The Kimberley Process: What It Means to You

Jewelers hope the new system will finally lay to REST the conflict diamond issue.

By Rob Bates, Senior Editor -- JCK-Jewelers Circular Keystone, 1/1/2003

The Kimberley Process, the system that will govern how diamonds cross borders, this month graduates from discussion to reality. In some ways, the industry's work on conflict diamonds is over. In other ways, it's just begun.

The Process creates new obligations for all segments of the diamond pipeline, including retailers. Kimberley ties in with an industry-run "system of warranties" that has been okayed by the major diamond associations (see sidebar) and groups like Jewelers of America and the Jewelers Vigilance Committee.

Although retailers don't have many obligations in the new system, not complying with the ones they do have can get a company bounced from an association or even subject it to criminal prosecution. But the system also has benefits for retailers, because it lets them assure customers—and themselves—that their diamonds have nothing to do with bloodshed in Africa.

To understand the system, let's track the typically convoluted path of a hypothetical diamond. A trader buys a parcel of rough stones in South Africa and ships it to Antwerp, where it's mixed with gems from other countries. The new parcel is then sent to Ramat-Gan for polishing, Bangkok for setting, and the United States for wearing. This is the chain through which the Kimberley Process and the "system of warranties" aims to track diamonds.

Using our hypothetical example, it works like this:

To export the parcel from South Africa, the buyer must prove it was purchased from a legitimate source. The government then issues a forgery-proof "Kimberley" certificate that certifies the stones' origin. The diamonds are then locked in a sealed, tamper-proof container, attached to a certificate listing their origin as South Africa, and sent to Antwerp.

Before the diamond can enter Antwerp, Belgian authorities check for the Kimberley certificate. If it doesn't have one, the parcel could be confiscated or returned to its sender.

An Antwerp dealer receives the stones and separates them into smaller groups, eventually creating a mixed-and-matched parcel that includes not only the South African stones but also gems from Brazil and a local sightholder. Because all these stones entered Belgium with Kimberley certificates, the entire parcel can be certified conflict-free.

The parcel is now ready to be sent to Israel. But before the stones can legally leave Belgium, the trader must fill out a Kimberley "re-export" certificate that warrants all the diamonds are conflict free. This warrant is a legal document, and if the trader has copies of the original Kimberley documents he must keep them for backup. The parcel departs Belgium but is again checked for a "re-export" certificate before entering Israel.

The preceding rules for rough are mandated by international trade agreements that have the force of law. Once the rough becomes polished, the industry's "system of warranties" kicks in.

The system is designed to do for polished diamonds what the Kimberley Process does for rough—create a "system of warranties" that follows a diamond down the chain. This system, however, is enforced by industry rather than government. (If the government were involved, buying stones would require a license—something few want.)

Continuing our example, the "self-regulation" plan for polished works likes this:

The stones have been cut. The Israeli manufacturer can guarantee they are conflict free because of the re-export certificate he received with the rough. In fact, he can guarantee all the stones in his factory are from legitimate sources because, if everything goes according to plan, only certified conflict-free stones can enter the country.

When the manufacturer ships the diamonds to Bangkok, he includes the following note on his invoice: "The diamonds herein invoiced have been purchased from legitimate sources not involved in funding conflict and in compliance with United Nations resolutions. The seller hereby guarantees that these diamonds are conflict free, based on personal knowledge and/or written guarantees provided by the supplier of these diamonds."

With this declaration, the Bangkok jewelry manufacturer can state that his jewelry is conflict free, too. When he ships his pieces to an American trade show, he includes the conflict-free declaration on the invoice.

The jewelry is now at an American trade show, where it's eyed by a U.S. retailer. The retailer knows that, because he's a JA member, he can buy only diamond pieces with an invoice that notes they're conflict free. The retailer can then assure concerned customers their jewels have no connection to the atrocities they've seen on television.

If all this works as it should, it will be possible to trace a diamond through the entire chain. So if a particularly insistent customer wants proof his diamond is conflict free, the retailer can show him the declaration from Bangkok and follow it back through Israel, Belgium, and, ultimately, South Africa.

Logging the stones. One of the keys here is enforcement. The "system of warranties" requires each link of the chain—from Antwerp trader to American jeweler—to log the Kimberley certificates or conflict-free declarations in their record books. At year's end, the company's regular auditors will ensure the declarations that come in correspond to those that go out.

Despite the hoped-for safeguards, Jewelers Vigilance Committee executive director Cecilia Gardner, who helped design the system for the World Diamond Council, admits it may be possible for smugglers to circumvent it. But to do so would be risky, since many of these provisions are now part of U.S. law. "No system is foolproof," she says. "Heroin is illegal and yet people still sell it. If you illegally transport diamonds across the border, you are exposing yourself to criminal prosecution."

The one blind spot here is the supply of pre-Kimberley stones—basically, any stone purchased before this year. The Kimberley Process cannot certify the integrity of diamonds purchased before it was put into place, so, with a few exceptions, there is no way a pre-2003 stone can legally be labeled conflict free.

