Less than two years after it became the world’s newest diamond producer Zimbabwe is in danger of being placed on the list of countries accused of using the gems to fund wars and crime.

A five-strong delegation from the world’s diamond trading watchdog is in Zimbabwe to examine what mining company executives say is a smuggling operation that is enriching the elite of President Mugabe’s ruling Zanu (PF) party.

The inquiry is focused on the Marange communal land in the east of the country, where in June last year African Consolidated Resources (ACR), a British listed company, began sampling a diamond claim after tribesmen with hoes began turning up gems.

By August it had turned into a chaotic swarm of up to 14,000 men, women and children who had turned the virgin bush into a seething, red dust-choked landscape of vast craters.

Industry experts believe that since then $150 million (£75 million) of diamonds have been smuggled out of Marange.

In September the Zimbabwe Government stepped in. Soldiers and police drove out the illegal diggers. But the digging didn’t stop. Reporters able to penetrate the cordon found underpaid policemen and soldiers digging diamonds themselves, or forcing illegal diggers to do it for them. At the same time ACR was summarily ordered off the site. The mines ministry cancelled the company’s claim and gave it to a state-owned company, despite being told by the attorney-general’s office that it was illegal to do so.

Since then a blanket of secrecy has been thrown over the diamond field. But Zimbabwe is a member of the Kimberley Process Certification Scheme, which was founded in 2002 to halt the flow of illegal gems that fuelled the civil wars of Sierra Leone and Liberia.

Diamond exports must be accompanied by a certificate affirming that they come from a legitimate source. The country must also publish details of its output. “We don’t know who is mining there,” said Jack Murehwa, president of the Zimbabwe Chamber of Mines.

Last week Dominic Mubayiwa, chief executive of the state-owned Zimbabwe Mining Development Corporation (ZMDC), said that it had been extracting diamonds at Marange since April. Simultaneously, a report by a parliamentary committee investigating the Marange controversy “noted with concern that the ZMDC does not have the capacity to carry out feasibility studies, to mine, or put in a security fence around the area.” Mr Mubayiwa said that the corporation was managing to excavate only 25 tonnes of ore a month.

He refused to give any details of the diamonds produced.

Last year mining companies reported that the Government was buying diamonds from illegal diggers at Marange. In February the state minerals marketing agency secretly auctioned 50kg of diamonds, with no apparent reference to Kimberley Process requirements. In March William Nhara, the director of Mr Mugabe’s office, was arrested at Harare airport trying to smuggle out 11,000 carats of uncut diamonds.

The Government’s handling of Marange was “legalising the illegal,” said Cameron McRae, Murowa mine managing director, cautioning that Zimbabwe risked being expelled from the Kimberley Process.

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