The US is reportedly rethinking plans to ban Russian diamonds amid industry pushback

The US is rethinking restrictions on Russian diamonds after a wave of pushback from the industry and nations heavily involved in the diamond trade, Reuters reported on Monday.

Western countries have placed stiff restrictions on Russia’s diamond trade, with fresh sanctions in December banning the gems throughout the European Union. That’s a step up from the initial sanctions, which previously allowed the trade of Russian diamonds that were polished in other countries.

Diamond traders now need to self-certify that the gems they sell are not of Russian origin. By September, diamond traders in the European Union will need to send diamonds through a certification system in Belgium before selling them.

Those measures have helped crimp Russia’s war revenue, given that the nation is one of the largest producers of diamonds in the world. Yet the US, one of the world’s largest diamond consumers, could pull back on its commitment to implement the latest restrictions, three people familiar with the matter told Reuters.

Two sources said the US had pulled back on working with the G7 to implement the diamond ban and certifying that gems were not of Russian origin. Officials are “there but not engaging” in the discussion, one person said.

A senior White House official told Reuters the US would continue to work with the G7 on the Russian diamond ban, and that it had not changed its mind on the issue, but they noted several obstacles in enforcing the latest restrictions:

“We will want to make sure that we strike the right balance between hurting Russia and making sure that everything is implementable,” the official said.

The government has received pushback from firms and nations heavily involved in the diamond trade. Some African nations and Indian diamond polishers have complained about the latest restrictions, warning that the ban was faulty in its design and could raise problems in the industry. Diamond prices could also rise due to scarcer supply, they warned.

Virginia Drosos, the CEO of Signet, asked the US government to “stand against … the G7 Belgian solution,” according to a letter seen by Reuters.

De Beers, one of the world’s largest diamond miners, said it supported a ban on Russian diamonds but wants diamonds to be verified at the source of production, rather than in Belgium.

“The opportunities for, and likelihood, of Russian diamonds infiltrating the legitimate supply chain are in fact higher when you move further away from the source,” it told Reuters.

Source: Businessinsider

Antwerp World Diamond Centre CEO resigns amid Russia diamond sanctions

Antwerp World Diamond Centre (AWDC) chief executive Ari Epstein resigned unexpectedly on Thursday, the AWDC’s board of directors said in a statement.

A spokesperson for AWDC, Belgium’s main diamond industry group, said on Friday that Epstein, who had been CEO for 13 years, did not wish to communicate about the reason for his sudden departure, but Belgian financial newspaper De Tijd reported that Russian diamond sanctions had been the cause of conflict between the diamond sector and the Belgian government.

AWDC did not say who would replace Epstein as CEO. Epstein did not immediately respond to a request for comment sent via LinkedIn.

Following an EU ban on Russian-origin diamonds that took effect on March 1, rough and polished diamonds have to enter the EU and G7 countries with documentary proof and declarations that the stones are not of Russian origin.

Antwerp’s diamond dealers have said they are facing long and costly delays as a consequence.


Russian diamond ban creates costly delays, Antwerp diamond dealers say

Antwerp’s diamond dealers face long and costly delays following an EU ban on Russian-origin diamonds that took effect on March 1 and has slowed imports, they say in a letter seen by Reuters.

The letter, dated March 13, said the disruptions would erode the competitive advantage of the centuries-old Antwerp diamond trade. It was addressed to Belgium’s main diamond industry group, Antwerp World Diamond Centre (AWDC), and requested a review of the new procedures.

Any impact is likely to be reduced by sluggish market conditions. Diamond inventories are high and prices have fallen. Paul Zimnisky, a global diamond analyst, said last month that prices were down 25% from their early 2022 peak.

Al Cook, CEO of mining company Anglo American’s De Beers’ diamond business, has said the miner would reduce production this year in response to surplus supply.

“While we fully support the decisions taken by Belgium, the European Union, and the G7 nations, in regards to the sanctions of January 1st 2024, the implementation of the measures to enforce the sanction has adversely affected all of our operations,” said the letter, signed by over 100 local firms.

