Below is an edited transcript from JVC’s Q4 2022 Compliance Briefing held on Thursday, November 17th, 2022.
JVC’s Quarterly Compliance Briefings (CB) are held in harmony with our quarterly Board of Directors (BOD) meetings. Some of the information shared with our BOD we also share with our broader community, especially those who are really focused on the business of legal and compliance issues and jewelry. Topics of this quarter’s CB included updates on:
- JVC’s mediation program
- FTC Green Guides process
- Discussion on the Kimberley Process (KP)
- Sanctions from the US State Department
Reminder: JVC’s Annual Event will be held on Friday, March 17th at The InterContinental New York Barclay to align with the 24 Karat weekend. Stay tuned for more updates on how to sponsor and RSVP as there are a limited number of seats!
Mediations in JVC:
JVC’s mediation program is designed to assist members and non-members. We perform mediation for members and non-members alike. More information about Mediation can be found here.
Sally Winters (sally@jvclegal.org) joined the JVC staff in August to head the mediation program and work with members to ensure FTC compliance in advertising and marketing. She has a background in contract and compliance law.
The goal of this program is to keep intra-industry and consumer complaints from going to litigation for several reasons. Litigation can be incredibly costly to all involved, it can also really tarnish the industry’s reputation, and lead to a lack of consumer confidence, which we really want to avoid.
JVC developed a more streamlined approach to mediation when Sally joined the team. We established a better intake and record-keeping system that allows all staff easy access to files to communicate with mediation clients. We hope this will streamline our process and allow us to work with more people.
The types of complaints we handle vary, from purchasing a ring online that doesn’t look anything like what was ordered, and the seller won’t allow a return, to a gem purchased at a trade show that is believed to have been stolen. The massive difference in matters is very exciting and JVC enjoys helping the members of our community to solve these disputes without going to court.
Green Guides:
One of the major things we’re preparing for at the JVC, you probably heard us talk about this a couple of times, is the Green Guides.
The FTC said, and then they reiterated in August, that they’re going to do a first pass at the Green Guides revision in the calendar year 2022. We’re almost at the end, so we’re expecting something to happen this month. We’re diligently preparing internally so that when that happens, we’re going to hit the ground running.
As a reminder, the process is that of administrative law. What will happen is they’ll publish on the internet a group of questions. That group of legal questions is going to be sort of like the secret code for our legal team to understand what their priorities are going to be in this process. It’s important because they’re taking on this huge subject of sustainability and green claims. They could go in any direction so these questions will help us understand what they are really focusing on.
For example, are they going to write an actual definition of sustainability? If so, we need to figure out what our advocacy is and what we want to do. Or are they going to signal to us that they’re going to follow the European models that are being developed and try to write something that’s very tied to scientific data and goals for any kind of claim? We’re waiting to see what direction they’re going to go in and getting everything as prepared as we can. Once it goes live, we’ll have either 30 or 60 days to respond. At that time, we’ll be reaching out to the entire JVC community to get your responses on what you want this new reality to be that’s going to be written by the FTC. We’ll ask you issues that are product related, whether that’s gold, diamonds, et cetera. Three lawyers in a room can certainly write a brief. But we can’t write anything substantive without knowing what matters to you. The Green Guides apply across industries and our definition of recycled might not be the same definition of recycled that textiles or batteries want to use.
We also may ask things that are related to terms that would apply to every product. Everything is TBD but we’ll reach out to the community several times asking for your feedback. We’ll do a big town hall together and then we’ll break out into working groups for people who are interested in different matters. One thing we’ll do that’s different from the last time we did with this (with jewelry guides) is we will work with other industry trade groups. We have a lot of great relationships with other industries like apparel, fashion, shoes, and others, that are already in our universe. If you have great contacts in other industries, let us know too because we’re going to have a lot in common. Send your contacts to GreenGuides@jvclegal.org.
