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Is there enough regulation by authorities of lab-grown diamonds?

25 december 2017

The issue of man-made, lab-grown, or synthetic diamonds is continuing to gather pace. Production capacity is continuously expanding, the volume of such stones is growing every year – and is now estimated at 2-3 percent of global output with several million carats being sold – and the quality and size of the stones is rising.

Frankly, no-one really knows the full extent of production because many lab-grown manufacturers often want to hide their output. Anecdotes abound that significant amounts of jewelry made in India are exported set with factory-made diamonds.

"The feeling is that nobody is going to check the very small stones used in pave settings," said a leading diamond industry source with widespread connections with the Indian industry. "Those stones can be made cheaply and have a much better sparkle and higher brilliance than natural diamonds of the same cost so it makes sense for the manufacturers to operate this way."

One issue that is rarely examined, however, is if there is legislation to regulate the lab-made diamonds, such as mandatory information for consumers about such jewelry and the procedures for its separate sale. Are there authorities which are controlling these issues and what kind of action is taken in case of violations, or is it all being driven by diamond industry bodies?

In terms of trading at bourses, there are just two exchanges that have taken a lead: the Bharat Diamond Bourse in Mumbai and the Israel Diamond Exchange. Conscious of the eyes of the diamond world being on the country due to the reports of undisclosed mixing of lab-grown diamonds with natural, mined stones, the Indian bourse ordered a ban on trading in synthetics throughout the exchange. Meanwhile, the Israeli bourse decided that while trading could take place in its members' private offices, such activity would not be allowed on its trading floor.

The International Diamond Council (IDC) was established in 1975 to provide its founders – the World Federation of Diamond Bourses (WFDB) and the International Diamond Manufacturers Association (IDMA) – with a set of universally accepted standards of nomenclature for polished diamonds within the international diamond trade.

The IDC is very clear in its definitions and rules, saying synthetic stones must be disclosed as a 'Synthetic diamond'. "Labs will have the choice whether or not to issue a grading report/certificate for synthetic diamonds. In case one is issued, only a full grading report may be delivered. If they do not issue grading reports, a short statement with weight, shape and nature of the diamond must be available. The term 'Synthetic Diamond Examination Document/Report' or 'Synthetic Diamond Assurance Document/Report' is suggested for this limited document. Only the terms 'Laboratory-created'/ 'Laboratory-grown'/'Synthetic' diamond may be used.

Then, there are the ISO (International Standards Organization) guides. ISO International Standard 18323: Jewellery - Consumer confidence in the diamond industry provides a series of definitions which aim to provide further clarity for traders and to maintain consumer confidence in the diamond industry as a whole. ISO 18323 says the following terms are acceptable: synthetic diamond, laboratory-grown diamond, laboratory-created diamond are all artificial products that essentially have the same chemical composition, crystal structure and physical (including optical) properties as a diamond.

World Federation of Diamond Bourses (WFDB) President Ernie Blom, who said the international body was involved in formulating ISO 18323, said: "The ISO ruling defines a diamond as something that was 'created by nature'; it also says that the denomination 'diamond' without further specification always implies a 'natural diamond'. The importance of this standard lies in the fact that it sets out which nomenclature can be used and which cannot in the purchase and sale of diamonds, treated diamonds and synthetic diamonds. As ISO says: 'ISO 18323:2015 will cover the nomenclature to be used by those involved in the buying and selling of diamonds, treated diamonds, synthetic diamonds, composite diamonds and imitations of diamonds.

"ISO notes very clearly the issues that the WFDB has been emphasizing for some time: the need for integrity and transparency to ensure that consumers have total confidence in our products. Buyers do not usually have the technical knowledge to understand the many aspects of diamonds and so they are reliant on correct and honest labeling.

"Regarding synthetic diamonds, which is a critical issue for the diamond business, the ISO standard sets out descriptions for synthetic diamonds plainly and precisely. It points out the growth in production in recent years, and that lab-grown diamonds have essentially the same chemical and physical (including optical) properties as a natural, mined diamond. We have long pointed out the importance of consumers knowing exactly what type of diamond is being offered to them, and this new standard confirms this." Blom explained that the first moves to create a new ISO standard began seven years ago in Europe and the WFDB has had a strong input, along with other industry stakeholders, such as CIBJO, the World Jewellery Confederation.

