What is the System of Warranties (SoW)?
The System of Warranties (SoW), which complements the KPCS, requires buyers and sellers of rough diamonds, polished diamonds and jewelry set with diamonds to include a warranty statement on B2B invoices and memos each time a diamond change hands, assuring the next buyer that it originated from sources in compliance with the KPCS. In its updated form, it also assures the buyer that essential responsible business practices have been followed. These include fundamental human and labor rights, anti-money laundering and anti-corruption.
What is the difference between the upgraded SoW and the original version of the SoW?
Like the original version, the new SoW requires that all buyers and sellers of rough diamonds, polished diamonds and jewelry containing diamonds include a statement on B2B invoice and memos declaring that the goods being sold are in compliance with the KPCS. However, the updated statement also includes a commitment that the buyers and sellers adhere to the WDC SoW Guidelines. These were adopted by WDC in 2018 and updated in 2020.
Specifically, the WDC SoW Guidelines reference the UN Guiding Principles on Business and Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, the UN Convention Against Corruption, and national AML guidelines that comply with the FATF’s 40 Recommendations on Money Laundering for Dealers in Precious Metals and Stones.
In order to be able to include the updated warranty statement on an invoice or memo note, users of the new SoW must conduct specific due diligence, which includes registering on a dedicated SoW website and then conducting a self-assessment to ascertain whether the meet minimum SoW standard. The self-assessment needs to done on an annual basis.
The self-assessment is customized and takes into consideration the stage or stages of the diamond and jewelry value chain in which the industry member is involved, the size of the company, and whether it is already compliant with other recognized due diligence systems.
Why is the SoW required in addition to the KPCS?
The KPCS covers the export of rough diamonds from country to country, ensuring that they have met the minimum standards of the KP and this can be considered conflict-free. The SoW covers rough diamonds, loose polished diamonds and jewelry set with diamonds, and is applied each time a diamond changes hands, even if the two parties to a transaction are located in the same country. The new SoW requires that that, in addition to meeting KP’s minimum standards, the diamonds were also handled in accordance with essential responsible business practices, including those relating to human and labor rights, anti-money laundering and anti-corruption.
Thus, the SoW extends the effectiveness of the KPCS along the full length of the supply chain, while also defending it from other challenges to its integrity.
What is the warranty statement that must be added to B2B invoices and memo documents?
“The diamonds herein invoiced have been purchased [or “sourced”*] from legitimate sources not involved in funding conflict, in compliance with United Nations Resolutions and corresponding national laws [where the invoice is generated**]. The seller hereby guarantees that these diamonds are conflict free and confirms adherence to the WDC SoW Guidelines.”
* “sourced” may be used by companies that do not purchase from open market, but source and aggregate diamonds from production facilities that are owned/partly owned by them.
** “where the invoice is generated” may be used by companies if they specifically want to reference the country of invoice issuance.
What is a warranty?
A warranty is a written made about a product by the seller of that product.
In the case of the SoW warranty, the seller promises that the diamond or diamonds being sold are not associated with conflict, as defined by the KP Core Document, and are in compliance with the other terms described in the WDC SoW Guidelines. The seller can provide the warranty only if he or she is in possession of a diamond’s KP certificate and/or has purchased the diamond from a seller that provided the same SoW warranty.
Is the SoW a business standard?
A business standard involves a set of measurable benchmarks, which can be audited. In this respect, in and of itself, the SoW is not a business standard. However, in the diamond business, implementation of the SoW is standard operating procedure. As such is a requirement of leading industry business standards, such as the Code of Practices of the Responsible Jewellery Council (RJC).
Why does the same SoW warranty need to be used, word for word?
The SoW is a chain of warranties, whereby the seller issuing the warranty statement relies upon the integrity of warranty statement that preceded it, which was issued by the party from which he or she purchased the diamonds. Any change to the wording of one of those warranty statements may dilute the veracity of the commitment being made sellers, as the diamonds move further down the chain of distribution.
In implementing the SoW, what are my obligations to the Kimberley Process?
The Kimberley Process Core Document expressly refers to a “system of industry self-regulation that provides for a system of warranties, underpinned through verification by independent auditors of individual companies and supported by internal penalties set by industry, which will help to facilitate the full traceability of rough diamond transactions by government authorities.”
Buyers and sellers of rough diamonds, polished diamonds and jewelry containing diamonds must pass on a warranty statement each time diamonds change hands, assuring the next buyer that the diamonds originated from sources in compliance with the KPCS.
Additionally, each company trading in rough and polished diamonds is required to keep for a period of at least five years records of the warranty invoices received and the warranty invoices issued when buying or selling diamonds, reconciling them on an annual basis, as part of KPCS compliance.
Is the SoW voluntary?
The KP Core Document refers to the SoW as self-regulatory system, but within the trade, compliance with the SoW requirements is effectively a condition of doing business.
It is a requirement for members of diamond exchanges that are affiliated to the World Federation Diamond Bourses (WFDB) and members of organizations belonging to the International Diamond Manufacturers Association (IDMA). It is also a condition of compliance with the Code of Practices of the Responsible Jewellery Council (RJC) and the Responsible Sourcing Blue Book of CIBJO, the World Jewellery Confederation. There are also legal jurisdictions where proof of SoW compliance is required as part of an annual company audit, such as Belgium.
Another factor rendering the SoW as essentially obligatory in the industry is that it is required practice for clients of major rough diamond producers, among them De Beers, which cites them in its Best Practice Principles, and ALROSA, where they are referenced in the ALROSA ALLIANCE™ Guidelines on Responsible Business Practices. The same is true for suppliers of the world’s largest jewelry retailers, including Signet Jewelers, which cites the SoW in its Responsible Sourcing Protocol for Diamonds; Chow Tai Fook Jewellery, which references them in Code of Practice for Supplier Assessment; and Tiffany & Co., where compliance with the SoW are referenced in its Supplier Code of Conduct.
How does a company implement the new SoW?
Implementation of the new SoW requires registering on the SoW website https://www.wdcsow.org/ and successfully completing an online self-assessment. It will ascertain that the applicant meets the minimum requirements of the SoW.
The self-assessment is customized and takes into consideration the stage or stages of the diamond and jewelry value chain in which the industry member is involved, the size of the company, and whether it is already compliant with other recognized due diligence systems, like that of the Responsible Jewellery Council. Consequently, not all companies are required to answer the same questions.
Participants are required to undergo the online self-assessment once every 12 months. They are required to register once, and can access their own data consequently, using a secure password.
Is there alignment between the SOW other industry self-regulation systems?
Companies that are already compliant with certain industry self-regulation systems will automatically be recognized by the online tool as meeting The SoW minimum requirements. Such self-regulation systems include the RJC Code of Practices.
For what purpose does WDC hold data provided to it during self-assessment process?
The information that WDC retains is only data required to enable registration, and to provide the filters for the customization of the questionnaire.
Will WDC share data provided to it with any third-party?
No, all the data provided is considered proprietary.
Do I need to store a copy of my self-assessment?
After you successfully complete the online self-assessment, the system will generate a PDF with your responses. It is recommended that you print it and/or store it on your own system. This copy may be shared with business partners to show that you are in compliance with the WDC System of Warranties.
Who should I contact to ask questions about the SoW registration, self-assessment and implementation?
Source: World Diamond Council