Moti Ganz: To Be In Or Out, Is­rael’s De­ci­sion Time Has Ar­rived

Solitaire - - CONTENTS - By Moti Ganz, Chair­man, Is­rael Di­a­mond In­sti­tute (IDI) Ar­ti­cle courtesy the IDI (www.is­rae­lidi­a­mond.co.il) www.gia.edu

The Is­raeli di­a­mond in­dus­try has to take a good look at the pro­cesses un­der­way at the in­ter­na­tional level, which are li­able to af­fect the fate of each and ev­ery one of us. We can and must play a lead­ing role. If we don’t, one day we’ll dis­cover that oth­ers have de­ter­mined the rules for our be­hav­iour based on their in­ter­ests, which are def­i­nitely not ours.

Our in­dus­try’s value chain is truly glob­alised. It’s no se­cret that the prof­itable parts are the up­stream (min­ing pro­duc­ers) and the down­stream ( jew­ellery re­tail­ers). The part of the value chain that Is­rael is ac­tive in is the mid­stream (man­u­fac­tur­ers and traders). Within the value chain there are var­i­ous vested com­mer­cial and po­lit­i­cal in­ter­ests, and com­pet­i­tive pres­sures, and each part tries to im­prove its po­si­tion – some­times at the detri­ment of other play­ers. On a global scale, in our in­dus­try, we see that vested in­ter­ests make coali­tions to ad­vance cer­tain spe­cific in­ter­ests.

In the last few years – and es­pe­cially the last few months – I have come to re­alise that events are tak­ing place that will pro­foundly af­fect each and ev­ery mem­ber of our Is­raeli in­dus­try. How­ever, we are very much pas­sive by­standers, not re­ally tak­ing the lead in look­ing af­ter our global in­ter­ests.

Ev­i­dence of ori­gins

While I am writ­ing these lines, there are cer­tain coali­tions at a quite ad­vanced stage to get the OECD to ac­cept so­called “guide­lines” that would, among other things, re­quire each man­u­fac­turer or ex­porter to pro­vide ev­i­dence of the ori­gins of each pol­ished di­a­mond sold. As much as we want trans­parency, good gov­er­nance and prod­uct dis­clo­sure, there is a limit to what is tech­ni­cally pos­si­ble – and fi­nan­cially af­ford­able. As a the­o­ret­i­cal ex­am­ple: if an ex­porter with an order for 100 one-caraters of a cer­tain qual­ity can­not com­bine pol­ished di­a­monds com­ing from Zim­babwe or An­gola rough with pol­ished de­rived from Botswana rough, this ex­porter needs to build a crit­i­cal mass of mul­ti­ple dif­fer­ent in­ven­to­ries. Can that be done? Who will pay for that? The jew­eller is not go­ing to pay a penny more for a par­cel that in­cludes only Botswana or Cana­dian pol­ished...

Cen­tral­ity of OECD

Is­rael re­cently be­came a mem­ber of the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and Devel­op­ment (OECD), which pro­vides a fo­rum in which gov­ern­ments can work to­gether to share ex­pe­ri­ences and seek so­lu­tions to com­mon prob­lems. Ba­si­cally, its aims are “to pro­mote poli­cies that will im­prove the eco­nomic and so­cial well-be­ing of peo­ple around the world”. The way the group achieves its ob­jec­tive is through set­ting in­ter­na­tional stan­dards (guide­lines) on a wide range of things, from agri­cul­ture and tax to the safety of chem­i­cals. Now, it is also in the process of set­ting stan­dards for the di­a­mond busi­ness.

The lim­its of in­flu­ence

How does this af­fect us? We have ex­pe­ri­ence in the area of anti-mon­ey­laun­der­ing leg­is­la­tion. The ba­sis of the di­a­mond in­dus­try’s anti-money-laun­der­ing leg­is­la­tion that was passed in the Knes­set is a set of rec­om­men­da­tions by an “ac­tion group” of the OECD. The di­a­mond in­dus­try anti-money-laun­der­ing laws in other coun­tries (USA, Bel­gium, etc.) are based on spe­cific sec­tions deal­ing with pre­cious stones and di­a­monds in the rel­e­vant OECD guide­lines.

