8 Reasons Why Our Industry Needs a Chain of Custody

At the recent President’s Meeting, World Federation of Diamond Bourses (WFDB) president Ernest Blom said something noteworthy: “If customers are checking where their fruit and vegetables and tea and coffee were grown, be sure [they will do the same] when they go to buy an item of diamond jewelry that costs thousands of times more.”

The WFDB is generally considered the more conservative of the diamond groups, so his remarks seemed important, in that they implicitly endorse a chain of custody. When I asked him about this later, he didn’t think it was a big shift but noted the industry needs to evolve in this new consumer environment.

He’s right. Smart businesspeople deal with the world as it is, not as they wish it to be. They also believe in minimizing risk. As I’ve long argued, the industry faces serious problems if it doesn’t get a better handle on its supply chain. Here are some reasons why this is so important. 

1. These issues are not going away. 

The following jewelry items are now subject to government regulation: conflict diamonds, Burmese rubies, Burmese jade, Zimbabwe diamonds, conflict gold, conflict tungsten, and ivory. 

Pre-2000, these issues rarely came up. Now they surface every year or so. The world is getting smaller, which means the once-distant problems of Africa and elsewhere are now our concerns. Expect this drumbeat only to get louder.

It’s not just our industry. Go to Change.org, and you’ll see petitions targeting everything from toothpaste to tomatoes. Even tech giant Apple was forced to act after criticism of its Chinese factories. Apple may not have lost one sale over that controversy. Yet the most respected, powerful, and richest company in the world bent to social pressure. If Apple doesn’t ignore these issues, why should we? Our industry is a lot more vulnerable. People believe they can’t live without Apple products. They can live without a diamond.

 2. Millennial consumers care about these topics. 

One can debate millennials’ commitment to social issues; you can’t make blanket statements about 78 million people. Still, most surveys have found that millenials take these issues far more seriously than Gen X-ers and baby boomers.

Some stats:

– One in three millennials have boycotted companies over causes they care about.

– 84 percent say social responsibility plays a role in where they shop.

– 48 percent say they “try to use brands of companies that are active in supporting social causes.”

– Three in four believe brands should “give back” to society instead of just making a profit. 

On top of that, all indications are that Generation Z—the age group coming up—feels even stronger about these issues than the millennials.

As The Washington Post put it, for millenials, social responsibility is no longer optional. 

3. Social responsibility means responsible sourcing.

Our industry is blessed with many generous, good-hearted companies. They treat workers well and donate heavily to charity. They take corporate responsibility seriously. 

Still, if you sell diamonds dug up by slaves—as many conflict diamonds were—or buy gems produced under abusive labor conditions—which is still happening—are you a responsible company? Not all would agree.

Today, acting ethically is not just about how you sell, but what you sell. 

4. Younger consumers have a mixed opinion of diamonds. 

Imagine yourself a millenial. Older folks associated diamonds with Elizabeth Taylor and De Beers ads. Today’s consumers link them to Kim Kardashian and the Blood Diamond movie.

Blood Diamond came out in 2006, but it still plays on cable and streams on Netflix. It single-handedly popularized the term blood diamond. How many consumer products had a blockbuster movie devoted to trashing them? I can’t think of any others.

Thanks to the Internet, millennials (and the rest of us) have unlimited buying options. Years ago, getting engaged meant buying a diamond engagement ring; there was no other choice. Today’s consumers can buy a gemstone ring, a goofy custom ring, or no ring at all. 

So we must not only give consumers a reason to buy diamonds but make sure they aren’t turned off to them. Right now, many are

5. Most of the big companies are already addressing this. 

De Beers’ Forevermark is billed as “responsibly sourced.” Miner Dominion has resurrected the CanadaMark. Blue Nile sells Canadian-branded stones, and they aren’t doing it because consumers like maple leaves. 