“The intention was to prevent the flow of diamonds from sanctioned states, but the reality we face is the severe disruption of our supply chains, and alienation from the rest of the global trade.”

A Belgian government official said the delays were temporary and were easing.

The EU and Group of Seven (G7) countries agreed to ban direct imports of Russian diamonds to their markets as of Jan. 1 and before phasing in a full ban on Russian-origin stones via third countries from March 1 because of Moscow’s war in Ukraine.

Russia’s state-run Alrosa, which together with De Beers is one of the world’s top diamond producers, was also placed under sanctions by the EU.

Diamond hub
Antwerp remains the world’s biggest diamond hub though 90% of stones are polished in India. Belgium pushed hard for the G7 to adopt a version of its proposed plan to try to prevent Antwerp from losing more business after major Western jewellers began eschewing Russian stones.

Diamond dealers said their shipments have been held up for over a week at customs even if the gems were straight from African producers.

The Belgian government official said shipments pending would be processed within 24 hours.

“The indirect ban coincided with the Hong Kong Diamond Fair which is an annual peak period… This, in combination with the expected teething problems caused some initial delay in processing of shipments during the first days,” he said.

Diamond dealers say they expect more problems when the additional tracing requirements take effect from September.

“We see the procedures will cause Antwerp to further lose competitive advantage… rather than deal a meaningful blow to any sanctioned products,” the letter said.

“The current trajectory threatens the existence of Antwerp’s diamond industry, a heritage of six centuries.”

The head of the AWDC, Ari Epstein, said the group would soon present the new measures, adding it was “acutely aware of the challenges and disruptions this timing may have caused”.

“Let me be unequivocally clear: the violation of sanctions is criminal in nature and not taken lightly by governments or our organization. Our commitment to compliance… is unwavering and absolute,” Epstein said in a statement.

Source: Dmitry Zhdannikov and Julia Payne

Alrosa Sales Rise Despite Sanctions

Alrosa’s revenue rose in 2023 as the Russian diamond miner continued to sell despite sanctions.

Sales increased 9% to RUB 322.57 billion ($3.55 billion) for the year, the company reported Wednesday. However, net profit fell 15% to RUB 85.18 billion ($939.3 million).

Alrosa and its diamonds have been the subject of sanctions by the US and other Western countries since Russia’s war in Ukraine began in February 2022. Major markets including India and China still permit imports of Russian diamonds. On March 1, the US will introduce stricter measures banning the import of 1-carat and larger stones of Russian origin, even if they went through manufacturing in a third country.

The miner’s announcement was its second full results statement since March 2022. On both occasions, it withheld information on the destination of its sales, which usually shows Belgium, the United Arab Emirates (UAE) and India to be the largest buyers.

Last week, De Beers reported a 36% drop in 2023 revenue for a total of $4.27 billion, with the diamond unit recording a net impairment of $1.56 billion, reflecting a weaker demand outlook.

Source: Rapaport

US’s New List of Russian Sanctions Includes Diamond Exporter

The US Treasury has imposed sanctions against nearly 300 Russian entities in its latest round, including a company specializing in the export of rough and polished diamonds.

The new series of restrictions the Office of Foreign Assets Control (OFAC) has applied marks the two-year anniversary of Russia’s invasion of Ukraine, and is also in response to the death of opposition politician and anti-corruption activist Aleksei Navalny, the Treasury said last week.

OFAC has targeted Almazyuvelirexport, Russia’s state-owned exporter of rough and polished diamonds and precious metals. The company was designated for “operating, or having operated, in the metals and mining sector of the Russian Federation economy,” it added.

Other companies that were banned included financial institutions, the defense industry, companies “providing backdoor support for Russia’s war machine,” and those connected to Navalny’s imprisonment.

Source: Rapaport

Diamond Industry Gears Up for Tighter Controls

The diamond industry is bracing for significant change in 2024.

New sanctions on Russia will fast-track the adoption of traceability programs across the supply chain. Should they wish to sell those diamonds into the Group of Seven (G7) countries, companies will have to prove their goods were sourced from non-Russian production.

On December 6, the G7 — comprising Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States — announced its latest sanctions, aimed at “limiting Russia’s ability to fund its illegal war,” the joint statement read.

