Sanctions: We're Still in the Dark

It's just over a week until US sanctions on Russian diamonds take effect (1 March) and nobody yet knows how they'll work.

Neither OFAC (Office of Foreign Assets Control), the government body that is imposing them, nor the US Customs and Border Protection (CBP), which will implement them, has published any details or guidance.

But it seems that the diamond industry is in the same boat as fishermen. And they've been told it'll be down to self-declaration.

Joe Biden's amendment to an executive order (14024) last December specified that sanctions would, from 1 March, apply to "fish, seafood, and preparations thereof; alcoholic beverages; non-industrial diamonds".

They will take effect "notwithstanding whether such products have been incorporated or substantially transformed into other products outside of the Russian Federation".

In other words, the loophole that has, for almost two years, exempted Russian diamonds that were cut and polished in India or elsewhere, will be closed.

Likewise fish, seafood (and preparations thereof) that have been incorporated or substantially transformed into other products.

The fishing industry knows where it stands because the CBP provided an immediate update.

It states quite clearly that US importers will be required to provide self-certification to show that goods entering the country do not contain any inputs originating from the Russian Federation.

No such update has, so far, been provided for the diamond industry.

"I'll be quite honest, I think the US government hasn't really given a lot of information about what's going to happen on March 1," Sara Yood, deputy general counsel at the Jewelers Vigilance Committee (JVC) told us earlier this week.

"Normally, for these kinds of changes, we would see an issue of regulations in advance but we haven't seen that yet. At the moment we're flying a little bit blind.

"We know that on March 1, for rough and polished diamonds of one carat or above, you'll need to be able to demonstrate that they're not of Russian origin, regardless of where they're cut and polished. What isn't clear is how one will be demonstrating that.

"Russia-origin fish was being substantially transformed elsewhere, and legally imported into the US.
 
"Very shortly after the executive order (tightening sanctions) OFAC issued a determination, that basically said every time you import fish, you're going to need to do a self-declaration that the products in there did not originate in Russia, regardless of whether they were substantially transformed.

"And it wasn't super-specific, but it just went into process immediately. I've looked at that and OK, if they're not going to give us a whole ton of guidance on what we have to do, let's look at what we have.

"And the answer is fish, and it's a self-declaration, and it's not a specific requirement for wording. That's kind of the only available thing we've got."

The other G7 countries (including the 27 EU nations) account for 70 per cent of diamond sales globally.

They signed up for the first stage of sanctions on 1 January, outlawing diamonds mined, processed, or produced in Russia, but not those that were cut and polished elsewhere.

The looming 1 March deadline brings the US and the rest of the G7 into line, with a ban on all Russian diamonds of one carat or over, regardless of where they were processed.

On 1 September that threshold will drop to 0.50 carat, and the sanctions will be backed by a traceability mechanism.

That's widely expected to be the so-called Belgian plan - requiring all diamonds to be sent to Antwerp for verification - though this has not been confirmed as yet.

It would likely cause delays of two to four weeks and lead to increased shipping costs, financing costs and interest payments, Yood points out.

"Not every country in Africa has a flight to Antwerp every day," she said, though she pointed out that over time other entry points could be introduced.

But back to more pressing matters, and information - or lack thereof - concerning 1 March.

"I think the thing that we're really looking for is some kind of written guidance or regulation or information and that will probably be coming either from OFAC or from Customs or both," said Yood.

"For an industry that's been talking about this for a while, it's really tough not to have anything concrete to look to."

Have a fabulous weekend.