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.”
Burgundy’s $136m deal to buy the Ekati diamond mine, in Canada, is likely to extend its life “significantly”, says Kim Truter, the company’s CEO.
The purchase, announced last week, from Arctic Canadian, should be concluded next month, pending financing and shareholders’ approval.
“The real advantage is it’s a tier-one asset in a tier-one country,” Truter told CBC News, Canada’s publicly owned news and information service.
He said he saw untapped potential at Ekati, which opened in 1998 as Canada’s first diamond mine.
Ekati is particularly attractive to Australia-base Burgundy because of the fancy yellow stones it produces, such as the 71.26-carat octahedron diamond recovered last September (pictured), believed to be the largest fancy vivid yellow gemstone discovered in Canada.
New owner Burgundy has a keen interest in yellow diamonds. It is currently reviving the Ellendale mine, Western Australia, once the world’s largest producer of fancy yellow diamonds, and has established its own dedicated cut and polish facility in Perth, also in Western Australia.
Burgundy is buying Ekati from Arctic Canadian Diamond Company, which acquired it in February 2021 after the previous owners, Dominion Diamonds, filed for insolvency.
HRD Antwerp has sued its former Turkish partner company following allegations the Belgian laboratory had routinely “upgraded” diamonds.
The organization is in a dispute with Enstitü Istanbul Bilim Akademisi Yönetim Danışmanlığı, with which it ended a longstanding collaboration in 2021.
The messy divorce intensified last week when the Belgian press reported allegations that HRD, in 2020, had introduced a strategy of giving diamonds higher grades than other laboratories. On Wednesday, HRD said it had taken legal action against its former partners in Turkey for “damaging its business reputation.”
Belgian lawsuit
The disagreement revolves around a civil lawsuit that Enstitü Istanbul Bilim Akademisi Yönetim Danışmanlığı filed in late 2021 against HRD at an Antwerp court, according to a March 9 report by Belgian newspaper De Tijd. Investigators have also been looking into whether there was anything suspicious about the HRD’s grading methods, the report added.
Nearly six years ago, according to De Tijd, the International Diamond Council (IDC) — which the World Federation of Diamond Bourses (WFDB) set up in the 1970s to unify diamond grading around the world — excluded HRD from its membership. In a letter to HRD’s then CEO Michel Janssens, IDC president Harry Levy wrote that it was “no longer the case” that HRD graded according to IDC rules, the newspaper reported.
By then, HRD was in a bad financial state, according to leaked internal slides that the newspaper cited. This was still the case in 2020, when another leaked document read: “With current results, HRD is out of business,” the Dutch-language report said.
In a new strategy, HRD determined that stones that already had Gemological Institute of America (GIA) reports were allowed to receive one or two color “upgrades” or one clarity “upgrade,” the report alleged. The lab was not to downgrade the diamonds unless there had been a genuine mistake, the report continued. Stones from IGI were not allowed to receive an upgrade, it said. The paper cited an internal online meeting in which Mike Davey, then director of HRD Antwerp Istanbul, shot down the policy as a “way to commit market fraud.”
In the same meeting, HRD Istanbul owner Mehmet Can Özdemir said, according to the report: “Valuing diamonds involves a certain amount of subjectivity. If things are really tight, graders can go higher or lower. But that is never about one full degree. In our scenario, we immediately jump up two.”
HRD performed an audit of its standards following the allegations and found no irregularities, its CEO, Ellen Joncheere, told Rapaport News Wednesday.
“We are in fact a bit more lenient [than the GIA] on color but stricter on cut and fluorescence, but this is known by the market,” Joncheere said.
Trademark disagreement
On Wednesday, HRD also responded with allegations that Özdemir had “made shady deals” and had used HRD’s power and reputation unfairly.
“One of the main reasons for the termination [of the partnership] was that the partners holding the management of the company did not transfer the trademark ‘HRD,’ which was unfairly registered in the name of HRD Istanbul, to the clients [HRD Antwerp], despite their previous commitments,” said Tuncay Çaltekin, HRD Antwerp’s attorney, in a statement Wednesday.
The partners also placed liens on the HRD trademark through other companies owned by their family members and transferred HRD’s assets into those companies, Çaltekin alleged. “In other words, they committed irregularities contrary to the agreement,” he claimed.
