Diamond Chain of Custody and Conflict Diamonds - Conflicting views

While Kimberley Process (KP) Plenary was going on in Washington, many in other parts of the world were mulling over the thought of its affect on diamond chain of custody and thus the business as a whole. While some think that tracking the origin on a stone is practically not possible, others feel it’s not a bad step if it ensures fair practice in the trade, which is becoming vulnerable to many factors like undisclosed synthetic diamond, conflict diamonds and much more.

Though the concept of COC is very much there in the market, lack of feasibility has kept various bodies of diamantaires and industries from implementing it full-fledged. One of the most talked about COC standard being considered by the Responsible Jewellery Council.

Late last year, the RJC released its second draft of chain of custody standard, however, they have not concluded the drafting process. Talking about the same, Michael Rae, Chief Executive officer of RJC said, “We do have a draft of COC for diamonds but we have not completed it. In November 2011, the RJC’s members requested more time to assess the draft. A subcommittee was established to engage in further widespread consultations throughout this year. The RJC Standards Committee will review the subcommittee’s recommendations in the New Year.

On the issue of mooted changes to the KPCS definition of ‘conflict diamonds’, Rae says, “The RJC’s Code of Practices, the standard against which all RJC Commercial Members are required to be independently audited, requires full compliance with the Kimberley Process Certification System (KPCS) and the WDC’s System of Warranties. The RJC is more than willing to amend its Code of Practices, if need be, to incorporate any new definition of conflict diamond adopted by the KPCS.

“The current debate around the KPCS definition of conflict diamonds centres on whether it should go beyond the use of rough diamonds by rebel movements to finance wars against legitimate governments. This definition was established by the UN Security Council at the inception of the KPCS ten years ago. Many are arguing the definition should be broadened to include other human rights abuses associated with diamond production. Any change to the definition will be the decision of the governments of the countries that participate in the KPCS,” he pointed out.

When asked about how important is diamond chain of custody, Rae states, “The diamond industry is selling a luxury product that is also emotionally important to people. Diamond jewellery is associated with special and happy occasions like weddings, engagements, anniversaries and so on. Frankly, no one would want the diamond that they are gifting to their loved ones or using on a special day like a wedding, to be associated with violence and exploitation. A credible Chain of custody or other credible provenance claim can be used to provide confidence that the source of the diamond, including its conflict-free status, is known.

Many industry insiders feel that RJC’s standards for COC may choke the business as it indirectly implies that only the RJC Members must trade within themselves to avoid conflict diamonds, however, Rae has a different view. Clearing the doubts, he said, “Any CoC or other provenance standard set by the RJC will be voluntary. That is, it will be the choice of individual RJC Members as to whether there is a business case for them to use such a standard. The RJC has no desire, nor any legal right, to require its Members to confine their trade to other RJC Members. Anti-trust laws in many countries specifically prohibit such an action.

Rae says that any change to the KP definition of “conflict diamonds” will have minimal impact on CoC or provenance claims for diamonds. In essence CoC involves tracking material to credibly support the provenance claim. The KP system is enshrined in law in many countries of the world. All members of the diamond industry trading in such countries will have no option but to comply with those laws, so any new definition will simply form part of any CoC or other provenance claim.”

Another industry stalwart and chairman of Gem and Jewellery Export Promotion Council (GJEPC) of India, Vipul Shah clearly states that there is no need for redefining the conflict diamonds. “We know that KP Chair has proposed her vision statement through which she has outlined her idea on how KP may move forward. There are a number of suggestions on the table, which we understand the KP is discussing, amongst which the change of definition of Conflict Diamonds by KP Chair is one of them. In my opinion, KP, with its current definition, is responsible for almost eradicating the scourge of conflict diamonds from this world in its 10 years of existence. This has been also agreed by each of 76 countries of KP, including the observers like World Diamond Council and Civil Society Coalition. Hence, we do not agree to any change of definition of KP as with this definition the entire process has shown tremendous success in the last 10 years,” says Shah.

Talking about the stringent standards of COC by RJC, Shah said that as RJC is not a member of KP, there is no requirement of any change either in COC, or in discussion of new definition. Though Shah kept it clear and objective enough, he however did not mince words in expressing his opinion on the COC designed by RJC. “The CoC, as proposed by Responsible Jewellery Council, in our opinion, is devoid of practicality and is not in sync with the way the business of diamond is being done in the world today. It has serious repercussions in terms of transaction cost on the entire diamond industry of the world and has a potential of wiping out the small and medium traders and brokers in the diamond sector, who are the integral part of the system. We are not against regulating the diamond sector and in fact we are the founding members of KP and are part of all constructive discussion happening in the sector. However, already this sector is over regulated and we do not feel any more regulation will do any good for this sector,” he expressed.

Seconding Shah’s opinion was Earnest Blom, newly-elected President of World Federation of Diamond Bourses. “At the outset the issue of Conflict Diamonds and Chain of Custody (C.O.C.) are not linked but do have a relationship, the K.P. is a United Nations initiative that encompasses seventy four governments and deals solely with rough diamonds whilst the Chain of Custody is a voluntary system that is exclusively for polished diamonds and was initiated by a few private companies and organisations,” says Blom, giving an over view of the subject matter.

However, he also feels that the new definitions will help COC. “If the definition is agreed upon by all the members, it should not detrimentally affect the COC. As far as the RJC rules are concerned I believe they are robust enough and I cannot see any need to change the COC as the new reforms, if pursued, will be sufficient and encompassing. The COC is a voluntary system that has been devised and in operation for some time and it is my opinion that they fill a niche within the areas they operate.”

He states that the WFDB supports any initiative that improves any process that will benefit the industry. “The KP has been operational for ten years and I have always believed that a system must never remain static but always be proactive. Reforms are necessary but it must be an inclusive process that has the buy-in of all the industry players,” says Blom.

Yet another renowned industry figure and President of Bharat Diamond Bourse, Anoop Mehta, preferred to talk on a different tangent altogether. “Before implementing a COC, it needs to be studies in depth. We need to understand that it work differently in every country. If we talk about inclusion of human right abuse in the new definition of conflict diamonds, we must know that it may happen at two levels—first, a government may do it, secondly, a private company involved in mining may do it. So before punishing the country or branding it as a land of conflict diamonds, there should be a global body that looks into it and helps the nations. I appreciate the fact that KP is considering it that it’s important to help countries and not punish it by banning them from the trade.”

About RJC diamond COC, Mehta said that the rules are a bit too stringent and may choke the business. “It’s practically impossible to track every piece of diamond, especially after its polished. Even if one wants to track a rough, we need computerization. And in a country like India, where we follow the Mom and Pop business model and not a very corporate culture, it will be further more difficult. We now have KP certification, which is serving the purpose and no other rules is required. Tracking the carat though sounds possible, but tracing the origin of every stone is not very feasible idea,” he concludes.

While the industry is looking forward to the new definition with bated breath, COC may not be a huge concern, as most of the industry insiders feel that it will remain unchanged or will undergo minor changes. However, the change in the definition may have serious affect on the industry. As far as the COC is concerned, the implementation of the standard may send ripples in the market, but may also have some positive affect.