This past spring, the US Treasury Department blacklisted major Russian state-owned enterprises in connection with the war in Ukraine. One of these was Alrosa, the world’s largest diamond mining company. Unfortunately, a loophole allows Russian diamonds to be sold in the United States and elsewhere if they are first polished in Israel, and several Israeli companies work with Alrosa. Both the US and Israel must take immediate steps to shut down diamond traders who are effectively sidestepping international sanctions efforts and helping fund Russia’s war in the Ukraine.
Diamonds are a preferred commodity for criminal organizations, terrorist groups and state sponsors of terror. Rough diamonds, which are taken straight from a mine and left uncut or polished, cannot be traced with current technology. While the international community has taken some regulatory steps to curb abuses – specifically the trade in “blood diamonds”, defined as diamonds mined in war zones and used to finance insurgency or war efforts – these initiatives have been unable to effectively halt the international laundering of diamonds or sever links to funding of terrorism or conflicts.
Israel has not imposed Ukraine-related sanctions on Russia, primarily because of Moscow’s role in the Syrian civil war. Since 2015, Russia has supported the troops of Syrian ruler Bashar Al-Assad with airstrikes and bombardment of rebels and jihadis. More than 63,000 Russian military personnel have been deployed to Syria, and Moscow has two military bases in the country. Russia has effectively become Israel’s northeastern neighbor and Israel feels it must be wary.
But there has been virtually no discussion in Israel of blocking the importation of Russian diamonds. Prior to Alrosa’s blacklisting, the company was responsible for 90 percent of Russia’s mining capacity and 28 percent of the world’s rough diamond market. In 2021, Alrosa transacted $4.2 billion in diamond sales, $4 billion of which was in rough diamonds.
Alrosa does not sell its diamonds on exchanges or direct to consumer. Instead, it works through several dozen “sightholders” that are guaranteed a regular annual supply of rough diamonds worth tens or even hundreds of millions of dollars. These entities polish diamonds directly, sell them to others in their rough form, or both, until they are sold to the end-consumer as jewelry.
When the US imposed sanctions on Alrosa, the company’s website (www.alrosa.ru) listed 51 “special customers,” referred to as “members of the Alrosa Alliance,” for 2022-2024. The list was removed from the website as soon the company was designated, but is still available online on multiple websites. At the time sanctions were placed, Israel’s Alrosa sightholders, who imported about 10 percent of Russia’s diamonds, gave Israel one of the highest concentrations in the world.
All of these diamantaires have a deep presence in the United States, including offices in New York.
Both the United States and Israel should take immediate steps to ensure the international financial sector is not being used to launder and traffic Russia’s blood diamonds. The US Department of Treasury’s enforcement arm and its Office of Foreign Assets Control (OFAC) should shut down these diamantaires’ New York offices and consider blacklisting them for sanctions busting. The United States District Court for the Southern District of New York has an important role to play in shutting down the companies’ presence in the US and immediately cutting off their access to financial institutions.
US-based organizations such as the Young Presidents’ Organization (YPO), one of the most powerful CEO networking organizations in the world, should revoke membership for Dalumi – which serves as head of YPO’s Israel chapter – and any of its members who are working with or on behalf of Russian entities. YPO also has a significant member presence within Russia, which raises significant questions about how Russian membership fees are being collected. OFAC guidance clearly prohibits the provision of accounting, entity formation, or management consulting services to any Russian or Belarusian person or entity. Lack of action in this regard exposes YPO to reputational risk and to Treasury Department fines, to say nothing of the very real possibility that it is facilitating sanctions circumvention.
Israel’s money laundering authority, IMPA, should at a minimum issue a cease and desist order to these diamantaires and ensure they are not sending their gems to any jurisdiction that has blacklisted Alrosa.
Money laundering and diamond trafficking are problems that transcend borders. Those who engage in such activities generally carry out their activities in secret, while these Israeli diamantaires operate in the light of day. It is clear that they are helping fill Russia’s coffers, and by extension funding its war in Ukraine, by working directly with a blacklisted Russian entity. It is time for the US and Israel to take immediate action.
Daniel Schwartz is a Melbourne-based junior lawyer who also writes on topics related to Israel and the Middle East.