CDG Regulatory Compliance & Legal Framework 2 — Questions and Answers
Question 1: Under FTC guidelines, which term is permissible without a qualifying disclosure when describing a lab-grown diamond to a consumer?
- Natural diamond
- Cultured diamond
- Lab-created diamond (Correct answer)
- Real diamond
Correct answer: Lab-created diamond
The FTC explicitly permits 'lab-created,' 'lab-grown,' 'man-made,' or '[manufacturer name]-created' as standalone descriptors without additional qualification.
Question 2: The Kimberley Process Certification Scheme (KPCS) was established primarily to prevent trade in diamonds that finance:
- Tax evasion by mining companies
- Rebel movements against legitimate governments (Correct answer)
- Unauthorized exports to non-member countries
- Undervalued diamond appraisals
Correct answer: Rebel movements against legitimate governments
The KPCS was created in 2003 to stem the flow of 'conflict diamonds' used by rebel movements to finance wars against legitimate governments.
Question 3: A retailer selling a fracture-filled diamond must disclose this treatment because the FTC considers non-disclosure to be:
- A minor infraction with no penalty
- An unfair or deceptive act or practice (Correct answer)
- A violation only if the filling is glass
- Permissible if the diamond is under 0.50 ct
Correct answer: An unfair or deceptive act or practice
The FTC's Section 5 prohibition on unfair or deceptive acts requires disclosure of any treatment that significantly affects the stone's value or durability.
Question 4: Which U.S. federal law requires companies to conduct due diligence on supply chains for conflict minerals, including diamonds, when sourced from the DRC region?
- Sherman Antitrust Act
- Dodd-Frank Act Section 1502 (Correct answer)
- Lanham Act
- Tariff Act of 1930
Correct answer: Dodd-Frank Act Section 1502
Section 1502 of the Dodd-Frank Wall Street Reform Act mandates that SEC-reporting companies disclose the use of conflict minerals originating from the Democratic Republic of Congo or adjoining countries.
Question 5: When a U.S. jeweler describes a diamond as 'flawless' in advertising, FTC regulations require that the grade be based on:
- The jeweler's own visual inspection under 5x magnification
- A GIA or AGS laboratory grading report
- Industry-standard examination under 10x magnification (Correct answer)
- Consumer perception of the stone's appearance
Correct answer: Industry-standard examination under 10x magnification
The FTC Jewelry Guides state that clarity grades must reflect examination by a trained grader using 10x magnification under standard grading conditions.
Question 6: Under the USA PATRIOT Act, jewelry dealers with cash transactions exceeding what threshold must file a Currency Transaction Report (CTR)?
- $5,000
- $7,500
- $10,000 (Correct answer)
- $15,000
Correct answer: $10,000
Financial institutions and certain businesses, including jewelry dealers, must file a CTR with FinCEN for any cash transaction exceeding $10,000.
Question 7: The CIBJO Blue Book standards for diamonds differ from GIA standards primarily in that CIBJO:
- Uses a different color grading scale with letter codes (Correct answer)
- Prohibits the use of 'Excellent' as a cut grade
- Requires country-of-origin disclosure on all certificates
- Does not recognize clarity enhancement treatments
Correct answer: Uses a different color grading scale with letter codes
CIBJO uses terminology such as 'Exceptional White+' through 'Tinted' rather than GIA's D-to-Z letter scale, though the underlying criteria are aligned.
CDG Regulatory Compliance & Legal Framework 2
Under FTC guidelines, which term is permissible without a qualifying disclosure when describing a lab-grown diamond to a consumer?