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Consumers Demanding Responsible Sourcing From Jewelers

Q&A with Cecilia Gardner, CEO of the Jewelers Vigilance Committee

Jun 26, 2015 6:00 AM   By Avi Krawitz
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RAPAPORT... As the diamond trade faces numerous challenges that threaten to shake consumer confidence and push legal boundaries for the industry, the Jewelers Vigilance Committee (JVC) helps guide businesses in the U.S. to navigate these challenges. Rapaport News spoke with Cecilia Gardner, CEO of JVC and legal counsel for the World Diamond Council (WDC), about these challenges and their implications for the trade.

Rapaport News: What is the function of JVC?

CG: JVC is the legal arm of the jewelry industry in the U.S. We assist and educate companies to be compliant with the law in their business practices. We’re also the main contact point for government and regulatory agencies that wish to address matters relating to legal compliance in the jewelry industry.

JVC is a non-profit trade association that is independent of any other trade body, company or entity. It is completely separated from the government so that we can engage with them as a true representative of the industry.

Rapaport News: What is the structure of JVC?

CG: JVC is governed by a board of directors. We have members from every sector from mining to retail, and also across products, encompassing color gemstones, watches, precious metals, diamonds and pearls. We also have a number of members that are affiliated with the industry, such as banks, accountants, law firms and other service providers. Our largest category is jewelry retailers.

Rapaport News: What are the main issues that you deal with that are facing your members?

CG: The issues vary. We take complaints from consumers as well as from trade organizations and businesses. The types of complaints relate to a failure to comply with standards that apply to our industry. There’s no one particular type of compliant that dominates, but it often involves an exaggerated grading report, failure to disclose a treatment to a gemstone or misrepresentation of products through false advertising.

We’re also active in explaining to the industry as a whole, and especially to our members, how to go about advertising without running into trouble, and how to run their businesses in general without exposing themselves to risk.

Inventory control to protect from risk is something that retailers are not especially aware of. We’re trying to educate people about the type of risk they’re exposed to in terms of their supply chain, especially in light of the fact that once they’ve sold their product to the consumer, they’re completely responsible for whatever issues pertain to that product.

Rapaport News: In that sense, what is the legal obligation of retailers with regard to grading reports?

CG: The law determines that if you are a person with special knowledge and you render an opinion, you will be held liable for that opinion. Therefore, a retailer, who is a person that is considered to hold special knowledge about jewelry, delivers a product with a grading report, the retailer is liable for the opinion contained in that report whether or not it was in fact the retailer who executed the grading report.

Both the laboratory and the retailer are accountable for that report. If the retailer believes that they will be excused by saying it wasn’t them but the lab which did the grading, then they’re mistaken. They’ll still be held responsible for the opinion rendered in the grading report.

The retailer has to make sure that the grading report they are delivering with their product is reliable and that they can stand behind the grades issued in the report.

Rapaport News: Are there legal implications for the differences in grading standards between the laboratories?

CG: It is true that there is no legally-recognized standard for diamond grading. However, it is an industry practice to use the same lettering system as the Gemological Institute of America (GIA). Therefore, a court could rule that the GIA letter grading system is an industry practice. However, people are using the GIA letter grades but they’re not implementing the standards in the same way that GIA implements them, and that is problematic.

The Federal Trade Commission guidelines for jewelry requires those who issue grading reports to explain the system that they use. It is their responsibility to ensure that if there are differences between labs, it is understood what those differences are. So if, for example, a particular lab uses the GIA letter grades but does not implement them in the same way that the GIA does, they would be required under the Federal Trade Commission guidelines to disclose the manner in which they administer those grades that is different from the way the GIA administers them.

Rapaport News: Are there similar legal guidelines to vouch for the responsible sourcing of products?

CG: Similarly to taking responsibility for the representation of the characteristics of one’s product, jewelers are increasingly being asked to make representations about how the product got to the market, where it came from and whether it is a product that has not been used in connection with any human rights violations or environmental impact. However, those representations wouldn’t necessarily be governed by the law.

