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