US Imposes Further Crippling Sanctions on Alrosa

Alrosa, the World’s largest diamond mining company in which the Russian Government has a 33% stake, with headquarters in Russia, accounting for 95% of the diamonds produced in the country and 30% of diamonds extracted worldwide, ran into deep trouble on February 24, 2022, when Russia invaded Ukraine, with several countries like UK, Canada, New Zealand and Bahamas imposing sanctions on the Company followed by the United States.

Copywright,  Alrosa.
Copywright, Alrosa.

The initial sanctions imposed by the US on Alrosa, prohibited US Companies from dealing with the mining giant and froze all of Alrosa’s US assets. The US government named Alrosa as one of the companies facing “expansive economic measures” with the intention of disrupting the worldwide supply and trading of diamonds.

The initial sanctions order also prohibited US-based companies from pursuing all new financial activities and transactions with companies identified in the directive. In addition the order also specifically targeted Russian elites and families identified to be closely associated with the Russian President Vladimir Putin, who are in any way associated with Alrosa. This affected Alrosa CEO Sergei S. Ivanov, whose father Sergei B. Ivanov was identified as an official of the Russian Government.

The initial sanctions imposed in March 2022, banned the import of rough diamonds from Alrosa, but the prohibition did not include diamonds mined in Russia but cut and polished in other countries like India.

On April 7, 2022, the United States announced further crippling sanctions against mining giant Alrosa. The U.S. Office of Foreign Assets Control (OFAC) added Public Joint Stock Company Alrosa to the List of Specially Designated Nationals (SDN List), subjecting the company and its majority-owned subsidiaries to full U.S. blocking sanctions, blocking them from the US banking system and banning them from trade with individuals or companies in the USA.

The move effectively cuts off Alrosa from U.S. commerce and requires U.S. persons holding property in which Alrosa has an interest to formally “block” or freeze that property and report it to OFAC The OFAC issued a temporary general license allowing U.S. persons to engage in all transactions ordinarily incident and necessary to the wind down of transactions involving Alrosa and its owned entities until 12:01 am May 7, 2022. OFAC also updated three existing general licenses authorizing U.S. persons to engage in certain limited transactions involving Alrosa debt and equity, Alrosa derivative contracts, and the wind down of Alrosa USA, Inc.

The new sanctions directive also covers companies owned by international conglomerates directly importing rough and polished diamonds from Russia that were previously not explicitly covered by the sanctions the US issued in March.

“These sanctions will continue to apply pressure to key entities that enable and fund Russia’s unprovoked war against Ukraine,” said Brian Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence.

He further stated that the actions “reflect our continued effort to restrict the Kremlin’s access to assets, resources, and sectors of the economy that are essential to supplying and financing Putin’s brutality.”

The new restrictions, announced on April 7, 2022, also outlaw entities which are more than 50 per cent owned by Alrosa. However, this does not cover Angolan diamond production firm Catoca in which Alrosa has a 41 per cent stake.

Following the sanctions Alrosa’s share price on the Moscow Exchange has dropped significantly, and the company has also withdrawn from many of its chairmanship and membership positions in international organisations and councils.

However, despite the new sanctions imposed on Alrosa by the US on April 7, 2022, a group of Congressmen – not satisfied with the loopholes left in the existing sanctions in respect of diamonds cut and polished outside Russia in other countries like India, that can enter the US market without any restrictions – have written to the Biden administration calling for the examination and closure of loopholes which allow Russian mining company Alrosa to continue trading outside of economic sanctions.

The bipartisan group of eleven US Congress members is led by Democrat Gerry Connolly and Republican Austin Scott. The group has written to Secretary of State Antony Blinken and Secretary of the Treasury Janet Yellen, asking the Biden administration to examine the ‘origin’ loophole, which allows diamonds mined in Russia but polished in locations such as India to still be imported and sold in the US.

The Congressmen further stated in the letter, “We are concerned that the two tranches of sanctions issued by the Treasury Department to target Russia’s diamond industry will have a minimal impact on Alrosa and [CEO] Sergey Ivanov’s ability to freely operate on the world market,”

The group also wrote to the State and Treasury Departments requesting them to extend guidance to Customs and Border Protection and the Department of Homeland Security to ensure they prevent Russian diamonds from reaching the US markets.

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