In case of his victory, U.S. presidential candidate Mitt Romney, from the Republicans, promised to abrogate the Dodd - Frank Act, the most impressive achievement of the Democrats in the legislative field, which has really changed the operating rules for financial institutions and the market of precious metals. The document contains a section called the Conflict Minerals Law, which affects the interests of public companies (both American and foreign traded on U.S. exchanges), producing and/or using gold, tungsten, tin and tantalum from the mine fields located in 10 countries in West and Central Africa: the DRC, Angola, Burundi, the Central African Republic, the Republic of Congo, Rwanda, Sudan, Tanzania, Uganda, and Zambia. The law requires these companies to provide complete information on the operations with these minerals to the US Securities and Exchange Commission (SEC). According to the law drafters, such transparency should facilitate the purge of the global turnover from minerals used in operations, which may be a source of financing armed conflicts in Africa.
It is noteworthy that initially the Conflict Minerals Law was developed by Republican Senator Sam Brownback as a separate legislative act and its original wording differed considerably using a stronger language. However, this draft was buried at the stage of discussion in the spring of 2009, and later its significantly emasculated version was included in the Dodd-Frank Act as Section 1502. However, the palliative character of the final bill was obviously unacceptable for the Republicans and they did not vote for this law.
The law immediately triggered certain concerns on the part of jewelry industry representatives, rightly fearful of many complications associated with the need to prove that they work with "non-conflict" gold not related to the African countries on the black list. Already in 2009, it was assumed that the list of "conflict minerals" can be expanded to include other materials used by the jewelry industry. After the Dodd-Frank Law was signed by President Obama in July 2010, the Responsible Jewellery Council (RJC) developed a voluntary certification standard for companies interested in "non-conflict" mineral sources and transparency in the jewelry supply chain. In early March 2012, the RJC launched a certification system for gold and platinum group metals known as the Chain of Custody (CoS).
In August 2012, Chaim Even-Zohar suggested that the provisions of the Conflict Minerals Law may be extended to polished diamonds sold in the U.S., if the broader interpretation of the “conflict diamonds” concept proposed by the U.S. side would be blocked at the forthcoming plenary session of the Kimberley Process. According to Even-Zohar, the introduction of certification for polished diamonds in line with the CoC will provide additional preferences for the jewelry network of De Beers bringing "fantastic benefits" to Forevermark and providing a competitive advantage to DTC sightholders. It is difficult to disagree, especially taking into account the hefty share in the global production of rough diamonds enjoyed by Angola and the DRC included in the "black list".
The U.S. diamond market continues to hold the lead, and what’s more, in recent years there has been a curious tendency to increase its capacity at the expense of... China. The Chinese, whose wealth exceeds $1 million, more and more often prefer to settle in the United States. The number of EB-5 visas (for investors creating 10 or more jobs in the U.S.) issued to Chinese from 2006 to 2012 increased more than 50 times. Notably, more than 75% of such visas are issued to Chinese. Despite the known slowdown in the Chinese economy, China is still justifiably considered as the main driver of the diamond market, but prospect buyers of polished diamonds prefer to move from China to the United States. So to control the increasing U.S. diamond market is really a task of ultimate priority, the solution of which will determine an absolute leader for many years ahead.
The idea to certify diamonds proceeding from the "non-conflict" status is completely seamless and stems from the very nature of the diamond market, where goods are not so much diamonds proper, as the information about them. Dividing diamonds into "conflict" and "non-conflict" or into "right" and "wrong" gems appears to be the next stage in the development of market management, the system where all the benefits are reaped by the moderator of the process. The diamond market, having created the Kimberley Process, was a pioneer on the way of investing goods with characteristics in no way related to their consumer properties, but giving an ample opportunity for their promotion. The Conflict Minerals Law has demonstrated that this elegant way of moderating the market applies to other emerging new industries, which means that the experiment with the Kimberley Process is recognized as successful and it is time for the diamond market to take the next step.
According to Charles Stanley, President of Forevermark U.S., in this program "most of the diamonds today are coming from De Beers Group mines in Southern Africa and/or Canada." Taking into consideration that many DTC sightholders are also clients of Rio Tinto, BHP, ALROSA and many second-tier companies, only a few "outside" crystals find their way to Forevermark. This statement is a perfect illustration of the fact that Forevermark can potentially serve as a mechanism for the formation of a "new market" to maintain stability of the diamond giant’s mining division. Although there are no openly voiced accusations regarding “outside” diamonds (at least so far), that they are produced in violation of the 'responsible practice' it is not hard to guess sightholders’ preferences. Thus, the "fantastic benefits" for Forevermark promised by Even-Zohar in case the Conflict Minerals Law will also cover polished diamonds can be interpreted very easily: it may happen that the most stable and promising U.S. market will get only one entry point. And in this respect, all the propaganda efforts, for instance those of Mugabe with his promises to transform Zimbabwe into a newfound diamond leader, are turning obviously meaningless.
It is possible to formulate dozens of objections to dividing diamonds into "conflict" and "non-conflict" and these objections will be flawless in terms of formal logic. But this does not mean anything - the final word will always rest with those who define the procedure for this division. And the reasoning upheld by the authors of such procedures, including the author of the Conflict Minerals Law, goes far beyond the boundaries of the diamond market.
Long before the Dodd-Frank Act went into effect we mentioned that after the Arab Spring the turn will come for West and Central Africa. Today, the task to reduce mineral extraction due to the need to bring world prices in line with the amount of "anti-crisis" dollar emission is still relevant. So why is Mitt Romney so adamant against the Dodd-Frank Act, the "African" part of which was also written by his brother, a Republican? In our opinion, the reason is this: the law is too cumbersome and requires a lot of funds (the National Association of Manufacturers estimated that the cost of implementing the Conflict Minerals Law will amount to at least $16 billion) and most importantly time for its proper execution. And instead of efficient and rapid constraints on the supply of African minerals it will be necessary to deal with endless lawsuits. The two presidential terms of Bush Jr. demonstrated that the "Texas style" in politics is quite inherent to the Republicans. And as it is known, for a real cowboy stirrups are needless. Therefore, a couple of other full-scale armed conflicts in West and Central Africa will launch a mechanism of required sanctions much faster than tedious research within "chains of custody."
Sergei Goryainov, Rough&Polished
