Glimmers In The Shadows: The Complex Web Of Coloured Gemstone Trading
In this article we explore the ways in which coloured gemstones are traded.
We pick up their journey as they leave the mine site and are passed hand to hand, making their way to cutters, polishers, treaters and jewellery-makers around the world.
Coloured gemstone supply chains are highly complex and can be opaque. Traditionally, they work largely on trust between parties. Few paper records are kept, and contracts are sealed with a shake of the hand. In the modern economy of e-money, bitcoin, contactless credit cards and smart contracts, the way that coloured gemstones are traded might seem out of date, but gemstones worth hundreds of millions of dollars are being bought and sold, and are physically changing hands, successfully in the same way today as they have been for centuries past. The trade’s nebulous structure might also be viewed as an opportunity for illicit activities, but that is not why it is shaped the way that it is. The process of coloured gemstone trading is technically challenging, and taming its complexity generates livelihoods for a vast network of small enterprises and individual traders, many of whom bring enormous expertise, skill and passion to their trade. Through the income that they gain, independent traders around the world have the potential to benefit those close to them: supporting their families, funding their children’s education, or contributing to development in their communities.
Although the way the bulk of the coloured gemstone trade is conducted has not followed the same changing paths of some of other industries, the modern world is starting to press up against it. New technologies, such as blockchain-based traceability software and nanoparticle marking of stones have the potential to shine a light on supply chains. Meanwhile, some large companies are entering the coloured gemstone sector and introducing new trading models.
Nonetheless, the methods by which the vast majority of coloured gemstones are traded will not change quickly. Technological solutions for gemstone traceability are currently too costly to apply to most stones, and large companies’ innovative trading models are not widely replicable. In order to understand what effective Responsible Sourcing of coloured gemstones could entail, therefore, it is first necessary to understand the trade’s status quo – its practicalities, and its intricacies. We offer an overview of salient aspects in this article.
Table of Contents
- Valuation of gemstones
- How Coloured Gemstones are Valued:
- Tools, Standards and Initiatives to Help with Valuation
- The Consequences of Elusive Valuation
- Traceability of Gemstones
- On A Trader’s Secret Service
- The Challenges of Traceability
- Blockchain-Based Traceability
- Nanoparticle Systems
- Abuses, Crimes and Cronyism
- Smuggling and Tax Avoidance
- Organised Crime
- Fuelling Conflict
- Two Countries, One Trade: Afghanistan, Pakistan, Conflict and Coloured Gemstones
- Sustaining Systems that Violate Human Rights
(You can also use the menu dots below to navigate chapters)
A Gemstone’s Tale
Imagine a group of artisanal miners, digging an alluvial deposit in a remote rural corner of Sri Lanka. They find a sapphire. To the untrained eye, it could be mistaken for an irregular glass pebble or coloured rock - a far cry from the radiant stone that might eventually be set into a piece of jewellery.
For the miners, who do not have the means to travel far, and whose skills in gemstone assessment, valuation and price negotiation may be limited, it is worth what local traders will pay. Traders will travel to mine sites, often undertaking long journeys on poor roads, to look for bargains that can turn a profit, after transport and other expenses have been covered. The miners may have little option but to sell the sapphire to this trader, probably someone already known to them and their fellow workers, for the price offered. Miners operating at this scale and in remote locations typically cannot afford to hold out for a better deal, which might well never come.
The trader then transports and sells the sapphire to the next person in the chain. This could be another mobile trader, or a stall holder at a nearby gemstone market, such as Beruwala, where a wide range of locally and internationally mined stones intermingle. After several more trades the stone might find its way into the hands of a craftsman who will pre-form, cut and polish it into something more resembling ‘a gem.’ From here the stone might be sold on to an intermediary trader in a more centralised trading hub, say Colombo, where it is joined by thousands more sapphires from other parts of Sri Lanka and also from other countries.
Beruwala Gemstone Market, Sri Lanka – where you can buy stones from all over the world. Photo credit: TDI Sustainability
The gemstones in Colombo are sold on their merits of colour, weight (or ‘carat’), and clarity – but there is no official pricing system. Traders sell for what they can, and this may be just the first of multiple trading hubs that the gemstone travels through internationally. A stone will likely be cut, polished and probably treated at one of these hubs, if it wasn’t already, earlier in its journey.
Small gemstones known as melee tend to be sorted by size and quality and sold in parcels of specific weights, which provide a degree of predictability in their contents, and which aggregate stones from all over the world. Larger, more unique and especially desirable stones - for example those suited to a solitaire ring, or a pair of earrings - will be sold individually or in matching sets.
Buyers who come to these hubs might work for jewellery companies, or they could be independent traders. They may be scouting for unique and valuable gems, or they might have bulk orders to fulfil, stipulating the number of stones, their cut, colour, clarity and carat as well as the budget. In some cases, a stone’s origin, and any treatments it has undergone, may also be important to a buyer. For example, if a company has committed not to source from a specific place for ethical reasons or wants to be able to make claims about the stone being from a prestigious origin, or being unadulterated from its natural form.
Eventually, the sapphire in our story will most likely be set into a piece of jewellery. If it is valuable then it might sit as the centre stone of a ring, with lighter coloured sapphires on either side whose own journeys started in completely different parts of the world. The ring might be sold on to a wholesaler and then a retailer, or perhaps the manufacturer itself has a retail arm and a sales brand of its own. From its retail destination, supported by marketing efforts and the sales expertise of staff on the shop floor, the ring will attract the attention of a customer, and find its way onto someone’s finger.
If the gemstone could speak then it could describe the people and places it encountered along its journey, and who gained what and who lost what as it went. Little paperwork changed hands along the way, however, so for the person who wears this ring on their finger all this surety is forever out of reach.
This typical story highlights the enormous challenges of tracing gemstones’ journeys and origins, of applying environmental, social and governance standards to their production and processing, and of establishing mechanisms to carry ethical assurances down the supply chain.
As a final twist to this tale, now imagine that all the events described above took place fifty years ago, or a hundred years ago, after which point the ring was treasured and valued for many years by its owner. The owner eventually passes, and many years later the ring finds its way onto the workbench of a jeweller, who prizes out its central stone with care, swapping it for a ruby for a client he had in mind, and puts the sapphire up for sale. Its journey begins once again.
The Coloured Gemstone Supply Chain
Over the course of this article, we take a microscope to the journey of coloured gemstones. Is the story above really typical? What other types of gemstone journeys are there? Who benefits along the way, and how, what innovations could break the status quo, and what does all this mean for Responsible Sourcing? We explore these issues in the sections to come.
Trading Near Mine Sites
The miners who discovered the sapphire in our story worked in a small group, with basic tools such as picks and shovels. In responsible sourcing nomenclature they would fall under the category of artisanal and small-scale miners (“ASM”), and the World Bank estimates that 80% of sapphires globally are produced by such ASM groups1http://www.worldbank.org/en/topic/extractiveindustries/brief/artisanal-and-small-scale-mining. Industry sources cite similar percentages for other types of coloured gemstones too.2https://resourcegovernance.org/sites/default/files/documents/governing-the-gemstone_sector-lessons-from-global-experience.pdf So the miners depicted in our story are quite typical (for more information on how coloured gemstones are mined, see article 2 in this series: Hands that Dig, Hands that Feed: Lives Shaped by Coloured Gemstones Mining).
It is also typical for miners to be far removed, geographically, from gemstone markets – often even more so than the Sri Lankan miners in our story. Many important sites for ASM gemstone mining are remote and under-developed. For example, the densely forested hills of Colombia’s Western Boyacá province, the dry, mountainous district of Badakshan in the far north-eastern corner of Afghanistan and the island of Madagascar, 400 miles off the coast of mainland Africa.
Miners working in these locations, many without ready access to transport or the means or contacts needed to sell far afield, will often sell to traders from towns and villagers local to the mine, who form links in a long chain, stretching over oceans, and criss-crossing countries and continents.
