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RAPAPORT... Recent coverage in the trade press of criticisms of the Kimberley Process and the role of the World Diamond Council (WDC) have led to reflection by our board on the Jewelers Vigilance Committee's (JVC's) participation in these efforts, and on the role that industry associations play in grappling with ethical challenges. How do trade associations, especially the JVC, approach these issues to best serve society's interests and remain true to mission and further the best interests of the industry? In light of recent articles, JVC is engaged in a process of weighing our options regarding our continued involvement in the WDC - and making a decision based on our mission. The analysis addresses how to balance legal compliance in the U.S. and our role in the WDC, the international diamond industry's representative in the Kimberley Process.  Views on the Kimberley Process (KP) have been well articulated: There is a school of thought that these are international matters, and that the KP under its current form is not going to move forward fast enough to address an array of supply side integrity challenges. This line of thought includes the notion that the WDC has too many conflicting international commercial interests to adequately reflect the American jewelry industry or American jeweler. Withdrawal from participation has been urged, since the mission of the JVC is compliance with US laws, and it ought to keep its focus on that area of engagement. Another school of thought is that because the progress and efficacy of the KP has a profound impact on US trade, and because JVC has the experience and expertise to make a positive contribution to the WDC, and hence to the KP, JVC ought to stay the course. It is only with work from within that we can ensure that the WDC and the KP improve, and remain an important governing protection of the diamond trade. Staying engaged is clearly the tougher course and will inevitably attract criticism. The ongoing successful operation of the KP is acknowledged as an important element in the ongoing success of the diamond industry, and the jewelry industry as a whole. Since 2000, JVC and the WDC have been working partners in ensuring the success of the KP. The WDC, representing all sectors of the diamond trade, from mine to retail, has been officially recognized by the KP as the authorized coalition that brings to the KP negotiations the perspectives and expertise of the industry. Along with the NGO coalition (also officially recognized by the KP), this tripartite initiative (government, trade and civil society) has over the years successfully created a system that has been integrated into the government bureaucracies of 80 nations. In doing so, the KP has essentially created a system that controls international trade - and has enabled the industry to formalize and reinforce the legitimacy of the diamond supply chain. KP's many requirements: statistical reporting, peer review, annual compliance reports, local authorities issuing and governing the use of KP certificates, enforcement regimes, etc. have created a "bureaucracy" in the 80 nations participating in the KP - all working towards the goals of maintaining internal controls, reducing smuggling, and creating a more transparent and legitimized flow of trade. The benefits of this system are clear: over the years, KP requirements have led to more structured accountability and responsible trade, laying the ground work for local communities to benefit from this trade. KP has helped foster peace and diamond revenues in Sierra Leone and Angola. KP has monitored events in Liberia, Cote d'Ivoire, Ghana, Guinea and Zimbabwe, when other international institutions would not. Sending in teams to review on the ground the impact of unrest on diamond producing regions has contributed to real improvements in the lives of those communities - it is the KP that sends in these teams. Of course, the KP is only one of a suite of initiatives that help provide assurances for the markets and was never designed to be the "silver bullet" or a one-stop shop assurance vehicle. But given its actual remit, its success cannot be denied. The WDC performs an important function for the KP and for the industry as a whole. Its many volunteer members pitch in and do the difficult substantive work required to fully represent the industry with their KP partners: governments and non-governmental organizations. This requires development of proposals on administrative and policy matters within the KP, lending support to monitoring efforts (including sending in teams of experts to help analyze a KP Participating country's compliance - or to re-set their system after interruptions caused by outbreaks of violence). It has even included developing and hosting the KP web site, and volunteering to act as the KP's Administrative Support Mechanism, ensuring improved efficiencies in the operations of the KP. Only the WDC's offer to host and fund this effort could ensure that this plan was met with the widespread agreement necessary to implement this important reform. JVC's