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.”
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.
Group of Seven nations and the European Union are discussing ways to track Russian diamonds across borders, a move that could pave the way for restrictions on their trade in future, according to people familiar with the matter.
Previous EU attempts to sanction Russian gems have run into resistance from importer nations such as Belgium who argue that the effort would be futile because transactions will simply shift elsewhere without a mechanism to trace precious stones.
A diamond’s origin is clear at the start of the supply chain when it is issued a certificate under the Kimberley Process, which was designed to end the sale of so-called blood diamonds that financed wars. But after that they can become difficult to track.
Cut and polished stones are often intermingled at trading houses and the original certificate will be replaced with “mixed origin” documentation, making it near-impossible to keep track of where Russian diamonds are eventually sold.
The US has sanctioned the Russian mining giant, Alrosa PJSC, which accounts for about a third of the $80 billion global trade in rough diamonds. But the measures have had limited impact as much of the trade flows through other markets such as India.
The people with knowledge of the G-7 and EU discussions said a solution is not imminent, because tracing polished diamonds in a global market is extremely complicated. Still, two of the people said the G-7 could issue a statement on the matter as early as next week as part of the effort to maintain pressure on Russia as its war in Ukraine approaches the one-year mark.
Alrosa CEO Sergey Ivanov is stepping down from the position, a Russian news outlet reported.
The executive has decided to resign before the termination of his contract, according to a Google-translated version of an RBC article. He might move into a role at Volga Group, which controls gas and petrochemicals assets, the report added, citing an unnamed source.
An Alrosa spokesperson declined to comment to Rapaport News on Sunday.
Ivanov joined the Russian diamond miner in the top job in 2017, succeeding Andrey Zharkov. Earlier this year, the US named Ivanov as a sanctioned person following Russia’s invasion of Ukraine.
China has joined Russia in opposing an effort to redefine conflict diamonds to include those sold by individual nations, as a rift between Western and pro-Russia nations jeopardizes the process for certifying rough diamonds as conflict-free.
Ukraine, Australia, Britain, Canada, the European Union, the United States and civil society groups were pushing to place Russia on the agenda at this week’s Kimberley Process (KP) meeting in Botswana and to broaden the KP’s definition, under which only gems funding rebel movements are “conflict diamonds”.
Russia, the world’s biggest producer of diamonds, has said the situation in Ukraine has “no implications” for the Kimberley Process.
China agrees that the Ukraine issue falls outside the scope of the KP, the country representative told the meeting, according to three sources. China joins Belarus, Central African Republic, Kyrgyzstan and Mali in backing Russia’s stance within the body, which seems unlikely to come to any agreement.
“It’s clear that this is posing really an existential crisis for the Kimberley Process,” said Hans Merket, a researcher at Belgian non-governmental organisation IPIS, who is a member of the civil society group.
“It has become impossible to even discuss the KP’s problems and shortcomings, let alone that there would be any room for convergence on how they can be addressed.”
China’s KP representatives did not respond to an emailed request for comment.
The KP certification scheme, designed to eliminate the trade in so-called “blood diamonds”, was set up in 2003 after devastating civil wars in Angola, Sierra Leone, and Liberia, which were largely financed by the illicit diamond trade.
The Kimberley Process Civil Society Coalition and some member states have been arguing to broaden that definition for years, but it is difficult to do as the KP makes decisions by consensus.
Jacob Thamage of Botswana, the current KP chair, said that more participants now believe reform is needed.
Diamond trading was stable in May despite concerns about inflation, rising interest rates and slumping stock markets. Polished prices initially declined but later steadied as dealers anticipated supply shortages resulting from Russian sanctions.
The RapNet Diamond Index (RAPI™) for 1-carat diamonds slid 0.5% in May but was 9.3% higher on June 1 than at the beginning of the year.
US demand is supporting the market even as economic uncertainty sets in. Expectations are rising for the Las Vegas shows, which begin June 8. Dealers hope the positive sentiment will boost trading in the second half of the year. Chinese wholesalers remain cautious as activity resumes after the country’s Covid-19 lockdowns.