National and International Trading
A gemstone may change hands dozens of times after leaving the mine. The traders who operate in towns and villages near mine sites will typically sell gemstones to other traders, coming from larger towns and cities, and the stones will then likely pass through many trading hubs – some of which will be small local markets, and others of which will be vast international centres for gemstone exchange and processing. As gemstones travel through these hubs, they pass through facilities that sort, grade, cut, and polish them, and often treat them to improve their colour and clarity. Then, after leaving such hubs, gemstones pass through traders again to jewellery manufacturers and retailers before reaching an end customer.
Each transaction in the process is typically undertaken by small trading enterprises or individual traders. Sometimes, these traders will be guided by supply-side considerations – knowing what stones they can source, and for what cost, and trying to place these stones with buyers in ways that can turn a profit. At other times, these traders will be guided by demand. A buyer might place an order with a trader for a set quantity of a certain type of stone, and it will be up to the trader to engage with their network to have the order completed. If an order is particularly large or specialised, it can take years for a trader to fulfil it – effectively building up a new supply chain in the process, reaching up to the gemstone deposits themselves.3Based on an interview conducted for this paper with Manraj Sidhu, Director at Multiple Gems Ltd
Informality and the Importance of Trust
Each one of these traders, whether operating locally, nationally or internationally, typically maintains a complex network of relationships - professional, personal and a mix of the two. Historically, the gemstone industry at all levels and scales has been predominantly based on trust, often relying on business relationships within and between families that span generations, with little by way of written contracts or documented paper trails.
In East Africa, in the present day, a ruby worth tens of thousands of dollars can change hands on a dirt street with no paperwork at all – given to an expert who will examine it, pre-form it and work out the best way to cut it, then hand it back to its owner a week or so later on the same street, all based on trust.4Based on observations from TDI fieldwork in East Africa in October 2019
Dealing with trusted partners helps gemstone traders to avoid financial losses, in the absence of a paper trail or reliable legal recourse, and to avoid interpersonal conflict over suspicions and accusations. Trust and reputation are inextricably linked in the world of coloured gemstone trading, and traders who break trust once risk the destruction of their reputations for life – without which they cannot work. Trust is maintained because traders know that the consequences of breaching trust outweigh any short -term benefits they could hope to gain from doing so.
Trust within the gemstone trade is also about physical security for traders. Arranging official export paperwork and engaging a professional courier willing to ship gems can be onerous, time consuming and costly.5TDI interview with international coloured gemstone supplier, June 2019 So, in practice, many gem dealers simply carry gems unofficially, and discreetly, about their person. This leaves them vulnerable to robbery, assault, and worse, and the risk is ever present – whether they are on the streets of London or in a Malagasy village.
Traders must find ways to mitigate these risks, and the foundation of their efforts is typically trust. A trader may have a network of trusted shops in the towns he visits, that will let him store his stones in their safe overnight. A particularly rare or valuable stone might only be offered to trusted contacts, or people personally recommended by a trusted contact, lest its existence become known to too wide a circle of people. Close to the mine site, a foreign trader may choose to stay put in a hotel and have local ‘runners’ come to him with stones he might want to buy – relying on the runners’ own trust networks to keep them from harm.
Back, Forth and Around Again
A gemstone’s journey may not be one straight line from mine to customer. Stones can be traded back and forth many times. An intermediary trader, for example, could present a parcel of stones, roughly sorted by size and colour, to a buyer, who then selects the stones that they want and returns the surplus to the same trader, or passes them on to another trader entirely.
It is also rare that a gemstone will only have one final owner. Gemstones are imperishable, and they concentrate considerable value in a small size and weight, so after decades of use, or speculative storage, a gemstone can simply be put back on the market once again. According to an estimate by coloured gemstone experts Laurent Cartier and Vincent Pardieu, in a blog published by National Geographic “fewer than 2% of gemstones in circulation were mined in the last two years” 6“Conservation Gemstones: Beyond Fair Trade?”. National Geographic Society Newsroom. 12th January 2012. https://blog.nationalgeographic.org/2012/01/12/conservation-gemstones-beyond-fair-trade/
Gemstones are passed down through generations as heirlooms, often to be resold on the open market when a family’s circumstances change. Or they may be held for more commercial reasons, by speculators who wait until the price of a particular type of stone is high enough to realise a good return on their investment.7“Sapphire Shop”, Case Study No. 32 of the Lubin Business School Case Studies series. Pace University. 17th April 2007. http://digitalcommons.pace.edu/business_cases/6 Coloured gemstones can re-enter the market at a number of stages – perhaps through an auction house specialising in fine vintage jewellery for collectors and high end retail customers, or maybe via an intermediary trader who adds value to the stone by cutting, polishing and perhaps treating it again, either to repair damage from wear and tear, or to keep up with changing trends and preferences. Many coloured gemstones continue to be bought and resold long after the mine that they came from has closed and faded into memory.
Large-Scale Miners as Traders
In recent years large mining companies including Belmont, Gemfields, Greenland Ruby and The Muzo Companies have established themselves in the coloured gemstone sector. Unlike small, traditional gemstone miners, these companies operate over large concession areas and, in the case of Gemfields, over several countries (the topic of large-scale gemstone mining is covered in the second article in this series Hands that Dig, Hands that Feed: Lives Shaped by Coloured Gemstone Mining.
Each of these companies have set up trading arms within their business structures. This reduces their need for intermediary traders and ultimately shortens supply chains. Gemfields’s trading operations, in particular, are highly developed and involve grading of rough gemstones and formal, structured auctions for traders. Gemfields also undertakes marketing efforts to end customers, and collaborates with designers, including through their in-house brand Fabergé, to showcase their stones in jewellery which can be purchased through their website.8“Collaborations”, Gemfields website, https://gemfields.com/marketing-sales/collaborations/ Through marketing campaigns, vertically integrated companies can increase demand for their stones in ways that miners who do not vertically integrate cannot hope to replicate.9“Governing the Gemstone Sector, Lessons from Global Experience”, p18, Natural Resource Governance Institute. May 2017, https://resourcegovernance.org/sites/default/files/documents/governing-the-gemstone-sector-lessons-from-global-experience.pdf The Columbian emerald mining company Muzo adopts a similar approach to Gemfields, with an online store and physical shops in New York and Geneva, through which it sells a range of high-end jewellery featuring the stones that it mines. Greenland Ruby, too, keeps its supply chain fully traceable, by selling exclusively to ‘preferred partners’ for cutting, polishing and distribution, who ensure that each stone carries with it a Certificate of Origin issued by the Greenlandic government.10“Responsible Source”. Greenland Ruby website. https://www.greenlandruby.gl/responsible-source/
These large companies can offer things to buyers that small scale traders generally cannot: consistency, and transparency of supply. A large-scale mining company can be confident that it will produce roughly the same volume of stones, with roughly the same distribution of sizes and qualities, month on month for several years. A jewellery-maker who sources his or her stones from a large mining company can be assured of a steady stream of similar stones with which to work. Also, he or she can also know the history of these stones and reassure customers regarding their origin.
Currently, large-scale mining only accounts for about 20%-30% of non-jade coloured gemstone production 11“Artisanal and Small-Scale Mining”. The World Bank. 21st November 2013. http://www.worldbank.org/en/topic/extractiveindustries/brief/artisanal-and-small-scale-mining 12“Governing the Gemstone Sector: Lessons from Global Experience”, p8. Natural Resource Governance Institute. May 2017. https://resourcegovernance.org/sites/default/files/documents/governing-the-gemstone_sector-lessons-from-global-experience.pdf, and is restricted to high value stones such as rubies, emeralds and tanzanite. Growth potential for large scale mining is limited, since large mines rely on large gemstone deposits with enough valuable stones to ensure commercial viability. There are very few such deposits in the world, and each deposit produces a narrow range of stone types. Yet jewellers and their customers want a great variety of coloured gemstones. This means that large-scale mining cannot expand indefinitely, to swallow up all the small-scale miners, and the networks of traditional independent gemstone traders that rely on them.
