In his blog titled “KYC: Bridge Over Troubled Water”, President of the World Federation of Diamond Bourses (WFDB) Ernie Blom has called for all members to adopt the Know Your Customer (KYC) principles and process while conducting business. 

Referring to the vastness of the diamond and jewellery industry which not only spans the globe but also several different business activities at various points of the value chain, he points out that precious materials pass through different hands before resulting in the end product – jewellery which is sold to the consumer.

Further, he pointed out that the modern industry encompasses a large number of participants at each stage of the pipeline -- from large companies to numerous small companies, including many which could even be one-person operations.  

“However, the combination of high values and the large spread of companies bring with it a host of challenges,” Blom underlined. “Less than 20 years ago, a diamantaire could easily have bought diamonds from a supplier in one location, have them shipped to another location and perhaps a company that was distinct from his own firm, which was doing the ordering and paying.”

However, today a clear and transparent movement of goods is the imperative. “The world of business has changed tremendously,” he remarked. “Like it or not, compliance of a clear audit trail of one’s buying/selling processes is now an integral part of a diamantaire’s business. You could say compliance is the “Fifth C” of the business."

This, he stresses, is the reason that the WFDB has adopted the KYC principle, which, simply put, is the process of “verifying the identity of its clients and assessing their suitability, along with the potential risks of illegal intentions towards the business relationship”.

“Know your customer processes are also employed by companies of all sizes for the purpose of ensuring their proposed customers, agents, consultants, or distributors are anti-bribery compliant or not involved in money-laundering,” Blom explained. “Banks, insurers, export creditors and other financial institutions are increasingly demanding that customers provide detailed due diligence information.”

Blom went on to point out that the fragmented nature of the industry means there is a dearth of information available about gems and jewellery companies. “Recent frauds, perpetrated by a few rotten apples, have also made banks and financial institutions mistrust the industry, and they have been demanding more transparency within the industry,” he stated.

Blom went on to exhort all members: “As part of its compliance with AML, each stakeholder in the industry will be required to do and maintain a proper CDD (this is typically also known as Know Your Customer (KYC) or Know Your Supplier, or Know Your Counterparty) for each of its customers and suppliers with adequate supporting documents and regular updates to the information.”

As the diamond trade is traditionally a B2B segment and it is estimated that a diamond changes hands 7-8 times before it is finally sold to the consumer, WFDB has felt the need for a common platform, “so as to bring about more transparency in the industry”.

“To be credible, the KYC platform should meet certain essential conditions,” Blom stressed. “The platform should in the first place improve the compliance level in the industry, by setting the best standard (e.g. including asking for ultimate beneficiaries), while also reducing the overall cost of compliance for the industry. It should enable industry self-regulation by increasing the cost of non-compliance and giving more authority to industry bodies.”

From the point of view of the individual industry member, an appropriate KYC platform would provide increased efficiency, while at the same time achieving the best KYC standards such as: single point information entry and time saving as information can be shared instantly, Blom said. “Furthermore, the availability of counter party information will increase transparency by allowing banks to access more information regarding their customers, enabling better access to finance,” he added.

Beyond this, Blom said, “working with authorised bourses/industry bodies will ensure that bourses are able to self-govern the trade”.

“The system should require that only entities that are members of the WFDB would be accepted and that their particular KYC information related documents be verified by their respective bourses,” he stated. “So the bourses can verify the information of their respective members, giving added confidence to other members regarding its authenticity. It will further reduce efforts required, as all information is verified at one point only, and does not need to be repeatedly verified. Last but not least, members have agreed to the code of ethics of the bourse, thereby allowing them to resolve disputes.”

Blom concluded that the establishment of a WFDB KYC platform is an essential tool in restoring credibility and trust in the diamond industry. “It may seem an annoying burden coming at a difficult time with credit squeezed, profit non-existent and rough and polished prices in a downward spiral,” he stated. “It is, however, a bridge the industry needs to cross without any further delay.”