Inventory levels are high but have decreased in select categories. The number of diamonds on RapNet stood at 1.8 million as of June 1, up 43% from a year earlier. The quantity of 0.30-carat, D- to H-color, IF- to VS-clarity goods fell 14% in May; 0.50-carat diamonds in the same range declined 11%. Both categories were still significantly above last year’s levels.
While the sanctions on Russian goods have not yet caused notable polished scarcities, shortages are likely in the coming months. Rough supply has dropped since Alrosa canceled its March and April sales. Prices at rough auctions have increased — particularly in the small-diamond category, which Alrosa dominates. De Beers raised prices of small rough at its latest sight from June 6 to 10.
The market is splitting into two segments: Russian and non-Russian goods. Some big cutters are finding ways to buy Alrosa rough in order to serve centers that remain open to buying Russian-origin polished. These diamonds will likely sell at a discount to non-sanctioned ones.
US and European jewelers and brands may have difficulty filling their sourcing requirements in the coming months without Russian supply. This will lend further support to diamond prices.
Botswana, Africa’s top diamond producer, sees a prolonged ban on Russian diamonds opening the way for synthetic gems to expand market share, the country’s minister told a mining conference on Monday.
The United States, the world’s largest market for natural diamonds, imposed sanctions on Russia’s state-controlled Alrosa in April, aiming to cut off a source of revenue for Moscow after its February invasion of Ukraine.
Alrosa, the world’s largest producer of rough diamonds, accounted for about 30% of global output in 2021.
Botswana’s Minister of Minerals and Energy Lefoko Moagi said the ban on Russia diamonds might push prices up to the benefit of rival producers but he also said the gap would be hard to fill.
“We see the 30% gap that will be left by the ban being plugged by something else that is not natural. And for us that will be a challenge,” he said.
Jacob Thamage, head of Botswana’s Diamond Hub, said uncertainty over the Ukraine conflict makes it difficult for Botswana and other natural diamond miners to fill the supply gap as ramping up operations requires significant investment.
“You don’t want to invest a lot of money to up-scale and then the war ends the next day,” Thamage said. “We also see the higher prices pushing consumers to substitutes such as the synthetics and this can cause problems for us if we cede the market to unnatural stones.”
Sales at Debswana, a joint venture between Anglo American unit De Beers and Botswana’s government, accounts for almost all of Botswana diamonds exports. These stood at $3.466 billion in 2021 compared with $2.120 billion in 2020.
Thamage also fears that consumers might start to shun natural diamonds due to traceability issues.
“There is an increased fear that buyers of diamonds will begin to treat all natural diamonds as conflict diamonds and therefore shift to unnatural diamonds,” he said.
Alrosa canceled its last sale in April and is unlikely to sell any large volumes again this month
Prices are surging in some corners of the rough-diamond market, as sanctions on one of the world’s two giant miners ripple through the supply chain. In the past, the industry could turn to behemoth De Beers to crank out extra gems when supply ran tight — but not this time.
The price of a small rough diamond, the type that would end up clustered around the solitaire stone in a ring, has jumped about 20% since the start of March, according to people familiar with the matter. The reason: Diamond cutters, polishers and traders are struggling to source stones after the US levied sanctions on De Beers’s Russian rival, Alrosa PJSC, which accounts for about a third of global production.
For most of the modern history of diamonds, this is the sort of situation where De Beers could have tapped its vast stockpiles or simply fired up latent mining capacity. Little more than 20 years ago, its safes in London held stocks of diamonds worth perhaps as much as $5 billion.
Those days are now long gone. The company only carries working inventory stocks and its mines are running at full tilt. There is little chance of material increases in supply before 2024, when an expansion at its flagship South African mine will be completed.
“It’s very difficult to see us bringing on any new production,” Chief Executive Officer Bruce Cleaver said in an interview in Cape Town. “Thirty percent of supply being removed isn’t sustainable.”
