# taz.de -- Sanctions against Russia: Diamonds always get through | |
> Russian state company Alrosa is the world's biggest diamond producer. The | |
> US has placed it under sanctions. But other players like the EU haven't. | |
BRUXELLES taz | There are strong links between the Russian diamond | |
production and the financing of Putin’s war machine, according to a report | |
published in April by the Antwerp-based think tank International Peace | |
Information Service (IPIS). The first is the proximity between Vladimir | |
Putin and Sergej Sergejevitsj Ivanov, the CEO of Russia'se state-owned | |
diamond mining company Alrosa which is the largest world producer (45.5 | |
million carats worth 4.2 billion dollars in 2021, much less than energy | |
sales to the EU of about $ 104 billion but much more than vodka sales). | |
Alrosa is responsible for 90 percent of Russia’s diamond production. The | |
Russian Federation gets a profit of about $1 billion. | |
Ivanov belongs to Putin’s inner circle and is an oligarch targeted by US | |
sanctions. He is also the son of Serge Borisovich Ivanov, Putin’s special | |
adviser on environment and transport who sits on the Russian Security | |
Council. | |
Alrosa’s board includes Anton Siluanov, Russia’s Minister of Finance. | |
Alrosa’s corporate newsletter reported in 1997 that the company was engaged | |
in a sponsorship agreement for the Russian B-871 combat submarine. To | |
express its gratitude, the Russian navy awarded the submarine the honorary | |
name Alrosa in 2004. | |
This proximity explains why US President Joe Biden issued an executive | |
order on the first day of the Russian invasion of Ukraine, targeting | |
Alrosa. Sergey S. Ivanov was put on the list of the Office of Foreign | |
Assets Control (OFAC), which means that his assets will be seized and that | |
business transactions between US citizens and Ivanov Alrosa are forbidden. | |
Two weeks later, a second executive order banned the import into the USA of | |
Russian rough diamonds and blocked entities owned, directly or indirectly, | |
by Alrosa. Besides these official sanctions, the main US retailers, Signet | |
Jewelers and Tiffany, communicated in March that they would no longer be | |
purchasing diamonds mined in Russia, in order to maintain their reputation | |
and avoid being seen as buyers of “blood diamonds“. | |
The company also been sanctioned by Canada, the United Kingdom, New Zealand | |
and the Bahamas. The UK joined on March 24th the US in sanctioning Alrosa. | |
Chris Gordon, a British expert of the diamond market and conflict diamonds, | |
told TAZ that on 29 April, the UK also raised an import tariff on both | |
polished and rough diamonds from Russia and Belarus. UK companies are | |
prohibited from doing business with Alrosa. | |
Antwerp does not ban Russian diamonds | |
US sanctions are important since the US accounts for half of the world | |
consumption of polished diamonds. But the main hub of the world diamond | |
trade, Antwerp in Belgium, where 80 percent of the rough diamonds are | |
traded, is not implementing sanctions against Russian diamonds. These | |
accounted for 25 percent of its rough diamond imports and were valued $ 1.8 | |
billion in 2021, the equivalent of 40 percent of Russia’s diamond exports. | |
The diamond trade has been exempted from EU sanctions, following concerns | |
expressed by the Belgian government and a lobbying campaign by the Antwerp | |
World Diamond Centre (AWDC). In late March, Ukrainian President Volodymyr | |
Zelensky urged Belgium in a video conference to stop diamonds imports from | |
Russia. But Belgian Prime Minister Alexander De Croo disagreed and declared | |
that if Belgium does not buy Siberian gems, the trade will move from | |
Antwerp to Dubai. | |
In an interview with the Gazet van Antwerpen daily, the AWDC’s spokesman | |
Tom Neys said that sanctions could “hurt Russia but there is a chance that | |
we do more damage to ourselves“ since “the Russians can easily trade their | |
diamonds with non-EU countries.“ According to him, EU sanctions against | |
Alrosa could mean a loss of 10.000 jobs in the diamond sector in Belgium, | |
as the Dubai Diamond Exchange has said that Russian gems were welcome | |