Meanwhile, Joncheere gave an interview to Belgian newspaper Het Laatste Nieuws (HLN), published Wednesday, in which she alleged there had been “tax and financial fraud” at the Turkish counterpart.
Özdemir dismissed the CEO’s claims as “pathetic, dishonest and desperate.”
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.
De Beers’ sales fell at its February trading session as sightholders deferred demand to later in the year amid uncertain market conditions.
The second sales cycle of 2023 grossed $495 million, a drop of 24% from last year’s equivalent period, the company reported Wednesday. Sales were, however, 9% higher than January’s $454 million.
“We know that sightholders planned more of their purchases for later in 2023, given the economic uncertainty at the time they were taking their planning decisions at the end of 2022,” said Al Cook, De Beers’ new CEO. “It is also encouraging to see some positive trends in end-client demand for diamond jewelry at the start of the year.”
The total includes the company’s February sight as well as auctions. The company raised prices of its smallest diamonds for the contract sale, but mostly maintained rates for larger stones after January’s price decline, customers told Rapaport News.
De Beers’ rough revenues have fallen 28% year on year to $949 million for the first two sales cycles of 2023, according to Rapaport calculations based on the company’s sight reports.
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.
India’s only diamond mine will put up to 84,000 carats a year
Majhgawan-Panna, India’s only diamond mine which was shot down at the end of 2020, will resume production in July 2023 “with a forecast output of up to 84,000 carats a year,” IDEX Online reports.
Majhgawan-Panna, located near the town of Panna in Madhya Pradesh, was closed after environmental clearances “lapsed following concerns from the nearby Panna Tiger Reserve.” Despite this, the National Mineral Development Corporation (NMDC), India’s biggest iron ore merchant miner, plans to resume work there.
According to the report, repeated concerns by the National Wildlife Board has caused mining at the mine to halt “stopped several times over the last 50 years.” In FY2021, the mine produced 13,681 carats.
Botswana’s finance ministry disclosed that the diamond trade in Botswana is set to fall back in 2023, due to reduced demand. This is as opposed to 2022 when Botswana’s total mining production increased by 8.2%. Botswana anticipates that the production of diamonds would fall by 1% in 2023, and growth in the diamond trade will decrease to 7%. An official from Botswana’s finance ministry stated on Wednesday that Botswana anticipates its mining sector’s production to remain flat this year as the diamond business loses its luster as a result of a decline in consumer spending and reduced demand for diamond jewelry.
In 2022, the total mining production increased by 8.2%. Although Botswana is the continent’s biggest producer of diamonds, this year’s improvements in copper and coal will not make up for the fall in this commodity.
About the majority of Botswana’s diamonds are produced by Debswana, a joint venture between the government of Botswana and De Beers, a division of Anglo American Plc (AAL.L). In 2022, production increased by 8% to 24.1 million carats.
Trading in diamonds increased 41% in the last year, with Botswana also benefiting from Western consumers avoiding Russian stones as a result of its invasion of Ukraine.
Botswana anticipates that the production of diamonds would fall by 1% in 2023 and that growth in the diamond trade will decrease to 7% from 41% in 2018.
Botswana’s finance ministry senior policy advisor, Keith Jefferis expressed the same sentiments in a statement to the American-based news agency, Reuters.
He noted that the diamond trade would face a major setback during the year, due to a slowdown in consumer demand, particularly in the USA.
He stated, “We see the diamond sector having a bit of a tough year due to an expected slowdown in consumer demand particularly in the USA, because of pressure on real income and consumption.”
High demand for coal and anticipated increases in copper mine production will somewhat offset this.
The Motheo copper mine, owned by Sandfire Resources (SFR.AX), is scheduled to begin operations this year, while the Kalahari Copperbelt’s Khoemacau copper mine is ramping up production to reach its nominal capacity of 60,000 tonnes annually.
The two active coal mines in Botswana the state-owned Morupule and Minergy’s (MIN.BT) Masama mine saw record exports in 2017 and are now considering increasing output to keep up with the country’s high demand for coal internationally.
According to forecasts from the finance ministry, the government anticipates mining royalties to decrease from 6.1 billion pula ($3.41 billion) last year to 4,5 billion pula ($3.41 billion) in 2023. The amount of dividends owed to the state would likewise decrease, from 15 billion to 11,3 billion pesos, in 2022.
