This week’s issue of Diamond Intelligence Briefs (DIB) makes some astonishing revelations. It focuses on the United States as a rough diamond transfer center.

 

The exposé shows that the transfer-price abuses and money laundering associated with other transfer centers such as Switzerland and Dubai are also very much visible in the United States.

 

And it gets worse in recent years – especially 2016. “When some traditional transfer centers become “too hot”, there is always the “safe” round tripping route – through the United States,” writes the Editor Chaim Even-Zohar.

 

But the really shocking revelation is that the U.S. Kimberley Process organization “massages” the import figures, to make it appear that there are more rough carats entering the United States than is recorded by the Census Bureau in the Department of Commerce – the official body reporting the trade data of the United States, Even-Zohar writes.

 

The 13-page DIB makes a number of key revelations: 

·         The statistics provided by the US KP in its Review Mission Supplemental Statistics (in June 2014) and presented to the KP’s powerful Working Group of Monitors overstated the carat import figures by 4,434,248 carats in the 2006-2012 period when compared to the actual (confirmed) data of the Census Bureau. The discrepancy on the money side was less – and in some cases not all.

·         The argument that U.S. statistics are skewed because of U.S. Strategic Stockpile Sales of industrial diamonds (thus having a “domestic mine”) is not correct. In the KP period (2003-2015 inclusive) there were only two stockpile sales of industrial diamonds, totaling 873,000 carats altogether. The average per carat price was around $17-18 p/c. Half of this amount was sold in early 2003, just at the start of KP. The impact on the statistics is virtually negligible.

·         Lower export $p/c values (in 2003-2011) can be partly attributed to the best and finest goods being cut and polished in New York. However, the higher $p/c re-exports of rough in the 2012-2015 period (and today) have no clear explanations. In some years (such as 2012) the higher export value came to 46.2% per carat.

·         According to the U.S. Census Bureau, the United States imported in the 2003-2015 period 39,336,818 carats of rough (at an average of $218.33 p/c). Meanwhile, it exported an amazingly identical amount of 39,276,076 carats (at $132.32 p/c). A pure transfer center – par excellence! In terms of quality of imports (carats), more than 72% are cheap industrial goods. Why would so much cheap rough go in and out? Not a single cutter in New York processes near-gem qualities domestically.

·          

The USA KP authorities stress in each and every annual report that “the U.S. is not a rough diamond producer. U.S. exports are re-exports of rough diamonds imported from other KP Participants.” Statistically, taken over a 13-year period, for every carat imported, there has been a carat re-exported. There is a legitimate need for rough to supply a small, specialized New York cutting presence, something that was not ignored in the DIB analysis, Even-Zohar notes.

 

However, unquestionably, the main justification for the overwhelming bulk of the rough trade points to pure transfer pricing. In value terms: In 13 years, rough imports totaled $8.58 billion while exports came to only $5.19 billion. There is a $3.4 billion value differential. That’s the figure one gets after recent years of over-invoicing are subtracted from the earlier periods of under invoicing. The transfer pricing problem is, in fact, more serious than this. Depending on the laundering needs, the differential fluctuates. Actors may change. Just as in other centers, some may well be quite legitimate – but the anomalies need to be addressed.

 

It is self-evident that the United States remains off the radar screen of NGOs, which don’t bite the hand that feeds them. The diamond industry (including the World Diamond Council) will generally go out of their way not to “upset” the government of the world’s single-largest consumer market of diamonds. It’s like the elephant in the room nobody seems to see.

 

Writes Even-Zohar: “It must be said, however, that the rough trade in the U.S. is of marginal importance from a global perspective. Some 5%-7% of global production (by value) is routed through the United States. The “real” business of the diamond industry is trading polished and selling diamond jewelry.”

 

The publication notes that “Facts were triple checked.” At the end of August, the editor presented all his findings to the KP at the State Department, to the relevant public affairs officials in the Bureau of the Census, Commerce Department and State Department. On some questions the publication got complete answers; on some others responses were more subdued. Some issues were ignored, he writes.

 

Concludes Even-Zohar: “Looking at it from this side of the ocean, it is ironic that the U.S. government (not necessarily the consumer) is one of the leaders demanding ever more transparent chain of custody systems through its large retailers, something which will add about 15-25% to the diamond suppliers’ (mid-stream costs), but it fails to see - or turns a blind eye to - activities which hinder that very concept in its own territory.

 

In the headline of the DIB, it was stressed that it is time for the US KP to address this problem – which would show whether there indeed is the political will in the United States to remedy a rapidly aggravating trend. Let’s wait what the KP in the United States will do – the option to “look the other side” is not viable any more.

 

IDEX Magazine will be publishing the full article in its October issue.