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Chain of Custody Battle: Where Do Your Jewelry Materials Come From?

Associations, manufacturers, retailers, and consumers are expressing more interest in the origins of their materials. Here’s what it all means.

Features
By Rob Bates, News Director
This story appears in the February 2012 issue of JCK magazine
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Chain of Custody Battle: Where Do Your Jewelry Materials Come From?
Illustration by Jennifer Jessee; Diamond Mine: Yewenyi/Getty Images
Where diamonds, gemstones, and metals come from—and how they have been brought to market—is a topical issue for jewelers in 2012.

It’s a question that, in one form or another, has bedeviled the jewelry business for the past decade: Where do your jewelry materials come from?

You can go to Starbucks and know the origin of your coffee,” notes Michael Rae, chief executive officer of the Responsible Jewellery Council. “But you can’t go into a jewelry store and know the origin of one of the most ­significant purchases of your life.”

In the past, most jewelers tended to brush such queries aside. “It’s impossible to know,” they’d say. But that answer is now coming across as insufficient, even insincere. “The sad truth is that most consumers still cannot be sure where their diamonds come from,” wrote Blood Diamond director Edward Zwick recently in the Huffington Post. And the pressure to know is coming from not just ethical consumers and NGOs, but governments as well.

Consider how many jewelry materials, whose origin never mattered in the past, are now subject to more intense scrutiny and governmental control. Burmese rubies and jade have been banned for import since 2008, due to the Tom Lantos JADE Act. The U.S. government is also increasingly turning its eye toward gold, with an obscure section of the Dodd-Frank Financial Reform Act requiring publicly traded companies to disclose whether they source “conflict minerals,” including gold, from war-torn areas of the Democratic Republic of Congo.

And of course there are diamonds. The problem of conflict diamonds has mostly ended—when the United Nations lifts its embargo of stones from Côte d’Ivoire, as expected, there will be no official source of conflict diamonds, at least by the traditional U.N. definition (diamonds sold by a militia against an established government). However, issues surrounding diamond extraction persist, and campaigners are now targeting diamonds linked to human rights abuses.

Most of the recent criticism has centered on the Marange region of Zimbabwe. While the Kimberley Process recently agreed to allow exports of stones from that region, ending a two-year blockade, those gems pose a serious problem for U.S. retailers and dealers. Since the Mugabe government–linked Zimbabwe Mining Development Corporation retains a majority shareholding stake in the mines there, U.S. sanctions prohibit the buying and selling of those stones, even from third parties—meaning the stones are basically illegal in the United States.

As a result, jewelry retailers and manufacturers are looking at ways to get a better handle on their respective supply chains. Mega-retailer Walmart has for the past three years offered its “Love Earth” brand, featuring jewelry made from traceable sources. Tiffany & Co. just built a new website spotlighting its commitment to sustainability, which includes detailed information on how the company sources its materials. And Ivanka Trump Fine ­Jewelry uses only Canadian diamonds for its Bridal Bar and other new collections.

Do people buy a sustainable diamond because it’s a sustainable diamond?” asks Andrea Hansen, CEO of Ivanka Trump Fine Jewelry. “Not yet. But in the selling process, we do find that, all other things being equal, the consumer is very enamored with the idea. As a competitive advantage, I find it works very well.”


Diamond pavé engagement ring with round diamond in 18k white gold (also available in platinum); price on request; A. Jaffe for Forevermark; New York City; 212-447-7061; ajaffe.com

Perhaps the most notable commercial attempt to develop a chain of custody comes from De Beers’ Forevermark brand, which is backing up its conflict-free guarantee by mandating that its diamantaires develop a tracking system for their stones’ origin. Under the brand’s guidelines, Forevermark stones must be provably shown to come from De Beers’ Diamond Trading Company, or mines in Russia, A­ustralia, or Canada. (All stones from Zimbabwe are out, even though at least one mine there, Rio Tinto’s Murowa, has won plaudits.) The companies are judged annually by SGS, an auditor that specializes in supply chain security.