Diamonds featured prominently in this round of measures, perhaps because the group had delayed a policy decision on how to handle Russia’s diamond supply until then — nearly two years after the war in Ukraine began on February 24, 2022.

Initial sanctions targeted Russia’s oil and gas industry as well as restricting its banking system and the transfer of funds, while touching on diamonds in an ambiguous way.

Still, diamonds contribute to Russia’s government revenue and therefore to the war effort, causing the sector to be entangled in the sanctions discussion.

The Russian Federation owns a 33% stake in mining company Alrosa, the world’s largest producer of rough diamonds by volume. The company generated rough sales of $4 billion from 45.5 million carats in 2021, the last prewar publication of its earnings.

“The goal of this effort remains centered on reducing revenue that Russia earns from diamonds, which fuels Moscow’s war machine against Ukraine,” the European Commission (EC) stressed in a separate statement, which provided additional details about the sanctions.

Sanctions in place
The sanctions will replace existing measures some countries implemented earlier.

The US banned imports of diamonds from Russia in March 2022, but left a loophole allowing for polished stones transformed from Russian rough in third countries. The European Union delayed implementing any restrictions out of concern such measures would place Belgium at a disadvantage in its competition with Dubai — as well as Mumbai and Tel Aviv — for market share as the premier rough-trading center. The United Arab Emirates (UAE), India and Israel have not implemented any restrictions on Russian-origin diamonds, though they export goods to those countries with a ban in place.

An EU-only import ban would not have been efficient, the EC added in its explainer. “It would have meant the death of Antwerp,” said an official who requested anonymity. “What is on the table is the survival of Antwerp.”

Consequently, the EU has been the driving force for a fully coordinated approach and timeline within the G7, the European Commission emphasized.

That effort sees the group phase in various levels of diamond sanctions.

The first stage, which took effect on January 1, banned direct imports of diamonds from Russia. On March 1, the sanctions will be extended to diamonds above 1 carat that were sourced from Russian rough but polished in a third country, addressing the loophole that existed in the original US sanctions. Finally, beginning September 1, the restrictions will include lab-grown diamonds, jewelry, and watches containing diamonds above 0.50 carats.

Traceability component
The big challenge lies in how to verify that a diamond is not of Russian origin. To that end, the group will establish a “robust traceability-based verification and certification mechanism for rough diamonds,” which will be mandatory from September 1, the EC said in its statement. A pilot program for the system will begin on March 1, it added.

The idea is to create a digital twin of the real diamond in its rough state and to issue a certificate of the diamond’s origin, the commission explained. It is unclear whether that certificate will be a physical printout — as customs officials are used to — or only digital, noted another European official.

The identifying information and certificate will be entered into a stand-alone blockchain-based ledger, which will be inter-operational with several existing solutions facilitating the traceability mechanism, an EC spokesperson explained in an email.

In other words, there will be a centralized blockchain that will be fed with information from traceability service providers.

“This allows the diamond to be traced through the production process and can be presented at the time of importation of the finished diamond,” the spokesperson said.

The commission did not clarify by press time the criteria service providers will have to meet to contribute to the G7 system, or what information will be uploaded to the centralized ledger. Companies with diamond-related traceability programs include De Beers’ Tracr, Everledger, iTraceiT, the Gemological Institute of America (GIA), and Sarine Technologies.

Industry concerns
The certification of goods registered on the ledger will be done in Belgium, with some exceptions being considered, an official noted.

As the only producer country among the G7 nations, Canada may be given the option to certify its own production, the official said. It is also understood that rough earmarked for beneficiation — polishing in the country of mined origin — will be exempt from passing through Belgium to be G7-certified.

De Beers is waiting for clarification on several points, most importantly whether its practice of mixing supply from its mines in Botswana, Canada, Namibia, and South Africa — known as aggregation — will be affected.

“We await clarity on how the new import requirements will be implemented in practice and will urge a sensible and practical approach to implementation that recognizes the fundamental importance of aggregation in delivering value for diamond businesses and producer countries, as well as the significance of beneficiation,” a company spokesperson said.

