The first major fashion moment of the year, a star-studded return to the red carpet at the Golden Globes, was dripping with diamonds. Dua Lipa and Reese Witherspoon wore archival necklaces from Tiffany & Co. De Beers dangled from Taylor Swift’s ears. America Ferrera’s neck sparkled in Harry Winston and Lily Gladstone wore a piece from Bulgari containing more than 70 individual diamonds.

Where did all these stones come from? That’s still not an easy question to answer for many companies, even as consumer concerns about pollution and human-rights abuses linked to the diamond trade have combined with mounting competition from lab-grown jewels to spur the industry towards greater transparency in recent years.

Diamonds are the product of long and complicated supply chains. Stones are typically sold in lots that are aggregated from different mines and pass through dozens of hands and countries before being set in a tennis bracelet or engagement ring. Hard-to-police processes and tangled webs of middlemen have plagued efforts to establish robust certification schemes. New technologies that promise better traceability are still limited in their rollout and mostly confined to larger stones.

Until now this has largely been a marketing challenge for the industry. But the war in Ukraine has drawn fresh scrutiny to the issue, since roughly a third of the world’s diamond supply is produced in Russia. Under new sanctions that started to roll out at the beginning of the month, all diamonds sold in the EU, UK, US, Canada or Japan will require verifiable and certified traceability “from the mine to the finger” by September.

That would be a seismic shift for the industry. And though it’s not yet entirely clear how the system will work, the new rules represent perhaps the most comprehensive effort to enforce transparency on any part of the fashion and luxury sectors.

“It really will be transformational for the diamond industry,” said diamond analyst Paul Zimnisky. “It’s going to usher in a level of transparency like we’ve never seen before.”

Old Industry, New Rules

The diamond industry has been grappling with the issue of traceability since the early 2000s, when concerns over conflict “blood” diamonds led to the introduction of the Kimberley Process certification scheme. But the UN-backed initiative has been criticised for significant flaws.

And while some countries banned direct imports of rough diamonds from Russia shortly after Western brands started exiting the country to comply with earlier sanctions over its 2022 invasion of Ukraine, stones cut and polished elsewhere in the world have remained fair game until now. Negotiations over introducing comprehensive sanctions on Russian stones were delayed in part because of the challenge in figuring out a system to effectively police the market.

According to the EU, the new system will require rough stones to be registered with a digital twin and certificate of origin on a blockchain-based ledger that will allow diamonds to be traced through cutting and polishing. A pilot of this system is set to be operational by Mar. 1 and rolled out across the market by September.

It’s an ambitious timeline for an industry dominated by a multitude of small businesses that are likely to struggle with the extra costs and admin involved in meeting the new requirements. Even for large players, the question remains whether existing technologies are capable of providing watertight and verifiable insight into the origins of a stone at scale.

“Traceability is such a core issue,” said Tiffany Stevens, the chief executive and general counsel of the Jewelers Vigilance Committee, a New York-based organisation that provides legal education and compliance guidance to the jewellery industry. “Now is the moment of truth for our industry in testing the systems that exist.”

Imperfect Solutions

Many large companies have already been preparing for the new regime. LVMH-owned Tiffany and Richemont both announced they had stopped buying Russian diamonds shortly after the war broke out. Dimexon, an Indian cutter and polisher specialising in smaller melee diamonds, has segregated its supply chain to ensure Russian stones don’t reach Western clients. It uses a database to track its diamonds and is able to confirm the non-Russian origin of its stones because it buys direct from miners.

The new sanctions will push this system further and test existing technologies. “It’s a learning curve,” said Morgane Winterholer, general manager of strategic brands and sustainability at Dimexon. “Rejigging supply chains, traceability tech, it’s all of that.”

De Beers, the world’s largest diamond miner, sources almost all of the stones in its jewellery from its own mines in Botswana, Namibia, Canada and South Africa. It has also developed Tracr, a system first launched in 2018 that combines blockchain and AI to track diamonds from mine to market. Rough diamonds are scanned, photographed, assessed and registered on the platform. As the stone is cut, polished and traded, each transaction alongside additional information and imagery are added to its digital identity.

De Beers opened the service up to the wider industry last year. Some 1.6 million rough diamonds and around 250,000 polished stones have been registered on the platform, but that’s a fraction of the global trade. It’s currently reserved for stones that weigh one carat and above and is still in the early stages of rolling out to the industry.

The new sanctions have increased the urgency of deploying such solutions. But onboarding new players takes time, and “even in our wildest dreams” the platform wasn’t intended to scale-up across the entire thousand-year-old diamond industry in the near term, said Tracr CEO Wesley Tucker.

Working with other organisations can help speed things along. For instance, in October, De Beers announced plans to work with Sarine, a maker of devices and software used throughout the diamond supply chain that has built its own traceability programme. The companies are still working out how they’ll integrate their systems, according to Romy Gakh-Baram, Sarine’s director of global marketing. But because Sarine’s products are so widely used, it’s able to track a major share of the world’s diamonds, Gakh-Baram said. As a diamond passes through its systems, it captures information about the stone, creating a verified record.

If at any point Sarine’s products are not used, however, the chain is broken and it can no longer verify the diamond’s history.

“Generally, most of [the] rough diamonds in the world, they are going through our systems,” Gakh-Baram said. “It can be done.”

But even with the most sophisticated technology available, there’s currently no scientific method to trace a diamond back to the mine simply by examining its properties. That means companies will need to trust that the initial information about a stone’s origin is accurate.

“In any digital system, the point of failure is the person who inputs the data,” said Pierre-Nicolas Hurstel, co-founder and CEO of Arianee, a provider of blockchain-based digital product passports for brands. (Arianee is not currently working on tracing diamonds).

Marketing Opportunities

Exactly how much it will cost the industry to meet the new requirements is still unclear. And while Russian diamonds will likely still make it to markets in Asia and the Middle East that fall outside the new sanctions regime, those that fall under its reach account for around 70 percent of the global diamond retail market, according to the EU.

“It will upgrade traceability within the industry,” said diamond industry analyst Edahn Golan. “The downside is that all this is not going to be paid for by G7. It will be paid for by the industry and the consumer.”

Despite the additional costs and technological challenges, some see an opportunity for the new regime to bolster the marketability of natural diamonds at a time when the sector is facing new competition and scrutiny.

Demand for diamond jewellery has diminished following a pandemic boom, and lab-grown stones, historically dismissed as “fake,” have successfully been positioned as a desirable alternative that avoids many of the human rights and environmental concerns associated with traditionally mined stones.

In that context, traceability is a defence strategy. “If you can tell consumers where a diamond came from it quells concerns,” said Zimnisky. “It’s an opportunity to tell a story.”