Russia’s diamond trade draws attention, but not sanctions

NOTo it seems that the atmosphere of the Hoveniersstraat in Antwerp is relaxed. Every day, millions of euros worth of diamonds pass through the export offices and stock exchanges that line its barricaded 300 meters, and the traders that move along its length, clutching innocuous-looking plastic bags loaded with precious stones, tend to look at strangers with suspicion. But since the start of the war in Ukraine, the Hoveniersstraat is even more tense than usual. As the world’s oldest and largest trading hub, it – and Antwerp as a whole – held its breath every time the European Union announced a new round of sanctions against Russia. And now, with a sixth round looming, traders in Belgium’s second-largest city fear again that their luck may soon run out.

Russia produces around 30% of the world’s diamond supply. And one company, Alrosa, is responsible for extracting around 90% of these. Partly owned by the Russian government, Alrosa has ties to Russia’s military and nuclear industries and is run by the son of a close Putin ally. Because of these relationships, the United States and more recently the United Kingdom imposed sanctions on Alrosa’s chief executive, Sergey S. Ivanov, and banned diamond imports from the country as part of their efforts to punish the Russia for its invasion of Ukraine. But the European Union, headquartered in a country home to the world’s oldest and largest diamond trading hub, has yet to do so.

Read more: How to buy an ethical diamond

“Peace is more valuable than diamonds,” Ukrainian President Volodymyr Zelensky told Belgium’s parliament when, speaking via videoconference in late March, he urged the country to cut imports. There is no doubt that a significant share of Belgian trade goes to the Putin regime, which owns 33% of the company (regional governments control about another third). Alrosa markets a third of its production via Antwerp and 20 of its 58 customers are based there. Of the $4.2 billion the company earned in 2021, $1.8 billion came from Belgian sales. Although this figure is well below the $104 billion that Russia earned in energy sales to Europe that year, it is higher than other Russian products that the EU has already banned (such as vodka, which generates $52 million).

Diamonds account for 5% of Belgian exports and generate around 30,000 jobs in Antwerp, which explains why, after some initial exploratory discussions around the time the war started, the European Union has yet to table a motion on their inclusion. “In [the European] Parliament, we discussed it, and I myself was quite vocal about it because of the military links,” says Kathleen van Brempt, a Belgian member of the European Parliament for the Socialist Party who, like the Greens, is in favor of sanctions. But in the executive bodies where any embargo would be decided, she says, “it has never been on the table to my knowledge that they need to discuss it and make a decision on it. And that, of course, is special.

Antwerp, a small port city of half a million people, has been closely associated with gems since the 1500s. And although its importance as a hub for diamond cutting and polishing has long since passed to d Other places, notably India, continued to control almost all world trade until the 1980s. Today, 86% of all diamonds still pass through the city at least once on their journey from the rough stone. from cutting and polishing to final setting in a necklace or engagement ring. But as a commercial hub, the city now faces increasing competition, mainly from Mumbai and Dubai.

Belgian Prime Minister Alexander de Croo has repeatedly said his country has not and will not block sanctions on the diamond trade if the European Commission decides to include the measure in one of its packages. If he did not, say two sources in the Belgian government, it is because the members are convinced that these measures would be more harmful to Europe than to Russia.

Read more: The vital missing link in US sanctions against Russia

This refrain – that it should hurt Russia more than Europe – has been repeated by leaders from Greece to Germany to explain their opposition to oil and gas embargoes (which, nevertheless , appear to be at the center of the next cycle, which may arrive this week (week). While she disagrees with this argument, van Brempt notes that there is some impact of an oil and gas ban that does not apply to luxury goods. “Energy affects at least everyone: consumers, families, industry,” she says. “But diamonds?”

Yet when it comes to gemstones, says Tom Neys, spokesman for the Antwerp World Diamond Center (AWDC), sanctions might not hurt Russia at all. “Some politicians say, ‘we have to bleed each other to bleed.’ But in this case, it’s like you don’t even cut the other side,” he says. “Russia doesn’t suffer from this sanction, it will be able to earn exactly $1.8 billion elsewhere. has already said very clearly. And unlike gas, which requires massive infrastructure to transport and therefore cannot be easily diverted to other buyers, diamonds are easily transported. “All diamonds five carats and above, from of an entire year’s production, can fit in a basketball,” says Neys.