De Beers also produces relatively few of the type of diamonds Alrosa specializes in: the small and cheap gems that surround a larger center-point stone or are used in lower-end jewelry sold in places like Walmart or Costco.
For many in the sector, that means growing shortages unless Alrosa and its trade buyers can find a work around.
Alrosa canceled its last sale in April and is unlikely to sell any large volumes again this month, the people said. It’s uncertain when the company will be able to sell normally again, they said, even as the company, banks and buyers look for solutions.
Endiama, which holds the exclusive concession for diamond mining rights in Angola, has already flagged an almost one-third reduction in diamond output this year.
Angola’s state-run diamond miner Endiama could face a hit to its operations as Western sanctions on Russia could delay supplies of parts and machinery, according to a government brochure.
The government publication was made available at the Mining Indaba conference in Cape Town on Monday.
Western nations have unleashed crippling economic sanctions against Russia after Moscow’s invasion of Ukraine in late February.
Endiama, which holds the exclusive concession for diamond mining rights in Angola, has already flagged an almost one-third reduction in diamond output to 10.05 million carats this year, from a forecast 13.8 million carats.
The company expects revenue of about $1.42bn from the sale of its diamonds this year.
“One of the great challenges for 2022 will certainly be to maintain the sustainability of the mines while the war between Russia and Ukraine lasts,” said the government brochure, “since the sanctions that the United States and Western countries have imposed on Russia may affect some national mining companies, delaying the supply of some machinery, parts and spares.”
Endiama has signed contracts with Rio Tinto to explore its Chiri mine in the Angolan province of Lunda Norte, while another project, Luaxe, was also expected to begin pilot production, it added, without providing a timeline.
Last month, diamond miner De Beers signed two mineral investment contracts with the Angolan government, the Anglo American subsidiary said ahead of a return to the country it left in 2012.
Russia may buy an as yet undetermined amount of rough diamonds from sanctions-hit producer Alrosa through its state precious metals and gems repository Gokhran, the country’s Finance Minister Anton Siluanov said on Wednesday.
The United States imposed sanctions on state-controlled Alrosa in April, complicating the Russian company’s operations in the global diamond market, with the aim of cutting off a source of revenue for Russia.
“We do not rule out the possibility of Gokhran purchasing diamonds produced by Alrosa. The amount will be determined later,” Siluanov told reporters.
Gokhran is generally more focused on purchases of precious metals from Russian domestic producers than diamonds, he added.
Alrosa, the world’s largest producer of rough diamonds, was behind about 30% of global output in 2021 and competes with Anglo American unit De Beers.
Its sales, mainly to Belgium, India and the United Arab Emirates, totalled $4.2 billion in 2021.
Gokhran bought diamonds worth $1 billion from Alrosa during years of weak demand caused by the global financial crisis.
Exports of rough diamonds from Russia’s state-owned Alrosa mines have resumed to India, although tensions remain high over such consignments.
Many Western nations are seeking to shut down Russia’s diamond trade with India by calling Russian diamonds conflict diamonds, or blood diamonds.
Critics such as Cristina Villegas, director of the Mines to Markets program at Pact, a development NGO, was quoted by the India-phobic London based Guardian as saying: “These are objectively conflict diamonds: they’re funding an armed conflict against a peaceful neighbour, by a state actor.” Villegas was silent about the flood of cash going to Russia by oil and gas purchases from European countries.
Analysts expect that the June meeting of the global diamond industry scheduled for Gaborone will not result in a broad sanctioning of the precious stones produced in Russia. Still, that has not stopped the United States from pushing harder, writes Staff Writer, MBONGENI MGUNI When the world’s diamond producers, their biggest customers, civil society groups monitoring the industry and others, meet in Gaborone in June to discuss issues affecting the image of the precious stones, Russia will be the proverbial elephant in the room.
