Rapaport Requests OFAC Exemptions and Clarification on Diamond Sanctions

The Rapaport Group has written to the US Office of Foreign Assets Control (OFAC) with recommendations for making the rules more effective and reducing the impact on the trade in non-Russian diamonds.

“We have identified several highly problematic issues for which we respectfully request that OFAC issue exemptions and additional guidance,” Rapaport Chairman Martin Rapaport wrote Monday in an open letter to OFAC deputy director Lisa M. Palluconi.

The requests follow US Customs and Border Protection’s February 29 bulletin requiring importers of nonindustrial diamonds above 1 carat to self-declare that the goods are not Russian.

This statement must certify that the diamonds were not “mined, extracted, produced, or manufactured wholly or in part in the Russian Federation,” even if they were cut and polished in a third country. These rules went into effect on March 1.

Rapaport put forward exemptions and other recommendations in line with its Rapaport US Diamond Protocol, which the company published and distributed on October 31, 2023.

All diamonds purchased or in existence before March 1, 2024, should be exempt from sanctions regulations, Rapaport proposed. Diamond transactions involving diamonds sold by Russia before its war with Ukraine began in February 2022 “would not result in any movement of funds to Russia,” Rapaport noted. In addition, diamonds polished from Russian rough and imported into the US between March 11, 2022, and March 1, 2024, were imported legally due to the principle of substantial transformation, the company argued.

Meanwhile, Rapaport recommended that importers and exporters into the US provide the following statement in the first phase: “To the best of my knowledge, the diamonds being imported have not been sourced from any US-sanctioned entity, including diamonds that have been substantially transformed by non-sanctioned entities.”

In the second phase, should the US government seek a traceability solution for polished goods, it should specify one or more government-approved blockchains to identify the flow of diamonds from the mine, the letter continued.

Furthermore, jewelry containing Russian-source diamonds should be included in the sanctions to prevent importers evading the rules by placing these stones in simple settings and shipping them as jewelry, it argued.

Rapaport also sought clarification on key points, such as how importers must verify their self-declarations. The letter also asked whether US entities can facilitate transactions in Russian diamonds between two non-US entities and whether grading laboratories fall into this category.

“The matter is urgent, as there is significant confusion in the diamond and jewelry trade regarding implementation of the Russian sanctions and US Customs requirements,” Rapaport wrote.

Further information on sanctions can be found here.