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RAPAPORT... If it looks like a diamond and shines like a diamond, it must be a diamond. That is, at least, from a consumer point of view. The respective discussions this past week regarding undisclosed synthetic stones filtering the market and attempts at the World Diamond Council (WDC) meeting to widen the definition of conflict diamonds have correctly argued otherwise.
Whether the industry likes it or not, today’s diamond consumer has many questions to consider when making a diamond purchase — in addition to the four C’s. Is the diamond natural or man-made? Is it ethically sourced? Does it have Kimberley Process (KP) certification? And is that enough to ensure it is conflict free?
Both issues illustrate the importance of providing full disclosure regarding where the diamond is sourced and tracking its development throughout the supply chain. Ultimately, both issues will impact consumer confidence if not responded to appropriately.
The International Gemological Institute (IGI) issued a trade alert this week that hundreds of undisclosed CVD synthetic diamonds were found at its Antwerp laboratory. IGI’s co-chief executive officer Roland Lorié stressed to Rapaport News that the company recognized the potential impact that the news might have on consumer confidence, which motivated its decision to go public about the matter. Encouragingly, the trade was quick to state its position.
“Our structure is such that we cannot tolerate any misuse of the reputation of our business,” said Avi Paz, president of the World Federation of Diamond Bourses (WFDB). “These recent events emphasize the importance of buying from sources that can be trusted. It is in the interest of our global business that it remains transparent so that consumers can receive full disclosure about the diamonds they purchase.”
It is important to recognize that synthetic diamonds are legitimate products when disclosed properly. In the same way that natural diamonds are sent to laboratories for grading and certification, companies producing synthetics work with various laboratories, IGI included, to determine the quality of their stones.
Therefore, they represent a real competitive product to natural diamonds. With the technological advances that make it increasingly difficult to differentiate between the two, competition from synthetics may shift jewelry demand away from natural diamonds and restrain natural prices.
The IGI case is indicative of this development. Lorié noted that the polished dealer who submitted the goods to IGI’s Antwerp lab was unaware that his goods were synthetic and that he bought them at natural diamond prices. Lorié explained that the goods came complete with inclusions and that only the sophisticated equipment at the laboratories could detect that they were CVD synthetics.
Where does this leave the consumer-diamond trade relationship? Not only is it incumbent upon the trade to insist on the required disclosures, but it is also necessary that it educate consumers why they should insist on full disclosure about their purchases. Of primary concern to the entire jewelry industry are the three D’s – detection, disclosure and documentation. Failure to ensure either should be regarded a fraud and unethical.
Members of the diamond industry need to recognize that being a responsible corporate citizen — by insisting on full disclosure and transparency — enhances their product.
The same applies to ensuring that the diamond is conflict free. But while the trade may be effectively responsive regarding the synthetics issue, one cannot help but feel it is missing the point on the conflict diamond front.
In a statement from its annual meeting in Vicenza, Italy, the WDC affirmed a proposal that conflict diamonds should cover "diamond-related violence in rough diamond producing and trading areas.” The change represents expanding its current definition that limits conflict diamonds to those funding rebel movements opposed to legitimate governments.
Whether the WDC’s resolution is as significant as it was hailed, remains to be seen. For now it’s a mere suggestion. In reality, the chance that the resolution — which will be proposed by Gillian Milovanovic, the U.S. KP chair — will pass at the KP, is minimal. The consensus system at the KP is difficult to navigate, and, without a vote, the WDC’s role will be to lobby those government’s that rely on the trade to come on board. Already, reports have surfaced that certain countries would oppose it. The harsh reality is that it is not in the interest of a number of governments in the KP to change the conflict diamond definition.
Notably, the wording — which is loosely based on Milovanovic’s proposal — did not include any human rights language. Rather, as the KP chair suggested to Rapaport News, it is implied, with the hope that a softer tone will enable the discussion to progress.
The industry should not have that luxury of compromise. The fact that the WDC does not vote at the KP should enable it to take a stronger stance. The organization should therefore not be taking its cues from the KP or presenting the KP as the solution to diamond-related human rights issues.
In 2010, Rapaport Group recognized this and defined a conflict diamond as, “A diamond which comes from a mine located in or providing profits to any of the following: civil conflict; an illegitimate rebel movement; an oppressive regime; or a violation of the Rapaport Minimum Human Rights Standard. A conflict diamond is also a diamond which is mined, cut or polished under harmful or unjust labor conditions.”
Indeed, the lack of strong human rights language and the WDC’s inability to influence the debate illustrates that it cannot ensure responsible corporate practice throughout the diamond pipeline.
A robust ethical verification is certainly required for diamonds, which neither the WDC nor the KP can guarantee. In the same way that consumers are being accustomed to question whether their diamonds are natural or synthetic, they will increasingly insist on the ethical DNA of their purchase.
Here too, the industry will be called on to insist on full transparency based on the three D’s. Can we ensure that there is sufficient detection, disclosure and documentation applied to all ethical issues regarding the diamond purchase?
The industry needs to recognize that non-disclosure of both synthetic and unethically sourced diamonds is tantamount to fraud in the same way. The less that the trade does to protect consumers from such purchases, the less inclined consumers will be to buy the product. By guaranteeing complete disclosure and transparency, the industry can safeguard the value of its natural product, and ensure the true authenticity of the diamond.
The writer can be contacted at avi@diamonds.net.
This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to www.rapnet.com or contact your local Rapaport office.
Copyright © 2012 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400.
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