Russia’s Diamond Trade Draws Attention, But Not Sanctions

No one would ever call the atmosphere on Antwerp’s Hoveniersstraat relaxed. Every day millions of euros of diamonds are passing through the 300-meter long barricaded meters. The traders that move along the length of the street, carrying innocuous looking plastic bags filled with gems and clutching them, look suspiciously at anyone who comes by. Hoveniersstraat is more anxious than ever, especially since the outbreak of war in Ukraine. As the world’s oldest and largest hub for the trade, it—and Antwerp as a whole—has held its breath each time the European Union has announced a new set of sanctions against Russia. And now, with a sixth round imminent, traders in Belgium’s second largest city are again worried that their luck may soon run out.

Russia produces about 30% of the world’s supply of diamonds. Alrosa is the company responsible for about 90% of these diamonds. Partially owned by the Russian government, Alrosa has ties to Russia’s military and nuclear industries, and is run by the son of a close Putin ally. Because of those connections, the U.S. and more recently the U.K., have put sanctions on Alrosa’s chief executive, Sergey S. Ivanov, and banned imports of the country’s diamonds as part of their efforts to punish Russia for its invasion of Ukraine. The European Union is headquartered in Ukraine, which happens to be the largest and oldest diamond trading center in the world. It has yet to do so.

Learn More How to buy an ethical diamond

“Peace is more valuable than diamonds,” Ukrainian president Volodymyr Zelensky told the Belgian parliament when, speaking by video conference in late March, he urged the country to cut off imports. A significant amount of Belgian trade is owned by the Putin regime. It owns 33% and the rest of the company through regional governments. Alrosa places a third on the Antwerp market, where 20 of its clients are located. The company made $4.2 billion in sales to Europe last year, and $1.8 billion from Belgium. This number, while smaller than Russia’s $104 billion in European energy sales that year is still higher than any other Russian products that the E.U. has banned. (such as vodka which is worth $52 million).

Diamonds make up 5% of Belgium’s exports, and generate about 10,000 jobs in Antwerp, which helps explain—along with some reported industry lobbying—why, after some initial exploratory discussions around the time the war started about, the European Union has yet to table a motion on their inclusion. “In [the European] parliament we discussed it, and I myself was quite vocal about it because of the military connections,” says Kathleen van Brempt, Belgian member of the European parliament for the Socialist party which, like the Greens, is in favor of the sanctions. But in the executive bodies where any embargo would be decided, she says, “it has never to my knowledge been on the table so that they need to discuss and take a decision on it. And that, of course, is peculiar.”

Antwerp is a port city of just half a million people that has been associated closely with gems ever since the 1500s. And although its importance as a hub for cutting and polishing diamonds long ago passed to other places–most notably India–it continued to control nearly all the world’s trade until the 1980s. 86% of diamonds pass through this city today at least once on their way from raw stone to cutting, polishing and final setting in a necklace/engagement ring. However, as a major trading hub, it is now facing increasing competition from Mumbai and Dubai.

Alexander de Croo (Belgian prime minister) has said repeatedly that the country won’t block any sanctions on diamond trade, if it is decided by the European Commission to include this measure in one its package. According to two sources in the Belgian government it did not because its members believed that such measures would be worse for Europe than Russia.

Learn More A Critical Missing Link in U.S. Sanctions Against Russia

That refrain—that it should hurt Russia more than it hurts Europe—has been repeated by leaders from Greece to Germany as an explanation for their opposition to oil and gas embargoes (which, nonetheless, appear to be the focus of the next round, which may arrive this week.week). Although she disagrees with that argument, van Brempt notes that there’s a certain impact of an oil and gas ban that does not apply to luxury goods. “Energy at least affects everyone: consumers, family, industry,” she says. “But diamonds?”

However, sanctions might not be as harmful to Russia when it comes down to gemstones. Tom Neys is the spokesperson for the Antwerp World Diamond Center. “Some politicians say, ‘we need to bleed ourselves to make the other bleed.’ But in this case, it’s like you’re not even cutting the other side,” he says. “Russia does not suffer from this sanction, it will be able to earn the exact $1.8 billion somewhere else. Dubai has already stated that very clearly.” And unlike gas, which requires massive infrastructure to transport and thus cannot be readily diverted to other buyers, diamonds are easily moved. “All diamonds of five carats and above, from a whole year’s production, you could fit in a basketball,” Neys says.