Rapaport News: What is the goal of the Jewelry Industry Summit taking place in March 2016?

CG: JVC is serving in an administrative capacity for a group of merchants who want to make sure that this subject of socially responsible sourcing gets on everybody’s radar screen. The way we’ve decided to do that is to hold a very public, open, and hopefully well attended, Jewelry Industry Summit on the subject.

There are a number of goals for the summit. The first is to make it very clear that this subject is extremely important to the industry. And to make it clear to governments, banks, non-government organizations (NGOs) and other stakeholders that a lot of progress has already been made in the jewelry industry on this subject with a number of very credible initiatives already in place.

Our goal is to develop a set of broad-based principles and values that any company could incorporate into their business values.

Rapaport News: Does that complement the more structured organizations that already exist and require audits from their members?

CG: We’re very supportive of companies that engage in a third-party auditing process. We just feel that there are things that companies can do in advance of embracing that level of engagement, which could lead them to more strenuous responsible sourcing activity that would be good for their business. We don’t want anyone to be left behind. We want everyone to engage at least on a basic level.

We’re trying to make this a very grassroots effort. Our committee is very broad-based in terms of the jewelry sectors involved in the summit. We’re also raising money through a crowd funding campaign on Indiegogo. The fundraising campaign ends on July 15, so we’re very anxious to meet our goal of $30,000 by then.

Rapaport News: What are the main risks facing the trade that might compromise the responsible sourcing of jewelry?

CG: The Jewelry Industry Summit website (www.jewelryindustrysummit.com) has a resource section in which we’ve identified those main risks. They vary depending on the product and geographic location and they come from many different sources. These include governments, NGOs, international organizations like the Foreign Assets Task Force (FATF), the International Monetary Fund (IMF) and the World Bank.

Some examples of those risks include the difficulties of implementing standards of anti-money laundering and counter-terrorist financing rules in certain countries. There’s risk in the gold industry that has been addressed by the Dodd Frank Act, such as sourcing gold in the Democratic Republic of the Congo (DRC) and neighboring countries. There are concerns about the manner in which color gemstones are brought to market pertaining to environmental and labor conditions at color gemstone mines around the world.

The resource page on the website shows any number of concerns expressed by NGOs, government organizations and international institutions pertaining to our product.

Rapaport News: What is the status of the trading of Marange diamonds in the U.S. today?

CG: Because of the way in which the industry is organized in Zimbabwe, the diamonds that are shipped out of Zimbabwe are very often sent by companies that are subject to sanctions. Those diamonds are not permitted to enter the U.S.

The Zimbabwe industry is structured in an extremely complex manner. I was on the first Kimberley Process review mission to Zimbabwe and learned how they go about handling their inventory of rough diamonds in Zimbabwe. It involves a number of organizations, which are both governmental and partnerships between the government and the private sector.

A number of those companies and some of the individuals associated with the diamond trade in Zimbabwe, both in the government and the private sector, are listed as being subject to sanctions. So any diamonds associated with those companies, entities or individuals can’t be imported into the U.S.

If a company is found guilty of trading Marange diamonds in the U.S., a number of sanctions can apply. One of those is that the government can go into your bank account and remove the money that they can prove was associated with those transactions. The other is to enforce civil or criminal action against you, depending on the circumstances.

Rapaport News: What message should diamantaires and jewelers take with them regarding all these issues?

CG: The compliance issues in the industry are very complex, particularly pertaining to the diamond trade. Therefore, a good working knowledge of the requirements is essential if you want to eliminate risk in your business. The JVC can help in this regard because we’re the experts and have access to all of the knowledge that diamantaires need.

However, in a general sense, I would say that diamantaires need to be fully aware of all of these issues. It’s not only because they’re protecting their own businesses from risk, but because their customers demand that they know and that they provide products that are legally traded and ethically sourced.
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Tags: Avi Krawitz, diamonds, Jewelers Vigilance Committee, Jewelry, JVC
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