811.20 Defense(M)/12437

The Ambassador in Venezuela ( Corrigan ) to the Secretary of State

No. 4109

Subject: Proposed Diamond Purchase Agreement with Venezuela.

Sir: I have the honor to refer to the Department’s Telegram No. 155 of March 4, 5 P.M.,31 the Embassy’s reply thereto by Telegram No. 251 of March 6, 9 P.M., as well as to earlier communications on the above subject, and to report as follows:

Based on the Department’s Telegram No. 35 of January 20,31 a memorandum dated January 30, 1943, copy of which is transmitted as Enclosure No. 1 to this Despatch,32 was submitted to the Minister of Fomento outlining the principal points to be covered in the proposed diamond purchase agreement from our point of view. On February 3, Mr. Groves, Counselor of Embassy for Economic Affairs, submitted to me a memorandum reporting his latest conversation with the Minister of Fomento on this subject; a copy of this memorandum is transmitted as Enclosure No. 2 to this Despatch.

The reply from the Minister of Fomento to the memorandum of January 30, dated February 27, and received by the Embassy on March 6, is transmitted herewith as Enclosure No. 3.

In substance, the Minister’s reply states that all appropriate measures which the Government might take Under an eventual preclusive diamond purchase agreement with the United States already are embodied in Venezuelan law, and that the conclusion of a formal agreement, therefore, seems unnecessary to accomplish the desired purpose. The Minister suggests that “more rapid and efficacious results would be attained if the Government of the United States of America, directly or indirectly, by means of competent agents, would buy the diamonds at the very site of production”, i.e., would buy them on a commercial basis direct from the producers, before they have a chance to get into other hands.

For this purpose no formalities between the two Governments would be required; it is believed the only requisite would be that any buying [Page 803] agents who might be sent to Venezuela, to actively conduct diamond purchasing, would have to comply with the conditions of the mining law regarding registration, etc.; pertinent excerpts (in Spanish) of the mining law of 1936 with the amendment of February 12, 1938 to include diamonds, are forwarded as Enclosure No. 4.

The Minister in his communication likewise confirms an assurance previously given to the Embassy by the Minister of Hacienda33 that the granting of export permits required for shipment of all industrial diamonds abroad has been, and will continue to be, confined to the United States.

As implied in his communication of February 27, and stated more explicitly by the Minister in conversations with Mr. Groves, the Venezuelan authorities feel that there is little more they can do to make the control of the diamond trade more effective, beyond the measures already in force (see Embassy’s Telegram No. 1252 of November 29, 1942, 10 P.M.,34 and excerpts of mining law attached), without modification of the existing basic law, which provides that “the trade in gold (and diamonds by amendment of February 12, 1938) is free”. But even with an appropriate modification of the law, the Minister of Fomento doubts whether the Government could establish efficacious controls over the diamond trade without extension of police activities and other methods greatly out of proportion to the significance of the trade.

In view of the peculiar characteristics of diamond production in Venezuela, in a very isolated area where Government controls are virtually non-existent, the Embassy shares the views of the Minister of Fomento that the most practical way of controlling the local trade in diamonds is simply to purchase the output at the source of production. Experience in this country amply indicates that control is next to impossible once the diamonds are sold by the hundreds of individual miners and get into the hands of the trade.

It is suggested, therefore, that the American authorities consider the advisability of sending to Venezuela competent diamond experts to carry out a direct purchase program at the source of supplies. For this purpose, it is probable that the assistance of qualified and reliable persons already engaged in the local trade could be enlisted to cooperate with any agents sent from the United States.

Respectfully yours,

Frank P. Corrigan
  1. Not printed.
  2. Not printed.
  3. Enclosures to this despatch not printed.
  4. Alfredo Machado Hernandez.
  5. Not printed.