The measure against the Russian state-owned diamond miner seeks to cut off additional sources of revenue for Moscow, the government agency said.
It also affects any entities in which Alrosa has a 50% interest or more, either directly or indirectly.
The company’s customers well as other counterparties must stop all dealings with the state-controlled Russian miner by May 7, Treasury said.
Shares in the company collapsed on the news, closing close to 13% lower on Friday trading in Moscow.
Alrosa and its chief executive Sergei S. Ivanov were included in the first wave of restrictions announced by Washington, which restricted the company’s ability to raise new debt and equity in the US.
“These actions, taken with the Department of State and in coordination with our allies and partners, 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,” Treasury said in the statement.
The European Union and the UK have also imposed sanctions on the miner following Russia’s invasion of Ukraine.
Diamonds are one of Russia’s top ten non-energy exports by value, with exports in 2021 totalling over $4.5 billion, it noted.
Alrosa is responsible for 90% of Russia’s diamond output and 28% of global supply, with 32.4 million carats produced in 2021 and sales topping $4 billion thanks mainly to consumer demand from the US.
Loopholes
Experts has noted the sanctions against the miner carry a significant loophole. Russia’s rough diamonds are sent to another country — usually India — where they are polished and cut. That makes them the product of that nation in the global market.
Another issue is that diamonds of various origins are often mixed once polished, which can make it more difficult for companies that independently vow to stop buying Russian goods.
The Responsible Jewellery Council (RJC), the leading standards organization of the global jewellery and watch industry, took steps into that direction in early April and suspended Alrosa’s membership.
“Fundamentally, we remain focused on RJC’s purpose, which is to ensure all jewellery is responsibly sourced,” the group’s char David Bouffard said in the statement.
US-based jewellers Tiffany & Co. and Signet Jewelers said in March they would no longer buy new diamonds mined in Russia.
Alrosa withdrew in March from the Natural Diamond Council (NDC), a market alliance of the world’s leading producers of precious stones. By doing so, the company not only stepped down from the board, but it also cut all financial contributions.
The Mirny, Sakha-based miner also has a 41% stake in Angolan diamond production firm Catoca, which is not affected by the latest US sanctions given the OFAC.
While the full effects of the sanctions on the already undersupplied global rough diamonds market are not yet clear, the Antwerp World Diamond Centre (AWDC) has said there was a chance the restrictions could prove counterproductive.
“It is a blow that should hurt Russia but there is a chance that we do more damage to ourselves,” spokesman Tom Neys told Belgian newspaper Gazet van Antwerpen. “The Russians can easily trade their diamonds with non-EU countries and outside the US.”
The diamond jewelry industry is going into the year with diamond supply at historically low levels, estimated by Bain & Company at 29 million carats in 2021. “Upstream inventories declined ~40%, driven by high demand and slow production recovery, and are near the minimal technical level,” the report stated.