Nonetheless, many traditional gemstone traders are apprehensive of these newcomers.13This section is based on several interviews conducted by TDI with experts from large gemstone companies and from the world of small-scale gemstone trading. One concern that small traders articulate is that the allure of a consistent, dependable product will tempt buyers away from the diverse, rich and unpredictable stock they can offer, irrespective of whatever skill and expertise they pour into selecting their stones. Another concern for small traders is that the supply chain traceability that large companies can offer will come to be expected by their own clients – expectations that they will not be able to match.
As with any market disruption, the advent of large coloured gemstone companies creates challenges for traditional participants in the sector, which they must meet in order to remain competitive.
At the same time, many traders point to the advantages that their traditional trading models can bring. For example, the director of a small, family-owned trading company in Tanzania, Manraj Sidhu, gave his opinion for this report that14Interview with Manraj Sidhu conducted in December 2019:
“When you buy from a local trader in a gemstone-producing country, all the money you part with flows into the local economy in one way or another. For a country to benefit from its gemstones, the maximum fraction of the value of those stones should stay in the country – these stones start as dust in the ground, and you’re literally turning them into dollars. Large mines might pay 30%-40% of their revenues in taxes, but most of the remaining 60%-70% leaves the country, so small traders can help to retain more value for producer countries.”
~ Manraj Sidhu
The Tucson Gem and Mineral Show
The Tucson Gem and Mineral Show is almost a microcosm of the worldwide gemstone trade. An annual event that consists of more than 40 individual shows that take place at dozens of locations across the city, the event brings buyers and sellers together from across the globe, operating at all tiers of the industry, including some out of the boots of their cars. Gems can be bought one day at an open-air market and sold on the next day to collectors at a more prestigious venue. Rubies from Tanzania and Madagascar are showcased by one trader but aggregated anonymously into parcels with stones from Kenya and Sri Lanka by another. Parcels of stones of different sizes and shapes, colours and clarity are swapped, mixed and exchanged until their origin becomes a distant memory.
Which Gemstones Flow Where?
Within most countries that mine coloured gemstones there is a body of craftspeople who can cut, polish and treat these stones for the local market. However, countries without a long tradition of gemstone mining (particularly in Africa) often lack the know-how to cut, polish and treat gemstones to the standard required by international buyers. In such cases, gemstones are typically exported rough to other countries with more established processing industries.
Trading destinations for these stones are often determined by proximity. East African gemstones, for example, are frequently exported to Colombo, Sri Lanka – a nearby gemstone hub, across the Indian Ocean. They are then cut and polished, and often treated, and traded on from there.
Trading destinations can also depend on the type of stone being traded, because certain hubs are known for their cutting and polishing expertise for specific types of gemstone. Emeralds from Zambia, for example, are more likely to end up in Jaipur, India, than they are to be traded through Sri Lanka, because Jaipur is an important trading and processing hub for emeralds. Despite the fact that emeralds have never been mined in India, Jaipur has specialised in the cutting and polishing of these stones ever since the 1700s when the Raja of Amer invited craftsmen to come to the city to make it a leading centre of luxury jewellery. 15“Jaipur, India: The Emerald Cutting and Trading Powerhouse”. GIA Field Report. 8th February 2016. https://www.gia.edu/gia-news-research/jaipur-india-emerald-cutting-trading-powerhouse 16“Romancing the Stone”. Business Today. 25th December 2011. https://www.businesstoday.in/magazine/reporters-diary/jaipur-emeralds-business-global-polishing-centre/story/20734.html As well as receiving the majority of Zambia’s emeralds, Jaipur also takes the majority of rough emeralds originating from Brazil.
In some cases, the trading destination depends on the size and quality of the stone. Some trading hubs specialise in high quality single stones, while others focus on the trade of melee - smaller stones that are sorted, cut, often treated, and finished to be uniform in shape and size. Sri Lanka, for example, takes high quality sapphires from around the world – not just from East Africa. It is renowned for the precision cutting skills of its craftspeople, which have been passed down and honed over the centuries that Sri Lanka has mined its own sapphires.
The city of Chanthaburi in Thailand, on the other hand, has become the biggest centre in the world for processing high volume, lower-grade sapphires, rubies and other stones. In contrast to Sri Lanka, Thailand’s pre-eminence for gemstone processing only came about after the country’s domestic sources of high-quality gemstones began to dry up, in the mid-twentieth century. Faced with declines in gemstone quality, Thai craftspeople adopted and refined heat treatment, filling and other improvement techniques to enhance the colour and clarity of lower quality gemstones, and traders then began to move gemstones from other countries through Thailand too, so that they could enhance their value through these techniques.17“A market like you've never sheen”. The Hindu. 29th July 2017. https://www.thehindu.com/thread/arts-culture-society/a-market-like-youve-never-sheen/article19384978.ece 18“Thai Gemstones”. AJS Gems website. Accessed 11th December 2019. https://www.ajsgem.com/articles/thai-gemstones.html
The town of Idar-Oberstein in southwest German caters for gemstones at the other end of the spectrum – crafting rare and high-value jewels for the luxury market. Nestled in the Hunsrück Mountains, this historical town was an important source of agate, jasper and quartz for many centuries. Like Chanthaburi in Thailand, the city of Idar-Oberstein has lived on as a hub for the processing of coloured gemstones, even though its own deposits are now largely exhausted. Traders in the city import rough gemstones from all over the world, to be cut and polished by the city’s master craftspeople. Although the quantity of stones that moves through Idar-Oberstein is far lower than the amounts processed in Sri Lanka and Thailand, this quiet Rhineland town enjoys a towering reputation in the world of gemstones and jewellery.19“Idar-Oberstein; German Gemstone History”. Gem Select website. Accessed 11th December 2019. https://www.gemselect.com/other-info/idar-oberstein.php
Global trading patterns in coloured gemstones are shaped by the fact that expertise has inertia. Highly specific skills and techniques, that have been honed over decades, if not generations, cannot easily be transplanted to new countries and new contexts, or to novel types of stones from unfamiliar deposits. As well as shaping the nature of gemstone trading, this fact has very significant implications for “value retention” initiatives, which aim to foster processing industries in under-developed gemstone producing countries. We explore this issue in-depth in the next article in this series, Wheels of Fortune: The Industrious World of Coloured Gemstone Cutting and Polishing
How Supply Chain Structure Affects Responsible Sourcing
‘Responsible Sourcing’ is a term used for an approach to supply chain engagement that seeks to maximise benefits for material producers and processors, while mitigating any negative environmental, social and governance impacts that are associated with the materials that are being supplied. Responsible Sourcing is advocated for by a cadre of international bodies and civil society organisations, and its implementation can take many forms, but it invariably entails detailed knowledge of supply chain structures. Without this knowledge, it would be difficult to target improvement and mitigation efforts effectively.
When looking at a jewel in a shop window, it is highly unlikely that you will be able to determine with confidence which country it came from, let alone which mine, and it is all but impossible to learn who benefitted along its journey, and who did not. These difficulties in traceability present a significant challenge for the objectives of Responsible Sourcing, as do other aspects of the coloured gemstone trade, including the elusive nature of fair valuation, and gemstones’ vulnerability to smuggling, and to involvement in illicit financial flows and conflict. We examine these challenges to Responsible Sourcing in the following section.
1. Valuation of gemstones
An artisanal miner extracting gold, tin, tantalum or other mineral ores generally has a good idea of how much the materials he mines are worth. In the case of gold, even small-scale miners generally have means to access to the London gold price - it can be passed along by mobile phone, and some gold refiners offer to send this information via SMS as a free service. It is also often displayed publicly in mining settlements. By comparison, each gemstone is unique and requires expertise to value. There is no common standard against which gemstones can be appraised, and ultimately their only true value is the amount that a buyer is prepared to pay. This means that if one party to a trade has less expert knowledge than the other then they are vulnerable to being misled. The knowledgeable party can under-value the stones they buy, from miners and others, or over-value stones they sell, to other traders, cutters, polishers, jewellery-makers or customers on the high street.