there. Besides, rival diamond hubs like Dubai or Mumbai have less ethical | |
standards than Antwerp, argue Belgian diamantaires. Efforts in favour of EU | |
sanctions against Russian diamonds from NGOs and from the Belgian Socialist | |
Member of the European Parliament, Kathleen Van Brempt, have not been | |
successful so far. | |
According to members of the Kimberley Process Civil Society Coalition, | |
Antwerp diamantaires have tight links with the Russian elite. In 2014, | |
despite Russia’s invasion and occupation of Crimea, the AWDC signed a new | |
supply contract with Alrosa. | |
Another important hub, Israel, which absorbs 10% of Alrosa’s production, is | |
not applying sanctions either. According to the daily Haaretz, Israeli | |
diamond dealers were still importing rough diamonds from Alrosa in April, | |
but were facing growing obstacles. Banks were reluctant to make payments to | |
Russia, since the United States prohibit the use of dollars in transactions | |
with Moscow. | |
Industry sources cited by Haaretz think that even in the case of sanctions | |
diamond dealers will find a way to pay in order to keep an access to | |
Russian gems. The paper foresees that Israeli sightholders will likely move | |
their activity to India where polishing is cheaper. Like the United Arab | |
Emirates, India has not taken any sanctions either. | |
Technically, Russian diamonds are not blood diamonds | |
Despite obvious connections between Alrosa and the Russian war machine, it | |
is unlikely that the Kimberley Process (KP) – created to curb the traffic | |
of blood diamonds, originally to prevent Angolan rebels from profiting from | |
the diamond trade – will take up any role in providing coordination on the | |
matter of Russian diamonds, say IPIS experts. | |
The KP’s definition of conflict diamonds only concerns “rough diamonds used | |
by the rebel movements or their allies to finance conflict aimed at | |
undermining legitimate governments“. In addition, KP decision-making is | |
based on consensus. China, the United Arab Emirates which include Dubai, | |
India and African producers would probably not support the scrutiny of | |
Russian diamonds. The March 2nd UN General Assembly Resolution condemning | |
Russia’s aggression against Ukraine was supported by only 33 of the 59 KP’s | |
participant states. | |
On 14 March, the KP Civil Society Coalition urged the KP’s Chair Botswana | |
to call a plenary meeting to establish which measures are required to | |
secure that diamonds produced in Russia do not contribute to financing the | |
war. But the meeting never took place. Botswana said it could not take such | |
a decision, which must be proposed by a member country. Furthermore, it | |
would be sufficient for one participant to formally oppose a meeting to | |
prevent it happening. | |
The Russians already blocked in September 2021 the renewal of the UN | |
Security Council mandate for the UN Panel of Experts on the Central African | |
Republic where Lobaye Invest, a company with suspected links to the Wagner | |
mercenaries has rights to explore diamonds. | |
Unintended effects on Angola and India | |
A consequence of the lack of consensus on sanctions against Russian | |
diamonds is that the effectiveness of US sanctions is only partial. The | |
large majority of Russian gems only enter the US market after they are | |
polished in India which reclassifies them as Indian products. For industry | |
analysts, it remains legal for US companies to import Russian diamonds that | |
have been cut or polished elsewhere. In addition, diamonds of various | |
origins are often mixed together, which makes it difficult to detect | |
Russian gems. | |
Nevertheless, US restrictions on Alrosa are creating concern worldwide | |
across the industry. According to the US business news agency Bloomberg, in | |
Manhattan’s diamond district business has stalled over the last months. | |
Industry sources stress that the decision by the US and the EU to block | |
Russia from SWIFT, the Belgium-based cross-border payment system operator, | |
has complicated the task of importers. Transactions are becoming more | |