The world’s biggest producer of rough diamonds by volume is due to enter the third month of its invasion of Ukraine next week, with recent mounting claims of civilian casualties and atrocities, including the discovery of mass graves.
The Kimberley Process, which groups the producers, markets, civil society and in fact accounts for 99.9% of the global diamond trade, meets in Gaborone between June 20 and 24, as Botswana is chairing the group for this year. The Kimberley Process (KP) was established nearly 20 years ago to clean up the diamond industry by certifying that all trade does not involve conflict or ‘blood diamonds’.
Conflict or blood diamonds have generally been taken to mean stones mined for the purpose of funding rebel group campaigns against legitimate governments, a definition that has meant the KP’s focus has been on war-torn Africa.
The debate within the KP to expand the definition to include vices such as human rights violations has been ongoing for years, but Russia’s bloody invasion of Ukraine has raised the urgent question of what constitutes conflict or blood diamonds. Those monitoring the KP don’t expect any sudden changes to the definition in June.
Hans Merket, a researcher at International Peace Information Service, which is a KP member, explains.
“Following several failed reform attempts, the Kimberley Process still looks at conflict through a 20-year-old lens,” Merket wrote in a report last week.
“This narrow definition has over the years led the KP to ignore various cases where public or private security forces, and not rebels, were inflicting violence and conflict to control diamond mining areas.
“It is therefore highly unlikely that the KP would consider action on a matter that differs even more from a scenario where rebels control diamond mines.”
He adds: “Decision-making in the KP is based on consensus, implying that no votes are cast and decisions are only taken if none of the 56 participants expresses disagreement.
“Even if Russia would in this case not be allowed to participate in decision-making, KP membership includes various countries that are unlikely to support KP scrutiny of Russian diamonds, such as China, the United Arab Emirates and India.”
But are diamonds actually funding Russia’s war effort?
Merket points out the linkages. Russia’s diamond mining is led by a mega-corp known as Alrosa. The Russian government owns 33% shares in Alrosa and, according to Merket, the group’s CEO, Sergej Sergejevitsj Ivanov, is not only part of Vladimir Putin’s inner circle but was also one of the first oligarchs targeted US sanctions.
“The Russian Federation shares in Alrosa’s profits,” writes Merket. “In 2021 this profit amounted to $1.1 billion (and) in Putin’s own words this ‘gives serious revenues to the federal and regional budget’. Alrosa has also reportedly directly funded the military previously, with reports that the group has paid significant amounts over the years to “increase the combat readiness of Russian submarines”.
According to Merket, newsletters from Alrosa indeed reveal that group engaged in a sponsorship agreement with the B-871 combat submarine in 1997, committing to “maintain the ship in a combat-ready condition”. Russia does not only generate revenues from diamonds as a shareholder but also directly buys and sells diamond production from Alrosa to manage global supply and pricing.
Last year, according to Merket, the state-run minerals trader known as Gokhran held six auctions garnering $225 million. Diamonds are particularly important for Moscow, given that existing sanctions have largely driven Russia out of the global financial system. The precious stones are an increasingly important source of foreign currency for Russia, whose major revenue earners such as gas and oil have been squeezed out of the market.
The US and its partners in the West quickly realised the importance of diamonds in the arsenal of sanctions against Russia, imposing numerous measures from February.
However, because Russian diamonds can still be traded through ‘sympathetic’ or neutral markets such as India and China, it is at the Kimberley Process where the flows to Moscow can be effectively plugged. And the US is focussing its efforts on lobbying KP partners, even if sanctions from the organisation would be unprecedented.
“We are engaged very proactively with partner nations and allies thinking about appropriate actions that could be taken in this respect,” Joshua Mater, senior sanctions coordinator in the US Department of State told Mmegi.
Mater was briefing a Foreign Press Centre virtual press tour on corruption, which ended recently. He explained that the US understood the limitations under the KP.
“The Kimberley Process itself is a multi-lateral body, which is consensus-based decision-making. “And of course, Russia is a member of that multi-lateral body.
