What Would More Sanctions on Russian Diamonds Really Do?


Nineteen months have passed since Russia invaded Ukraine, sending shock waves around the world and in the global diamond market.

Russia is the world’s largest diamond exporter by volume, with state-owned company Alrosa mining nearly a third of all diamonds produced in 2021.

To stem the flow of money into the Kremlin war chest, the United States – the world’s largest market for finished diamonds – took action last spring when President Biden banned imports of rough diamonds from Russia and the US Treasury Department imposed restrictions on Alrosa.

Other countries have imposed their own restrictions, including Britain, which earlier this year announced a complete ban on Russian diamonds.

Last year, the European Union tried several times to impose an embargo on Russian diamonds, but was blocked by Belgium because of protests from the Belgian port city of Antwerp, a major trading center for the precious stone. Its representatives have expressed concern that, in addition to the difficulty of tracing the true origin of diamonds, the sanctions could give Antwerp’s rivals such as Dubai and India a competitive advantage over the Russian diamond trade. Not everyone agreed.

Ukrainian President Volodymyr Zelensky said last year, “There are people for whom the diamonds sold in Antwerp are more important than the battle we are fighting.”

Now, the diamond industry is bracing itself for the unveiling of sanctions from the Group of 7 countries – Britain, Canada, France, Germany, Italy, Japan and the United States – and the European bloc that will impose restrictions on imports of gems mined in Russia. Will ban , including products cut and polished in other countries.

“The current US sanctions only cover rough Russian diamonds or diamonds cut and polished inside Russia,” said Paul Zimnisky, a diamond industry analyst based in the New York City area. “Given that 90 percent of diamonds are cut and polished in India, and can therefore be classified as Indian gems, the current regulations are not as strict as you might think.”

But some responses were “far harsher than government regulations”, he said, adding that several high-profile luxury players, including Richemont and LVMH Moët Hennessy Louis Vuitton, told suppliers they would not buy Russian stones, and put the responsibility on them. Suppliers must disclose the origin of their gems.

More governments with substantial economic firepower are expected to be part of the new effort. Brad Brooks-Rubin, a senior adviser in the US State Department’s Sanctions Coordination Office, said consumers in the G7 countries account for about 70 percent of all diamond purchases.

“With most of their demand cut off, if the import ban is agreed upon, Russian diamonds will have a narrow path to enter the market,” he added. “The focus of all discussions is on how to target Alrosa and Russia’s diamond revenue which can then be channeled into their war effort.”

A formal announcement of the G7 sanctions is expected in September, and negotiators are still finalizing the exact terms for tracking and locating individual gems and customs paperwork. The expectation is that these new restrictions will go into effect in January, after the all-important holiday retail season.

If there is a shortage of non-Russian diamonds after more sanctions are imposed, jewelers may see prices rise, but the increase is likely to be gradual rather than sudden. The industry is expecting action.

The question is whether an industry, made up primarily of small businesses, that is organized by the quality, size and color of stones – not their origin – can separate and accurately measure stones. can formally produce paperwork that classifies them by origin. This challenge can be compounded by the many imperfections in the supply chain that are possible as diamonds make their multinational journey from a mine, through a complex global web of middlemen, and ultimately to consumers or industrial uses.

Diamonds can change hands between the mine and the market 20 to 30 times, according to researcher Hans Merkett of the International Peace Information Service, an independent research agency. “Finding the right balance between ambition and realism will be critical, as getting everyone on the right track and reorganizing this complex global supply chain could take years rather than months,” he added.

Another headache? Russia is known for producing small diamonds which are mostly sold in very large quantities. Mr. Brooks-Rubin said the new G7 restrictions would likely only cover finished stones of one carat or larger, although smaller gems could be included later.

Tiffany Stevens, chief executive and general counsel of the Jewelers Vigilance Committee, a non-profit organization based in New York City that focuses on ethics in the jewelry trade through legal compliance and policy advocacy, said the attack caused the diamond industry to suffer. Significant changes needed to be made to its operations, and it was given time to prepare for the new requirements that the tougher rules would bring.

“The G7 sanctions are turning up the heat on Russia and also lighting the way for business on how to implement it,” he said. “But our industry is also very fragmented and global, many people in the business still don’t quite get it.”