De Beers’ assortments will still have to be certified in Belgium, but it will be an exception in that these goods will be the only “mixed origin” ones that will be allowed, the official noted.

Yoram Dvash, president of the World Federation of Diamond Bourses (WFDB), urged the G7 to include other centers in the registration process.

It is possible to create “a more efficient and effective mechanism” by allowing other major rough diamond centers such as Dubai, Mumbai, and Tel Aviv, as well as producing countries, to conduct the inspection and registration of goods, Dvash stressed in a statement immediately following the G7 announcement.

The Industry’s Russia Crisis: Formulating Sanctions

Ready for volume
Among the concerns expressed have been whether Antwerp can handle the large volumes that are expected to accompany the new mechanism. One representative estimated the system would not result in higher volumes than those with which the Antwerp Diamond Office has dealt in the past. That official referenced 2021 as a comparative base, when Belgium imported 68.1 million carats of rough valued at EUR 6.49 billion ($7.1 billion), and exports reached 90.7 million carats worth EUR 7.48 billion ($8.18 billion), according to data the National Bank of Belgium published.

Before the war in Ukraine, Belgium was the largest buyer of Russian rough, importing 27.1 million carats worth EUR 1.57 billion ($1.72 billion) in 2021 — 24% of its total rough imports by value and 40% by volume (see graph). Excluding the Russian goods will mean Antwerp won’t see a significant spike compared to 2021, the official noted. Belgium’s imports of rough from Russia declined 19% in 2022 and have slumped 76% year on year to just EUR 285.1 million ($311.7 million) in the first nine months of 2023, the National Bank of Belgium data showed.

The bigger question is whether the traceability programs can handle such volumes. To date, adoption within the trade has been minimal and largely driven by retail jewelry brands that require thorough source verification.

“We continue to accelerate development of Tracr and engage with the wider industry as we await further details so that Tracr can support the industry’s needs as best as possible,” a De Beers spokesperson said. “However, we also acknowledge that even Tracr, the world’s most advanced diamond traceability platform, does not yet have the breadth of coverage that would be required to meet the G7 objectives in the stated time frames.”

Sarine recently unveiled its Autoscan Plus system, which it claims can scan 1,000 stones per hour for its Diamond Journey traceability program. Autoscan Plus was built for scale and developed as a smaller, cheaper solution, Sarine CEO David Block said.

Extra cost
The Antwerp World Diamond Centre (AWDC), the local trade body that incorporates both government and industry elements and oversees operations of the Diamond Office, is reportedly expanding its capabilities to handle the extra volume.

Still, many in the trade are skeptical whether the industry is ready to implement a digital traceability solution at such a scale. “The government fell for false promises regarding how to work and implement the system,” said one dealer. “Even if it is possible, it will be expensive.”

Early critics of the system have expressed concern about the additional cost of certification and of potential double shipping to Belgium.

“Having only one point for registration and inspection will impose additional costs of time and money to the diamond trade,” the WFDB said. It will lengthen the cycle of trading and getting goods to market, added another dealer.

Vipul Shah, chairman of India’s Gem & Jewellery Export Promotion Council (GJEPC), expects the move will impact the cost of raw materials for local manufacturers. “We are coordinating with the World Diamond Council [WDC] to mitigate such disruption and cost impact,” he said in an email.

Members of the trade cautioned that the cost of certification may even make Russian goods more attractive, while the market bifurcates to a two-tier system.

De Beers said it wants to understand how risks such as the creation of a potential supply bottle neck and additional costs will be managed if the G7 intends to limit the points of admission of rough diamonds into G7 nations. “We advocate for a solution that facilitates the trade of our diamonds into G7 countries, rather than restricting them,” the De Beers spokesperson stressed.

The EC responded that the cost for certification is expected to be negligible, “especially considering the price of diamonds,” according to its spokesperson. “The fee will be cost-bearing, not designed to generate profits.”

As for the double shipping, officials expect the goods will simply pass through Belgium as the main gateway — instead of other centers — before being sent for manufacturing. The extra shipping cost will likely apply for rough designated for tender sale in other rough-diamond locations such as Dubai and Tel Aviv.