“So, decisions that are coming out of that pursuant to sanctions or other types of deterrent regulations can often be extremely challenging to get adopted within the context of that organisation itself.
“But I think all members do recognise the importance and issue of the situation, especially in Ukraine, that’s ongoing right now.”
Mater added: “It may not be within the Kimberley Process itself, but it may be within other sanctions tools and other tools that are available to the US government that can get after these particular industries.”
The US State Department is also facing pressure from within the country over the Russian diamonds.
A group of 11 members of Congress recently wrote to the department demanding tougher action against Russian diamonds. Specifically, the congresspeople want a tightening of the existing sanctions so that they cover polished diamonds which have their origin in Russia.
At present, the US sanctions only cover Russian rough diamonds, meaning these can still be sold into centres such as Dubai, India and China for polishing before being sold forward to the US market.
“As it stands at this time, a diamond can be mined by an Alrosa subsidiary, polished or cut in India or another country, and sold to the United States without any prohibition, making a profit for the Russian government,” the politicians wrote.
“The February 24 sanctions that listed Alrosa only blocked debt and equity transactions, making a small dent in Russia’s oversized stake in the global diamond trade.
“Although an important initial step, along with the designation of Alrosa’s CEO, these have yet to impede trade and revenues that eventually reach the Kremlin.”
Experts have said broadening the scope of the US’s diamonds to include the polished variety would help squeeze Russia, but that would require the cooperation of diamond manufacturers and retailers in ‘Russo-sympathetic’ or neutral countries such as India and China.
The US has other arrows in its quiver against Russian diamonds, but many are limited and have significant loopholes.
“If diamonds are being mined or sold under circumstances that violate laws that could be prosecuted in the United States like money laundering with a corruption object, it may be possible for us to take action against the profits that are earned through the sales, whether by Ukrainians, Russians or others,” Mary Butler, chief of the US Justice Department’s Money Laundering and Asset Recovery Section (International) told Mmegi.
“And so, I don’t want to eliminate the possibility that the corruption itself linked to the mining or sale of diamonds couldn’t be addressed.
“At the same time, a failure to abide by the Kimberley Process outcomes is probably not a basis for a US law violation.”
The US also is able to impose criminal sanctions for violations or evasion of sanctions. People who assist support financially, or with services the evasion of sanctions can face criminal liability in the United States that can lead to forfeiture. The US is also able to use civil confiscation as a basis to forfeit assets linked to sanctions evasion.
The network of laws however falls shy of preventing Russia from reaping the benefits of its diamond trade, particularly the lucrative foreign currency inflows that come with it.
The complications mean the KP remains the most appropriate platform for the world to make a decision on stopping diamonds from funding Russia’s war effort.
While Merket does not expect the KP to make any meaningful move on Russia when it meets in June, the Gaborone meeting could set off some cataclysmic events within the organisation.
“While many in the KP may want to ignore the matter, the Russian diamond controversy will considerably impact the process,” the researcher says.
“The geopolitical crisis and the opposing views on how the KP should deal with it will exacerbate the stalemate that has been hindering progress since the KP’s inception.
“It can also plunge the KP into an existential crisis, with a risk of implosion.”
According to Merket, increased friction within the KP is already emerging “as Russia chairs two of the six KP working bodies, both of which carry considerable political and strategic clout”. The KP, long accustomed to acting against smaller, African members, whose conflict diamonds comprise a small percentage of the global trade, is suddenly faced with tough decisions on a major producer responsible for a third of global supply.
“The fact that Russian diamonds present one-third of the global diamond supply may lead an increasing number of KP participants as well as civil society and industry observers to question whether they can continue being part of – and invest considerable time and resources in – a process that entrusts and legitimises this flow with KP conflict-free certificates,” Merket.
The US and other Western parties fired initial salvos at the Russians at the KP level, during a recent engagement hosted by the United Nations in New York.
More sparks are expected in Gaborone, but for now, the host nation and chairperson, are not taking a stand on the matter.
