Biggest Upheaval Since KP
March 28, 24
It's more than two decades since the diamond industry underwent an upheaval on this scale.
It was back in January 2003 that the Kimberley Process Certification Scheme (KPCS) was launched to prevent conflict diamonds from entering the mainstream rough diamond market.
They were coming from Sierra Leone, Angola, Ivory Coast, Liberia, Guinea and other countries torn apart by civil war.
Today's challenge is to prevent diamonds mined in Russia from entering the mainstream rough diamond market, and from funding the country's war against Ukraine.
Before the KPCS came into existence, conflict diamonds accounted for as much as 15 per cent of the global diamond market, according to KP's own estimates. The figure is now around 1 per cent.
The Kimberley Process has been widely criticised for failing to broaden its definition of conflict diamonds to cover those produced in Russia.
But the broader view is that its insistence that every shipment of rough diamonds is certified as being conflict-free has turned a big problem into a small problem.
How successful, by comparison, will the G7 sanctions prove to be against Russia?
In terms of scale, the problem is twice as big. Russia currently produces almost a third (31 per cent) of the world's diamonds.
Sales by Alrosa, the state-controlled miner, were $3.55bn last year, a 9 per cent increase despite some attempts at Western sanctions.
And far from scaling down production, it's investing $1.26bn in a replacement for Mir (the mine that closed after a flooding tragedy in 2017).
The G7 sanctions, coming into force two years after Russia invaded Ukraine, depend largely on the importer providing documentary evidence of the diamonds' origins. For the time being.
On 1 September the system will be upgraded to incorporate a number of traceability platforms, all approved by the G7, but as yet not identified.
Data on the provenance of each diamond will feed into a central ledger held on the blockchain, streamlining a process that is paperwork-heavy at present.
Traders in Antwerp, the sole entry point for all diamonds imported into the EU, have been complaining that shipments are being delayed by the new Customs requirements, introduced on 1 March.
But things are getting better, says Ine Tassignon, head of communications at AWDC (Antwerp World Diamond Centre) which oversees Customs clearances.
"Unfortunately we see that the main reason for delays (shipments not being processed at Diamond Office) are incomplete or incorrect files with documentary evidence or for example, documentary evidence that arrives later and in different stages than the shipment itself," she tells us.
"We see a significant improvement of the quality and completeness of submitted files (that are accompanying diamond shipments for import) since we invested extra effort in informing the industry about how to import their goods properly."
She acknowledges that the sanctions represent a very significant change to how the diamond industry operates, and that we're only part of the way there.
"A project of this magnitude entails change and innovation for all parties involved," she says.
"But has one major goal in mind (which adds value to the entire industry): diamonds traceable from mine to finger, just like the chocolate we eat and the coffee we drink."
Any law enforcement is a game of cat and mouse. Bad actors will always look for ways to beat the system. Only last week four men were arrested in Antwerp, suspected of illegally importing Russian diamonds.
We know that 15 per cent of diamonds before KP were conflict and now the figure's 1 per cent. How will G7 sanctions compare?
Have a fabulous weekend.