Has the DTC now locked itself in and will it have to sacrifice a sightholder to show that it is serious about its own Best Practice Principles? That was one of the questions raised after we first published that DTC managing director designate Varda Shine’s reaction to the Certifigate scandal in an extraordinary warning to all 93 Sightholders, putting them on notice that “The DTC will not hesitate to take action where it transpires that any rumors are substantiated in relation to a DTC Sightholder or any relevant associated business.” In a most diplomatic manner – without mentioning the word GIA as such –Shine makes it clear that she looks beyond those who are suspected of malpractice and reminds Sightholders that they have a responsibility to ensure that their clients and suppliers adhere to Best Practice Principles.

In reply to my specific question whether this means that a sightholder who knowingly trades with a company suspected of malpractice also puts his sight at risk, the answer was an unequivocal “yes, you understand that correctly.”

Reminding of the interrelationship among all the sectors of the diamond value chain, she stressed that a specific problem in a specific sector affects all – and may even have a domino effect.

It is exceedingly significant that the DTC refers to its Best Practice Principles (BPP) and not specifically the Reputation Criterion (Criterion 6) of the Supplier of Choice agreements. Demonstrating a “good reputation” or, alternatively, “casting doubt on its general professional standards, integrity or probity” is, from many perspectives, far easier to do. Reputation has to do with the sightholder himself. The Best Practice Principles, in contrast, require the sightholder to take into account the conduct of his suppliers or clients. That is much wider. Much more complicated; much more demanding.

There is something else that differentiates between BPP and Reputation from a DTC perspective. Presumably, a “bad reputation” is a subjective standard and it is the prerogative of the DTC to make that judgment call. Violations of BPP, however, are covered by an extensive process with the sightholder. It is not unilateral – but potentially just as lethal. We’ll say more about that at the end of this article.

The six-paragraph DTC letter, dated October 26, 2005, reads as follows [emphasis added]:

            “Dear Sightholder,

            In the run-up to this all-important holiday season, I thought it would be an appropriate time to write to remind you of the importance of seeking to maintain consumer confidence in our very special product – the diamond. We all have an interest in promoting consumer confidence, not just individually, but for the benefit of the wider industry. We must all strive ensure that the integrity of both the diamond and the industry is, and is seen to be, beyond reproach.

            You will all be aware that our industry is diverse in the range of activities it encompasses – from mining through manufacture to retail. Each individual sector faces scrutiny and potential challenge from its various observers and interested stakeholders. Any issues that may affect consumer confidence in one sector may have a domino effect on the others. It is therefore important that each part of the diamond pipeline is able to demonstrate that it is acting responsibly by not engaging in business practices that risk bringing the industry into disrepute and which might have the effect of damaging consumer confidence as a result.

            It is for this reason that the DTC introduced the Best Practice Principles (BPPs). As you know, the De Beers group is committed to complying with the BPPs and compliance with the BPPs is a condition for the supply of rough diamonds by the DTC. By signing the Sightholder Policy Statement, you have formally agreed to adhere to the BPPs and to use your best endeavors to ensure that your “Tier 4” entities, that is, your suppliers and customers, also abide by the principles of best practice. To that end, by now you will have produced self-assessments pursuant to the BPP Assurance Programme, which SGS will verify in due course.

            As you are aware, rumours of malpractice do circulate within our industry – largely from the fringes; this is regrettable and can potentially seriously damage, by association, the vast majority of reputable businesses. Some rumours may have no bearing in fact, but others may indicate the existence of practices that could present serious challenges to consumer confidence in diamonds.

            The DTC takes compliance by its Sightholders with the standards of conduct required under its supply arrangements very seriously indeed and urges you to ensure that you adhere to the highest ethical and professional standards in all aspects of your activities.

            The DTC will not hesitate to take action where it transpires that any rumours are substantiated in relation to a DTC Sightholder or any relevant associated businesses.

            Irrespective of the BPPs, there is a moral duty for us all to aspire to the highest standards in respect of our business, social and environmental responsibilities as industry leaders, particularly given that we are dealing with the ultimate luxury product, in which so much human emotion is bound.

            Yours sincerely,

            Varda Shine”

The DTC wants to make it clear that it will not tolerate any bribing. Shine expresses confidence that Des Cavanagh, her successor as Sales Director of the DTC, will also rigidly pursue adherence to the Best Practice Principles. A sightholder, whom we asked for an immediate comment, only remarked: “The lady isn’t even in her new job yet – but she makes it clear she means business.”

Having the Benefit of a 24-hours Perspective

Having the benefit of 24-hours of reaction time since we first uploaded the article, most people consider it “bluff”. They say that the DTC will never drop a sightholder for transgression of BPPs, they can never prove unethical or illegal practices and the last thing the DTC wants is a protracted court case with another ex-sightholder or ex-Sightholders.

When it says that the DTC will “take action” – are there are sanctions? Temporary suspension?

I find it intriguing that Varda Shine uses the Best Practice Principles as a ‘stick’ and not the “reputation” clause of Supplier of Choice. As part of the Supplier of Choice arrangements, compliance with the BPPs is a prerequisite of obtaining and retaining Sightholder status.

The agreed rules of the game clearly states that “reported breaches of the BPPs will be followed up and, where there are reasonable grounds to believe that a material breach has occurred, a Third Party Audit may be conducted. The question of whether or not a Sightholder (or other auditable entity) is in breach of the BPPs will be determined on the basis of compliance or otherwise with the BPP Requirements as evidenced by information provided in the BPP Audit Workbook.”

The DTC rules further provide that “sanctions for defaults will be depend on the seriousness and frequency of the breach, and may result in the withholding of supplies or termination of the sight holder’s appointment.” If the DTC follows such process, chances for subsequent legal challenges are probably considerably less.

Though all of the publications (including ourselves) have so far refrained from naming companies, everybody (including De Beers) seems to know whom we are talking about. “There is at least one sightholder that the DTC probably doesn’t mind too much to sacrifice,” said one New York diamantaire, adding “that because of the letter it now may well be in the best interest of the DTC to get rid of one sightholder. After having said “A”, she’ll be obliged to say “B” and “C” and follow her own admonition to a logical conclusion,” said the (non-sightholding) diamantaire. “The reputation and credibility of the DTC itself is on the line. Now it cannot back out. Someone will go.” Is that a likely scenario? Maybe, we haven’t a clue – we can only promise we’ll tell you the minute we find out.

Have a nice weekend.