Diamond Hub coordinator, Jacob Thamage, who is effectively handling Botswana’s chairmanship of the KP, has reportedly told the KP Civil Society Coalition that any move or debate on Russia would have to be moved by a participant.
The global diamond industry reaches its moment of truth in Gaborone in June.
Alrosa, the world’s top diamond producer by output, has been hit by fresh sanctions imposed by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC).
The OFAC announced late on Thursday it had placed Alrosa on the Specially Designated Nationals (SDN) list, which effectively kicks a sanctioned company out of the US banking system and bans its trade with Americans.
The measure against the Russian state-owned diamond miner seeks to cut off additional sources of revenue for Moscow, the government agency said.
It also affects any entities in which Alrosa has a 50% interest or more, either directly or indirectly.
The company’s customers well as other counterparties must stop all dealings with the state-controlled Russian miner by May 7, Treasury said.
Shares in the company collapsed on the news, closing nearly 13% lower on Friday trading in Moscow.
Alrosa and its chief executive Sergei S. Ivanov were included in the first wave of restrictions announced by Washington, which restricted the company’s ability to raise new debt and equity in the US.
“These actions, taken with the Department of State and in coordination with our allies and partners, reflect our continued effort to restrict the Kremlin’s access to assets, resources, and sectors of the economy that are essential to supplying and financing Putin’s brutality,” Treasury said in the statement.
The European Union and the UK have also imposed sanctions on the miner following Russia’s invasion of Ukraine.
Diamonds are one of Russia’s top ten non-energy exports by value, with exports in 2021 totalling over $4.5 billion, it noted.
Alrosa is responsible for 90% of Russia’s diamond output and 28% of global supply, with 32.4 million carats produced in 2021 and sales topping $4 billion thanks mainly to consumer demand from the US.
Loopholes Experts have noted the sanctions against the miner carry a significant loophole. Russia’s rough diamonds are sent to another country — usually India — where they are polished and cut, which makes them the product of that nation in the global market.
Another issue is that diamonds of various origins are often mixed once polished, which can make it more difficult for companies that independently vow to stop buying Russian goods.
The Responsible Jewellery Council (RJC), the leading standards organization of the global jewellery and watch industry, took steps into that direction in early April and suspended Alrosa’s membership.
“Fundamentally, we remain focused on RJC’s purpose, which is to ensure all jewellery is responsibly sourced,” the group’s char David Bouffard said in the statement.
World’s top diamond miner Alrosa hit by US sanctions The main markets for Alrosa, which employs about 32,000 people, are the US and Asia (Photo: Dmitry Amelkin, Transformation Director of Alrosa’s Polishing Division. Courtesy of Alrosa | Twitter. ) US-based jewellers Tiffany & Co. and Signet Jewelers said in March they would no longer buy new diamonds mined in Russia.
Alrosa withdrew in March from the Natural Diamond Council (NDC), a market alliance of the world’s leading producers of precious stones. By doing so, the company not only stepped down from the board, but it also cut all financial contributions.
The Mirny, Sakha-based miner also has a 41% stake in Angolan diamond production firm Catoca, which is not affected by the latest US sanctions given the OFAC.
While the full effects of the sanctions on the already undersupplied global rough diamonds market are not yet clear, the Antwerp World Diamond Centre (AWDC) has said there was a chance the restrictions could prove counterproductive.
“It is a blow that should hurt Russia but there is a chance that we do more damage to ourselves,” spokesman Tom Neys told Belgian newspaper Gazet van Antwerpen. “The Russians can easily trade their diamonds with non-EU countries and outside the US.”
The diamond jewelry industry is going into the year with diamond supply at historically low levels, estimated by Bain & Company at 29 million carats in 2021. “Upstream inventories declined ~40%, driven by high demand and slow production recovery, and are near the minimal technical level,”
Russian miner Alrosa has suspended its membership in the Responsible Jewellery Council (RJC), both organizations announced last week.
