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Ban aims to curb another revenue stream for Russia

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Biden administration official says US still engaged in G7

talks

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Says needs to take into account African, UAE, industry

concerns

By Julia Payne and Dmitry Zhdannikov

BRUSSELS/LONDON, May 17 (Reuters) - The United States is

re-evaluating the strictest elements of a ban on Russian

diamonds from the Group of Seven major democracies, after

opposition from African countries, Indian gem polishers and New

York jewellers, seven sources said.

The sanctions package, agreed in December and including a

ban across the European Union, represents one of the industry's

biggest shakeups in decades.

Two of the sources familiar with the negotiations said the

Americans had disconnected from G7 working groups on the

stringent controls, with one describing them as "there but not

engaging".

The U.S. State Department declined to comment.

A senior Biden administration official said Washington had

not changed its position and that the United States would keep

working with the G7.

"We will want to make sure that we strike the right balance

between hurting Russia and making sure that everything is

implementable," said the official, who spoke on condition of

anonymity.

The G7 sanctions aim to hit another stream of revenue for

the Kremlin's war effort in Ukraine, even though at around $3.5

billion, according to Russian state-run miner Alrosa's

2023 results, diamonds represent a small fraction of the profits

Moscow earns from oil and gas.

Since March, importers to G7 countries must self-certify

that diamonds do not originate from Russia, the world's leading

producer of rough diamonds. Sanctions were imposed on direct

imports of Russian gems in January.

From September, the EU ban will require diamonds of 0.5

carats and above to pass through Antwerp, a centuries-old

diamond hub in Belgium, for traceability certification using

blockchain - the digital ledger used by cryptocurrencies.

Sources said G7 powers had agreed that Antwerp would be the

logical first hub, with others to be added later.

But three of the sources said Washington had cooled on

enforcing traceability and that discussions on implementing

tracing had stalled.

The Biden administration official said the commitment to

implementing a traceability mechanism by Sept. 1 applied to the

European Union, not the United States, citing the language in a

G7 leaders' statement in December.

"We need to do this in a way that takes into account

concerns from African partners and African producers, takes into

account Indian and UAE partners ... and makes sure we can also

make it workable for U.S. industry," said the official.

"Is there a traceability mechanism that satisfies all of

that? We're still engaged, we haven't walked away from the

idea... on the other hand, we couldn't sign up to definitely

having this in place by Sept. 1st."

The presidents of Angola, Botswana and Namibia wrote to G7

leaders in February to say that a pre-determined entry point for

the G7 market would be unfair, impinge on freedoms, and hurt

revenues. The three nations account for 30% of diamond output.

Italy, which holds the presidency of the G7, declined to

comment on the U.S. position.

Any softening of the phased ban risks leaving loopholes and

allowing Russian diamonds into boutiques in New York, London and

Tokyo - a threat highlighted when Belgian authorities seized

suspected Russian stones worth millions of dollars in February.

Advocates of the sanctions say a traceability mechanism is

needed to deliver a robust ban and that without the full

engagement of the United States, which accounts for 50% of the

G7 diamond jewellery market, it cannot be effective. They blamed

some of the industry pushback on fears of greater market

transparency.

A Belgian official familiar with the negotiations said it

was paramount to maintain the determination to keep loopholes

firmly closed.

CERTIFYING AT SOURCE

A previous U.S. ban on Russian diamonds excluded stones

polished elsewhere, allowing diamonds processed in India and

traded in hubs like Dubai to reach the U.S. market.

The G7 ban followed months of wrangling between Western

capitals.

Diamond miners such as De Beers, a unit of Anglo American

, Indian cutters and jewellery retailers have strongly

lobbied against the ban. They say the measures are poorly

designed, will increase bureaucracy and inflate prices.

De Beers told Reuters it supported a ban but that

diamond-producing countries should certify origin at the source.

"The opportunities for, and likelihood, of Russian diamonds

infiltrating the legitimate supply chain are in fact higher when

you move further away from the source," the company said.

Virginia Drosos, chief executive of Signet, the

world's largest retailer of diamond jewellery, urged the U.S.

government in a letter seen by Reuters to "stand against... the

G7 Belgian solution."

Belgium has introduced a pilot tracing scheme based in

Antwerp in which some 20 diamond buyers are participating, among

them French luxury groups LVMH and Kering as

well as Switzerland's Richemont, one of the sources

said.

An LVMH spokesperson said its Tiffany & Co brand was

participating. Kering and Richemont did not comment.

Belgian Prime Minister Alexander De Croo told Reuters in

March that he was open to additional hubs being established for

certification if they matched Antwerp's standards, and that

concerns were inevitable.

"If you implement something that is changing the game, (it)

takes some time to iron out some issues."