difficult since purchasers of Russian diamonds who used dollars face | |
prosecution. | |
Meanwhile, Antwerp traders also say that business is stalling despite the | |
absence of specific EU sanctions against Russian diamonds because of the | |
closing of the EU airspace to flights from Russia. | |
So far, US sanctions have not deterred the Kremlin from its aggression | |
against Ukraine but they havie consequences fordiamond producing countries. | |
„Bear in mind that in Angola, Alrosa is a major shareholder of the biggest | |
mine, Catoca. If one declares sanctions against Alrosa, the joint venture | |
which exploits the mine, the Sociedade Mineira de Catoca (SMC) will be | |
affected. The Catoca diamonds have lost value because of the situation. | |
Buyers are worried about reputation, ethics and that’s not good for SMC. | |
The fear is that the public could see a jeweler or a retail seller as | |
financing indirectly the horrors of the war we are seeing on TV“, Chris | |
Gordon says to TAZ. | |
Alrosa is the operator of Catoca and the mining equipment is Russian. They | |
are currently building a huge mine of very high value, a 400 $/carat mine | |
at Luaxe. The problem is project finance, since the money cannot go through | |
the SWIFT system. On 9 May, in a brochure distributed at a mining | |
conference in Cape Town, the Angolan parastatal company Endiama admitted | |
that sanctions could delay the supply of equipment and spare parts to the | |
Catoca and Luaxe mines. And Endiama announced that it had revised its | |
projection down from 13.8 million carats to 10 million carat in 2022. | |
Two other African producers could be affected, albeit to a lesser extent. | |
One is the Democratic Republic of Congo, where Alrosa sealed a deal in 2021 | |
with the 80 percent state-owned company MIBA to launch a diamond | |
exploration and production program. The other is Zimbabwe, where Alrosa has | |
set up a subsidiary to start mining operations after it did preliminary | |
geological exploration several years ago. | |
## A looming diamond shortfall | |
On top of the US ban, any stagnation or reduction of the Angolan production | |
could lead to a shortage of the supply of rough diamonds worldwide. This | |
will eventually result in rising prices of rough diamonds. Indeed, the | |
world's second major diamond producer, De Beers – which controls the | |
production of Botswana, the second world producer, and South Africa – has | |
limited capacity to produce more gems in the short term. Its mines are | |
running at full capacity and there is little chance of a production | |
increase before 2024, when an expansion at De Beers’ flagship South African | |
mine is expected to be completed. | |
Any rise of rough diamond prices may result in a recession in the diamond | |
industry, experts fesar. In India, there is an availability problem and the | |
fear of a consumer back-clash. There is also the financial aspect. How does | |
one pay for Russian imports? In rubles, in rupees, in euros? There is | |
confusion and uncertainty. Some may think of paying in gold or in bitcoin, | |
but the amounts required are huge since the Russian production accounts for | |
over 36% of the world total, worth about four billion dollars, explains | |
Chis Gordon. | |
The payment crisis has affected the largest world diamond polishing centre | |
at Surat in Gujarat state in India, which employs one million people, where | |
the bazaar has gone quiet over recent weeks. Disruptions in the diamond | |
trade could cost India $2.5 billion during the second quarter of 2022, | |
writes The Economist of India. Meanwhile, Alrosa could for some time avoid | |
the consequences of the ban – by selling its entire production to the | |
Russian state fund Gokhran, according to the Russian Ministry of Finance. | |
2 Jun 2022 | |
## AUTOREN | |
François Misser | |
## TAGS | |
Schwerpunkt Krieg in der Ukraine | |
Diamanten | |
Russland | |
Sanktionen | |
Schwerpunkt Krieg in der Ukraine | |
## ARTIKEL ZUM THEMA | |
Sanktionen gegen russische Staatsfirma: Blutdiamanten auf Umwegen | |
Alrosa ist der größte Diamantenproduzent der Welt. Deshalb haben die USA | |
Geschäfte mit dem Konzern verboten. Doch die EU macht nicht mit. |