On Thursday, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) added Russian diamond miner Alrosa to its Specially Designated Nationals (SDN) list—which may have serious implications for U.S.-based companies with overseas ownership.
Being designated an OFAC SDN means Alrosa’s U.S. assets are frozen, U.S. companies are forbidden to deal with it, and it can’t make any transactions in dollars.
Sanctions imposed in March already ban U.S. companies from directly importing rough or polished diamonds from Russia. However, this new order may also affect companies that are owned by international conglomerates.
“If you’re a U.S. company that has a direct ownership relationship with a company overseas, such as in India or Antwerp, and that company buys from Alrosa, you should talk to a lawyer,” says Sara Yood, deputy general counsel for Jewelers Vigilance Committee.
She adds that affected businesses “should seek assistance from the OFAC hotline. They can help you get a general license or help you understand how general licenses work. They can give you specific ways for you or your parent company to wind down any business with Alrosa.”
Prior Treasury guidance allowed for the importation of Alrosa goods that are cut and polished elsewhere. Yood warns that, until the industry gets more clarity on what the new sanctions mean, buying any Alrosa goods—even those cut somewhere else—should, for the moment, be considered extremely risky.
“These restrictions also apply to banks,” she adds. “So it’s highly likely that your bank will be reaching out to you and asking if you have a relationship with Alrosa, or even if you have goods that originated with Alrosa.”
While chances are most U.S. businesses have already severed ties with Alrosa—and Alrosa’s has already said it will close its U.S. office—this new rule mandates that any remaining ties be severed.
The sanctions extend to any entity 50% owned by Alrosa—so it’s not clear whether they would extend to the Catoca mine in Angola, which is 40% owned by Alrosa, except that buying Catoca diamonds directly from Alrosa would not be permitted.
Alrosa accounts for about 90% of Russia’s diamond production. Another Russian diamond producer, Grib, has been taken over by state-owned VTB Bank, which has also been sanctioned.
While sources say Grib has not been conducting sales of late, Yood says that buying from that company would also be prohibited under current sanctions.
The U.S. Treasury statement noted that Alrosa has already been sanctioned by Canada, the United Kingdom, New Zealand, and the Bahamas.
The statement further noted that Alrosa accounted “for 28 percent of global diamond mining. In 2021, Alrosa generated over $4.2 billion in revenue. Diamonds are one of Russia’s top ten non-energy exports by value, with exports in 2021 totaling over $4.5 billion.”
Alrosa’s CEO, Sergei Ivanov, has been on the OFAC SDN list since Feb. 24, the day Russia invaded Ukraine. The same day, Alrosa itself was slapped with relatively mild sanctions, which prohibited it from raising new debt and equity in the United States. (At the time, Alrosa said that Ivanov had no assets in the United States and had no need for more financing.)
Russia is currently the most sanctioned country in the world, topping a list that includes Iran, Syria, and North Korea.
Photo courtesy of the U.S. Customs and Border Protection
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