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DEFENDING THE INTEGRITY OF THE DIAMOND SUPPLY CHAIN

It is common knowledge that the value of a diamond is set by how it is measured is terms of the 4Cs – carat, clarity, color and cut. But there is another C, whose presence does not add value, but whose absence will render the other 4Cs as immaterial. It is “confidence,” and more specifically the confidence of consumers in the product and in the company handling that product. It is the very foundation stone on which the diamond business stands.

Reputation is a critical factor in maintaining consumer confidence, especially for a non-essential luxury product like a gem-quality diamond. If that reputation is damaged, consumers may simply choose to spend their discretionary income in other ways. Cognizant of this risk, diamond companies are increasingly introducing stringent sets of standards and practices to protect the integrity of the chain of supply of supply, from the mine all the way through to the final consumer. Some are already required by law, while others are being implemented at the discretion of diamond companies, among them MID House of Diamonds.

The most widely publicized threat to public confidence in the diamond occurred in the late 1990s, when it was revealed that rough diamonds were also been used by rebels to fund bloody civil conflicts in Sierra Leone, Angola, Liberia, Côte d’Ivoire, the Democratic Republic of Congo and the Republic of Congo.

In December 2000, the United Nations General Assembly adopted a resolution supporting the creation of an international certification scheme for rough diamonds, and in November 2002, negotiations between governments, the international diamond industry and civil society organizations resulted in the creation of the Kimberley Process Certification Scheme (KPCS), which was introduced in 2003. It imposed extensive requirements on the governments of diamond producing countries to certify that shipments of rough diamonds from their territories are free from conflict diamonds. Countries that are signatories are barred from importing diamond from countries without KP certificates.

The impact of the introduction of the KPCS upon the trade in conflict diamonds was dramatic. Not only did the incidence of such diamonds in the legitimate pipeline fall from an estimated 4 percent to less than two tenths of 1 percent, but the drying up of funds to rebel groups was considered to have played a vital role in the ending of civil war in Sierra Leone, Angola, the DRC and Liberia.

The Kimberley Process is open to all countries that are willing and able to implement its requirements. Today, it has 54 participants, representing 81 countries. KP members account for approximately 99.8 percent of the global production of rough diamonds.

But conflict diamonds represent only one of a number of supply chain risks that are now being accounted for. Others include those associated with money laundering and terrorist financing, child labor, poor health and safety standards in in the mines and cutting and polishing factories, and environmental damage.

To mitigate the risk of money laundering and terrorist financing, diamonds today are subject to stringent government-mandated financial controls, including Know Your Client (KYC) norms, and other Anti-Money Laundering (AML), Client Due Diligence (CDD) and Combatting Financing of Terrorism (CFT) standards.

Furthermore, responsible supply chain management systems are becoming more widely used in the industry. The most well-known of those is that created by the Responsible Jewellery Council, which today has more than 1,000 members worldwide, with about two thirds them have undergone third part auditing to ensure that they meet compliance standards. MID House of Diamonds is a RJC member, and currently is in midst of the rigorous process of obtaining RJC certification.

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