The development came just over a month after Russia’s invasion of Ukraine. The RJC board of directors voted to accept Alrosa’s decision, the standards groups said Friday.
Alrosa exited the RJC board in early March, but remained a member of the organization. RJC received criticism for not removing the company: Last week, luxury group Richemont and jeweler Pandora both stood down from the organization in protest, while RJC executive director Iris Van der Veken resigned over the issue.
The organization defended itself, noting that it was waiting for the outcome of a legal review.
“Beginning on March 3, the [RJC] board immediately began a comprehensive, third-party legal review to ensure it had the appropriate authority, within its constitutional documents, to take action,” the RJC statement continued. “The law firm selected — having concluded its own standard conflict of interest assessment — commenced their review of RJC’s governance, the board’s authorities, training modules and many other documents and processes.”
Sanctions by the US and UK governments during February and March complicated the situation and delayed completion of the review, the RJC explained. The board received the final document in the middle of last week.
“Taking any action prior to the delivery of the legal opinion would have exposed the RJC to significant legal risk,” it argued.
Alrosa — in which the Russian government owns a 33% stake — confirmed its suspension, saying it cared for the industry “as much as it cares for its mining communities.”
The company “believes in the diamond industry and the people who work to make it great all over the globe,” the statement continued. “We are one of the major contributors to the sustainable development of this industry. We will continue to uphold our highest standards of responsible business conduct and business ethics that are an integral part of our culture and principles.”
Major jewellers are ditching Russian diamonds after facing increased scrutiny over how Russia’s state-controlled diamond monopoly could fund Putin’s war on Ukraine.
A host of high-profile international jewellers, including American brand Tiffany & Co, Swiss watch and jewellery-maker Chopard, Signet, the largest retailer of diamond jewellery, and Pandora, the world’s largest jeweller, have released statements saying they will stop buying diamonds – or in the case of Pandora, any materials – of Russian origin.
In mid-march, the Guardian reported on growing concerns that trade with Russia’s partly state-owned diamond miner was lining Russian state coffers, and could be funding Russia’s invasion of Ukraine; as well how jewellers could easily – and legally – circumnavigate sanctions by buying Russian stones processed through India. In the days since, multiple major retailers said they would stop sourcing Russian diamonds. This week, Pandora and Chopard were the latest to announce the move, with both saying they had instructed all suppliers to stop sourcing raw materials of Russian origin. They followed moves by Tiffany and Signet earlier in March.
Russia produces about 30% of the world’s diamonds – 98% of which are mined and sold by Alrosa, an enormous mining monopoly with close ties to the Kremlin. A third of Alrosa is owned by the central government, and another third by regional governments – the Russian republic of Yakutia and its administrations. The company brings in significant profits for its government shareholders, reporting sales of $4.16bn in 2021, resulting in a net profit of 91bn rubles ($943m). Putin has said in the past that it “gives serious revenues to the federal budget and regional budget”.
Russian mines produce 30% of the world’s diamonds Jewellery industry accused of silence over Russian diamonds Read more Both the US and UK have introduced sanctions forbidding companies from doing direct business with Alrosa. The sanctions alone, however, are unlikely to stop the flow of Russian diamonds to the west, because the vast majority are exported rough to India, where they are cut and polished. Under US customs rulings, this is considered a “significant transformation” – so polished diamonds can be legally imported as an Indian product, not a Russian one.
Decisions over whether to truly pause trade of Alrosa’s diamonds will therefore fall to the industry, and to key certification bodies. Within the sector, however, a storm has been brewing over “responsible sourcing” groups that have remained quiet on sourcing of Russian diamonds, with multiple high-profile members resigning in protest.
The Responsible Jewellery Council (RJC) – one of the crucial jewellery watchdogs – was set up to help regulate the sector, improve its reputation, promote responsible sourcing, and eliminate “conflict diamonds” from supply chains. The Guardian reported earlier in March that the council had been accused of silence over Russian diamonds although it has issued guidance that members should comply with sanctions. While Alrosa has stepped down from the organisation’s board, it remains a member and has kept its “responsible” certification. The council has a number of past or present long-term Alrosa customers on its board.