E-tailer Brilliant Earth, moissanite manufacturer Charles & Colvard, and just about every lab-grown diamond company have made social responsibility an integral part of their sales pitch. All these companies—as well as the three programs mentioned above—guarantee their stones’ origin beyond the Kimberley Process. Some even tell consumers that KP certification does not guarantee a stone is ethical. (They have a point.)

And while Signet and Tiffany & Co. aren’t publicizing it, both are enacting stricter supply controls. On the colored-stone side, Gemfields regularly touts the ethics of its products.

These companies aren’t nuts. They have read the tea leaves. If some of the biggest companies in the industry are acting this way, why aren’t the rest following?

6. There’s the risk of government legislation.  

This is an even bigger problem. Consumers can mess up your business. The government can mess up your life.

I often hear, “No one cares about these issues. Why should we?” That’s like saying, “The police don’t care if I’m breaking the law. Why should I?” If they ever change their mind, God help you. Once you land on the wrong side of the authorities’ radar screen, don’t expect them to be reasonable, nice, or fair. They won’t be.

The 2010 Dodd-Frank act included a provision that required public companies to declare whether they sell so-called conflict minerals, including gold and tungsten. For NGOs, this was a great victory. They didn’t need to hold rallies, stage press conferences, or hand out leaflets. Just one provision, snuck in by a sympathetic legislator, achieved many of their goals, virtually overnight.

Is the provision easy to comply with? No. Do its architects care? Not really. They wanted better control of supply chains and got it through federal fiat. That will likely be part of the NGO playbook. 

7. There’s the risk of government enforcement. 

Last year, FBI agent Eric Ives complained to me about the uncontrolled nature of the industry. “When you sell diamonds, you don’t always know who is at the other end of that stone,” he said. “It could be Charles Taylor or the Pink Panthers or [al Qaeda terrorist] Mokhtar Belmokhtar.”

Ives is not a wide-eyed NGO; he is an FBI agent who regularly busts theft gangs. But he is one of many government officials who think the diamond pipeline is a prime candidate for money laundering, particularly for terrorists. (Many banks agree; that’s one reason some have left the business.)

The government has indicated many times it wants better control of our business. And it can accomplish this without passing bills. There has been talk of expanding Dodd-Frank Section 1502 to diamonds, which is well within the statute’s provisions.

There is also the issue of Marange diamonds. They are currently illegal in the United States. Despite scattered efforts to keep them off these shores, it’s inevitable some are sold here. What if the Feds decide to enforce this ban? Can most dealers or retailers guarantee their stocks are Marange-free? If just one dealer is arrested for buying diamonds from Marange, the industry could fly overnight into a mass panic. That’s not likely, but it’s a risk.

8. Don’t forget synthetics and treatments.

Lab-grown diamonds have repeatedly been found mixed with naturals. GIA recently spotted stones in which the color was improved by a previously unknown treatment. It is more important than ever to know your suppliers, their ethics, and where your products come from.

In short, this industry needs to get better control of its supply chain. That won’t be easy. Its structure is notoriously complex, opaque, and convoluted. We don’t want to hurt the smaller operators that remain crucial to our trade. It is likely impossible, and too expensive, to track every single stone—especially smaller ones. Still, we can do better than we are. It will take time and effort. But we must try.   

The State Department and NGOs have said they want to play a constructive role in developing a solution, through forums like the Jewelry Industry Summit and the Responsible Jewellery Council. (Despite some issues, I still support the RJC.) Anyone concerned about these issues—and everyone should be—should look into these and related efforts.

Some suspect these initiatives are pretexts for big companies to eliminate small ones. This makes no sense. If Signet wanted to cut a deal with the government, it would do that in a backroom, not in a public summit. Smaller companies risk being cut out of this debate only if they don’t participate.

The industry is being given an opportunity—you may even call it a gift. Often-hostile groups and organizations want to collaborate with us on fixing a potentially serious problem. If we don’t work with them on finding a solution, we have only ourselves to blame when a worse one is imposed on us.

JCK News Director