To better understand the difficulties that gemstone valuation presents, one must first understand how coloured gems are valued.
How Coloured Gemstones are Valued:
A coloured gemstone’s value depends on its carat weight, its clarity and colour, the quality of its cut, and what treatments it has undergone.
A trader dealing in rough gemstones, which have not yet passed through the hands of the craftspeople who will transform them into jewels, can only speculate as to the value locked within them. A rough gemstone can look as unremarkable as a cloudy pebble, and great skill is required to discern what quality of jewel it could eventually become. Even professional gemmologists’ estimates of a rough stone’s value can vary by up to 30%.20“Governing the Gemstone Sector: Lessons from Global Experience”, p46. Natural Resource Governance Institute. May 2017. https://resourcegovernance.org/sites/default/files/documents/governing-the-gemstone-sector-lessons-from-global-experience.pdf
Once a gemstone has been cut, polished and treated, the properties that determine its value are no longer a matter of speculation and conjecture. They are measurable and they can be compared to data gathered from the sale of similar stones in order to benchmark its price (for example by using the GemePrice online valuation platform21Accessible at: https://www.gemewizard.com/gemeprice/).
Even for a finished gemstone, however, gathering this data is far from straightforward, and it still involves a degree of subjectivity. A gemstone’s carat weight can be measured using a relatively inexpensive set of scales, but its colour, clarity and treatment history require expert analysis.
A gemstone’s colour is not just about hue (red, blue, green, and so forth). Saturation - the intensity of the colour - also plays a role, as does tone, which measures lightness and darkness.22“Judging Quality: The Four C’s”. Pala International website. Accessed 11th December 2019. http://www.palagems.com/quality-4c All these properties must be assessed to gauge a gemstone’s colour, and there are no hard and fast rules regarding colour grades. For example, the mineral beryl sometimes occurs in a particularly verdant hue of green and is known as ‘emerald,’ but experts in gemmological laboratories often disagree over which stones can be considered emeralds and which are simply green beryl.23“Emerald Description”. GIA website. Accessed 28th January 2020. https://www.gia.edu/emerald-description Likewise, both rubies and sapphires have the same mineral composition, known as corundum, but while sapphires can be blue, pink, orange or other colours, only corundum that is predominantly red can be designated and sold as ‘ruby.’
Even within a designation such as ruby, sapphire or emerald, not all colours are equal. Certain grades of colour attract special names, and higher price tags. Deep red rubies, which are most commonly associated with the Mogok Stone Tract in Myanmar, are known as ‘pigeon’s blood’ rubies and are highly sought after.24“GRS-Type "Pigeon's Blood" Ruby: Definitions, Retroperspectives And Future”. GRS Laboratory website. Accessed 11th December 2019. http://www.pigeonsblood.com/ Similarly, the most prized blue sapphires are of a particular colour known as “cornflower”, most commonly associated with production in Kashmir25“What exactly is the Cornflower Blue Sapphire”, Gemstone Universe website. Accessed 11th December 2019. https://www.gemstoneuniverse.com/what-exactly-is-cornflower-blue-sapphire.php (for more information on the distribution, geology and chemistry of different types of coloured gemstone, see the previous article in this series, Hands that Dig, Hands that Feed: Lives Shaped by Coloured Gemstone Mining.
Gemstone colour grades are predominantly assessed by eye. A stone’s treatment history, on the other hand, is often indiscernible to the naked eye. Its discovery requires the use of specialist equipment and technical expertise outside the reach of most coloured gemstone traders.
Nonetheless, a stone’s treatment history can have an enormous impact on a gemstone’s value. An untreated one carat ruby, for example, can sell for ten times the price of a visually similar treated ruby.26Estimate by Matthias Krismer, procurement manager at Swarovski.
Tools, Standards and Initiatives to Help with Valuation
Common terms like ruby, sapphire, amethyst and citrine are formalised by international bodies including CIBJO, which is the French acronym for the Confédération Internationale de la Bijouterie, Joaillerie, Orfèvrerie des Diamants, Perles et Pierres (which translates as the International Confederation of Jewellery, Silverware, Diamonds, Pearls and Stones). CIBJO defines acceptable terminology throughout the world for the jewellery industry, including for coloured gemstones. The CIBJO Gemstone ‘Blue Book’ sets guidelines for how stones should be classified and traded to promote clarity and honesty.27The CIBJO Blue Books are available here: http://www.cibjo.org/introduction-to-the-blue-books/ The guidelines must be followed by all traders who are affiliated with CIBJO globally.
The CIBJO Gemstone Blue Book calls for sellers of gemstones to fully disclose information about the nature of the stones that they are selling at the time of the sale, regardless of whether the buyer has requested the information or not. This information includes the type of stone it is and any processes and treatments that it has undergone (which we discuss in the next article in this series, Wheels of Fortune: The Industrious World of Coloured Gemstone Cutting and Polishing). The guidelines go on to stipulate how certain terms can or can’t be used, including ‘real’, ‘precious’ ‘genuine’ and ‘natural’. Disclosure must be made verbally, and also in writing on all commercial documents relevant to the sale. When information is disclosed in this way, customers are less prone to being misled about the value of the gemstones they buy.
Most countries have trading standards for gemstones too. The U.S. Federal Trade Commission, for example, provides a guide for the jewellery, precious metals, pewter, diamond, pearl and coloured gemstone industries, which for gemstones details how words relating to physical characteristics such as colour, weight and cut can or cannot be used to sell them, as well as giving details of what needs to be disclosed.28“Electronic Code of Federal Regulations, Part 23. Guides For The Jewelry, Precious Metals, And Pewter Industries”. US Government website. Accessed 11th December 2019. https://www.ecfr.gov/cgi-bin/retrieveECFR?gp=1&SID=4a2f3f01fd9b6bfd85de4de12e987c2f&ty=HTML&h=L&mc=true&r=PART&n=pt16.1.23
Gemmological laboratories assess all the physical characteristics of a gemstone that influence its value: its carat weight, its clarity and colour, its exact dimensions and its treatment history.
In addition, they assess gemstones’ place of origin which, for some stones like emeralds, rubies and sapphires, can play an important role in determining their value.
Gemmological laboratories attempt to establish gemstones’ origins by using a range of equipment to compare their mineral composition and physical qualities against archives of reference samples that have been collected direct from mines by field gemmologists. Laboratories offer this service to verify claims made by gemstone sellers, in part to reassure customers that the value attributed to stones based on these claims is fair. Ultimately, however, a laboratory’s origin report is an opinion, made subjectively based on similarities with the stones in that laboratory’s reference collection. Depending on the varying qualities of different reference collections, two laboratories might well disagree regarding a stone’s inferred origin. Moreover, each time a new deposit is discovered and exploited in the world, gemstone laboratories will be unable to correctly identify the stones that come from it, until such time as they have acquired sample stones for their own collections.
The cost of an origin report typically starts at around US$ 70, plus transportation costs for the stone to get to the laboratory and back. So, while an origin report can be a traceability solution for larger and more valuable stones, it is not commercially viable for smaller and cheaper stones, particularly outside the ‘big three’ of ruby, emerald and sapphire.29The GIA price list, for example, is accessible here: https://www.gia.edu/doc/Colored_Stone_FS_USD_2019_1001.pdf
Miners are often less knowledgeable about gemmology than the traders they sell to, and this puts them at a significant disadvantage. The difference between a deep pink or reddish-orange sapphire and a red ruby, for example, can be incredibly subtle, and all but impossible to distinguish to the untrained eye – they are only slight chemical variants of the same mineral, after all. Yet a ruby is considerably more valuable than a sapphire of comparable size and quality, so unscrupulous traders can claim a ruby as a sapphire when looking to drive down the price of a stone with a miner, or say a sapphire is a ruby to drive up the price to their customers.
