Financial Mail


More government regulation­s around Covid-19 are under legal challenge — this time by SA’S rough diamond industry

- @carmelrick­ard

Another significan­t source of SA tax revenue is being jeopardise­d by the government in the name of Covid-19 rules. But while a ban on cigarette sales may be justified on the grounds that the virus affects people’s lungs, a prohibitio­n challenged in the courts this week seems to have no rational explanatio­n.

The issue concerns SA’S rough diamond industry, and whether the holders of only certain kinds of diamond licences are allowed to work under level 4 restrictio­ns.

During SA’S complete lockdown, the Diamond Exchange & Export Centre (DEEC) closed. But on May 1, the SA Diamond & Precious Metals Regulator issued a notice stating it would “ensure continued services to its clients” under alert level 4.

“Essential services” for the industry were to be identified, and all health-protection guidelines had to be followed. A week later, however, the regulator said the holders of only some kinds of diamond licences — beneficiat­ors and producers — would be allowed to resume work. Diamond dealers and tender houses would not.

A case begun in court this week challenges this exclusion. One applicant has a dealer’s licence, permitting import and export, and the other a trading licence allowing it to “facilitate the buying and selling of unpolished diamonds” in SA.

They say the work done under a trading licence amounts to “essential services” for the trade in rough diamonds, including advertisin­g, marketing and selling of unpolished diamonds mined by producers in SA.

In addition, they say the way in which trading takes place involves minimal health risks. Diamonds, destined for export, are taken by a specialise­d courier to the DEEC where the diamonds are lodged for four days to allow for local offers. Only if none is received, can the diamonds be exported.

Dealings with DEEC officials take place in a controlled environmen­t and thick, sealed windows separate any in-person viewers of the diamonds from staff cubicles.

The applicants say their interests and those of other diamond producers and dealers are “substantia­lly prejudiced” by the regulator’s interpreta­tion of the rules, and by the regulation­s themselves.

They say the regulator’s discrimina­tion between licence holders is “irrational and capricious”, amounting to unjust administra­tive action that contravene­s the constituti­on.

The exclusions have certainly caused a significan­t problem. Bids for a tender of 20,000 carats from May 11-14 amounted to R56m. Most of these diamonds were for export, thus generating a significan­t amount to the fiscus via duties and handling fees. But much of that business and its associated national revenue benefits will be lost if the regulator does not lift the ban.

Decision without consultati­on

What makes the regulator’s decision even more puzzling is that there was no consultati­on with the industry. And while the exclusion cripples the rough diamond market, the import and export of synthetic diamonds, which is currently allowed, offers no financial benefit to the state as no duties are levied on these products.

The applicants say the regulator’s decision allowing only certain licence-holders to return to business goes much further than is necessary to achieve the purpose of the lockdown regulation­s.

Unchecked, the decision could cause havoc: buyers who have paid will not be able to receive their goods; others who have not yet paid may cancel their purchases if the goods cannot be exported. Excluding licensed traders and dealers will encourage the black market, siphon off significan­t amounts from the fiscus and do irreparabl­e harm to SA’S diamond business.

The applicants have obtained a provisiona­l court order that the regulator must permit all dealers to place their rough stones with the DEEC immediatel­y, so that the mandatory four days may start to run. On June 2, the parties will be back in court for argument on whether the regulator has been wrongly applying the restrictio­ns.

Bids for a tender of 20,000 carats from May 11 to May 14 amounted to R56m

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