Demand for Diamond Traceability Spikes

Artisanal and cottage industry

While the registration of rough will be overseen by the AWDC at the Diamond Office, it is a government-led mechanism, Rapaport understands. That means that it would be required at the point of export, which is significant when dealing with the artisanal mining sector.

So, if the artisanal miner sells his goods to a buyer in the location of mining, it will be up to the buyer to send the goods to Belgium for registration, an official explained.

Trade bodies, along with De Beers, echoed the WDC’s mantra that “no one should be left behind,” expressing concern that artisanal miners will be at a disadvantage under the new system.

“If such a solution is intended to be fully technological, this would be to the detriment of African producers, artisanal miners and the wider industry, with significant risk of unintended consequences,” the De Beers spokesperson added.

Artisanal and small-scale miners, who typically don’t have access to technology, should be able to send their rough into any cutting center to be registered and certified, trade members wrote in a draft letter being prepared for presentation to the G7, which Rapaport saw.

Similarly, the Indian industry is urging the G7 to take into consideration the interests of small and medium enterprises for whom the adoption of technology to track their polished diamonds might be out of reach at this stage. These marginal diamond units support millions of livelihoods, the GJEPC’s Shah stressed.

EU officials expect the program may even help formalize the artisanal mining sector and motivate investment in that segment — such as among G7 government bodies with an interest to make the traceability mechanism work.

Time to engage

But the system will require extensive engagement with the trade in the next few months to make it work. The industry has many questions and concerns, as communications from the WFDB, GJEPC, De Beers and others revealed. Some queries, such as what to do with existing inventory in the market, require urgent attention.

“I call upon the G7 countries to engage with the industry organizations in order to reach a more equitable and balanced mechanism,” Dvash stressed.

The G7 pledged to continue consultations among its members and with other partners, including producing countries as well as manufacturing countries, “for comprehensive controls for diamonds produced and processed in third countries on measures for traceability.”

It would be surprising if such discussions led to a complete overhaul of the planned system, as the industry might desire. As one trader admitted, the G7 is intent on its implementation, while the US and the EU will use the banks to enforce the sanctions — blocking payments within the pipeline in cases of noncompliance.

The governments charged with developing and implementing the system appear confident they’ve reached the optimal solution.

“This strengthened approach will provide certainty to our citizens and consumers that they are not purchasing Russian diamonds,” the EC spokesperson stressed. “It will also deliver stronger transparency to producers, including in countries with artisanal production. This will positively impact both earnings from diamonds and producers’ story and brand throughout the supply chain.”

It will take a lot of convincing for the trade to adopt such sentiment fully before the traceability pilot program goes into effect on March 1. It seems, at this stage, they’ll have little choice.

Source: Rapnet

US Sanctions Gold, Diamond Companies Aiding Wagner Group

The US Department of the Treasury has issued sanctions against four companies and an individual in the gold and diamond industries that have provided funding to Russian military organization Wagner Group.

The Central African Republic (CAR), United Arab Emirates (UAE) and Russia-based entities have “engaged in illicit gold dealings” to help Wagner “sustain and expand” its army in Ukraine and Africa, the government office said Tuesday.

“Treasury’s sanctions disrupt key actors in the Wagner Group’s financial network and international structure,” explained Brian Nelson, under secretary of the Treasury for Terrorism and Financial Intelligence. “The Wagner Group funds its brutal operations in part by exploiting natural resources in countries like CAR and Mali.”

The targets include:

Midas Ressources, which holds the rights to the Ndassima gold mine in CAR, and Diamville, a gold and diamond purchasing company that participated in a gold scheme and the shipment of diamonds mined in the African country to help fund Wagner activities.
Dubai-based industrial goods distributor Industrial Resources General Trading, which provided support to Wagner leader Yevgeniy Prigozhin by purchasing the diamonds sold by Diamville in exchange for cash to support the military group.
Limited Liability Company DM (OOO DM), a Russia-based firm accused of participating in a gold-selling scheme with Diamville.
Andrey Ivanov, an executive in the Wagner Group who facilitated weapons deals and mining operations with the government of Mali.
The announcement follows Wagner’s attempted rebellion against the Russian government last week. Prigozhin called off the mutiny and went into exile in Belarus.

