The Retailer’s Guide to Dealing with Russian Diamonds

With U.S. sanctions on Alrosa aimed at stemming the tide of funds to Russia that are fueling its war on Ukraine, American firms – including retail jewelry stores – must immediately cease all transactions with or benefitting the Russian diamond miner.

Specifics of this mandate give merchants some generous leeway to avoid a total disruption of business, but sanctions experts advise jewelers to sell what’s left of Russian stock, stop importing from Alrosa sightholders altogether, and find new sources to replace Russian diamonds.

“The least risky choice for businesses to make is to tell your suppliers that you no longer want to sell Russian diamonds,” explains Sara Yood, ESQ., deputy general counsel for the Jewelers Vigilance Committee (JVC).

ANATOMY OF THE SANCTIONS

According to the U.S. Treasury, Alrosa, which is partially owned by the Russian Federation, is the world’s largest diamond mining company and is responsible for 90 percent of Russia’s diamond mining capacity.

On April 7, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) placed Alrosa on the Specially Designated Nationals (SDN) list. This means that U.S. firms can not directly or indirectly purchase rough or polished diamonds from Alrosa or any firm owned 50 percent or more by it. Additionally, a so-called ‘loophole’ in a March 11 executive order stating that Russian diamonds cut and polished in other countries were (and still are) legal to import, should be scrutinized by every American jewelry merchant.

HOW DOES THIS AFFECT RETAILERS?

“[That March 11 order] intended to give the industry time to figure out how to handle its inventory and sourcing,” says Brad Brooks-Rubin, senior advisor at The Sentry, an organization that investigates predatory networks and kleptocracies. “Now every retailer should be asking suppliers ‘Am I sourcing Alrosa diamonds’? You could face penalties or blocked goods if you don’t stop.”

Member Alerts from the Jewelers Vigilance Committee (JVC) outline key facts every U.S. jeweler should know.

• Existing owned diamonds and diamond jewelry inventory with Russian origins are still legal to sell.
• It is only new inventory or business (such as marketing agreements) since April 7, 2022 that may not directly or indirectly benefit Alrosa.
• Transactions such as memo or consignment agreements or related contracts that are mid-stream must be completed by May 7, 2022, but seek counsel to ensure proper policy observance.
• Russian diamonds that are substantially transformed (cut) in other countries and parcels of mixed-origin melee are also still legal to import.

However, all diamonds with Russian origins that are imported, no matter the circumstances, are fraught with risk. Why? There is a possibility that Alrosa sightholders—those cutting the stones outside of the U.S.—could be placed on the “OFAC SDN list for secondary sanctions for contributing to a blocked entity,” according to April 15 JVC Alert.

“If 20 percent of your Indian suppliers’ diamonds come from Russia and that is 90 percent of what you sell, then you may be at risk,” says Brooks-Rubin. “You can mitigate penalties through due diligence—ask suppliers questions and seek advice from lawyers with experience on sanctions issues.”

SEEK LEGAL ADVICE

Jewelers can find sanctions experts at many large law firms and through a JVC member law firm finder tool. Those answering the phones at the OFAC hotline (800-540-6322) are also helpful. “This is not a ‘Gotcha’ situation—they want to help,” notes Yood.

EXPLAIN THE SITUATION TO YOUR CUSTOMERS

Retailers should prepare talking points to address the topic of diamond origin with shoppers. This is what Bob and Rose-Marie Goodman of Robert Goodman Jewelers in Zionsville, Ind., did the first week of the Ukraine invasion, before any sanctions were issued. The Goodmans called their diamond supplier, and the dealer provided written documentation to prove that he was not selling Russian rocks. The couple is still waiting for an answer from a bridal ring manufacturer. “We have to make a decision soon where we’ll go with them,” says Bob. “We will discontinue doing business with anyone still selling Russian diamonds.”