Improved gemmological and market knowledge reduces miners’ position of weakness in negotiations and trade relationships. There are a growing number of initiatives working around the world to equip gemstone miners and their communities with field gemmology and gemstone valuation skills, to help them to lay claim to more of the value of the gemstones they mine.
To give one example, in 2017 the GIA (the Gemmological Institute of America) developed a guide to rough gemstones that artisanal miners in Tanzania can use to help sort their mined material and better understand its quality and value.30More information on the project is available here: “GIA Develops Free Gem Guide for Artisanal Miners”. GIA press release. 4th April 2017. https://www.gia.edu/gia-news-press/gem-guide-artisanal-miners The program has since been expanded to other areas of Tanzania. Another example is an initiative funded by GIZ (the German development agency) and then latterly by Tiffany & Co, to provide free, basic field gemmology tools and training to women involved in the sapphire supply chain in the gem producing regions around the towns of Sakaraha and Ilakaka in Madagascar. This training aims to equip female traders with sufficient knowledge to achieve a fair price for the stones that they sort and sell.31“Signature Project 2 - Gemmology and Lapidary for Women in South West Madagascar”, Gemstone and Sustainable Development Knowledge Hub website. Accessed 11th December 2019. https://www.sustainablegemstones.org/signature-projects/signature-project-232A video describing the project is accessible here: “Madagascar Sapphires: Teaching Gemology for Equal Opportunity”. Youtube. 7th December 2016. https://www.youtube.com/watch?v=NcgRqA8QE9Y
The Consequences of Elusive Valuation
Despite the tools, standards and initiatives described above, coloured gemstone valuation remains profoundly challenging, and highly dependent on specialist knowledge.
The difficulties of gemstone valuation are a significant challenge to effective taxation33“What’s sexier than gemstone taxation policies?”. Myanmar Times. 13th October 2014. https://www.mmtimes.com/business/11928-what-is-sexier-than-revising-gemstone-taxation-policies.html (alongside smuggling, which is discussed below). Imagine a trader in a gemstone producing country and a trader in an international trading hub, who have built up a trusting relationship over many years. The two traders might make a deal over a string of messages on WhatsApp and fix a price between them for a packet of gemstones, but agree to write down one tenth of that price on the export paperwork. The customs official who inspects the gems, and levies border taxes, likely has no knowledge of gemmology, hue, tone, or other technical factors, and would be in no position to disagree with the claimed value of the stones. So, the customs collector loses out, and so do the social, healthcare, infrastructure and development projects that that revenue could otherwise support.
Valuation challenges can also exacerbate power imbalances between supply chain participants. With no price benchmarks to work from, buyers with leverage can more easily pressure their suppliers on price. An anecdote from [Name redacted pending approval of quote]:
“African traders travel to Bangkok quite frequently to try to sell packets of stones there, but often they will be offered very poor prices. A stone that could fetch $ 150 in a fair market will receive $ 5 offers. After a few days in Bangkok, with hotel bills racking up, the African traders will cut their losses and sell for whatever price they can get, and the Bangkok traders know that and capitalise on it.”
The challenges of gemstone valuation also present difficulties for Responsible Sourcing movements such as “fair trade”, which rely on giving producers a greater share of a product’s final market value. If that final market value cannot be reliably predicted, then a ‘fair’ proportion of that value can obviously not be paid. There are workarounds to this issue, of course, but as in any industry a workaround increases complexity, and complexity increases overhead costs.
Lastly, difficulties in valuation encourage secrecy, and secrecy impacts on traceability, as we will find out in the next section.
2. Traceability of Gemstones
On A Trader’s Secret Service
The gemstone market is highly segmented, built on individual traders’ knowledge and expertise regarding particular stones. It’s also very fluid, with market demands shifting regularly to follow changing fashions and trends.
Traders therefore depend greatly on their close network of business alliances to stay ahead of who buys what, how they value the pieces that they buy, and what they are prepared to pay.
Fundamentally, a trader is always looking for a good deal. When a trader finds a source of stones that he or she thinks is under-valued – perhaps because their valuation expertise allows them to see potential in the stones that others cannot – they will want to keep the stones’ source to themselves. Their commercial interest lies in keeping competitors away from the miners, or other traders, that they buy the stones from. And they will want to find a good buyer for the stones, in turn, and keep that buyer a secret too. If their suppliers think that the traders are not selling their stones on for the best price, or that other traders can access the same buyers with less mark-up, then they may well choose to drop the original partner for their competitors. Embracing transparency can be a risky prospect for small-scale coloured gemstone traders.
The Challenges of Traceability
Reacting to the Responsible Sourcing movement, retail companies in many industries are increasingly asking suppliers for accounts of where the materials in their products have come from, how they have been produced, how they have been transacted, and the ethical circumstances of their journeys (as discussed in the fifth article in this series A Storied Jewel: Responsible Sourcing and the Coloured Gemstone Retail Sector).
Achieving traceability in coloured gemstone supply chains is uniquely challenging, however. As noted above, the coloured gemstone trade is largely informal and trust-based, with few records kept of transactions. Traders in gemstone producing countries will often have a good idea of the geographical area which their stones come from, based on the information given to them by their suppliers and the physical properties of the stones themselves.34Based on an interview conducted for this paper with Manraj Sidhu, Director at Multiple Gems Ltd At international trading hubs, however, the situation is very different. Gemstones can change hands repeatedly, back and forth. They can be grouped with stones from completely different parts of the world, un-grouped in a subsequent transaction, and grouped again in a string of different ways after that, before finally reaching an end customer.
Many within the industry will argue that complex trading webs are a natural reflection of gemstones’ fundamental nature. Gold mined in Ethiopia is the same as gold mined in the United States, so there is no need to ship specific pieces of gold around the world to meet individual customers’ needs. This is not true of gemstones, since there are so many types, and since each individual stone is unique. A gemstone’s journey through the hands of many experts, each of who has thorough knowledge of the skills and specialisations of the next expert in the chain, can help to ensure that the ultimate value and beauty of the stone is realised. It will be cut, polished, treated and set into jewellery in the way that is most suited to its individual qualities.
There is also a more instinctual business reason for trading chains to stay complex. Recall the example, above, of the foreign trader who visits a gemstone area and stays in his hotel, sending runners to bring him packets of stones. Local traders closer to mine sites can be extremely territorial, since their livelihoods depend on exclusive access to their sources of stones, and other traders perceived as ‘outsiders’ may risk meeting resistance and even harm if they encroach too boldly. Thus, a multi-layered trading system is held in place.
Gemstone trading also involves complex inventory and sales mechanisms, which can vary widely across the supply chain. For example, the gemstone trade commonly uses a system of ‘memo transactions’ whereby gemstones are lent to others on ‘appro’ (approbation) in the hope that they can be sold on by the recipient, or else they are returned to the original owner if a buyer cannot be found.
In addition to these issues of complexity, gemstone supply chains are rich with opportunities for fraud and the substitution of stones, from the mine site onward. An anecdote from [name redacted pending approval of quote] illustrates one method by which assured supply chains could be compromised by stones from non-assured sources:
“There was a recent case of a Responsible Sourcing initiative at a gemstone mine in Sri Lanka. The international partner put a lot of work into getting all the right systems in place for environmental and social protections, and they eventually had everything up and running, but the mine started to cheat the system. They brought in cheap heat-treated stones from Madagascar, claimed they mined them themselves, and sold them on at a premium as responsibly sourced Sri Lankan gems35Interview with Vincent Pardieu conducted in July 2019”.