The sanctions are the latest round against the Wagner Group, which the US has labeled a “significant transnational criminal organization.” Australia, Canada, Japan, the UK and the European Union have also sanctioned the military entity.


Diamond Importers Might Have to Declare Russian Origin

Polished diamonds

G7 countries could oblige companies to affirm that their imported polished diamonds are not of Russian provenance, according to the US’s top sanctions official.

Leaders of the bloc will meet at a summit in mid-May and are looking to have a plan in place by then, according to a member alert the Jewelers Vigilance Committee (JVC) released Tuesday summarizing remarks by Ambassador James O’Brien, who heads the US’s Office of Sanctions Coordination.

“There could be a required declaration that finished diamonds imported to the US and other G7 markets were not originally mined in Russia or other kinds of restrictions that apply to polished diamonds,” O’Brien said, according to the note. “The aim is to ensure this is phased in at a time and flow that will accommodate the work of the industry.”

O’Brien made his comments at last week’s annual JVC luncheon, where he was the guest speaker. The summary contained a mix of direct and paraphrased quotes, wrote JVC president and general counsel Tiffany Stevens.

The G7 includes the US, as well as Canada, France, Germany, Italy, Japan and the UK. The European Union is known as its “eighth member.”

Alrosa, in which the Kremlin holds a stake, “is deeply rooted to the power structure within Russia, and our government wants to make sure its revenue is not available for them to raid,” O’Brien explained. The state is seeking sources of funds to keep the war in Ukraine going, he added.

Important issues to tackle include how long to wait for Russian diamonds that are currently in the market to exit the system, the sizes of stones to which sanctions would apply, and how enforcement will work, the ambassador pointed out. “Having thoughts on these questions that can contribute to a framework in time for the mid-May meeting is a goal of the US government,” he said.

He also said that the US wanted to make sure Burma — also known as Myanmar — didn’t help Russia. The Asian country has been subject to various US sanctions since a military takeover in 2021.

“Russia is going to its allies and asking them to give back military equipment,” the official said, according to the JVC summary. “Burma supports Russia, so the government also wants to make sure Burma is restricted in its sources of revenue, so it doesn’t help Russia as well. This includes ensuring the regime does not earn money from the sale of rubies and other gemstones.”


The Diamond Origin Dilemma

Russia’s invasion of Ukraine is another defining moment for the diamond industry.

On March 11, the US government banned imports of Russian diamonds. The sanctions extend to rough from Russia and stones cut and polished in the country. They do not include goods that were mined in Russia and polished elsewhere, which accounts for most of Russian supply.

The more extreme scenario would have been a ban on all Russian-origin diamonds, regardless of where they are manufactured. Such a move may still happen, the Jewelers Vigilance Committee (JVC) warned, which would cut off an estimated 28% of global resources. That polished from Russian rough can still legally be imported to the US presents the industry with a lifeline — or loophole — preventing that consequence.

Many have understandably been calling for a blanket boycott of all Russian diamonds, or to label them as conflict or blood diamonds. After all, Alrosa — the world’s largest rough producer by volume, which accounts for most of Russian production — is 33% owned by the Russian government, which initiated the war.

However, according to the classic definition, these goods cannot be labeled as conflict diamonds as they are not funding a rebel movement engaged in civil war. They’re also not stained by torture or human-rights violations carried out at a mine site.

For now, the diamonds are simply sanctioned in the US. But the crisis certainly constitutes an ethical dilemma for the industry.

It therefore highlights the industry’s traceability efforts over the past few years, and the importance of being able to track a diamond through all stages of its journey from mine to market. The programs try to begin with the mine or country where the rough is recovered, whereas the sanctions account for “substantial transformation,” meaning that the source becomes the location at which the diamond changes its form from rough to polished.

Traceability challenges

While blockchain technology has enabled an easier tracking of transactions between various stages of the pipeline, no system is foolproof.