Forevermark CEO Stephen Lussier tells JCK that the system works by piggybacking on tracking processes companies already have in place to prevent theft. “The more sophisticated diamantaires already have a system where they track the stones. The key is to work flexibly within the systems they have,” Lussier says, adding that establishing the system generally costs clients an extra 1 or 2 percent per stone.

With all this commercial interest, industry groups have jumped into the fray. The World Gold Council is working with the refining certification group the London Bullion Market Association to create a system allowing refiners to tout their product as “conflict-free.”

Under the proposed standard, refiners would have to keep tabs on the sources of their gold. Recycled gold would be allowed, as long as the refiner did as-yet-unspecified “due diligence” on its origin. All this is meant to “give downstream companies who buy from those refiners the assurance that their gold is not involved in conflict,” says Terry Heymann, director, responsible gold, World Gold ­Council. “Direct traceability from the mine isn’t going to be possible in the gold business, as refiners mix gold from a lot of direct sources.” He notes that the system will require increased cost and time, although “at the moment, it isn’t clear what that cost will be.”


Rings from Ivanka Trump’s Bridal Bar collection, made with sustainable Canadian diamonds

The most potentially far-reaching initiative comes from the Responsible Jewellery Council, which certifies how a company stacks up against certain ethical standards. Beginning next year, the RJC plans to also certify chains of custody by introducing tracking systems for gold and platinum. (Having a certified supply chain will be voluntary, and not necessary for overall RJC certification.)

The system will require that companies keep close tabs on where they source their goods, and segregate “CoC-compliant” goods (even if from different sources) from others in their inventory. For a chain to be fully certified, independent auditors would examine the system each year.

Creating a system like this will take time, as even the RJC’s Rae admits: “You can’t just throw a switch and say everything is 100 percent perfect.” These systems raise a number of issues—for instance, even if new items can be sufficiently vouched for, what happens with old or recycled stock? (This was also an issue following the initial launch of the Kimberley Process.) The RJC standard allows for recycled materials—provided certain “Know Your Customer” requirements are met—as well as grandfathered items, as long as there is evidence (e.g., invoices) they were bought before a certain date.

Still, concern about the RJC’s plans in the diamond industry recently reached a fever pitch, with trade leaders calling them “unworkable” at a November meeting at the State Department. Some told JCK while a big company that buys directly from a miner may be able to track its chain of custody, that might not be possible for smaller companies or for companies that deal in smaller stones.

It will change the whole dynamics of the sector,” says Karla Basselier, national affairs compliance officer for Antwerp World Diamond Centre, the Belgian group. “It calls for segregation of two diamond chains—one RJC CoC-compliant, and one non-RJC CoC-compliant. That will have costs. The question is, who will pay the fees? Retailers? Consumers?”

Because of these objections, the RJC agreed to suspend final implementation of its diamond chain of custody. Rae acknowledges some of the complaints have validity, but hopes they will be ironed out through further discussions with the trade. He hints that a size limit may settle the small-stone issue.

In any case, RJC chairman Matt Runci says the group is moving ahead with its platinum and gold chains of custody. “Even if the RJC would stop its work, the problems would still exist,” he says. “The RJC is just responding to a need that’s palpable.”

Lussier agrees that whatever system the industry adopts, the demand isn’t going away. “Our research among younger and more opinion-forming consumers shows the issue of ethical sourcing is impacting the whole luxury sector,” he says. “We think it’s an unstoppable trend and it’s coming like a train on a track, and we ought to be prepared for it.”

For the latest on the Kimberley process, stay tuned to Cutting Remarks on JCKonline.com.

“The more sophisticated diamantaires already have a system where they track the stones. The key is to work flexibility within the systems they have.”
—Stephen Lussier, CEO, Forevermark

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