A lot of different things could develop, so this is a big project. We’ve been waiting a long time for it to go live and we know something’s going to happen by the end of the year. It’ll probably pull a lot of our focus as a community for 2023. The reason to put all that effort in is so we can co-create a reality that we feel good about living with, with the definition of sustainability and eco claims going into the future.
USKPA:
The Kimberly Process is ongoing, and folks met in Botswana earlier this month. JVC didn’t go this time, but the good news is it looks like there is going to be a permanent secretariat in Botswana, which is forward progress for the group.
JVC’s Tiffany Stevens is on the board of the USKPA, and each country that’s part of the KP has its own group that helps drive the mission forward. Every other country except the US has a purely governmental body. In the US it’s comprised of commercial and trade actors as well as the government. After a period of having meetings and issuing licenses remotely, we’re now doing site visits again to licensees. The process is fully coming back on board here in the US.
Russia Sanctions:
We have some indications from our relationships in the State Department about what they’re looking at regarding Russia sanctions. For a very brief recap, in February after Russia invaded Ukraine, they restricted Alrosa. In March, the Biden-Harris administration issued a direct import ban on rough and polished diamonds directly from Russia. And in April, Alrosa was added to the specially designated nationals list through the Office of Foreign Asset Control, effectively blocking any direct business with Alrosa and the United States. All of this is still in place and nothing has changed on the sanctions front.
One thing that we recommend keeping in mind is that sanctions are hard to unwind. The situation has not changed, Russia is still attempting to invade Ukraine and is still making this a priority. Thus, the US’ opinion about this unwarranted war hasn’t changed and these sanctions aren’t going to change for a while, and it takes a long time to undo sanctions. We see that certainly playing out with Afghanistan: there are significant sanctions still on the country even though the Taliban is now the legitimate government. The US is just basically trying to figure out how to navigate this going forward and unwind sanctions, but it takes a really long time.
As a jewelry business, any changes that you make now to address this are not going to be futile and are going to last a long time. The decisions that you make about how to implement and deal with these sanctions are going to pay off in the long term. JVC continues to recommend strong due diligence programs with anti-money laundering regulations, looking to the OECD for due diligence guidance, and as we’ve said the whole time, the safest option is to not buy any products that might be Russian origin even if they have been substantially transformed in other countries.
There was a meeting chaired by Ambassador James O’Brien, the head of the Office of Sanctions Coordination at the State Department last month. A former hostage negotiator, he chaired this meeting attended by many of the big diamond players in our industry to hear from the diamond industry how sanctions have affected their business. The meeting happened because of Brad Brooks-Rubin, who has been in and out of government for a while now and is now back working at the Office of Sanctions Coordination.
They were very curious to hear whether the sanctions had affected the price that Alrosa goods were able to garner on the open market. They’re seeing evidence that Alrosa goods are not commanding the same price as other goods, so that’s an indication that the sanctions are working because their entire goal is to make sure that Russia is not enriching itself with US money. This helps continue to block the Russian federation’s ability to raise funds for this unfounded war.
It’s certainly interesting to see how that office is looking for information and how they expect the industry to layer compliance with not just following the sanctions, but in fact, doing this enhanced due diligence. They’re making sure that US businesses aren’t knowingly or unknowingly contributing to Alrosa and these other blocked entities.
Just a reminder that violating sanctions is a crime. It’s a big one and the fines are significant, it can be very detrimental to your business. If you’re not already thinking about this, we strongly recommend that you start by going into your AML program and making sure that you have strong policies in place to make sure that you know where your goods are coming from. More information on AML and JVC’s AML services can be found here.
We expect going forward that the State Department will continue to focus on ways to prevent Russia from accessing capital. Of course, in comparison to oil and gas, diamonds are small goods. The oil and gas industry is where Russia gets most of its funding, but although diamonds and jewelry are small, they’re very flashy and make lots of great headlines. We believe that the State Department will continue to focus on that.