Diamond Colour is one of the 4c’s used to calculated diamond value
Polished diamond prices are derived from a variety of factors, including supply and demand, the quality and characteristics of the individual diamond, and market conditions.
The prices of polished diamonds are primarily determined by the 4Cs: carat weight, colour, clarity, and cut. These factors are assessed by gemologists and other experts who evaluate the diamond’s physical properties, such as its size, colour, clarity, and overall quality of cut.
Other factors that may influence the price of polished diamonds include the type of diamond, such as whether it is a natural or lab-grown diamond, the country of origin, and the overall market conditions for diamonds. Additionally, the reputation and credibility of the seller or the dealer can also affect the price of the polished diamond.
Overall, polished diamond prices are determined by a complex combination of factors, and can fluctuate over time based on changes in supply and demand, market conditions, and other economic and industry factors. There is no single diamond price list that accurately reflects the prices of all diamonds. This is because the price of a diamond depends on a number of factors, including its size, shape, colour, clarity, and other characteristics.
That being said, there are various industry-standard diamond price lists that are commonly used as references by professionals in the diamond trade. These lists are typically based on a standardized grading system and provide price ranges for diamonds of different sizes, shapes, and quality grades.
The most commonly used diamond price list is the Rapaport Diamond Report, which provides a benchmark price for diamonds based on their 4Cs grading (carat weight, colour, clarity, and cut). However, it is important to note that the Rapaport price list only reflects the wholesale price of diamonds and may not necessarily reflect the retail price that consumers will pay.
Other diamond price lists include the International Diamond Exchange Price List, the Idex Diamond Price Report, and the Polished Prices Diamond Index, among others. These price lists may differ in their methodologies and grading systems, and the prices they list may vary slightly from one another.
Ultimately, when buying or selling a diamond, it is important to work with a reputable and knowledgeable diamond professional who can help you evaluate the diamond’s characteristics and provide you with an accurate price estimate based on current market conditions. Source: Michael Cohen DCLA
Diamond traceability refers to the ability to track the journey of a diamond from its source to the market. This includes tracing the diamond’s origin, the path it takes through the supply chain, and the ultimate destination where it is sold to consumers.
Diamond traceability is important for a number of reasons. For one, it can help ensure the ethical and sustainable sourcing of diamonds, by allowing for greater transparency and accountability in the supply chain. This can help prevent the trade of conflict diamonds, which are used to finance armed conflict and human rights abuses. Additionally, diamond traceability can help provide assurance to consumers that the diamonds they purchase are of high quality and have been sourced responsibly.
The diamond industry has established various initiatives to promote diamond traceability, including the Kimberley Process Certification Scheme, which aims to prevent the trade of conflict diamonds, and the Responsible Jewellery Council, which sets standards for responsible sourcing practices in the industry. Additionally, some diamond producers have implemented blockchain technology to enable the secure tracking of diamonds throughout the supply chain.
Certification is another key aspect of diamond traceability. By obtaining a diamond certificate, which includes a record of the diamond’s characteristics and its journey through the supply chain, consumers can be assured that the diamond they are purchasing is of high quality and has been sourced responsibly. Overall, diamond traceability is an important aspect of the diamond industry, as it can help promote responsible sourcing practices and provide assurance to consumers about the quality and authenticity of the diamonds they purchase.
While it may not be possible for an individual to physically track a diamond from the source, certification and other industry initiatives can help ensure the ethical and sustainable sourcing of diamonds, as well as provide assurance to consumers about the quality and authenticity of the diamonds they purchase.
One technique used to determine the origin of diamonds is through the analysis of their chemical composition. Diamonds from different geographic locations can have different trace elements and isotopic compositions, which can be used to identify their origin. For example, diamonds from different mines in South Africa can have different isotopic signatures.
Another method to determine the origin of a diamond is through the use of spectroscopy, which involves analyzing the unique spectral characteristics of a diamond. This can provide clues about its origin and the geological conditions under which it formed.
It’s worth noting that while these techniques can provide clues about a diamond’s origin, they are not foolproof and may not provide a definitive answer in every case. Nonetheless, advances in technology and the diamond industry’s commitment to responsible sourcing have made it increasingly possible to track and trace diamonds from their source.
