In Antwerp’s famed diamond district – which handles an estimated 86 per cent of the world’s rough diamonds – polishing ‘labs’ are turning to blockchain technology to prove their gems come from legitimate mines in Africa, Australia or Canada, rather than Russia.
With Russian stones accounting for around a third of the global market before Moscow’s invasion of Ukraine in 2022, the G7’s decision to ban the trade could have far-reaching implications.
Industry insiders in Belgium expect the sanctions to be phased in gradually, limiting market disruption.
Meanwhile, major traders and jewellery brands have begun to use advanced tracking technology to verify and certify the origin of their diamonds.
The industry has been trying to clean up its image since outrage erupted two decades ago over so-called “blood diamonds” financing brutal civil wars in Africa.
Now, if traders are seen to be helping Russia evade sanctions to continue funding its invasion of Ukraine, the lustre could be lost.
The European Union is drawing up bans on Russian diamonds as part of its 12th package of sanctions to tighten the vice on Moscow’s war economy and cut off the funds it uses to buy munitions and drones from North Korea and Iran.
But it has been difficult to agree on how best to restrict the diamond trade. Small and extremely valuable, the gems are easy and lucrative to smuggle.
They are easy to mix with stones from other sources. In addition, rough diamonds change weight and appearance as they are cut, polished and finally set into jewellery.
Draft sanctions
Europe – and Belgium in particular – has another concern: Even with EU sanctions, Russian gems could still find their way to competitors in places like Dubai and India.
As the EU sanctions talks progressed, the G7 powers stepped in and the world’s leading industrialised democracies agreed to a global ban.
“I think it is important that any traceability solution or protocol that is proposed to deal with these potential sanctions is industry-wide and supported by all diamond centres,” says iTraceiT CEO Frederik Degryse.
Degryse’s company is trying to provide market players with a digital way to trace their supply chain.
The European Commission has adopted a proposal that will go to member states for approval, which is expected in the coming days if the 27 member states are unanimous.
According to a copy seen by AFP, it will ban trade in diamonds originating in, transiting through or exported from Russia, as well as Russian diamonds cut and polished in third countries.
From 1 January 2024, the ban would apply to “non-industrial natural and synthetic diamonds and diamond jewellery”.
The ban on imports of Russian diamonds cut or polished in third countries would be phased in between March and September next year.
“This phase-in … takes into account the need to implement an appropriate traceability mechanism that allows for effective enforcement measures and minimises disruption to market participants,” the draft says.
The company iTraceiT believes its technology would ease the supply chain disruptions that such bans could cause.
In a “lab” in Antwerp’s diamond district, account manager Sandiah Kangoute showed AFP how miners, traders, polishers and retailers can trace their diamonds back to their source.
As miners bag stones, each is assigned a QR code that links its contents to a unique filing system using blockchain technology – a method of recording information that is difficult to hack or manipulate.
Using a code reader, industry workers can access the files attached to the unique codes and add new ones, such as purchase receipts, export licences and certificates of authenticity.
“So I see here, the starting point was Canada, then it travels and comes to me in France,” says Kangoute as she scans a QR code on a small package of polished diamonds.
Every parcel tracked
If challenged, exporters can use the iTraceiT system to provide evidence that their diamonds did not originate in Russia.
“Every parcel or every diamond has an internal reference that is linked,” says Degryse.
“So if there’s any discrepancy between the actual physical diamonds that you’re weighing and the numbers that are there, it will come up,” he said.
“And then you have all the supporting documentation,” Degryse added.
“All the partners we work with are audited on a regular basis. So this is a tool that makes it easier for the auditors to go in and see the traceability of all the diamonds.”
But will sanctions hurt Russia? So far, it has managed to sustain its war on Ukraine through 11 previous rounds of EU measures targeting its much larger oil and gas exports.
The industry is sceptical. Russia is a major source of diamonds, but diamonds themselves are a small part of its economy, which may partly explain why officials have taken so long to crack down on the trade.