De Beers, the Gemological Institute of America (GIA), and Sarine Technologies are among the major players that have developed programs — as is Alrosa. Last year, the Russian miner introduced its provenance program to trace its production using nanotechnology. To its credit, Alrosa has arguably been most open to the idea of advanced diamond-tracking, providing rough for both the GIA and Sarine programs, and joining De Beers’ Tracr platform in its initial stages.

The fragmented nature of the industry effort is arguably necessary as it allows for better branding opportunities, at least in De Beers’ case. A centralized traceability platform, which was Tracr’s original goal, would also create logistical and trust issues regarding who has access to data, among other obstacles.

But the existing programs are in their beginning stages and have their own shortcomings.

The most famous challenge comes from De Beers since the company aggregates, or mixes, production from its various mines in Botswana, Canada, Namibia and South Africa. So, when sightholders want to disclose the provenance of their De Beers diamond, they must reference DTC, the miner’s program that assures those diamonds were responsibly sourced in one of its four host countries. Notably, one cannot market that production as De Beers diamonds due to complications related to the company’s retail brand. De Beers also has its Code of Origin program, launched last year, in which it inscribes diamonds of participating sightholders with a code that identifies it as ethically mined by De Beers.

Aggregation therefore presents a stumbling block for a retailer that wants to give specifics about the mine or country in which the diamond was recovered.

The GIA faces a similar challenge with its Diamond Origin Reports. Its program receives data from the lab’s own analysis of rough before it is polished. The owner of the rough — be it a participating miner, manufacturer, dealer or tender house — sends the stones to the institute, which relies on the supplier’s disclosure of origin. The GIA’s analysis then allows the resulting polished to be matched with its source when it is graded.

That’s fine if a miner directly sends the goods to the GIA. But what happens when the diamonds have multiple sources? For example, a sightholder or tender house might buy De Beers goods and mix them with supply from other miners, and then send the parcel for analysis. In that case, the stones have multiple sources. As a result, the GIA report has been known to list up to seven possible origins of a polished stone in its report.

Sarine claims to have solved the problem by working only with miners willing to scan the diamond into its system at the mine site, thus enabling it to trace its journey from the start.

Demand driven

Sarine also asserts that it is approaching the challenge from a demand angle rather than a supply one, arguably in contrast to the other programs. It is working with retailers to build their sustainability programs from the bottom up. So, if a jeweler such as Boucheron, which announced its partnership with Sarine in January, requires a certain amount of traceable inventory for a collection, Sarine can point to its channels that extend back to the mine.

Of course, each traceability provider has different considerations, and offers different added value. De Beers and the GIA are relying on their powerful brands to provide assurances on supply.

But it does raise the question of what is driving the market for responsibly sourced goods. If it is demand, as Sarine claims it should be, the market is still in its infancy, growing at a gradual pace. The Russia crisis may have given demand for traceable goods an unexpected boost.

After all, the US sanctions are limited, leaving jewelers and dealers to decide whether they’re willing to buy polished diamonds that came from Russian rough but were cut elsewhere. It is up to the trade to empower them to make confident choices with robust and clear traceability programs.

Some US jewelers have already made their positions clear. Immediately after the invasion, Brilliant Earth announced on Twitter it had removed all diamonds of Russian origin from its site. If more follow suit, as one might expect the longer the war continues, retail demand for origin disclosure will increase. The supply-chain dynamic will also shift.

Sales continue

The sanctions do not prevent Alrosa from selling its diamonds. The bigger concern for its rough buyers relates to paying for the goods, since the Russian banking system was taken off the international transfer system, Swift. But an Alrosa auction took place last week, and goods were paid for via banks in Italy and the United Arab Emirates, market sources confirmed.

The result, therefore, is not cutting off nearly 30% of global supply, as many feared. That would create shortages in the market and drive rough prices up even further. Rather, if more US jewelers refuse Russian-origin goods, manufacturers will need to change their operations accordingly. They would need to divert those goods to centers and clients willing to buy them and keep the remaining diamonds for those implementing their own ethical ban. It would bifurcate the market, but the net effect on supply would probably be zero in the long run.

