US Shows Mixed Response to G7 Russian Diamond Ban Following Industry Backlash, Reports Reuters

By Julia Payne and Dmitry Zhdannikov

BRUSSELS/LONDON – The United States is reconsidering the most stringent aspects of its ban on Russian diamonds, following pushback from African nations, Indian gem polishers, and jewelers in New York, according to several sources.

The sanctions package, established in December and encompassing a ban across the European Union, signifies one of the most significant disruptions to the diamond industry in decades.

Two sources close to the discussions reported that the U.S. has distanced itself from G7 working groups responsible for the strict controls, with one source characterizing the U.S. position as “there but not engaging.”

The U.S. State Department did not provide any comments on the matter.

However, a senior Biden administration official stated that the U.S. has not altered its stance and will continue collaborating with the G7. The official mentioned, “We will want to make sure that we strike the right balance between hurting Russia and ensuring that everything is implementable.”

The G7 sanctions aim to target another revenue stream for the Kremlin’s military efforts in Ukraine. Nonetheless, diamonds, generating approximately $3.5 billion in revenue according to Russian state-owned miner Alrosa’s 2023 results, account for a minor portion of Moscow’s overall earnings from oil and gas.

Since March, importers in G7 countries are required to self-certify that their diamonds do not originate from Russia, the leading producer of rough diamonds. Sanctions prohibiting direct imports of Russian gems were enacted in January.

Starting in September, the EU ban will mandate that diamonds of 0.5 carats and larger must go through Antwerp, a historic diamond trading hub in Belgium, for certification tracking using blockchain technology. This system, often associated with cryptocurrencies, aims for enhanced traceability.

Sources have indicated that G7 nations agreed on Antwerp as the initial hub, with additional hubs expected to follow. However, three sources revealed that Washington has become less keen on enforcing traceability, with talks regarding its implementation stalling.

The Biden administration official clarified that the commitment to a traceability mechanism by September 1 only pertains to the European Union, not the U.S., based on the wording of a G7 leaders’ statement from December. They also emphasized the need to consider the concerns of African partners and producers, as well as those from India and the UAE, while ensuring practicality for the U.S. industry.

The official further stated, “Is there a traceability mechanism that satisfies all of that? We’re still engaged; we haven’t walked away from the idea. Yet, we couldn’t commit to having it definitively in place by September 1.”

In February, the presidents of Angola, Botswana, and Namibia sent a letter to G7 leaders highlighting that a fixed entry point for G7 markets could be unjust, impede freedoms, and adversely affect revenues. These three countries represent about 30% of global diamond production.

Italy, currently holding the G7 presidency, refrained from commenting on the U.S. position.

Any potential loosening of the phased ban raises concerns about leaving loopholes and permitting Russian diamonds into markets in New York, London, and Tokyo. This risk was underscored when Belgian authorities seized suspected Russian diamonds valued at millions of dollars in February.

Proponents of the sanctions argue that an effective traceability mechanism is essential for a strong ban. They warn that without the U.S., which comprises 50% of the G7 diamond jewelry market, the ban cannot function effectively. They attribute some industry resistance to concerns over increased market transparency.

A Belgian official involved in the discussions stressed the importance of maintaining a firm commitment to closing loopholes.

PREVIOUS CERTIFICATION CHALLENGES

Previously, a U.S. ban on Russian diamonds did not cover stones polished elsewhere, facilitating the influx of diamonds processed in India and traded in hubs like Dubai into the U.S. market.

The G7 ban is the result of months of negotiation among Western governments.

Diamond mining companies, including De Beers, a subsidiary of Anglo American, along with Indian diamond cutters and jewelry retailers, have vigorously lobbied against the ban, arguing it is poorly constructed, increases bureaucracy, and raises prices. De Beers has expressed support for a ban but insists that diamond-producing nations should certify the origin at the source.

They stated, “The opportunities for, and likelihood, of Russian diamonds infiltrating the legitimate supply chain are in fact higher when you move further away from the source.”

Virginia Drosos, CEO of Signet, the largest retailer of diamond jewelry worldwide, urged the U.S. government in a letter to oppose the G7’s approach.

Belgium has initiated a pilot tracing program in Antwerp, involving about 20 diamond buyers, including French luxury groups and various international companies.

Belgian Prime Minister Alexander De Croo has indicated that he is open to establishing additional certification hubs, provided they meet the standards set by Antwerp. He acknowledged that while implementing such significant changes may present challenges, it is an unavoidable part of the process.