It seems diamonds are multifaceted in more than one way.

The $84 billion global diamond jewelry industry was thrown for a loop at the end of February when the U.S. Treasury announced a ban on importing Russian diamonds in response to Russia’s invasion of Ukraine. The U.S. is the world’s largest market for diamond jewelry, accounting for more than 50% of sales, so the impact of the ban would ripple throughout the global supply chain. Across the industry, there was widespread support for the Russian diamond ban. All the big names in jewelrygot on board, including Pandora (the world’s largest jewelry producer), Signet (the largest jewelry retailer in the U.S.), LVMH’s Tiffany, Richemont’s Cartier, Van Cleef & Arpels, Kering and many others.

But hidden behind the official statements was a major loophole: almost no diamonds used in jewelry and sold in America are legally classified as Russian because they typically undergo “substantial transformation” in another country through the cutting and polishing process. Since some 95% of the world’s diamonds are cut and polished in India, that is the official country of origin according to U.S. customs regulations.  Now a bipartisan group of 11 Congress members, led by Representatives Gerry Connoly (D-VA) and Justin Scott (R-GA), have written to the Biden administration and Treasury Secretary Janet Yellin, asking that the loophole be closed.

“Sanctions issued by the Treasury Department to target Russia’s diamond industry will have minimal impact on Alrosa and Sergei Ivanov’s [the company responsible for 90% of Russia’s diamond supply and its CEO] ability to freely operate in the world market,” the letter stated. “As it stands at this time, a diamond can be mined by an Alrosa subsidiary, polished or cut in India or another country, and sold to the United States without any prohibition, making a profit for the Russian government,” the letter continued.

After a brief halt in diamond trade from Russia to India, the Economic Times reported rough diamonds are now flowing freely from Alrosa to India with payments in euros being facilitated by German banks until the direct rupee-rouble trade conversion is finalized.

“There is a lot of PR happening right now among the jewelry brands. It makes them look good,” says Amish Shah, president R. A. Riam Group and ALTR Created Diamonds, and whose family has been in the diamond industry over 80 years. “However, there will be virtually no impact on diamonds coming into the United States that are cut and polished elsewhere.”

Brittany Lewis, chief marketing officer of WD Lab Grown Diamonds, is less skeptical. “Some brands and retailers have good intent, using the tools they have at hand. But there is big deficiency in the diamond supply chain. There is no traceability of diamond origin built into the system.” For example, Tiffany stated it had paused the sourcing of all rough diamonds from Russa, including “serialized diamonds of Russian origin regardless of where they are cut and polished.” But Shah says that will be hard to assure. “Once a diamond enters into India or a cutting center, the origin of the diamond is not being tracked. It gets mixed into goods that are sorted by the four C’s – Cut, Color, Clarity and Carat – not place of origin.”

The industry’s Kimberley Process, enacted in 2003, to keep “blood diamonds” out of the supply chain, addressed a pressing problem at that time. But it doesn’t include the current issue surrounding “conflict diamonds” originating from Russia. 

“The Kimberley Process was designed to ensure diamonds came through an ethical supply chain. But traceability from its source beyond the Kimberley Process is not something we as an industry have addressed,” Shah shares. ”The manufacturers never really asked because they were getting what they needed. The government or the industry needs to put a clearer definition on the origin of the diamonds to assure ethical sourcing in the present geopolitical context,” he adds. 

WD’s Lewis sees a change coming around the impenetrable nature of the diamond supply chain and that change will be driven by the consumers. The industry better catch up soon. 

“There is a difference in traceability versus provenance. Traceable means you can track it from point A to B to C. But consumers want provenance assurance on top of that, knowing all the details about how it moves through the supply chain and the values added at each step,” Lewis says. “Now with Ukraine and the demand for conflict-free diamonds, the consumer is looking for visibility, transparency and assurances about the diamond’s inception – from whence it came. That is going to be difficult to accomplish but absolutely needed. The consumer is in the driver’s seat,” she concludes.

Credit: Pamela N. Danziger – Forbes