Martin Rapaport, chairman of the Rapaport Group, has taken the World Diamond Council (WDC) to task for a proposal it’s advancing to isolate Russian-origin stones from the rest of the diamond supply.
The “G7 Diamond Protocol” was drafted following discussions among the Group of Seven (G7) countries — Canada, France, Germany, Italy, Japan, the United Kingdom and the US, as well as the European Union — to implement additional measures against Russian diamonds, which they claim are funding the war in Ukraine.
The initiative will burden the trade with extensive auditing requirements, whereas it is the job of government to enforce any sanctions program, Rapaport argued in a webinar presentation last week.
“Our job is not to enforce sanctions,” he stressed. “Do not put this on our trade. Customs is the beginning and end of any government sanctions program.”
The US government banned the importation of diamonds of “Russian Federation origin” in March 2022, following the outbreak of the war. The word “origin” enabled a loophole that would allow for the import of diamonds sourced from Russian rough, but transformed into polished in other countries, such as India — the largest manufacturing center.
Russian diamonds continue to enter the market. Alrosa — the mining company partly owned by the Russian Federation — saw sales of RUB 188.16 billion ($1.9 billion) during the first half of 2023, in line with the equivalent period last year.
A letter sent to the Office of Foreign Asset Control (OFAC) requesting clarification regarding whether Russia-sourced diamonds, or those that have undergone “substantial transformation” — such as cutting and polishing — in other centers, are allowed into the US, was not answered, Rapaport reported.
It is not in the interest of the government to implement such a ban, as it must consider its relationship with India, a nuclear power that acts as a buffer to a rapidly expanding and aggressive China, he surmised.
“India wants to continue exporting Russian-sourced diamonds to the US, and so we have sanctions that don’t work so as not to upset India,” Rapaport explained. “The US government wants to look good at the expense of the diamond and jewelry industry, so it’s greenwashing, just like the Kimberley Process.”
Rather, the US State Department has joined an initiative among the G7 nations to stop the importation of Russian diamonds to the US, leaving it to the industry — under the banner of the WDC — to monitor and audit the flow of those goods, Rapaport said.
“The protocols are designed to track all diamond transactions from everyone, everywhere on every invoice with extensive auditing requirements,” he explained. “The catastrophe is that the WDC protocols are a death sentence for the small- to medium-size companies in our trade that don’t have the human and financial resources to meet the extensive WDC compliance requirements.”