In terms of governmental regulation, or guidelines, regarding diamond and jewelry trade in general, and the issue of lab-grown diamonds in particular, there is only really one body that is involved. Not surprisingly, that body is based in the United States – which accounts for half of global jewelry sales. The Federal Trade Commission publishes the 'Guides for the Jewelry, Precious Metals, and Pewter Industries' which state that marketers must truthfully represent the type, kind, grade, quality, quantity, metallic content, size, weight, cut, color, character, treatment, substance, durability, serviceability, origin, price, value, preparation, production, manufacture, and distribution of their merchandise.

The Guides provide advice to businesses on how to avoid making deceptive claims about precious metal, pewter, diamond, gemstone, and pearl products, and when to provide certain types of disclosures about the products. Meanwhile, the FTC’s Bureau of Consumer Protection stops unfair, deceptive and fraudulent business practices by collecting complaints and conducting investigations, suing companies and people that break the law, developing rules to maintain a fair marketplace, and educating consumers and businesses about their rights and responsibilities.

Since 1992, the FTC has conducted a regular, systematic review of all its rules and guides on a rotating basis to ensure they are up-to-date, effective, and not overly burdensome. The FTC places each of its rules and guides on a 10-year review calendar at which point the FTC asks: what is the economic impact of the rule or guide? Is there a continuing need for the rule or guide? Are there possible conflicts between the rule or guide and state, local, or other federal laws or regulations? Has the rule or guide been affected by any technological, economic, or other industry changes? The FTC relies on the public, including consumers, businesses, advocates, industry experts and others, to help it to decide whether it’s time to update a rule or guide, leave it as is, or even rescind it.

The main issue affecting the diamond industry currently is its review which proposes to allow synthetic diamond producers to use the term "cultured" with their synthetic diamond product, as long as qualifying language such as “laboratory-created,” “laboratory-grown,” “[manufacturer-name]-created,” or “synthetic” immediately accompanies it.

Industry body Jewelers of America believes that the use of the term “cultured” is confusing, even if includes qualifying language, since consumers believe the word “cultured” means or implies “natural.” While synthetic diamonds are a growing, legitimate category for the suppliers and jewelry retailers that choose to carry them, the need for full and proper disclosure is a critical component in protecting consumer confidence. It stressed that use of the word "cultured" in conjunction with a manufactured diamond is deceptive, since it implies that synthetic diamonds are created in a natural environment, similar to cultured pearls. Meanwhile, the Jewelers Vigilance Committee presented unified positions on the changes to strengthen the jewelry industry's response and best impact the FTC's revisions. A JA delegation flew specially to Washington D.C. to further communicate the jewelry industry's position on how the FTC's suggested changes could confuse consumers or hurt consumer confidence.

The JVC says that when describing non-natural products, the term “diamond” must be qualified. According to the FTC, acceptable qualifying terms for a lab-grown diamond, one that has essentially the same optical, physical, and chemical properties as a diamond, are: laboratory-grown diamond; laboratory-created diamond; (manufacturer name)-created diamond; and synthetic diamond.

Vendors may also use the word “cultured” to describe a synthetic diamond, but only if they also include one of the above qualifying terms, such as “laboratory-grown cultured diamond,” “laboratory-created cultured diamond,” “(manufacturer name) -created cultured diamond,” or “synthetic cultured diamond.”

Cecilia Gardner, who served as General Counsel and President of the Jewelers Vigilance Committee for 18 years, said: "I have been asked repeatedly if a general reassurance from suppliers regarding such goods is sufficient in law for a retailer if he sells items which are then discovered to have synthetic diamonds set in them. I give the same answer that I have been giving for the past 18 years - no. The only protection is to engage in a quality assurance program. Synthetics are still a small part of the market, but they are increasing and this issue is being addressed by all the international diamond organizations."

By our Israel correspondent Abraham Dayan