Despite continued diplomatic moves including Restrictions imposed on the chief executive of Alrosa Industry analysts, who were appointed in May, say Russian diamond export numbers are closer to what they were before the invasion of Ukraine, but some import locations have changed.

Karen Rentmeesters, a spokeswoman for the Antwerp World Diamond Center, which represents the diamond sector in the city, said the impact has resulted in the gem center’s official import of raw Russian stones down by about 95 percent compared to pre-conflict levels. Restrictions on trade flows and payments, and local merchants and manufacturers complying with the wishes of valued customers and partners.

China has now become a major new port for Russian diamonds, and new cutting and polishing centers in former Soviet states such as Armenia and Belarus have seen a significant increase in the volume of rough stones from the country. Dubai – due to its favorable geographical location between East and West and recent influx of Russian business – has also benefited greatly from the current restrictions.

India, where 90 percent of the world’s rough stones are cut and polished in the city of Surat, has continued to handle Russian diamonds without the foul play of Western governments. Prime Minister Narendra Modi has rejected pressure from the West to impose any sanctions on Russia or downgrade economic ties with the Kremlin.

But US authorities have blocked some diamond deals that were carried out by Indian traders suspected of handling the Russian stones, creating challenges for traders in Surat and Mumbai. And overall, here’s what the industry says Thousands of low paying cutting and polishing jobs at risk,

In a strategy to offset potential losses to local business and maintain employment, the Indian government and its gems industry have invested in the manufacture of lab-grown diamonds (which require cutting and polishing in the same way as natural stones). Considerable growth, focus for what is already a major country. In June, Mr. Modi presented a 7.5-carat synthetic diamond to First Lady Jill Biden during her visit to the White House. The gesture was a diplomatic flourish, as a recent spate of exports of Indian lab-grown diamonds to the United States had brought down their market value.

According to Mr Zimnisky, “the Russians have increased diamond sales in recent months in an effort to regain market share lost last year following trade disruptions.”

As yet 18 percent drop in diamond prices From its all-time high in February 2022, according to a Global Rough Diamond Price Index published in June, the popularity of man-made diamonds, a slowdown in China’s economic recovery, an uncertain macroeconomic backdrop and the ongoing war in Ukraine are all contributing factors. In a dull market.

For sanctions negotiators and the wider industry, the focus is on whether new technologies are able to offer an undeniable and verifiable solution to determining the origin of a stone.

Currently, customs officials require a government-issued certificate guaranteeing that the stones meet the requirements of the United Nations-backed Kimberley Process, which is designed to stem the flow of conflict diamonds. Requiring certification has been a step forward, but as pointed out by Skander Nasra, an advisor to Belgian Prime Minister Alexandre de Crew, the method has significant flaws.

“We are working towards a more significant way of attacking Russia,” he said, “and that is with sanctions that are driving the industry to use tracing technologies and blockchain.” This is the only reliable way to plug loopholes around rubber stamping or self-auditing and ultimately keep Russian stones off the market, even if it takes years for a scheme to be successfully implemented.

Following the invasion, De Beers enhanced its tracker platform to allow for the participation of others in the diamond industry, while the Gemological Institute of America launched a consumer-facing service called GIA Source Verified that would validate a diamond’s country of origin. .

Spacecode, a Swiss company that already provides technology to track diamonds through the supply chain, now says it has a new tool that can identify the region of origin of individual diamonds and store them by 2024. intends to make it available for sale by the end of The company, Sarin, has also unveiled a traceability system called Diamond Journey, which starts with a 3-D scan of a rough stone at the mine and then logs every next step to the retailer.

There will likely be an extended transition period before the ban goes into effect. In the short term, the expectation is that businesses will continue to rely on auditing.

“Naturally, some well-resourced major players will adapt, but small and medium-sized or family businesses, which are the cornerstone of the jewelery trade, will have a much harder time,” Ms Stevens said.

Mr. Zimnisky said that “we are very far from a state where the technology to trace the chemical composition of stone is used throughout the industry,” although he added that the business is already moving in that direction. Those efforts have been fueled by demands related to Russian sanctions.


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