Re­cently, the OECD adopted a study (“ty­pol­ogy”) on how the di­a­mond sec­tor is abused for money-laun­der­ing pur­poses, con­tain­ing rec­om­men­da­tions for fur­ther leg­is­la­tion. (The Is­raeli govern­ment’s anti-money-laun­der­ing au­thor­ity was one of the ini­tia­tive-tak­ers for this in­ter­na­tional ex­er­cise and a main drafter of the doc­u­ment.) The Is­raeli di­a­mond in­dus­try was not re­ally in a po­si­tion to in­flu­ence these new rec­om­men­da­tions. (The World Fed­er­a­tion of Di­a­mond Bourses, at the last mo­ment, was able to make some cor­rec­tions and changes through a sub­mis­sion pre­pared by the in­ter­na­tional an­a­lyst, Chaim Even-Zo­har.) Some coun­tries, where the do­mes­tic in­dus­try is pow­er­ful, such as Dubai, were treated “softly” in the re­port. It’s all pol­i­tics.

Con­flict di­a­monds and hu­man rights is­sues

The United States con­ducts its for­eign pol­icy very much through poli­cies of “sanc­tions”. When Rus­sia’s Putin in­vaded the Ukraine, eco­nomic sanc­tions were im­posed. Amer­ica also im­poses sanc­tions on Zim­babwe and, there­fore, the sale or pur­chase of any pol­ished di­a­monds that orig­i­nated from Zim­babwe rough is pro­hib­ited. The United States, NGOs, and some other gov­ern­ments also want to change the def­i­ni­tion of “con­flict di­a­monds” in the Kim­ber­ley Process. They want to have any di­a­mond that was ei­ther mined or man­u­fac­tured un­der con­di­tions of “hu­man rights” vi­o­la­tions to be de­clared a “con­flict di­a­mond” – rough or pol­ished.

As chair­man of the Is­rael Di­a­mond In­sti­tute (IDI), I am not tak­ing a po­si­tion on whether this is a pos­i­tive or neg­a­tive – that needs to be de­bated. I am re­port­ing to you the fact that an in­dus­try coali­tion (which I call the “Paris Club”) has been work­ing for well over a year now to get the OECD to adopt guide­lines that will es­tab­lish chainof-cus­tody due-dili­gence re­quire­ments for di­a­monds. Po­ten­tially, this has enor­mous ram­i­fi­ca­tions for our in­dus­try – and we are not in­volved in the process.

Ear­lier I men­tioned the up­stream, down­stream and mid­stream parts of the di­a­mond value chain. In the lob­by­ing process at the OECD, in the prepa­ra­tion of so-called ob­jec­tive “stud­ies” that os­ten­si­bly form the ba­sis for the de­ci­sion-mak­ing process, the up­stream (min­ing com­pa­nies) joined forces with the down­stream ( jewellers, most im­por­tantly Signet, which

I am writ­ing about this be­cause we, in our home base, are so pressed, in­volved, and ac­tive in ur­gent is­sues of lo­cal con­cern that we seem to ig­nore that we need to play a more ac­tive role in the in­ter­na­tional arena.”

puts up most of the fi­nanc­ing for the lob­by­ing). The gov­ern­ments of the United States, Eng­land, Canada and the EU are also deeply in­volved in the “Paris Club.” (The for­mal name is the Pre­cious Stones Mul­ti­ple Stake­holder Work­ing Group – PSMSWG.) What is up­set­ting is that some of the mid­stream play­ers – with­out co­or­di­na­tion with sis­ter or­gan­i­sa­tions – are play­ing an ac­tive role in pro­mot­ing the Paris Club ob­jec­tives, in­clud­ing the di­a­mond man­u­fac­tur­ers as­so­ci­a­tion in the United States, the AWDC from Bel­gium and the GJEPC in In­dia, to name a few. Is­rael is out­side of it all.

Look­ing be­yond our bor­ders

The Paris Club was go­ing to sub­mit its “Study with Rec­om­men­da­tions” to the OECD at the end of May. Now that de­tails on the “au­thors” of the study have been pub­lished in the in­ves­tiga­tive di­a­mond trade press (Chaim Even-Zo­har), and other in­for­ma­tion has leaked out, the sub­mis­sion may be post­poned – but the di­a­logue will take place. The im­me­di­ate “dan­ger” has been post­poned – but the process will con­tinue. I am writ­ing about this be­cause we, in our home base, are so pressed, in­volved, and ac­tive in ur­gent is­sues of lo­cal con­cern that we seem to ig­nore that we need to play a more ac­tive role in the in­ter­na­tional arena. Our voice must be heard; we need to be counted. I have given the OECD as an ex­am­ple, but there are other di­a­logues tak­ing place –

also with in­ter­na­tional banks or in the ar­eas of nomen­cla­ture (syn­thet­ics) – in which Is­rael is hardly vis­i­ble.