Gardner says that while retailers selling those stones cannot warrant them as conflict free, "they can say that we've made our best efforts to ensure the diamonds are conflict free, which is basically the same assertion people have been making for the last two years."

The Pre-Post-Conflict Diamond Era

The industry clearly hoped its 2002 World Diamond Congress would not be dominated by the conflict diamond issue, as it was in 2000. Delegates came armed with other topics to talk about, from treatments to SI3. It was no use. From the twin protests that book-ended the London event, to De Beers managing director Gary Ralfe's opening call for "ethical accountability," the issue overshadowed almost everything else, proving that, as much as the industry wants to put this topic behind it, it won't be able to do so just yet.

On the first day, delegates were greeted by some 20 sign-waving protesters from nongovernmental organizations Amnesty International and Global Witness, including a Marilyn Monroe look-alike crooning about the dangers of conflict diamonds. Rumors circulated that "unfriendly" NGOs would appear at the Congress finale, hurling eggs and paint. This was taken so seriously that organizers substantially beefed up security and notified local police. It turned out to be a false alarm: There was a last-day protest but without violence or eggs. Just how jittery people were was evidenced by a second-day bomb scare, when an unclaimed, unmarked suitcase in the cloakroom caused the Congress hotel to be evacuated for 20 minutes. Fortunately, it was another false alarm.

The World Diamond Congress—the biennial meeting of the International Diamond Manufacturers Association and the World Federation of Diamond Bourses—made its latest pass at putting the conflict issue to bed, approving a resolution that sets up an extensive self-regulation scheme that includes an industrywide system of warranties. (See main story)

The resolution also calls on members not to buy diamonds that:

do not have the conflict-free "warrant" on the invoice;
originate from suspect or unknown sources of supply; or
originate from countries that have not implemented the Kimberley Process.

The Congress vowed to expel any members who violate the above resolutions.

The "self-regulation" scheme had already been adopted by most jewelry associations, and many thought it would pass the Congress easily. But the rules were so little understood that when one delegate asked about how they applied to estate jewelry, everyone was so confused they called a coffee break. Many were shocked by the resolution's sweep and felt unprepared to vote on it. "[IDMA members] felt they were presented with something [and] didn't know what it was," complained group president Sean Cohen.

Even so, delegates felt they had little choice but to approve the system, particularly after warnings from government officials like J.D. Bindenagel of the U.S. State Department that if the industry didn't self-regulate, authorities would do it for them. London bourse president Freddy Hager spoke for many when he said: "To me, the whole conflict diamond thing is a bad dream, it's a nightmare, and we all wish it would go away. If this resolution makes it go away, I love the resolution." It eventually passed unanimously, to wide applause.

Once this was done, Bindenagel congratulated the delegates for passing the resolution and then asked them to "take a moment to step back and think: Why are we doing this? ... We are doing this for four reasons. We owe it to the innocent victims of earlier conflicts in Africa financed by diamonds. We owe it to the children of Africa and elsewhere who could become victims of future conflicts financed by diamonds. We owe it to the producing countries that depend on diamonds for their economic development and prosperity. And finally, we owe it to the consumers who can only find satisfaction and enjoyment in diamonds as an object of beauty and fulfillment as long as diamonds are free from financing conflict."

By passing the resolution, he concluded, "the diamond industry shows it understands what it owes."

Other notes from the Congress:

High-pressure/high-temperature treatment (HPHT) was the second-biggest concern at the Congress. GIA scientists told delegates they could detect "the vast majority" of HPHT stones, but this didn't pacify delegates unsettled by talk of gem labs missing the treatment and the increasing number of undisclosed stones on the market. "HPHT is the single most important area of our work right now," said GIA director of research James Shigley. "There's no question, this is a very difficult problem."
Delegates also discussed the fate of small and medium-sized manufacturers and dealers, with many fearing De Beers' "Supplier of Choice" strategy will squeeze them out. Shmuel Schnitzer of Israel, who was elected president of the World Federation of Diamond Bourses, vowed to make this issue a priority. One possible solution: a WFDB-sponsored diamond-only trade show.
In what would, in less turbulent times, be hailed as a sign of a new world order, the Congress welcomed its first-ever delegation from an Arab country, the United Arab Emirates. The UAE wants to turn Dubai into a diamond center that would serve as a point of entry for the Middle East market.
Also present for the first time was a delegation from China, a market that inspires high hopes in diamond dealers. "Give China time—it will be the No. 2 diamond market after America," Schnitzer predicted.
While everyone appreciated the way the London bourse had quickly whipped together the Congress, the praise was bittersweet. The Congress was originally scheduled for Israel but was cancelled when it became clear the security situation there was not improving. "My heart and all our hearts are with Israel right now," London bourse president Freddy Hager said at the opening session. Delegates hope the situation in Israel will be calmer next year, when it is scheduled to host the President's Meeting, the biennial gathering of the heads of the world diamond associations.
The Congress, which had an active Russian delegation, took place shortly after the seizure of a Moscow theater by Chechen rebels. The first session began with a minute of silence for those killed in that attack—a reminder that terrorism is a concern not only for Israel but for the world.