Chain of Warrants?

Talk about auspicious timing. At the recent diamond association meeting in Idar-Oberstein, the World Federation of Diamond Bourses agreed to support a “chain of warrants” to guarantee that diamonds were conflict-free. De Beers corporate communications chief Rory More O’Ferrall and price sheet publisher Martin Rapaport huddled together after a lunch to iron out the proper wording. The thinking was that if a seller pledges to his buyer that a diamond did not originate in an African war zone, that buyer could furnish a similar assurance to purchasers down the line.That same day, halfway across the world, JVC executive director Cecilia Gardner received a call from the Federal Trade Commission, with the startling news that the FTC was examining the use of “conflict-free” designations. “They are now monitoring jewelry advertising at all levels of the trade for assertions that diamond inventories are free of conflict diamonds,” Gardner said in a press release issued immediately after the call.

A week later, a Dateline NBC story on conflict diamonds proved that whether or not the FTC is watching those designations, the news media are. The show’s hidden cameras caught sales associates at three of the industry’s biggest names—Tiffany, Harry Winston, and Cartier—declaring that they did not sell conflict diamonds, even as other industry leaders contended that was impossible. (See “Dateline Slams Diamond Industry,” page 20.)

This raises an important question: Since there is no known gemological way to determine a diamond’s origin, and since there’s no international certification system (and given the stalled progress on the issue, there may not be one for some time), is there a way to guarantee to customers that a store’s diamond is conflict-free? And if not, what should a jeweler tell a customer who demands such assurance?

Not an issue. So far, designating diamonds as conflict-free hasn’t been much of an issue in the trade, because—despite all the publicity—it’s not much of an issue with consumers. Even FTC associate director for enforcement Elaine Kolish, who raised the issue, says she hasn’t seen ads with the conflict-free designation.

Yet some companies are looking into it. At least one Canadian company cutting locally mined stones considers the conflict-free designation a selling point—and has even gotten news outlets like The Boston Globe and The New York Times to write about it. “So you’re ready to pop the question, but don’t want to present your sweetie with a diamond quarried from the killing zones of Sierra Leone, Angola, or other blood-drenched corners of Africa?” the Globe wrote. “The growing world controversy over so-called conflict gems is putting the spur to efforts of peaceable Canada to distinguish its diamonds.”

Stephen Ben-Oliel, president of Sirius Diamonds, which was featured on an ABC News piece that tied in Canadian diamonds with the “conflict” issue, says the issue has boosted demand for his company’s polar-bear-inscribed diamonds. “Especially in America, we are getting a lot of jewelers who are carrying our diamonds because of the conflict issue,” he says. He notes that after the ABC News piece appeared, the company’s Web site got 70,000 hits.

De Beers, after ceasing all “outside” or open market buying, also guarantees that its diamonds are conflict-free. The De Beers warrant has led sightholder Codiam to tout its “Rand” diamond as “compliant with United Nations resolutions.” (The resolutions forbid buying any diamonds from Liberia, as well as noncertified stones from Angola and Sierra Leone.)

Codiam’s Leon Cohen notes that the company tracks each stone from the sight box through the factory. “We are 100% supplied by the DTC, and we document and inspect every diamond to back that up,” Cohen says. “We are the only company with a full audit trail of every one of our diamonds.” But he notes that the conflict issue has not been a big selling point for the diamond, which has other features. “It’s not a primary or even secondary concern with either retailers or consumers at this stage,” he says.

Problems? Does either of these products provide jewelers with legal cover? The FTC isn’t saying for now, although the original JVC release said that the FTC’s legal opinion was “that absolutely nothing can be considered ‘conflict-free’ at this point in time, until a proven international certification system can be put in place and monitored.” According to the original release, this caveat includes Canadian and Australian stones.

But now the FTC claims that impression stemmed from a “miscommunication.” “We require all material claims to be truthful and substantiated,” Kolish says. “Whether there are other good methods of substantiation besides a certification system is not something that we’ve ruled on or had a chance to examine, so it’s premature to say.”

Still, Gardner’s view is that, as far as she’s concerned, a certification system is the best way to tell—and she’s less convinced about others. “I’m a little concerned about people who make these claims in a vacuum, in the absence of a certification system,” Gardner says. “I’m willing to be persuaded, but I don’t see it right now.”

Ben Kinzler, general counsel for the International Diamond Manufacturers Association, pretty much agrees, noting that he had problems with the attempts to fashion wording for invoices. “How do you represent goods as conflict-free when all you really know is the person who sold them to you?” he asks. “Legally, you are relying on the representation of your supplier, and in most cases that supplier didn’t mine the goods, and he doesn’t know who did. You don’t want to make representations and warranties, because in most cases, you cannot trace goods up the pipeline.” He feels that “only sightholders can [state that] they are not selling conflict diamonds, and that’s assuming they are not buying other rough and polished on the market.”

O’Ferrall also believes that a certification system is needed before there can be a true “chain of warrants.” “Unless backed up by certification, there’s no validity,” he says. “I don’t believe the NGOs [nongovernmental organizations] and the governments will accept anything less.”

Precautions needed. All this doesn’t mean that jewelers shouldn’t take precautions on this issue. Jewelers of America provides a form for retailers to send to vendors, asking them to commit to “not knowingly sell illicit diamonds and, to the best of [their] ability, undertake reasonable measures to help prevent the sale of illicit diamonds in this country.” (The full text of this statement is available at www.jewelers.org/ja_member/VENDOR.pdf.)

The guarded language on this form, however, is miles away legally from a guarantee. (The legal trade is built upon such distinctions.) Yet, the FTC is giving the once-over to this language as well. Anyone making stronger assurances to customers should know that Washington is watching. “We will be looking at this industry and monitoring it to see what kind of claims are being represented,” says Kolish. “I wouldn’t base a claim that something is conflict-free on wishful thinking.”