Now, the council is facing a wave of exits. Brands that have announced they are leaving over the Russian diamonds issue include Pandora, Richemont, the owner of Cartier, and Kering, the owner of high-fashion brands including Gucci and Saint Laurent. On Wednesday, the organisation’s executive director Iris Van der Veken resigned over its handling of the issue. Van der Veken declined to comment.
Vladimir Putin sits at a large desk in a meeting with Azerbaijani president Ilham Aliyev (not seen) in Moscow on 22 February. Putin advisers ‘afraid to tell him truth’ about Ukraine error, says GCHQ head Read more In a statement, Richemont, the owner of Cartier, said it was leaving the organisation in protest. “Richemont and its maisons do not wish to be members of an industry organisation that includes companies that contribute to financing conflicts and wars.”
Pandora representatives said the company was leaving the council after 12 years as a member, over its “failure to suspend Russian companies’ memberships and responsible business certifications and urge its members to suspend business with Russia. Pandora had previously requested that RJC take such actions.”
“The war requires all businesses to act with the utmost responsibility regarding any interactions or business dealings with Russia and Belarus. Pandora cannot in good faith be a member of an association that does not share our values,” chief executive Alexander Lacik said.
Gucci and Balenciaga owner Kering said the brand “does not want to be associated in any way with business practices that contribute to an endorsement of war.”
“The RJC is at a crucial crossroads,” said Cristina Villegas, director of the Mines to Markets program at development organisation Pact. “The current definitions of responsibility are silent on what happens when a company’s assets are being used to directly and indirectly fund an unprovoked conflict that’s displaced millions of people.”
RJC chair David A. Bouffard said in a statement that the council had “commenced an arm’s length, independent, third-party legal assessment … to consider the status of Alrosa as an RJC member”.
“The pace of this process may be frustrating, but this is an unprecedented situation, which is constantly changing and requires that the time be taken, to ensure that due process is followed as exhaustively as possible.” Bouffard said the process would conclude “imminently”.
Brad Brooks-Rubin, strategic adviser to the council, said the exodus of members was significant for the industry. “If the current trajectory continues and more members [leave]… there’s not another competing organisation in the industry,” he said. “That leaves the jewellery industry exposed to real concerns about: what standards are you implementing? What does it mean to be responsible, sustainable, ethical? The RJC has provided that – and if it’s not the RJC, what takes its place?”
Brooks-Rubin had spoken out earlier in March to criticise the lack of action or transparency on Russian diamonds, saying the council’s action against Alrosa had been “insufficient”. He said decisions about boycotting diamond-producing countries were complex, with millions of international jobs and livelihoods depending on the flow of diamonds.
“If 30-40% of the supply chain is off the market, then that affects everybody. That affects prices, that affects the supply chain, that affects every entity in the entire industry.” He said the council needed to be clear and transparent about the challenges it faced.
US President Joe Biden has issued an executive order prohibiting the import of “nonindustrial” diamonds originating in Russia.
The measures, which the White House announced on Friday, follow Russia’s continued war in Ukraine and build on earlier US sanctions outlawing debt and equity transactions with Alrosa and its CEO, Sergey Ivanov. Those previous rulings did not constitute an outright ban on shipping Russian goods into America.
The latest order will affect goods from Russian miner Alrosa, which supplies around 30% of global rough supply by volume. Biden has also prohibited the export of luxury goods from the US to Russia.
On the same day, Signet Jewelers — an Alrosa contract client — announced it had “suspended business interaction with Russian-owned entities since the beginning of the invasion.” The Gemological Institute of America (GIA) has stopped taking submissions of Russian products for its Diamond Origin Report service, and has also paused all transactions with laboratory submissions from sanctioned entities.
Meanwhile, Alrosa has delayed publication of its monthly sales data until further notice. The company was unavailable for comment at press time on Sunday.