He also said that where these diamonds end up is a problem for decades of industry cleanup work.

The Kimberley Process, a regulation trade system created by the diamond industry around 20 years ago to address concerns about rebel groups using rough diamonds from Africa to fund conflicts. Supported by a broad coalition of governments (including the E.U., the U.S., South Africa, Zimbabwe, China and Russia), civil actors, and the diamond industry the KP has been largely successful in meeting its immediate goal of eliminating conflict or ‘blood’ diamonds, and helped spur a transition in traditionally secretive Antwerp toward greater transparency and due diligence regarding the conditions in which diamonds are produced.

Learn More Blood Diamonds

All that could be at risk, the AWDC says, if there are sanctions. Neys says that if diamonds Russia normally sold to Europe go to another diamond hub, this will result in the loss of not just 10,000 jobs, but also ethical gains. “If 30% of the market goes to Dubai, then you have thrown away 20 years of transparency and compliance and due diligence into the garbage can and you have no control anymore. This is how money laundering can be done. We are opening the door to financing terrorism in large volumes.”

Hans Merket is a researcher with the International Peace Information Service (Antwerp) and acknowledges that Belgium has done a better job of ethically producing diamonds than any other country. “It’s true that the controls in Antwerp are unrivaled, and that there’s no other trading center that has this level of control,” he says. But in a study published at the beginning of April, he draws a direct line between Alrosa and the Russian military, noting that in 1997 the company sponsored a submarine, and paid to maintain it in “combat-ready” position. Later, the submarine was used for the 2014 annexe of Crimea.

Merket stated in an interview with TIME, noting that the Kimberley Process (which includes Russia Federation) has rejected previous attempts to broaden its definition of conflict-diamonds. He said that it was unlikely that the Kimberley Process would restrict the sale of gems that were used for funding state-sponsored wars.

Instead, he suggests Belgium assume leadership and propose E.U. sanctions. But, along with the U.S. persuade all other countries to cease trading Russian diamonds. “There are only four big players today,” he says. “And two of them, the E.U. The U.S. and India could work together to exert pressure on UAE and UAE. Belgian politicians and the sector say they only want sanctions if they’re internationally coordinated. But then they need to start to coordinate them, rather than hiding and waiting to see what’s going to happen.”

Merket points out that one important thing to do is to create a way to easily trace any diamond’s origin. Large, highly valuable diamonds often have a certificate of origin. However, 90% of the jewelry-quality diamonds are sold in bulk, where they are mixed with stones from many places. When certificates of origin do exist, they only apply to rough diamonds; once a stone is cut or polished or otherwise “substantially transformed,” as the US customs department puts it, it becomes the export of the country where the process took place.

That’s why even companies like Tiffany’s or Pandora, which have said they will stop buying Russian rough diamonds, cannot assure customers that the gems weren’t mined there. Jewelers of America and Jewelers of America are two trade organizations in America that support laOne. They have urged their 8,000 members not to buy Russian rough diamonds until Ukraine’s sovereignty is restored. “Due to the complexities of the ethical and legal issues attendant to conducting business with Russian counterparties, JA is advising its members to cease the purchase of goods used in jewelry that have emanated from Russia and benefit the Russian government, regardless of where they are cut and/or manufactured,” association president and CEO, David Bonaparte said in a statement to TIME.

From an office on the upper floor of the AWDC’s headquarters, Neys acknowledges that opposition to Russian sanctions is, given the horrors in Ukraine,”not a sympathetic story. But it is a realistic one,” he says. “It’s very easy to break something down, but building something is much harder. That’s what we’ve done during the last 20 years, built something that makes sure that in the end, the customer gets a product that is correct.”

The definition of right may change. The blocks around Hoveniersstraat are home to many jewelry shops. Some of these stores are more formal than others, and some have a more casual feel. Others, however, look like they might be shoe repair stalls. Not far from the train station, José María Montero and his wife Lidia González stood outside the glittering shop window of one. They had been visiting Antwerp to see the art but stopped by to take in the beautiful jewelry. “I would definitely want to know where they come from, because I don’t want to buy diamonds from Russia,” Montero said. “In my country, we feel a lot of solidarity with Ukraine.”

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