US levies first sanctions on Russian state-owned diamond supplier Alrosa

The US Department of the Treasury’s Office of Foreign Assets Control (OFAC), which administers and enforces economic sanctions, has taken the first official actions against a company operating in the luxury market, the rough diamond mining and distribution company, Alrosa. The public joint stock monopoly accounts for over ninety percent of Russian diamond production and is thirty-three percent owned by the Russian Federation.

In January, Alrosa reported 2021 sales exceeded 4 billion dollars, largely due to the US diamond consumer market demand, and is considered by the US Government to be an important component of the Russian economy. As a part of the second tranche of sanctions against Russia announced by President Biden, thirteen Russian entities, including Alrosa, will now be heavily restricted from raising money through the US market. According to OFAC, the collective debt and equity prohibitions will “fundamentally imperil Russia’s ability to raise capital key to its acts of aggression,” as it continues a ruthless and senseless invasion of Ukraine.

In addition, sanctions will be levied against Russian elites and oligarchs who benefit from the state’s kleptocracy, such as Alrosa CEO, Sergei Sergeevich Ivanov, who will be sanctioned due to his position and board membership of Gazprombank, a private-owned Russian bank that is the third largest in the country and associated with the energy sector. Ivanov will also be sanctioned for being the son of Sergei Borisovich Ivanov, the Special Presidential Representative for Environmental Protection, Ecology, and Transport. Sergei B. Ivanov is a permanent member of the Security Council of the Russian Federation, reportedly one of Vladimir Putin’s closest allies, and was previously sanctioned in 2014 after the annexation of Crimea. The sanctioned individuals will be cut off from the US financial system and any of their assets held in the US will be frozen. They will also be prohibited from traveling to America.

Luxury Goods a Sticking Point in EU Sanction Negotiations

The European Union has so far resisted adopting similar measures as sanctions can often damage a country that imposes them equally to the one that they are levied against. The EU is Russia’s largest trading partner, according to the New York Times, and consumes seventy percent of Russian gas and fifty percent of Russian oil exports. This is why countries like Germany and Italy have not signed on to removing Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the Belgium-based financial messaging system that allows for transactions to occur between international banks, as it is used to pay for those energy resources from Russia.

Prior to the invasion, the Italian government sent their concerns about economic impacts to the European Commission and feared retaliation against the luxury goods sector over sanctions and looked to the EU for potential subsidies to compensate for those losses, as reported by Bloomberg.

Belgium, the headquarters for the European Union, would be most affected by any ban on rough diamonds from Russia as the countries are vital partners in the diamond trade. The Brussels Times noted that in 2020, more than 1 billion euros of Russian diamonds passed through the port city of Antwerp, and at the end of 2021, the industry representative Antwerp World Diamond Centre (AWDC) announced a renewed cooperation agreement with Alrosa. According to the press release posted to the Alrosa website in December, the renewed agreement is intended to further expand and strengthen the close relationship between the two organizations over the course of the next few years and commit to supporting traceability and sustainability of the diamond value chain. Quoted in the statement, the now sanctioned Alrosa CEO, Ivanov, said, “Antwerp is the world’s most important diamond trading hub, and Belgium is one of Alrosa’s largest trade partners.” Business and democratic interests remain misaligned.