It would not be surprising if we saw some enforcement about these sanctions coming forward just because they know that sanctions without enforcement don’t work. We can also assume enforcement of these sanctions because of the other government workers who were on the call. There were people from OFAC at the treasury department on the call, which indicates that they’re really paying attention to what our industry is doing. We also think that they will probably try to focus on gold and the origin of gold and precious metals. Soon it will not just be a diamond issue because, of course, there are also restrictions on the import of gold.
If you have questions, please don’t hesitate to reach out to our team. We’re really interested in this area and it’s been a very fascinating 10 months. It’s such an interesting area for the JVC to dig into because it has such a huge effect on what’s happening in the industry and what people can sell and access in terms of goods. Considering the public opinion in the US is so strong that so many businesses were going beyond what the restrictions said at the beginning. It’s interesting to see how the industry has adapted to these restrictions and is moving forward.
Updates from the Fish and Wildlife Service:
The Fish and Wildlife Service has just proposed tightening the restrictions on the import of African elephant sport-hunted trophies. You may recall that during the Obama administration, the US severely restricted ivory imports altogether, except for some very limited circumstances. Under the Trump administration, they loosened some of those restrictions specifically on sport-hunted trophies. Fish and Wildlife has just proposed tightening those back up again and restricting imports of those items only from countries that have fully implemented CITES, which is the international treaty about endangered species. Essentially, those wishing to import have to prove that the country has an increasing African elephant population, not a decreasing one, in order to import a sport-hunted trophy.
Why is this relevant to jewelry? Well, first of all, we know that ivory is used in jewelry. But secondly, we think that one of the ways that illegal ivory was getting into the United States was through valid or not-valid sport-hunted trophies. In general, this is good news because, of course, any effort to reduce the ivory market at all is a plus because it helps reduce demand from consumers when they are more aware of what ivory is. It’s interesting timing because this was introduced right during the triennial meeting of the CITES, the international CITES body. This means many countries are currently meeting to talk about endangered species and so it was certainly intentional timing for Fish and Wildlife to announce this when they did.
If you ever have questions about that, we are happy to answer those as well.
Q&A:
Can you please give an example of potential enforcement policies or actions so we know how to protect ourselves ahead of time and can be prepared?
The Office of Foreign Asset Control (OFAC) in the Treasury Department would be the potential enforcement mechanism for these sanctions, not the State Department itself. OFAC can essentially bring an action against a company for violating sanctions. Some potential areas where we think this could be an issue in our industry is with secondary or contributory sanctions. Essentially that would mean, for example, if a US business was working with a business in Belgium, through Antwerp, and they were a direct Alrosa site holder and everybody knew about it and even though those goods were getting cut and polished in Antwerp, that’s a potential area where you could be at risk for getting dinged for sanctions. Because the US government doesn’t want our money directly funding Alrosa.
I think another area where companies are at risk is there are lots of businesses here in the United States that are maybe owned by companies abroad, who are direct Alrosa site holders, or who are buying directly from Alrosa still. That’s an area where US businesses could be at risk for sanctions, is if their parent company is directly dealing with Alrosa. In terms of the likelihood of enforcement, we think it is certainly possible, but less likely. There is some appetite for enforcement at the state and treasury in this area because they know it’s flashy. Diamonds and jewelry make great headlines so it’s certainly a risk. Businesses should be evaluating their supply chains to make sure that they know where their goods are coming from. They should have conversations with their suppliers to make sure that they’re sourcing from suppliers and countries who are not doing business with Alrosa or avoiding Russian Origin Goods.
And of course, in the background, they could always issue new sanctions that turn the heat up and get rid of the substantial transformation structure. Although we don’t see that coming imminently, it’s still a possibility. Any other questions or comments?
Do you have specific language we can use to have a supplier sign stating that the goods purchased are not of Russian origin?
The answer is yes, through AGS. We worked with AGS on creating some language that you can use and so you should be able to get it through them.