The Anticipated U.S. Crackdown on Russian Diamonds: Implications and Industry Response

Strengthening Sanctions on Russian Diamonds

The diamond industry is bracing for significant changes as the United States prepares to implement stronger sanctions on Russian diamonds, expected to take effect after the new year. At the recent JCK show in Las Vegas, key industry figures, including Brad Brooks-Rubin, special adviser on sanctions to the U.S. State Department, and Skander Nasra, diplomatic adviser to the prime minister of Belgium, engaged in discussions with diamond industry members and groups to explore the possibility of tightening restrictions on Russian diamonds. While specific details are yet to be finalized, sources familiar with the matter have provided insights into what to expect from these upcoming measures.

Potential Measures and Timeline: Prohibitions and Effective Date

Based on discussions with government officials, it is anticipated that all G7 countries and European Union members will prohibit the import of gems mined in Russia, regardless of whether they are cut and polished overseas. The new regulations are likely to be enforced starting from January 1, 2024. While the industry is relieved that the sanctions won't disrupt the holiday season, there is a sense of apprehension due to the relatively short timeframe until the effective date.

Initially, the regulations may focus on diamonds weighing 1 carat and larger, with the possibility of progressively reducing the minimum weight over time, potentially at six-month intervals. Importers will be required to declare that their diamonds are not of Russian origin, but additional information regarding the diamond's origin may not be requested by customs authorities.

Documentation Requirements and Industry Concerns

One of the major uncertainties revolves around the documentation importers will need to support their declarations of non-Russian origin. Industry stakeholders are hopeful that customs authorities will accept paperwork from existing industry tracking systems, such as Sarine's Diamond Journey, De Beers' Tracr, Everledger, and the U.S. Jewelry Council's Diamond Source Warranty Protocol. It is speculated that a Kimberley Process certificate indicating non-Russian origin, traceable back to the original rough, may also be deemed sufficient.

However, challenges remain regarding the participation of artisanal miners and small-scale cutters in India, who often lack access to technology-based tools. Additionally, concerns arise regarding goods without provenance or those purchased from Russia prior to its invasion of Ukraine. It is worth noting that the implementation of rigorous checks on every diamond import could pose a significant burden on customs agents, who already have existing responsibilities to fulfill.

Industry Unity and Response

The diamond industry has not presented a unified front in response to the impending crackdown on Russian diamonds. American groups and companies, particularly those with established sourcing protocols, express support for the government's objectives. Initially, Antwerp opposed sanctions altogether, suggesting that the goods would simply shift to Dubai. However, the Belgian government now acknowledges the need for a "science-based" origin solution and is moving forward with the sanctions, irrespective of Antwerp's position.

In India and the United Arab Emirates, where condemnation of the Russian invasion has yet to be declared, transactions with Russian miner Alrosa remain legal. This situation is unlikely to change in the near future, and Indian officials have expressed concerns about potential job losses for cutters if the supply of Russian rough diminishes. Notably, India's KGK established a factory in neighboring Armenia, possibly as an effort to secure alternative supply sources. Dubai, aiming to distance itself from its association with Russian oligarchs, has expressed willingness to segregate Russian goods.

Provenance Programs and Industry Adaptation

With the impending changes on the horizon, both De Beers and Rapaport Corp. have announced new or expanded provenance programs at the JCK show. De Beers has made its Tracr platform, which utilizes blockchain technology to trace a diamond's origin, accessible to the entire industry. Several notable entities, including GIA, Brilliant Earth, and GSI, have already joined the platform. Tracr exclusively features diamonds sourced from Responsible Jewellery Council (RJC)-certified mines, excluding Russian miner Alrosa, which terminated its RJC membership in 2022. De Beers envisions Tracr as a versatile platform, capable of hosting various applications, including its new Origin suite of services.

Rapaport, on the other hand, has introduced a Green Star designation on the RapNet listing service for diamonds sourced from Botswana's Okavango Diamond Company and accompanied by GIA diamond origin reports. Furthermore, the company is actively discouraging the listing of Russian diamonds on RapNet.

Conclusion: A Transforming Diamond Landscape

The diamond industry is on the brink of a significant transformation as it prepares to navigate the anticipated U.S. crackdown on Russian diamonds. While the exact details of the new regulations are yet to be finalized, it is crucial for the trade to rally behind a unified proposal to ensure practicality and implementation. With the United States serving as the largest market, the industry cannot afford to overlook the impending changes. As the diamond world moves towards stricter tracking and tracing mechanisms, it seems to be heading towards a bifurcation: one stream devoid of Russian diamonds within the G7 and another that includes Russian diamonds in all other markets. Although no system can be entirely flawless, concerted efforts are underway to establish a robust framework that aligns with the industry's ethical and responsible practices.