And where those diamonds will end up, he adds, undermines decades of work to clean up the industry.

About 20 years ago, the diamond trade responded to concerns that rebel groups in Africa were using the sale of rough diamonds mined there to finance conflicts that undermined legitimate governments by creating a regulatory trading system called the Process of Kimberly (KP). Backed by a broad coalition of governments (including the EU, US, South Africa, Zimbabwe, China and Russia), civil actors and the diamond industry, the KP has been largely successful to achieve its immediate goal of eliminating conflict diamonds, and has helped accelerate the transition of traditionally secretive Antwerp towards greater transparency and due diligence regarding the conditions under which diamonds are produced.

Read more: blood diamonds

Sanctions, according to the AWDC, threaten all of this. If the diamonds that Russia would normally sell to Europe now went to other diamond hubs, Neys says, it would result in the loss of not only 10,000 jobs, but also those ethical gains. “If 30% of the market goes to Dubai, then you have thrown 20 years of transparency, compliance and due diligence in the trash and you have no more control. We are opening the door to money laundering. We are opening the leads to the financing of terrorism on a large scale.

Hans Merket, a researcher at the International Peace Information Service in Antwerp, agrees that Belgium does a better job than other centers of ensuring ethical diamond production. “It’s true that the controls in Antwerp are second to none and there is no other shopping center that has this level of control,” he says. But in a study published in early April, he draws a direct line between Alrosa and the Russian military, noting that in 1997 the company sponsored a submarine, and paid to keep it in a “combat-ready” position. The submarine was then used during the annexation of Crimea in 2014.

Noting that the Kimberley Process, which includes the Russian Federation, has repeatedly rejected past attempts to broaden its definition of conflict diamonds, Merket said in an interview with TIME that it was highly unlikely that the The organization now restricts gemstones whose sale funded a state-sponsored war.

Instead, he says, Belgium should once again assume the leadership role and not only propose EU sanctions but, together with the US, persuade other countries to stop the diamond trade as well. Russians. “There are only four big players today,” he said. “And two of them, the EU and the US, could coordinate and put pressure on the other two, India and the United Arab Emirates. Belgian politicians and the industry say they only want sanctions if they are internationally coordinated. But then they have to start coordinating them, rather than hiding and waiting to see what happens.

An important step, Merket points out, would be to devise a mechanism to make the origin of any diamond easily traceable. While large, extremely valuable stones often come with a certificate of origin, the remainder, around 90% of jewelry-grade diamonds, are traded in large plots where stones from a number of locations are mixed. Where certificates of origin exist, they only apply to rough diamonds; once a stone is cut or polished or otherwise “substantially transformed”, as the US Customs Department puts it, it becomes the export of the country where the process took place.

This is why even companies like Tiffany’s or Pandora, which have declared that they will stop buying Russian rough diamonds, cannot guarantee their customers that the gems were not mined there. In the United States, Jewelers of America, two American trade organizations, has urged its 8,000 members to go beyond current sanctions until Ukraine’s sovereignty is restored. “Due to the complexity of the ethical and legal issues involved in doing business with Russian counterparties, JA advises its members to cease purchasing products used in jewelry that emanate from Russia and benefit the Russian government, regardless of i.e. where they are cut and/or made,” the association’s president and CEO, David Bonaparte, said in a statement to TIME.

From an office on the top floor of AWDC headquarters, Neys acknowledges that opposition to Russian sanctions is, given the horrors in Ukraine, “not a nice story. But it’s realistic,” he says. “It’s very easy to break something down, but to build something is much more difficult. That’s what we’ve been doing for the past 20 years, building something that ultimately ensures the customer gets a decent product.

However, the definition of correct can change. In the blocks around Hoveniersstraat, importers and wholesalers give way to dozens of jewellers, some of them opulent and intimidatingly formal; others so bare and dark as to pass for shoemakers’ stalls. Not far from the station, José María Montero and his wife Lidia González stood in front of a glittering shop window. The Spanish couple had come to Antwerp for the art, but stopped to admire the jewelry. “I would really like to know where they come from, because I don’t want to buy diamonds from Russia,” Montero said. “In my country, we feel great solidarity with Ukraine.”

Corrigendum, 3 May

The original version of this story misrepresented the number of jobs generated in Antwerp by the diamond trade; it’s 30,000, not 10,000.

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