G7 to ban all Russian diamonds, develop SWIFT-like system for industry
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A Belgium official says the ban will go into effect on January 1 next year.
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An employee inspects rough diamonds at an Alrosa sorting centre, in Mirny, Russia, on July 1, 2019 (AFP)
Group of Seven (G7) nations are poised to reach a consensus on implementing a ban on the import of Russian diamonds within the next two to three weeks, Bloomberg quoted a Belgian official as saying on Friday.
This proposed measure is set to include both a direct ban on diamond purchases, set to come into effect on January 1, 2024 and an indirect ban, designed to be phased in more gradually, the official added.
The objective of the indirect aspect of the ban is to mitigate concerns that a straightforward ban would merely relocate the lucrative diamond trade without effectively curbing it. Belgium, though not a G7 member, has indicated its support for the ban, provided that an effective mechanism is established.
Read more: Four G7 powers ban gold export from Russia
Technical challenges
In collaboration with European allies, the bloc is exploring additional avenues to exert economic pressure on Russia, aimed at limiting its capacity to finance the ongoing conflict in Ukraine.
At the outset of the supply chain, diamonds are issued certificates under the Kimberley Process, originally conceived to eliminate the sale of "blood diamonds" that funded conflicts. However, tracking their origin becomes increasingly challenging as they move through the market.
The technical specifics of the diamond ban remain to be resolved by the group, after which the EU will draft its sanctions regulations in autumn. The ban's scope is expected to encompass the purchase of both rough and polished diamonds, whether sourced directly from the Russian giant Alrosa PJSC or via intermediaries in India or the United Arab Emirates.
Read more: Russians banned from bringing cars, goods into EU
Direct and indirect sales
Russia ranks among the world's foremost diamond producers, rivaling Botswana. Many Western jewelry retailers have refrained from using Russian diamonds since the start of the war in Ukraine, especially after Washington imposed sanctions on Alrosa.
Nonetheless, the flow of Russian diamonds into the market has continued, albeit at a significantly reduced volume, with the Belgian official noting a 95% decline in imported Russian diamonds to the EU compared to pre-war levels.
Some Indian and Belgian buyers have persisted in acquiring substantial quantities of these diamonds under favorable terms, while others have abstained. Additionally, diamond trading hubs have emerged in the UAE, Belarus, and Armenia.
Up until now, diamonds from Russia have remained legal when sourced from India or Belgium, despite the US sanctions on direct Russian imports. The intricate nature of the diamond industry has also posed challenges to tracking the diamond's origins.
Read more: Germany buys Russian oil from India: Reports
Traceability and SWIFT-like system
Diamond packages often get mixed up at trading places, and the original certificates are swapped for documents that say the diamonds come from different sources or “mixed-origin” documentation. This makes it nearly impossible to trace the final destinations of Russian diamonds.
The proposed new system intends to combine physical inspections, package examination, and weight and value verification with mandatory traceability data for those involved in the production and trade of diamonds, the official continued.
For instance, Indian diamond polishers would be required to separate Russian and non-Russian diamonds during the polishing process. Diamonds of mixed origin would not be permitted in the G7 market under this scheme.
Governments will have access to traceability data through a public ledger system under development, similar in concept to the SWIFT international payments system used by banks.
Authorities will be able to use a public ledger system that is currently in the works to access traceability information, akin to the concept of the SWIFT international payment system employed by banks.
Read more: EU nearly out of means to sanction Russia: Borrell
