Will Diamond Sanctions Ever Work?
April 24, 25
Sanctions on Russian diamonds aren't working.
So says Pyotr Karakchiyev, head of the international cooperation department at Alrosa.
And until or unless the G7 nations introduce effective traceability technology, Russia will continue to find ways to dodge the restrictions, he boasted at a corporate forum in Kazakhstan earlier this month.
There's no doubt that some Russian diamonds are finding their way, through back doors, into the legitimate pipeline.
Probably not to the extent Karakchiyev is suggesting. If business was booming, the state-controlled miner wouldn't be suspending production at low-margin mines and offloading rough to Gokhran.
But his comments do raise two questions.
First, can the G7 nations (including the EU) actually make sanctions work? And second, an even bigger question, do they actually want to?
Making sanctions work means backing them with tried and tested technology, which takes time. The original G7 plan was to have a mandatory verification scheme, based on blockchain, up and running by 1 September 2024.
That proved to be far too ambitious, given the hurdles, to be overcome - establishing the technical infrastructure, navigating a maze of policy and governance issues, and addressing numerous concerns from numerous parties.
The deadline was extended to 1 March 2025, and then to 1 January 2026.
The plan, by the way, is not to develop a single piece of G7 tech that will do the whole job.
Instead a G7 ledger will operate with a number of existing or evolving diamond traceability solutions, which will all be integrated into its certification process.
Tracr (which belongs to De Beers) and Sarine are working together on one solution, announced in February, but neither was willing this week to respond to Karakchiyev's comments.
So far G7 hasn't provided specific details as to how the various moving parts would fit together, and skeptics might suggest the deadline could be pushed back yet again.
Karakchiyev, at Alrosa, is only too well aware of the complexity of the task, and only too ready to mock.
"Tracing is one of the key conditions that the G7 wanted to bring in to stop Russian gemstones from entering Western markets," he said.
"This is not working now. There is no technical solution. This, among other things, enables the company (Alrosa) to continue to work actively on international markets, and the G7 countries to constantly delay introducing the tracing."
Which brings us to the second question. Do G7 nations actually want sanctions? It took almost two years for the first phase to be implemented, in protest at Russia's invasion of Ukraine.
And now the US is blowing hot and cold. Donald Trump publicly humiliated Volodymyr Zelensky a couple of months ago. He accused him of starting the war with Russia, berated him for his ingratitude and all but threw him out of the Oval Office.
You'd be forgiven for thinking the US had switched sides - in which case maybe Trump would end up sanctioning Ukraine instead.
Aside from the US, the remaining G7 nations remain committed to Russian sanctions.
But there are those in political circles who are already what the day after diamond sanctions might look like.
Brad Brooks-Rubin is a former senior advisor in the Office of Sanctions Coordination at the US Department of State. He has also worked for GIA and the Responsible Jewellery Council, so he understands sanctions and he understands diamonds.
There is "intense uncertainty and speculation about the future of sanctions related to Russia's full-scale invasion of Ukraine in 2022," he writes in Just Security, an online forum about challenges facing US decision-makers.
"Companies across all sectors are beginning to imagine what a future of sanctions relief may mean for them."
He goes on to analyze, in some detail, the possible impact of removing Alrosa from the G7 sanctions list, whether or not the industry would welcome Russian diamonds back into the supply chain, and what level of transparency consumers could expect if they did.
We can agree or disagree with his assessment, but my point here is that an acknowledged expert is seriously considering the consequences of lifting sanctions - before the technology that underpins them has even been introduced.
Have a fabulous weekend.