Jim Armitage: Old Mutual seems unembarrassed by its links with Mugabe's Zimbabwe

Global Outlook: The company has a big reputation to look after, in the UK and around the world

Zimbabwe's Marange mining region is so littered with diamonds you can't help tripping over them as you walk. Thus goes the myth about the hugely valuable resource which could fuel a boom in the country's economy.

Little wonder, then, that the London Stock Exchange-listed insurance giant Old Mutual wanted to get a slice of the action by taking a stake.

Unfortunately for Old Mutual, and President Robert Mugabe's Zimbabwean government, diamonds from the mine are blocked by sanctions, due largely to his appalling treatment of white farmers as well as other human rights violations.

The human rights group Global Witness and Peter Hain MP have described the glittering stones plucked from Marange as "blood diamonds", claiming that revenues from these side-deal sales are going to President Mugabe's security forces, rather than health, education and other services needed by the people. You can't use an AK47 or a new ministerial limousine to treat children with HIV, the argument goes.

Are they really blood diamonds? Not all of them, no. In fact, as Old Mutual is at pains to point out, the diamonds it has a slice of have been given the seal of approval from the internationally recognised Kimberley Process watchdog. That means it guarantees money goes to the Zimbabwean treasury, and not into the pockets of politicians.

Having said that, Kimberley Process documents for 2011 show 99 people were arrested that year for having illegal rough diamonds on them, and the Global Witness NGO has quit Kimberley, alleging it has failed to be tough enough on Zimbabwe.

There is still some diamond money coming through to the country, though. Trade blocks in most western countries don't mean Zimbabwe can't sell its stones elsewhere: it simply offers them at a knockdown price in places that will still trade with President Mugabe's henchmen, like Dubai and South Africa.

But the huge markets of the US and Europe remain out of bounds, while one of the main companies investing in Marange, the state-owned Zimbabwe Mining Development Corporation (ZMDC), has had its assets frozen by the UK Asset Freeze department.

One would have thought the issue of investing in a country that has such widespread sanctions on it from most major western governments would be a matter of more embarrassment for Old Mutual.

The company has a big reputation to look after, in the UK and around the world. Its British arm alone has £4.1bn under management, mostly from retail investors. I wonder if all of those clients are aware of its involvement in Zimbabwe.

Old Mutual argues that it invests in the diamonds through a South African subsidiary and South Africa has no trade bans on Zimbabwe. Yet Old Mutual has invested in a business partnered up in the region with ZMDC, trashed by a major Global Witness report earlier this year that attempted to untangle a deliberately complicated web of companies, many of which linked back to ministers in President Mugabe's Zanu-PF party. Only last week, a report from a diamond trade watchdog, Partnership Africa Canada, alleged that senior government officials have plundered more than $2bn of diamonds from the Marange fields. The allegations have been denied.

Despite the plight of white farmers seeking compensation for having had their farms illegally seized, Baroness Ashton, the EU's foreign policy chief, is seeking to lift some sanctions on the government when they come up for review in February.

White farmers' groups such as Justice Zimbabwe argue, with good grounds, that this is a disgrace. Lady Ashton's plans would lift the travel bans currently imposed on a large number of President Mugabe's fellow party members, allow aid to be given direct to the government and lift the freezing of some companies' and individuals' assets.

Whether the lifting of restrictions applies to ZMDC is in some doubt.

Word around the Foreign and Commonwealth Office is that it won't, particularly due to the continued condemnation of goings-on at Marange by Global Witness.

But the drift of European policy towards Zimbabwe is clearly going in the direction of normalising its relations with the rest of the world.Lady Ashton says she sees signs of an improvement in human rights and democracy in the country, and there are possibly some grounds to support that.

Meanwhile, Zimbabwe has continued to trade throughout the sanctions period with countries who do not ratify the trade restrictions. Nowadays, they say, there are more Chinese than white people in Zimbabwe. Many of them are working in the diamond industry.

Despite the plans to ease sanctions on the country, Simon Rainer, head of the British Jewellers' Association, is in no doubt of where he stands. The Kimberley Process, he says, may have approved the Zimbabwean mines, but that doesn't make them clean. Under Kimberley, you can be ratified if your mines are not being used to fund rebel attempts to overthrow a democratically elected government. But what if a democratically elected government is using diamond wealth to suppress indigenous populations, he asks.

Meanwhile, much of the time the profits go to China, rather than helping to build Zimbabwe's infrastructure, he says.

"We tell our members, and they agree with us – don't touch Zimbabwe's diamonds. We don't want anything to do with them."

That's a far cry from the message coming out of Old Mutual.