In light of the many challenges to the traceability of coloured gemstones that are outlined above, new technologies are being applied to the sector in the search for solutions. The most prominent of these - blockchain-based traceability and nanoparticle systems - were originally developed for other purposes and are being adapted to the gemstone sector. We examine both of these technologies in the next section.
The relationship between traceability and Responsible Sourcing is a complex one. We explore some of the ethical issues around traceability at the consumer level in Article 5 – A Storied Jewel: Responsible Sourcing and the Coloured Gemstone Retail Sector. In Article 6 – Honing the Sparkle: Governance in Coloured Gemstone Supply Chains, we look at how traceability schemes (and Responsible Sourcing schemes generally) can create barriers to market access for small producers and discuss how traceability can integrate with effective governance.
Blockchain is an internet-based system for recording transactions, time-stamping them and encrypting them in a way that is tamper-proof and incorruptible. It is a “distributed ledger” technology, which means that there is no centralised storage of data. Information can be spread across multiple sites, countries or institutions, rather than being controlled by a sole administrator, which makes blockchain a very secure means of storing and protecting data. It is used, among other things, for cryptocurrencies such as Bitcoin.
Blockchain can be used to document a gemstone’s journey from mine to customer and to verify changes in ownership, value and other relevant characteristics along the way, creating a tamper-proof historical record.
Blockchain-based traceability solutions currently face a number of practical barriers to effective implementation for coloured gemstones. Firstly, while the blockchain ledger itself is tamper-proof, it provides no assurances that the information entered into the ledger is true. Also, the costs involved in blockchain are currently prohibitively high for use with everyday gemstones36“Is It Really Possible to Know Where Your Jewelry Comes From?”. JCK Online. 16th August 2019. https://www.jckonline.com/editorial-article/possible-know-jewelry-comes-from/ and, without integrated schemes for environmental, social and governance standards, a blockchain system provides no assurances on ethical issues. As the authors of an influential 2018 paper on blockchain in the gemstone industry put it, “the blockchain is only as strong as the data supplied,” and it “does not replace robust standards in the supply chain”37"Blockchain, Chain of Custody and Trace Elements: An Overview of Tracking and Traceability Opportunities in the Gem Industry", p222. Laurent E. Cartier, Saleem H. Ali and Michael S. Krzemnicki, The Journal of Gemmology, 36(3). January 2018. https://www.researchgate.net/publication/327555908_Blockchain_Chain_of_Custody_and_Trace_Elements_An_Overview_of_Tracking_and_Traceability_Opportunities_in_the_Gem_Industry.
Many experts who deal with blockchain-based traceability are enthusiastic about its potential and believe that solutions will be found to these practical barriers before long – in particular, costs will come down as the technology matures, and the appeal of being able to access a wealth of data from mine to market, for younger-generation customers and also for agencies like the FBI and Interpol, will drive uptake and refinement of the technology.38Based on insight from interviews conducted by TDI Sustainability with blockchain experts for this paper. Whether blockchain-based traceability ultimately evolves in this way or not remains to be seen, however.
Since 2015, blockchain technology has been applied to the diamond supply chain, pioneered by technology enterprise Everledger through their Diamond Time-Lapse initiative39“Diamond Time-Lapse: A Diamond Provenance Journey”. Diamond Time-Lapse website. Accessed 11th December 2019. https://www.mydtl.io/#mining, which informs customers of the people who have processed the diamond, along its journey, and records the stone’s country of origin. Further initiatives have been launched by DeBeers40Tracr website. Accessed 11th December 2019. https://www.tracr.com and IBM in coalition with diamond and jewellery companies.41“The TrustChain Initiative”. TrustChain website. Accessed 11th December 2019. https://www.trustchainjewelry.com
The only current blockchain traceability solution designed for coloured gemstones is the Provenance Proof initiative, led by Gübelin Lab in partnership with Everledger.42“Provenance Proof”. Gübelin Gem Lab website. Accessed 11th December 2019. https://www.gubelingemlab.com/en/provenanceproof Provenance Proof aims to address data quality issues with blockchain, in part, by combining a blockchain ledger with an additional technology that allows gemstones’ mines of origin to be determined in a way that cannot be falsified. The technology is known as the Emerald Paternity Test and is described in further detail below.
The ‘Emerald Paternity Test'43“The Emerald Paternity Test”. Gübelin Gem Lab website. Accessed 11th December 2019. https://www.gubelingemlab.com/en/provenanceproof/emerald-paternity-test is a new nanoparticle technology developed jointly by The Gübelin Lab and Gemfields Ltd, that can establish the mine from which a gemstone originated. It does this by applying synthetic DNA-based nanoparticles to rough emeralds at source, which can be decoded at any stage of the stone’s journey from mine to customer. The nanoparticles are not altered or damaged by any process applied to the stone, which ensures their permanence as an origin ‘marker’ even once cut and polished. The nanoparticles are invisible and do not affect the appearance or aesthetic quality of the stone at all. The natural flaws within the emerald crystal structure make it an ideal stone to pilot the technology with, but those behind the project will try to find ways to apply it to other gemstones too, if it proves successful with emeralds.
The Paternity Test requires that all users of the technology abide by a Code of Conduct44“Code of Conduct for Users of the Emerald Paternity Test”. Gübelin Gem Lab. June 2018. https://www.gubelingemlab.com/tl_files/content/PDF/PP_EPT_CodeOfConduct_June2018.pdf which stipulates, in particular, that users adhere to applicable local and national laws and that they have due diligence systems in place to assure that the gemstones have not been mined or sourced illegally and are not connected with illicit trade or illegal activities.
Provided that the mine from which the emerald originates has a verifiable social and environmental responsibility record, the Paternity Test is one step toward assuring those further down the supply chain of an individual stone’s ethical provenance. However, like blockchain technology, the cost of the Paternity Test is largely out of reach for small operators at the moment.45“Proof of Provenance”. Gem-A blog post. 31st July 2019. https://gem-a.com/news-publications/news-blogs/gems-from-gem-a/gem/proof-of-provenance
3. Abuses, Crimes and Cronyism
Gemstones are small, valuable and non-perishable. This makes them attractive for a number of illicit activities, as we will explore in this section.
Smuggling and Tax Avoidance
Cross-border smuggling in the coloured gemstone industry is reportedly widespread.46For example, see “The Truth About Gem Smuggling”. Ganoksin website. Accessed 11th December 2019. https://www.ganoksin.com/article/truth-gem-smuggling/ Typically, gemstones are smuggled out of their country of origin in order to avoid export taxes, onerous paperwork requirements, delays at customs or requests for bribes from corrupt officials, or to get around bans on the export of rough stones (for more information on these types of bans see the subsequent article in this series, Wheels of Fortune: The Industrious World of Coloured Gemstone Cutting and Polishing.). Like the false valuation of stones, discussed above, smuggling deprives producer countries of revenues from the gemstone trade, which could otherwise be fed into the national budget and could drive development.
Smuggled gemstones are often claimed to originate from the country that they are smuggled to, especially if that country is a prestigious producer of coloured stones. For example, sapphires from Africa are often smuggled to Sri Lanka47For example, see “Sri Lankan student ordered to pay Sh10 million fine for smuggling gemstones”. The Citizen (Tanzania). 27th September 2019. https://www.thecitizen.co.tz/news/Sri-Lankan-student-ordered--to-pay-Sh10-million-fine-for/1840340-5290052-gtwxdf/index.html where they are sold as local “Ceylon” sapphires instead. African sapphires are often much cheaper, so re-designating them as Ceylon sapphires can turn a high profit.