Our sis­ter or­gan­i­sa­tions have in­ter­na­tional de­part­ments that serve as li­aisons with the rest of the world. Be­cause of Is­rael’s mem­ber­ship in the OECD, some busi­ness groups par­tic­i­pate in the OECD’s Busi­ness and In­dus­try Ad­vi­sory Com­mit­tee. Udi Shein­tal, a mem­ber of this fo­rum, says that the OECD’s min­is­te­rial coun­cil ap­proved and pub­lished guide­lines re­gard­ing four min­er­als that orig­i­nate in con­flict ar­eas – gold, tung­sten, lead and tan­ta­lum. The Paris Club’s re­port was in­tended to per­suade the OECD that di­a­monds should also be added to the four con­flict min­er­als.

Down­stream dom­i­nates

The global di­a­mond scene is chang­ing rapidly. Un­til a decade ago, it was the di­a­mond car­tel that “de­cided” on the be­hav­iour of mid­stream play­ers. Sup­plier of Choice was in­vented, and we needed to in­vest in re­tail busi­nesses, de­vote huge sums to pro­mo­tional pro­grammes, and go to ben­e­fi­ci­a­tion coun­tries and set up fac­to­ries there if we wanted to re­main a DTC sightholder. The power of the pro­duc­ers was al­most un­lim­ited. Now, the pen­du­lum has changed. It is down­stream, the large com­pa­nies such as Signet, Tif­fany’s and oth­ers, joined by groups such as the Jew­el­ers of Amer­ica, that “tell us” what we need to de­clare on in­voices, with whom we should do busi­ness, with whom we can­not do busi­ness, etc. A coali­tion of both up­stream and down­stream play­ers may pos­si­bly get any­thing it wants. The best mid­stream (in­clud­ing Is­rael) play­ers can hope for is hav­ing a strong voice in mat­ters af­fect­ing our fu­ture.

Be­ing a part of the OECD is an ad­van­tage that our in­dus­try must use. The OECD is so im­por­tant that Is­rael’s for­eign min­istry has a spe­cial am­bas­sador in Paris to rep­re­sent us in this fo­rum. Our in­dus­try or­gan­i­sa­tions have the pro­fes­sion­als, or can get the pro­fes­sion­als needed to as­sure that we don’t wake up one morn­ing to dis­cover that there are new reg­u­la­tions or other gov­er­nance is­sues that we didn’t see com­ing – which was done be­hind our backs. Look­ing at the global di­a­mond play, we need to de­cide whether we are “in” or “out”. Our fu­ture may de­pend on it.

The gold prece­dent

The ob­ses­sion of the re­tail­ers (the down­stream) with spe­cific dis­clo­sure and due dili­gence de­mands mainly char­ac­terises the United States and Europe. These con­cerns are not nec­es­sar­ily shared, and cer­tainly not with the same vigour, by the rest of the world. I be­lieve that we can and must re­strain ini­tia­tives that could be harm­ful to us. We should also not take the state­ments em­a­nat­ing from some of the Paris Club cir­cle as the ul­ti­mate truth. My con­fi­dence in our abil­ity to halt mea­sures is based on the chal­lenge to the “gold con­flict” laws in the US courts, which have so far been found to be il­le­gal. Even com­mis­sion­ers in the Se­cu­rity and Ex­change Com­mis­sion (SEC), the ul­ti­mate reg­u­la­tor for listed com­pa­nies, have aired strong op­po­si­tion to what is seen as ex­ces­sive dis­clo­sure.

With ref­er­ence to gold (among other min­er­als), the courts in the US ruled that it is ridicu­lous that a sup­plier should tell con­sumers that its prod­ucts are eth­i­cally tainted, only be­cause the rough used for them came from Congo.

Some even won­der if the laws aren’t re­ally coun­ter­pro­duc­tive, re­sult­ing in vi­o­la­tion of the hu­man rights of le­git­i­mate min­ers who can­not sell their prod­ucts up the sup­ply chain to US com­pa­nies. We should ask our­selves a sim­ple ques­tion: as the drafters of the study on pre­cious stones and di­a­monds have used this con­flict min­eral leg­is­la­tion as guid­ance, why should we be in a hurry to get reg­u­la­tions for di­a­monds – as the ones on gold are clearly chal­lenged and may well be con­sid­ered il­le­gal? It is not up to us in Is­rael to pre­dict how the le­gal and reg­u­la­tory process in the United States will evolve. But if the laws on “con­flict gold” are clearly back­fir­ing in the US – and hardly rel­e­vant in the rest of the world – there can­not be any rea­son for the di­a­mond sec­tor to rush to the OECD, in a clearly un­pre­pared and non-care­fully stud­ied way, to im­pose the very same rules on di­a­monds.

Dis­claimer: The opin­ions ex­pressed in this ar­ti­cle are solely those of the au­thor and do not nec­es­sar­ily re­flect the views of Solitaire In­ter­na­tional.

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