The Office of Foreign Assets Control (OFAC), the US Treasury unit that oversees sanctions, froze the funds earlier this year, said two of the sources. Both are Indian government officials but declined to identify themselves or the companies citing the sensitivity of the matter.

The OFAC freeze is the first known punitive measure against any Indian business since Russia’s full-scale invasion of Ukraine last year and subsequent Western sanctions on Russian entities.

OFAC froze the funds when UAE-based units of the unspecified Indian companies tried to transfer them to buy rough diamonds. Reuters could not determine if the money was being transferred to Alrosa or another party.

“The government is aware of the OFAC action and has initiated dialogue over it,” one of the Indian government sources said. “The problem was suspicion of trade links with Alrosa.”

The Indian firms impacted by the action have told the government that the payments were meant either for non-sanctioned Russian entities or for orders completed before the sanctions on Alrosa came into effect in April last year, the source said.

State-controlled Alrosa, the world’s largest producer of rough diamonds, did not respond to an email seeking comment. India’s trade and foreign ministries and the US treasury department also did not respond to requests.

India has the world’s largest diamond processing capacity and exported polished diamonds worth more than $22 billion last fiscal year that ended on March 31. The industry, based mainly in the western state of Gujarat, buys rough diamonds from suppliers in countries such as the United Arab Emirates, Belgium, and Russia.

(By Shivangi Acharya, Rajendra Jadhav, Polina Devitt, and David Lawder; Editing by Conor Humphries)