulfed Europe and the United States: notwithstanding that "red" couriers were caught by dozens their number multiplied exponentially. Objectively, this dumping business was causing serious damage to all participants of the diamond market, so the process was in evident need of some kind of regulation.
In 1920, Leonid Krasin was appointed as Ambassador of the Soviet Russia to the United Kingdom. This prominent functionary of the Bolshevik Party had access to the circles of the British elite and, apparently, he was highly aware of the realities of the diamond market. Anyway, this is suggested by some samples of his correspondence with the leaders of the People's Commissariat: "We have not yet grown to selling treasures in an organized way and the drop in prices in the polished market caused by more than regrettable trade by the Comintern and other agencies will continue to have reasonable grounds in the future."
Leonid Krasin was absolutely precise in determining the way out of the crisis which swept over the diamond market: "We must immediately stop single sales of art treasures and diamonds through shady persons recommended by the head of Gokhran, Arcus (a Swede named Carl Feld and others), or through the high-ranking "Kremlin wives" (Gorki’s wife, actress Maria Andreeva-Yurkovskaya; Kamenev’s wife and Trotsky's sister Olga Kamenev-Bronstein, who was a museum director). Instead, we must urgently establish a cartel (joint venture) for the collaborative sale of diamonds, which may be best done in team with De Beers. This syndicate should acquire a monopolistic right to do this, because this is the only way to quiet the diamond market and gradually start to increase prices. The syndicate should give us loans under the terms of bank rates against a deposit of our treasures."
Leonid Krasin’s offer to direct the flow of "confiscated" Soviet diamonds to De Beers was well reasoned. First of all, this sales method was a real protection for the diamond market from a collapse in prices, in which the Soviet side was totally uninterested. Secondly, this gave some ground for important business contacts with the banking empires of the Rothschilds and Morgans, with which De Beers was affiliated, and consequently expropriated diamonds could serve not only as an ordinary commodity, but as an asset that provides all kinds of credit transactions, including those resulting in advanced technologies and modern equipment. And finally, only De Beers and its influential clients could arrange the turnover of "red" diamonds in such a way that it would be invisible to the rest of the world. And this was important not only to stop the numerous scandals exploding due to identification of treasures grabbed by the Bolsheviks and later appearing in the catalogs of prestigious European and American auctions where they were spotted by their former owners. Soft-pedaled agreements about joint operations involving large parcels of diamonds laid the basis for a financial and organizational framework, which subsequently played an important role in transferring defense technologies to the Soviets and opened the door to direct informal contacts between the representatives of the Anglo-Saxon and Soviet elites.
On March 16, 1921 the Soviet Russia and the United Kingdom signed their first trade agreement. From the Soviet side it was signed by Leonid Krasin. This agreement contains one very curious condition. Britain pledged "not to seize and take possession of gold, capital, securities or goods exported from Russia in case if any court has ordered such actions." In fact, this restriction made it impossible for the British government (not to mention foreign countries) to intervene in business operations taking place under this agreement. And taking into account that at the time of that agreement Britain and Russia had no diplomatic relations, it should be admitted that it was only a formal cover for collaboration between the Bolsheviks and a force more powerful than the British state institutions.
Six months before signing that contract Leonid Krasin established ARCOS (the All-Russian Cooperative Society), a London-based company. It was the first in a series of companies (Amtorg in the United States, Vestorg and Derutra in Germany and a dozen of smaller ones) which served as business centers for transactions involving major export goods of the Soviet Russia in the 1920s: gold, antiques and polished diamonds. Leonid Krasin created even the Soviet - South African Joint Trade Association, which had a very telling name considering that at that time the only strategic partner in the Union of South Africa which Russia could deal with exporting diamonds was De Beers. ARCOS was not only the first historically – this company was the most powerful of all, a real "general headquarters" of the entire operation, and Leonid Krasin supervised its activities personally and continuously.
After the conclusion of the British-Russian treaty the Russian exports of gold and diamonds quickly entered into a civilized channel. Soviet biographers of Leonid Krasin were consistent in crediting him with eliminating the "gold blockade" - in other words, switching over from purely contraband trade in treasures to large-scale wholesale transactions that technically did not contradict the legislation of the importing countries. (The moral side of the matter – because in fact it was the sale of stolen goods - was of no interest either to the buyer or the seller.) A significant part of diamonds did not reach the market at all being turned into collateral assets. As a result, diamond prices steadily crept upward and the 30-to-40-percent drop caused by the wild Soviet dumping was quickly set off. Since 1922 De Beers began to increase output and within five years the company exceeded its pre-war level of production.
How was spent the revenue gained by the Bolsheviks from sales of confiscated property? Of course, they bought food for the starving country, purchased industrial equipment, vehicles, etc., and paid for maintaining Soviet missions abroad. But it was not the main thing. The expropriated diamonds turned into a start-up capital of numerous "private" companies, the ultimate beneficiary of which was the Soviet Union, and through third parties were invested into major stakes in the world's pace-setting industrial groups as well as were used as collaterals for large-scale credit lines. Through this network, the USSR easily accessed the latest defense technologies and was able to create a military-industrial complex, which was sufficient to destroy all chances of continental Europe for a share of control over global commodity markets in the four-year Russian-German slaughter in 1941-1945. This network, established in the 1920s, will work steadily at all times of the Soviet Union providing among other things the fantastic "success of the Soviet intelligence" in obtaining nuclear secrets and making it surprisingly easy to overcome the “COCOM restrictions.”
