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PATRIOT Act and the New Professionals

Jun 3, 2004 1:42 PM   By Sheryl Katz
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The tides of the industry have dramatically turned. The growing demand for certification, the stipulations of Supplier of Choice (SOC), the scrutiny of an historically secretive industry prompted by the Kimberley Process and USA PATRIOT Act are forcing companies to run their businesses with the same professionalism as any other industry. Many say the change was inevitable. Others are struggling to stay afloat.


The USA PATRIOT Act is designed to prevent terrorism in the U.S. and to curb money laundering. New PATRIOT Act provisions require diamond and jewelry dealers to institute policies and programs to prevent and detect money laundering. This affects Israel as the U.S. is its biggest diamond export market — net polished exports in April surged 60 percent to $425 million, 67 percent of which went to the U.S. — a 15 percent increase year-on-year.

A recent study by nongovernmental organization (NGO) Global Witness that shocked the industry showed that major U.S. and international diamond jewelry retailers are not doing enough to combat conflict diamonds, including diamonds used to fund terrorism. In reality, however, diamantaires and jewelers are trying to earn a living in a competitive market and, unless customers bring up the conflict diamond issue, they are hesitant to put concerns and ideas in their heads.

Joseph Hacmon, Australia Diamonds president, said: “I don’t believe diamond people are interested in these politics. They are interested in buying, selling and making jewelry. These issues only touch a few big dealers. The rest have no influence on such things. The market is difficult. What is expected of us? We need diamonds, want to work and want supply. As long as we get the goods in our Israeli market, we are sure they are going through the Kimberley Process.”

Waldman Diamond Company (WDC) is an Israeli-based rough and manufacturing company. Alexander Waldman, WDC president, sources rough from South Africa, Diamdel, Rio Tinto and Aber. Waldman said that in the U.S., WDC is doubly careful when opening new accounts. They ask for company details before shipping goods to them and all rough and polished suppliers are asked for warranties that the diamonds are from conflict-free areas. This information is passed on to the retailers. “I think it is good for the industry to standardize this practice as it will help the law enforcement authorities track those who are abusing the privilege of trading in diamonds,” said Waldman.

Staying Ahead

Moti Besser, general manager of the Israel Diamond Manufacturers Association (IsDMA), and his colleagues are trying everything to boost the local industry. One way is to secure direct rough sources from Canada, Russia and, in the future, South Africa. Besser has also pushed for an Israeli Gemological Institute, which he expects will launch this year and hopes will take a 5 percent share of the global certification industry within three years.

Mor Brothers, an Israeli company, supplies wholesalers, retailers and jewelry manufacturers in the U.S., Far East and Europe with mainly 30 pointers to 5+ carats, VS2+/G+ ideal cut diamonds with hearts and arrows. Yohanan Mor, Mor president, stays ahead by ensuring the quality of his cut. “For the customers we serve, the importance is in the perfection of the cut, the purity of the diamond and the color,” he said. “Price is not a question, because the investment is long term. By supplying the perfect cut, we can combat the hike in rough prices.”

Mor said the changes in the industry were expected because all industries in the world are growing and changing: “The diamond industry was sleeping after the crisis in Japan. Now it has woken up. Smaller manufacturers that don’t have enough capital to compete with the rough prices are buying and selling just to keep working. Without branding and marketing abilities, they are being pushed out of the game.”

Waldman’s formula is efficiency in a short pipeline: “Players in this industry are becoming increasingly corporate. They have no choice because they now have global operations that need internal control mechanisms.” In April, Waldman launched Waldman Diamond Resources to market rough for other players.

Hacmon is the creator of the Lady Cut, which developed into the Lady Heart diamond and jewelry collection, and the Flame Cut, which was followed by the Flame Cut jewelry collection. All pieces are designed in-house. His secret to success is innovation, continuing to revolutionize the concept of jewelry making. Hacmon is adamant that the diamond business today belongs only to professionals, but not only to big companies.

Vegas Viewpoint

There is some stocking up in the market by people who already have programs. There is a strong demand for bigger and better goods for the Vegas show, but the market is generally waiting for the show to decide what to buy.

According to Waldman: “All players are trying to struggle with high rough prices and polished that is lagging behind. There is uncertainty and all are waiting for Vegas to see if customers will pay more. Because rough prices went up 10 to 15 percent, there is a lag time until old polished is absorbed. Unless the prices are adjusted, it will be difficult to fill Christmas orders.”
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Tags: Australia, Conflict Diamonds, Diamdel, Israel, Japan, Jewelry, Kimberley Process, Manufacturing, NGO, Rio Tinto, Russia, South Africa
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