Madagascar features highly in literature on this subject. According to several sources, approximately US$150 million worth of sapphires and other coloured gems are smuggled from Madagascar to Sri Lanka every year.48"'Sapphire rush' threatens rainforests of Madagascar”. The Guardian. 2nd April 2017. https://www.theguardian.com/world/2017/apr/02/sapphire-rush-threatens-rainforests-of-madagascar[/mfn48See also “How illegal mining is threatening imperiled lemurs”. National Geographic. 6th March 2019. https://www.nationalgeographic.com/animals/2019/03/sapphire-mining-fuels-lemur-deaths-in-madagascar/
Quote redacted pending review
In another example, gemstones are frequently smuggled from Myanmar to Thailand.49“Burmese Gem Smuggling is Part of Border Life”. Ezine Articles. 8th August 2006. https://ezinearticles.com/?Burmese-Gem-Smuggling-is-Part-of-Border-Life&id=263289 With a 2,100km shared border and limited policing for gemstone trafficking, smuggling of gemstones is relatively straightforward between the two countries. From Thailand the stones are then traded onward into international markets.
The disparity in trade figures between Myanmar and Thailand gives an indication of the scale of the problem. In 2016, Myanmar recorded just over $ 1.8 million in exports of uncut precious and semi-precious stones to Thailand, whereas Thailand recorded receiving US$4.7 million worth of stones. The difference in the two figures is likely primarily attributable to smuggling.50“‘Genocide gems’: Highly-sought Burmese rubies and sapphires may be enriching Myanmar’s military”. Canada Global News. 4th November 2018. https://globalnews.ca/news/4571806/burmese-ruby-genocide-gem-myanmar/
There are few concrete links documented between the traditional coloured gemstone trade and international organised crime. However, such activities are by their nature clandestine, and links may exist. Anecdotal evidence suggests that the gemstone trade in Pakistan is used to facilitate money laundering, drug smuggling and terrorist financing, for example (see the case study below, Two Countries, One Trade: Afghanistan, Pakistan, Conflict and Coloured Gemstones).
Parallels with the diamond industry give cause for concern. A 2013 report by the Financial Action Task Force, Money Laundering and Terrorist Financing Through Trade in Diamonds51“Money Laundering and Terrorist Financing Through Trade in Diamonds”. Financial Action Task Force. October 2013. http://www.fatf-gafi.org/media/fatf/documents/reports/ML-TF-through-trade-in-diamonds.pdf details links between the diamond trade and “drug trafficking, fraud, smuggling, theft and robbery, large scale tax offences, forgery and fictitious invoices among other offences” and states that of these “drug trafficking and smuggling were found to be the most prevalent”, though it did not attempt to quantify the scale of these issues.
The report cites the globalised nature of the diamond trade, lack of traceability, difficulties in valuation, high dollar values and low awareness from law enforcement bodies as key characteristics that make diamonds attractive to criminal groups. All of these characteristics apply to coloured gemstones too.
When trade in gemstones is controlled by paramilitary, insurgent or militia groups, revenues can fuel armed conflict through the purchase of arms and of other resources needed for warfare. While in no way representative of the vast majority of the trade, there are instances of coloured gemstones being used in this way. Rubies mined in Cambodia and sold in Thailand in the 1980s and 1990s were used to fund the Khmer Rouge insurgency.52“Rubies Are Swelling the War Coffers of Cambodia’s Feared Khmer Rouge Rebels”. Los Angeles Times. 18th November 1990. https://www.latimes.com/archives/la-xpm-1990-11-18-mn-6584-story.html In Colombia, emerald mafias fought a long war over control of the gemstone trade with the country’s drug cartels (discussed in more detail in the second article in this series Hands that Dig, Hands that Feed: Lives Shaped by Coloured Gemstone Mining.) And contemporary fears have been raised over possible links between tourmaline mining and non-state armed groups in the eastern areas of the Democratic Republic of Congo.53“Coloured Gemstones in Eastern DRC: Tourmaline Exploitation and Trade in the Kivus”. IPIS. 11th May 2016. https://ipisresearch.be/publication/coloured-gemstones-in-eastern-drc-tourmaline-exploitation-and-trade-in-the-kivus/
Perhaps the most prominent modern conflict associated with coloured gemstones, however, is the ongoing Islamist instability in Afghanistan and Pakistan. The trade of lapis lazuli and other coloured stones in Afghanistan has been linked for decades to the funding of militant groups including, most recently, the Taliban. We explore these issues in a case study of Afghanistan and Pakistan, below.
Two Countries, One Trade: Afghanistan, Pakistan, Conflict and Coloured Gemstones
The Afghan province of Badakhshan is rich in fine rubies, tourmaline, spinel, aquamarine and lapis lazuli, while high quality emeralds are mined in the neighbouring Panjshir Valley. Past wars, contemporary conflict, weak governance and inadequate infrastructure mean that Afghanistan’s mineral assets54These assets include important deposits of lapis lazuli, emeralds and rubies, as well as copper, iron, gold, silver, chromium, marble and coal. See USGS 2011 summary sheet: https://pubs.usgs.gov/fs/2011/3108/fs2011-3108.pdf have not seen large-scale development. The country does, however, have a thriving artisanal and small-scale mining (ASM) sector, which focuses on mineral resources suited to manual and low technology mining processes, such as gemstones and marble.
Afghan gemstones have funded militants since the time of the anti-Soviet mujahideen in the 1980s, through the Jamaat-i-Islami and United Islamic Front in the 1990s to the Taliban today. In 2005 the Afghan Ministry of Mines estimated that 80% of the country’s mines were under the control of non-state armed or criminal groups55“Afghanistan’s Conflict Minerals: The Crime-State-Insurgent Nexus,” CTC Sentinel, Vol. 5(2), p13. February 2012. https://ctc.usma.edu/app/uploads/2012/02/CTCSentinel-Vol5Iss27.pdf, and experts estimate that the numbers are similar today.56Interview conducted in September 2019 with Emma Irwin, natural resource governance consultant.
Corruption is endemic in Afghan commerce57“Afghanistan’s Anti-Corruption Efforts”. Special Inspector General for Afghanistan Reconstruction. November 2019. https://www.sigar.mil/pdf/audits/SIGAR-20-06-AR.pdf. Much of the illegal gemstone mining, transportation and trading that takes place in Afghanistan is widely perceived to be linked to high-level officials, profiting at the expense of the national treasury. A 2016 report by the NGO Global Witness, “War in the Treasury of the People: Afghanistan, Lapis Lazuli and the Battle for Mineral Wealth”58“War in the Treasury of the People: Afghanistan, Lapis Lazuli and the Battle for Mineral Wealth”, p7. Global Witness. 5th June 2016. https://www.globalwitness.org/en/campaigns/conflict-minerals/war-treasury-people-afghanistan-lapis-lazuli-and-battle-mineral-wealth/ estimates that a full 95% of potential government revenues were lost from certain of Afghanistan’s lapis lazuli mines in 2015.
The same report estimates that armed groups made US$ 12 million from lapis lazuli in 2015, US$ 4 million of which went to the Taliban. A 2015 Security Council report cites unnamed Afghan officials estimating Taliban income from mined sources overall at tens of millions of US dollars each year.59
“Letter dated 18 August 2015 from the Chair of the Security Council Committee established pursuant to resolution 1988 (2011) addressed to the President of the Security Council”, p15. UN Security Council. 26th August 2015. https://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/s_2015_648.pdf
For comparison, the Taliban’s total overall revenue from all sources for 2011 was estimated by the UN at US$ 400 million.60 “Taliban raked in $400 million from diverse sources: U.N”. Reuters. 11th September 2012. https://www.reuters.com/article/us-afghanistan-un-taliban/taliban-raked-in-400-million-from-diverse-sources-u-n-idUSBRE88A13Y20120911
Despite its association with conflict and corruption, there is no easy or clear-cut case to be made for international disengagement from the Afghan gemstone sector. Although the Taliban receive funds from gemstone mines, it is not the Taliban who are doing the mining. This is typically carried out by miners from nearby communities, many of whom subsist in economically precarious conditions, and rely on mining to provide additional income for their families alongside farming. If the Afghan gemstone trade were halted then this important source of income would be removed.