The creation of a network intended primarily for massive pumping the USSR defense industry with equipment and technologies was completed by the end of the 1920s. The flow of expropriated treasures exported from the Soviet Union had not yet dried up with its peak to occur in 1930, but all the necessary conditions for the start of "Stalinist industrialization" were set up. The end of this ambitious operation required a proper window dressing.
"On May 12, 1927 about 4 o'clock in the afternoon, detachments of policemen accompanied by detectives (about 200 people) suddenly surrounded the building at 49 Moorgate Street occupied by ARCOS and the Soviet Trade Delegation, rushed inside and closed all the way out. Several hundred employees of both institutions, including many Britons, were arrested and some of them subjected to personal search.” This is an extract taken from the "Memoirs of a Soviet Diplomat” by Ivan Maisky (Jan Likhovetsky). Ivan Maisky was Leonid Krasin’s deputy, and after his death occurred on 24.11.1926 he remained in the Soviet embassy in the position of a deputy ambassador up to 1929, and served as Ambassador Extraordinary and Plenipotentiary of the USSR in the United Kingdom in 1932-1943.
The raid against ARCOS made a lot of noise in the diplomatic circles and the press and provided an opportunity for reciprocal fisticuffs on the part of the British and Soviet sides. Ivan Maisky argued that the British were looking for some documents in ARCOS, exposing subversive Comintern activities of this company, but "went flop." The British side was forced to admit that the four-day (!) search revealed nothing - no compromising files were found. The Soviet side agreed in malevolent expressions - they found nothing, because there was nothing to find. Actually, this "found nothing" was the only "solid residue" of the grand scandal – in this way curious onlookers were asked not to worry because the activities of ARCOS in London did not represent any interest in terms of conspiracy.
So, the "raid on ARCOS" would have been doomed to remain a glaring evidence of provocation against the young Soviet Republic inspired by the most conservative circles of the citadel "of decaying imperialism," if not for Igor Zolotussky who published a documental story, "There were three of us," in May 2010. Igor Zolotussky’s father - Peter Zolotussky - was a legal resident of the OGPU Foreign Department in London from February to June 1927 and was very closely related to ARCOS.
According to Peter Zolotussky, his trip to London was preceded by a personal meeting with Joseph Stalin. The chief was concerned about the fate of the ARCOS archive. Peter Zolotussky was assigned the task of evacuating the archive since Moscow was warned in advance about the impending police raid on ARCOS. Peter Zolotussky did a brilliant job of the task set by the "greatest genius of all time and peoples" – the archive of ARCOS was taken from Britain... on board a British Navy destroyer! Literally: "He managed to persuade the captain of a British destroyer to help the country of workers and peasants and remove the incriminating papers from Britain before the police entered the ARCOS premises.”
So, a Soviet resident recruits a British naval officer on the grounds of compassion for "the country of workers and peasants," and together they load secret archives on a destroyer and while a police battalion storms the office of ARCOS the ship is at full steam sailing, for instance, to Murmansk. Isn’t it a kind of delusion? Of course it is!
And now look at the situation from a slightly different angle. By 1927, the financial flows, which were based on expropriated gold and diamonds, were transformed into a network ready to begin the "Stalinist industrialization.” A detailed history of this brilliant operation, all the "names, passwords and places of secret meetings" were contained in the archives of its "general headquarters" - in ARCOS. But there was a serious problem and it was that almost all the work had been done by the hands of Comintern functionaries. That is, there was a fairly large number of people who thought in ridiculous categories of "world revolution", and were too much aware of the relationships established by the state of "workers and peasants" and the "imperialist" powers, the links, to put it mildly, which did not fit into any of Marxist and even near-Marxist theory. Of course, the knowledge of each of them was too fragmentary to reconstruct the whole picture, but the probability that this puzzle would be correctly put together of these fragments and understood - who and why needed the project called the "USSR" - was high. Too high for the authors of the project to afford such a risk. The Comintern functionaries were clearly redundant in the new scenario. And the ARCOS archive containing the full list of these "redundant people" was supposed to be passed over to the player who was ready to solve the problem. It was expected to be passed over safe and sound, so that not a single piece of paper was lost. To protect such a valuable cargo, no one would hesitate to send even an aircraft carrier to say nothing of a destroyer.
It is unlikely that Peter Zolotussky had any need to recruit the British captain – the latter simply carried out the order he had been given. It is as well unreasonable to credit the Soviet intelligence service with the fact that Moscow had been advised of the exact date of the "raid on ARCOS" - the date was kindly communicated by the "senior partner". The show involving the “raid” was just a cover-up for the operation to deliver the archive to the Lubyanka Street in Moscow, where it was used to the utmost. During the next ten years the vast majority of operators who took part in converting expropriated diamonds into a network linking the "state of workers and peasants" to the free market economy were "grinded into labor camp dust," committed suicide, were killed in accidents or died under suspicious circumstances.
Some of them tried to escape from this grind-stone squeeze like the above mentioned Walter Krivitsky (who fled to the West in 1937, but “shot himself” in 1941), or even left their memoirs behind. But most of them fell silent forever. And those who by some miracle survived even the camps, as for instance Peter Zolotussky, did not hurry to enlighten the contemporaries of the true springs in the process in which they happened to be involved by virtue of their fate. Only the uppermost echelon managed to survive – just singular persons, like Ivan Maisky, who were essential intermediaries between the major parties in the big game. This level could well serve to solve sensitive tasks - whether to organize export of the Urals diamonds or draw up very specific plans to develop the Yakut diamond fields.
Sergey Goryainov, Rough&Polished