The retail quandary

The bigger test falls on retail jewelers whose programs rely on the high volume of diamonds that Alrosa provides.

Signet Jewelers, for example, is said to be the largest buyer of piqué (I2- to I3-clarity) diamonds in the market, requiring consistent stock for collections that go in display cabinets across its approximately 2,800 stores. It is unlikely to fill its requirements without Russian goods.

While Signet said it had suspended business interactions with Russian-owned entities since the start of the invasion — including Alrosa, of which it is a contracted client — the jeweler did not clarify whether it still sources polished from manufacturers whose rough comes from Russia.

A Signet spokesperson instead referred to the company’s Responsible Sourcing Protocol, which points to direct supply of rough, urging buyers to insist on disclosures further along the distribution chain. It seems the protocols would consider the source of the polished diamond to be Russian, regardless of where it was polished — as all industry traceability programs do.

Signet also encourages its suppliers only to do business with members of the Responsible Jewellery Council (RJC), to which Alrosa still belongs, even though the miner resigned from the board. A revocation of Alrosa’s RJC membership, as some are calling for, would add another layer to its considerations, along with the rest of the industry’s.

Tiffany & Co. also has a decision to make. In 2019, it started disclosing the region of origin for all its engagement rings. It still lists on its website that most of its rough diamonds come from five countries — Botswana, Canada, Namibia, Russia and South Africa; in other words, De Beers and Alrosa, from whom its manufacturing unit buys. The jeweler faces the same dilemma as Signet for goods that are not polished in-house. Tiffany did not respond to this column’s request for clarification on its policy. Parent company LVMH has reportedly closed all of its retail operations in Russia.

The brands are left in a quandary. They need the supply, but cannot risk being called out on their environmental, social and governance (ESG) credentials. The potential backlash of being found out to be sourcing Russian-origin diamonds increases with the intensity of the fighting in Ukraine — especially if they remain cagey about their polished sourcing.

Inflection point

Of course, there are many more factors to consider: not least that Russian diamonds enable hundreds of thousands of jobs in India and elsewhere. That presents an ethical question to those calling for a blanket ban. Russian diamonds are part of an ecosystem upon which diamantaires and jewelers rely for their livelihood around the world — including in the US. Less supply to Signet could easily translate to lower sales, which affects all of its stakeholders, including employees. Then again, so would a consumer backlash.

The current crisis is an inflection point for the industry’s responsible-sourcing drive. It may even push the industry to stress the source of transformation over origin — as the US government has done. Maybe that needs to be debated.

Furthermore, it may push the industry to be more nuanced in its approach. For all the excellent work that has been done to bring the industry up to par on sustainability and responsible sourcing, perhaps it gets too bogged down in the technicalities of its due-diligence standards. As Brad Brooks-Rubin, the outspoken US adviser to the RJC and a former US State Department representative at the Kimberley Process, wrote in a blog post on LinkedIn, consumers will understand the dilemma if business leaders are honest.

It is indeed better to be forthright about one’s decision-making. It’s OK to disclose the dilemma. Consumers even appreciate the option to make their own choice, as Brooks-Rubin asserts. Transparency is good. The lack of clarity that is clouding the industry’s approach to Russian-origin goods will only create further uncertainty within the trade that will spill over to consumer confidence. That’s a crisis the industry can ill afford.


US, EU engage diamond industry on Russian diamonds

Russian diamonds

State Department and European Commission Engage Diamond Industry to Discuss Next Steps on Russian Diamonds

Today, Ambassador James O’Brien joined Deputy Director General and Chief Trade Enforcement Officer Denis Redonnet of the European Commission to discuss with the U.S. and European offices of leading diamond retailers, manufacturers, laboratories, and industry trade associations the importance of the diamond industry’s engagement on future Russia-related import measures, including on polished diamonds, as noted in the recent G7 Leaders’ Statement.

Russia continues to earn billions of dollars from the diamond trade, and the discussion centered on the most effective and impactful ways to disrupt that revenue stream.

The United States and European Union remain committed to imposing economic consequences on Russia for its unprovoked war in Ukraine.