Further downstream, the ethical picture is also complex. Afghanistan’s insecurity, and its limited domestic infrastructure for processing rough gemstones, mean that most Afghan stones are transported to Pakistan for cutting, polishing and onward sale. Afghanistan’s gemstones travel to Peshawar, Pakistan through the Khyber Pass border crossing, and along the myriad small paths that crisscross the neighbouring mountain ranges - well-trodden smuggling routes for rough gemstones as well as drugs, arms and other commodities.61“The Dangerous World of Pakistan’s Gem Trade”. McClean’s. 24th May 2014. https://www.macleans.ca/news/world/pakistans-blood-stones/
Peshawar’s Namak Mandi is one of the world’s oldest gemstone markets. It sells rough and cut gemstones mined in Pakistan, as well as those that come across the border from Afghanistan. Insurgency in Pakistan’s gemstone mining regions,62For context on insurgency in Pakistan’s gemstone mining regions, see “Taliban jihad against West funded by emeralds from Pakistan”, The Telegraph, 4th April 2009. https://www.telegraph.co.uk/news/worldnews/asia/pakistan/5106526/Taliban-jihad-against-West-funded-by-emeralds-from-Pakistan.html and in Afghanistan, and insecurity in Peshawar itself, have led to the gradual demise of the city’s traditional, commercial gemstone market, as regular buyers have stopped coming. According to one article in the international news media, “they have been replaced by money launderers, drug smugglers and terrorist financiers”.63“The Dangerous World of Pakistan’s Gem Trade”. McClean’s. 24th May 2014. https://www.macleans.ca/news/world/pakistans-blood-stones/ The Financial Action Task Force, an intergovernmental body, has identified Pakistan as a monitored jurisdiction for trade-based money laundering, indicating a heightened level of risk.64“High-risk and other monitored jurisdictions”. Financial Action Task Force website. Accessed 11th December 2019. http://www.fatf-gafi.org/countries/#high-risk
Like the miners of Afghanistan, the traders of Namak Mandi do not aid insurgent and criminal groups as an end motive. They do so because they are entwined in a system that makes illicit activities an inevitable part of pursuing their livelihoods. At the same time as gemstone revenues are flowing to criminals and insurgents, however, they are flowing to gemstone workers’ families, and often providing relief from desperate poverty. Preserving this good, while eliminating the bad, will require comprehensive reforms in governance and anti-corruption, and physical security gains, in Afghanistan and Pakistan. There are no quick fixes.
Sustaining Systems that Violate Human Rights
Just as coloured gemstones can sometimes be used by insurgent groups to build their power base, they can be used by regimes that are already in power, to stay there. In Myanmar, for example, the country’s military has historically held extensive commercial interests in gemstone mining65“Gemstone Sector Review In support of Myanmar EITI”, p22. Extractive Industries Transparency Initiative. July 2016. https://www.mata-nrg.org/wp-content/uploads/2016/08/Myanmar-EITI-Gemstone-Sector-Review-190716-FINAL-1.pdf, particularly for jade and rubies. The country has undergone significant reforms since the military began to loosen its grip on power in 2011,66“Myanmar country profile”. BBC Website. 3rd September 2018. https://www.bbc.com/news/world-asia-pacific-12990563 including in the mining industries67“Myanmar Government Announces Ground-Breaking Reforms of Toxic Jade Business”. Global Witness. 28th July 2016. https://www.globalwitness.org/es/press-releases/myanmar-government-announces-ground-breaking-reforms-toxic-jade-business/. However, despite these reforms, an August 2019 report from the UN Human Rights Council states that the military still “benefits from and supports extractive industry businesses operating in conflict-affected areas in northern Myanmar, at a significant human cost.” The report asserts that “higher-level [military] officials have granted land and resource concessions in Kachin and Shan States as a way to generate personal revenue and develop a political and economic power base”.68https://www.ohchr.org/Documents/HRBodies/HRCouncil/FFM-Myanmar/EconomicInterestsMyanmarMilitary/A_HRC_42_CRP_3.pdf
In any country with widespread corruption, the gemstone trade can be harnessed by political elites for personal enrichment, and for favour-trading in order to keep a tight grip on power. Corrupt government officials might own stakes in mines or might accept bribes to issue export licenses or mining permits illegally, or to facilitate tax evasion. Or they might give these perks to trusted allies for free, in exchange for political support or other favours. These types of corrupt systems not only deprive national budgets of gemstone revenues that could be used for development, they are also self-sustaining, because they empower the people who are perpetrating them – making it much harder to bring about political reforms and much-needed change.
There is no hard data available on the scale of these problems within the coloured gemstone sector, but Transparency International’s Corruption Perceptions Index gives cause for concern. Transparency International is an anti-corruption NGO, whose Index rates countries worldwide “by their perceived levels of public sector corruption according to experts and businesspeople”.69“Corruption Perceptions Index 2018”, Transparency International. 2018. https://www.transparency.org/cpi2018 Eleven key gemstone producing countries were in the bottom 50% of the index in 2018. In ascending order or perceived corruption; these were Colombia, Tanzania, Brazil, Zambia, Ethiopia, Pakistan, Myanmar, Kenya, Madagascar, Mozambique and Afghanistan.
Gemstone trading is a complex, arcane, intricate, and sometimes clandestine process. It has been for centuries. People in the trade will give many compelling reasons why it is, and should always be, the way that it is. Without globe-spanning networks of traders, each with their own special areas of expertise and trusted group of counterparties, the unique gemstones of the world might flow less easily to the craftspeople who can realise their full potential as dazzling jewels. And, although no precise figures are available, it is safe to say that gemstone trading provides livelihoods for hundreds of thousands of people around the world, including a great many women in countries where commerce is typically male-dominated.
The nature of coloured gemstone supply chains creates formidable challenges for transparency, traceability and the objectives of the Responsible Sourcing movement. Opacity is incentivised in a number of ways – from commercial competitiveness, to avoiding the attention of the authorities (whether that attention is legitimate or corrupt) to simple physical safety.
New technologies have the potential to overcome some of the traceability challenges inherent in the coloured gemstone trade. Distributed electronic ledgers, such as Blockchain, can carry digitised information about individual stones’ journeys from mine to market, and nanoparticle technologies can be used to tag stones with their mine or region of origin. However, the cost of such systems is currently prohibitive for the majority of the trade. Moreover, simply knowing a gemstone’s origin and journey provides no ethical assurance in its own right. Strong industry standards and good governance are still needed to provide that assurance.
Business models adopted by some large companies may disrupt traditional coloured gemstone trading systems but, while such companies may raise customers’ expectations for consistent supplies of traceable stones, they are unlikely to ever really dominate the coloured gemstones market.
For the small, often informal and largely traditional traders that occupy the remainder of the sprawling coloured gemstone trade, change will come slowly, and full traceability will be difficult to achieve.
In order for the coloured gemstone sector, as a whole, to demonstrate that its trading practices are rooted in responsibility, each stakeholder in the sector must play an important role. As large coloured gemstone mining companies bring new trading models to the market, they should ensure that they do not present their stones in ways that stigmatise traditional trading practices, by drawing too free an association between challenges in traceability and irresponsible business practices.
National and local authorities and standards-setting organisations, meanwhile, should work to ensure that legal, taxation and customs regimes are effectively tailored to small scale trading, that compliance requirements for small operators are not unduly onerous, and that capacity and integrity challenges in the bodies that oversee the sector are addressed.
Small enterprises and individual traders should work closely with the other entities in their supply chains – both upward and downward – and with authorities and standard setters, to take reasonable and proportionate steps toward transparency and traceability. Although some view the impetus for change as a threat, it is better viewed as an inevitable modernisation of a traditional sector, to which its participants must adapt in order to thrive. We explore in the final article in this series, Honing the Sparkle: Governance in Coloured Gemstone Supply Chains, what an effective Responsible Sourcing system could look like for these entities.