expertise adds value to the KP and its success - experience in regulatory compliance has led to the successful conclusion of negotiating and drafting sessions, contributed ideas on problem solving in many areas of KP compliance, helped develop approaches to peer review and monitoring missions, and more. In the context of the WDC, JVC's expertise is now engaged in a project to improve WDC structure and governance. This has already resulted in revisions to the WDC bylaws ensuring that the Board has a geographically balanced and representative membership from all sectors of the trade - retail, dealers, manufacturing, extraction, etc. JVC brings to the table the perspectives of the US market with its growing emphasis on ethical trade practices, allowing for a more balanced approach to identifying and solving problems. Often, the voices of the international diamond trade are not focused on the views of the downstream US market - JVC's participation in the WDC ensures that the WDC considers this point of view in all of its policies. One interesting example of how these perspectives could separate is easily seen when considering the interplay of the OFAC (Office of Foreign Assets Control) rules and the rules on KP compliance. JVC's guidance regarding U.S. industry members' obligation to check regularly the list published by the U.S. government of "Specially Designated Nationals" (or "OFAC list") to determine if you are doing business with those who the U.S. government considers supporters of terrorism or are suspected of laundering money is a steady theme. This guidance has ensured that more industry members are aware of their obligations to identify the parties with whom they do business. "Willful blindness" that your source's source of supply may not be legitimate will not excuse you when it develops that you have dealt in the chain of supply with a party included on the list, or has been named by the US government as a banned source. If you know or you should have known that your source of supply or some party in your sources' supply for your diamonds is on the list, you risk violation of U.S. law if you purchase those goods. This is guidance JVC has been providing for years. Consciously remaining ignorant regarding the chain of supply of your diamonds (or any of our other precious materials) is no longer a safe course of action for those looking to avoid government enforcement. Moreover, acting in this manner is in itself not ethically defensible. It should be noted that identification as a "specially designated person" or entity on the U.S. OFAC list is not addressed as an element of KP minimum standards. Diamonds from sources that appear on the U.S. OFAC list can be designated as KP compliant. Therefore, KP compliance alone will not mean that U.S. companies are free to trade in those diamonds. In order to fulfill US compliance obligations, companies must also look to their sources of supply, and ensure that those sources are not dealing with listed companies. The failure to make this inquiry can be used as evidence of the "willful blindness" previously described. This is the motivation behind the "Diamond Source Warranty Protocol" recently published by the JVC, JA and DMIA - this tool makes it clear to your suppliers that doing business with (for example) OFAC listed companies or individuals is not acceptable to any company implementing the protocol in the U.S. Many have claimed that it is impossible to know whether the diamonds supplied were sold by an OFAC listed entity - but this is not supported by the facts. Your supplier of diamonds must make every effort to ensure that his suppliers have not acquired diamonds from illicit sources - and so on up the chain. Claims today that "it can't be done" are falling on deaf ears. It can (and should) be done. And in today's market, with varying standards of compliance, KP compliance is NOT enough. You also have to comply with US law. For the JVC, these issues continue to engage our professionals - and the calculation regarding the balance has led to the conclusion that it is best to stay engaged. At this moment, the WDC is the best vehicle for the industry to engage with governments and NGOs on the Kimberley Process. JVC's role to date has had a positive impact on all the issues that surround the WDC, the KP and the integrity of the diamond supply chain. JVC's goals in this regard are to continue to bring to the international community US perspectives on legal compliance, ethics and integrity. If and when it becomes clear that there are better alternatives, JVC will also consider those options. In our view, while severing the relationship with the WDC may appease some critics and appear prudent, it will also effectively eradicate our voice and influence going forward. Therefore, after considerable thought on this matter, and assessment of our collective conscience, JVC believes maintaining our work with the WDC is the right course of action. JVC ~ 25 West 45 Street, Suite 1406, New York, NY 10036
212.997.2002 (Phone) ~ 212.997.9148 (Fax) ~ www.jvclegal.org
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