The European Union has announced a fourth round of economic santions on Russia following the invasion of Ukraine in late February, and among the restrictive measures is a ban on the importartion of luxury items such as diamonds and jewellery.
The move by the EU comes after a similar ban was placed on importing Russian diamonds in the US.
The punitive measures also prohibit all transactions with identified state-owned enterprises, the granting of credit rating services to any Russian citizen or entity and any new investment in the Russian energy sector. The EU also expanded the list of people linked to Russia’s defence and industrial sectors.
The additional trade restrictions include a ban on importing industrial and precious metals, jewellery, pearls, gold, rough and polished diamonds, and metal parts valued at €300 ($US330) or more.
Despite the intensified measures, the enhanced restrictions apply only to rough diamonds extracted or polished exclusively in Russia. Cut or polished diamonds from Russian rough imported from other countries are still considered legal.
Policy loophole
The US-based Jewelers Vigilance Committee (JVC) has cautioned members from purchasing polished or cut diamonds from Russian rough noting that “the risk of additional future limitations is high.”
The JVC has communicated to members and pointed out that while the importation ban from the US Department of Treasury’s Office of Foreign Assets Control blocked the US imports of rough, cut and polished diamonds from Russia, a policy interpretation involving cut and polished diamonds that underwent ‘substantial transformation’ from another country processed from a Russian rough becomes a product of that country, and is therefore legal.
‘Substantial transformation’ refers to products or goods processed to make a fundamental change in form or appearance to gain more value.
“Under this guidance, rough diamonds imported from Russia into a country that has not implemented sanctions or a ban and then cut and polished are currently legal to import into the US as they will fall under a separate harmonised tariff code,” the JVC said.
Sara Yood, deputy general counsel, JVC told Rapaport News, “It’s a little disappointing because it makes me think that this import ban is probably going to have a limited effect.”
For example, rough diamonds cut and polished in Russia are prohibited from US importation, Russian rough cut and polished in India is exempted.
“What it really hinges on is how strong the US alliance is with other countries and whether other countries also follow suit because I think the ultimate goal is to close off the avenues for Russia to sell these products,” Yood said.
“The US is probably really hoping that allies step up and implement similar sanctions.”
“Purchasing substantially transformed Russian diamonds is inherently risky especially when other countries decide to impose banning policies and large-scale sanctions are expanded to provide more detail in closing such gaps.”
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This Rapaport webinar was held on March 7, 2022 where the impact of the Russian invasion and sanctions were analysed by Martin Rapaport (chairman, Rapaport), Sara Yood (senior general counsel, Jewelers Vigilance Committee) and Avi Krawitz (senior analyst and news editor, Rapaport). Yood explains the legal implications of the US sanctions while Krawitz discusses the impact of the sanctions on rough supply. Rapaport curates the discussion and provides a strategic overview of how the new economic warfare will impact inflation, interest rates and diamond prices.
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