Over the past few weeks I have written about issues arising from the export of diamonds which were potentially sanctioned under the Zimbabwe Sanctions Regulations administered by the United States Department of the Treasury Office of Foreign Assets Control. As I had previously mentioned, it was believed that the U.S., through OFAC, and the E.U. would take action against those involved in the export of certain Zimbabwean diamonds to Dubai, for later export to India.

Recent reports suggest that the confrontation regarding these rough diamond exports from Zimbabwe is almost over with India and China successfully brokering a solution with the United States and the European Union at the April 14, 2011 Kimberley Process’s (KP) Working Group of Monitoring (WGM) meeting. Those in attendance at that meeting stated that a consensual draft of a Joint Work Plan (JWP) has been prepared by a number of countries and was submitted to the KP chair Mathieu Yamba of Democratic Republic of Congo (DRC).The KP Chair is tasked with sending the consensual draft to the Government of Zimbabwe for acceptance in order to resume the exports of diamonds from the Marange diamond field.

The diamonds in question were ultimately destined for Surat, India, the world’s largest diamond cutting and polishing center. Surat has been eagerly waiting for the Zimbabwe issue to get resolved, as the Marange diamond field produces more than one million carats of rough stones. That type of production could alleviate the demand-supply gap currently prevailing in the global market.

The controversy around the diamonds began last month when KP chairperson Mathieu Yamba called for Zimbabwe to export its rough gems from Chiadzwa diamond fields. This decision immediately sparked a debate with the U.S. and E.U warning diamond companies in India and UAE not to buy the rough stones from Zimbabwe. Those not heeding the warning were at risk of being identified on government websites and having their transactions investigated by OFAC.

The diamond trade can often lead to OFAC issues. There are a number of sanctions programs administered by OFAC that either directly or indirectly impact diamond traders. As such, those individuals involved in the diamond trade should be cautious that their activities or their involvement with certain parties do not draw the negative attention of OFAC. For those involved in the diamond industry an OFAC compliance program is a must, as is staying aware of the latest additions to OFAC’s Specially Designated Nationals (SDN) List.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.