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POSSIBLE G7 RUSSIAN DIAMONDS SANCTIONS REGIME
LIKE TO CHALLENGE HEGEMONY OF KIMBERLEY PROCESS

On May 21, members of the Kimberley Process, the international forum established in 2000 to eliminate the trade in rough diamonds associated with conflict, will gather in Zimbabwe for their regular mid-year five-day Intersessional meeting. What is unlikely to find its way on their agenda is the war that has most grabbed the world’s attention over the past year, the one between Ukraine and Russia, despite the fact that the latter country is not only a belligerent nation, but also the world’s largest producer of rough diamonds by volume.

If the two KP meetings that took place in 2022, both in the shadow of the bloody Eastern European war, are anything to go by, there will be an initial attempt by Ukraine and a handful of Western countries to include the conflagration on the official KP schedule, but they almost certainly will not succeed. What is likely to occur is a suspension of the meeting for a number of hours, and then a decision brokered by the KP Chair essentially to agree not to agree, and the proceedings will continue.

The reason for the impasse is the rules by which the Kimberley Process operates. Decisions need to be made by consensus, meaning that an objection by any one country, irrespective of which it is, is tantamount to a veto. Russia, thus, can block any item on the agenda, and it is almost certainly certain to do in the case of the Ukraine war.

Ironically, the fact that the Ukraine issue managed to hamstring the Kimberley Process for at least two full days in 2022, as is likely to do in 2023, means that, while unofficially the topic remains off the agenda, in reality it very much dominates it. Be that as it may, however, even if it were included, it is unlikely that the KP could really address it. This is because the war between Russia and Ukraine is between sovereign nations, and the conflict diamond definition in the KP forum’s core document relates only to civil war.

G7 leaders meeting in 2014, in response to the Russian invasion of Crimea, which is regarded by the West as sovereign Ukrainian territory. (Photo: Wikimedia Commons)

KP IMPOTENCE DURING UKRAINE WAR

In 2022, the impotence of the Kimberley Process to address Russia’s invasion of Ukraine meant that there was no concerted effort to boycott imports of diamonds from Russia, in the same way that there were coordinate attempts to disrupt the flow of oil and gas from the country.

Even in Europe, where there has been strong sentiment about tightening the sanctions regime, Belgium managed to lobby the European Council efficiently, arguing that it would by a prime victim of an embargo that in any case would be unsuccessful, because other trading centers were providing free access for Russian rough. It should be noted that the United States did impose sanction on Russian rough diamonds imports, as well as polished, and also restricted American companies from dealing with Alrosa, the largest rough diamond producer.

But a strongly anticipated declaration of the G7 forum – which today includes the United States, the United Kingdom, France, Germany, Italy, Canada and Japan – is likely to change the equation. It is expected to demand the establishment of a system that will prevent Russian rough from penetrating any of the seven markets, and ultimately it is expected to include most, if not all of the markets in the European Union as well.

The exact nature of the G7 declaration is not yet known, although it has been reliably reported the seven countries have been working on it for several months. How they plan on enforcing the ban is not clear, but the fact that are prepared to take such a step represents the greatest challenge to the Kimberley Process’ hegemony since its establishment in 2000.

SEPARATE INVENTORY CONTROL SYSTEMS

Under considerable pressure, both from its EU colleagues and from civil society, the Belgium government has indicated that it will go along with the G7 ban. Quoted by the Financial Times, Prime Minister Alexander De Croo said that Belgium intends being a “leading partner” in the effort to stem Russia’s financial flows from the diamond trade.

“We want to carve out Russian diamonds from western markets. But we won’t achieve this with the existing direct bans of Russian diamonds. They haven’t had any meaningful impact on the financial flows for Russia’s war machine,” De Croo said. “Real impact can only be achieved when we combine a direct and an indirect ban against Russian-mined diamonds.”

Russian diamonds are reaching he market indirectly in two ways, at present – either as rough mixed with other goods and resod into the market, or cut and polished first outside of Russia, whereby their point of origin changes, because they have undergone what is referred to as “substantial transformation.”

The expected G7 ban is expected to counteract such practices by requiring a declaration that no Russian sourced goods are enclosed in parcels of rough and polished, but verification will be difficult.

Still, even the prospect of a second KP-type regime is causing anxiety, especially in India where up to 40 percent of the goods cut are of Russian origin. Diamond companies there are reportedly considering the establishment of two inventory control systems in their companies, with one handling Russian-free parcels and geared to servicing Western clients, and the other for Russian goods, which will be earmarked to other countries where sanctions have not and are unlikely to be imposed, such a China.

Belgian Prime Minister Alexander De Croo says that his country intends being a “leading partner” in the effort to stem Russia’s financial flows from the diamond trade. (Photo: Wikimedia Commons)

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