[Senate Hearing 107-384]
[From the U.S. Government Printing Office]


                                                        S. Hrg. 107-384
 
ILLICIT DIAMONDS, CONFLICT AND TERRORISM: THE ROLE OF U.S. AGENCIES IN 
                  FIGHTING THE CONFLICT DIAMOND TRADE
=======================================================================

                                HEARING

                               before the

                  OVERSIGHT OF GOVERNMENT MANAGEMENT,
              RESTRUCTURING, AND THE DISTRICT OF COLUMBIA
                              SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION


                               __________

                           FEBRUARY 13, 2002

                               __________

      Printed for the use of the Committee on Governmental Affairs






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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 FRED THOMPSON, Tennessee
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
RICHARD J. DURBIN, Illinois          SUSAN M. COLLINS, Maine
ROBERT G. TORRICELLI, New Jersey     GEORGE V. VOINOVICH, Ohio
MAX CLELAND, Georgia                 PETE V. DOMENICI, New Mexico
THOMAS R. CARPER, Delaware           THAD COCHRAN, Mississippi
JEAN CARNAHAN, Missouri              ROBERT F. BENNETT, Utah
MARK DAYTON, Minnesota               JIM BUNNING, Kentucky
           Joyce A. Rechtschaffen, Staff Director and Counsel
         Hannah S. Sistare, Minority Staff Director and Counsel
                     Darla D. Cassell, Chief Clerk

                                 ------                                

SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT MANAGEMENT, RESTRUCTURING, AND 
                        THE DISTRICT OF COLUMBIA

                 RICHARD J. DURBIN, Illinois, Chairman
DANIEL K. AKAKA, Hawaii              GEORGE V. VOINOVICH, Ohio
ROBERT G. TORRICELLI, New Jersey     TED STEVENS, Alaska
THOMAS R. CARPER, Delaware           SUSAN M. COLLINS, Maine
JEAN CARNAHAN, Missouri              PETE V. DOMENICI, New Mexico
MARK DAYTON, Minnesota               THAD COCHRAN, Mississippi
       Marianne Clifford Upton, Staff Director and Chief Counsel
              Susan S. Hardesty, Professional Staff Member
               Andrew Richardson, Minority Staff Director
           John Salamone, Minority Professional Staff Member
                     Julie L. Vincent, Chief Clerk







                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Durbin...............................................     1
    Senator Collins..............................................     3
Prepared statement:
    Senator Voinovich............................................     2

                               WITNESSES
                      Wednesday, February 13, 2002

Hon. Russell Feingold, a U.S. Senator from the State of Wisconsin     4
Hon. Mike DeWine, a U.S. Senator from the State of Ohio..........     6
Hon. Judd Gregg, a U.S. Senator from the State of New Hampshire..     8
Hon. John E. Leigh, Ambassador of Sierra Leone to the United 
  States.........................................................    10
Hon. Joseph Melrose, former U.S. Ambassador to Sierra Leone......    12
Loren Yager, Director, International Affairs and Trade, U.S. 
  General Accounting Office......................................    20
Alan Eastham, Special Negotiator for Conflict Diamonds, U.S. 
  Department of State............................................    21
Timothy Skud, Acting Deputy Assistant Secretary for Regulation, 
  Tariff, and Trade Enforcement, U.S. Department of the Treasury.    23
James Mendenhall, Deputy General Counsel, U.S. Trade 
  Representative.................................................    24

                     Alphabetical List of Witnesses

DeWine, Hon. Mike:
    Testimony....................................................     6
    Prepared statement...........................................    36
Eastham, Alan:
    Testimony....................................................    21
    Prepared statement...........................................    66
Feinbold, Hon. Russell:
    Testimony....................................................     4
    Prepared statement...........................................    33
Gregg, Hon. Judd:
    Testimony....................................................     8
    Prepared statement...........................................    39
Leigh, Hon. John E.:
    Testimony....................................................    10
    Prepared statement...........................................    41
Melrose, Hon. Joseph:
    Testimony....................................................    12
    Prepared statement...........................................    45
Mendenhall, James:
    Testimony....................................................    24
    Prepared statement...........................................    75
Skud, Timothy:
    Testimony....................................................    23
    Prepared statement...........................................    71
Yager, Loren:
    Testimony....................................................    20
    Prepared statement...........................................    48

                                Appendix

    Hon. Tony P. Hall, Ohio, and Hon. Frank R. Wolf, Virginia, 
      Representatives in Congress, prepared statement............    78


ILLICIT DIAMONDS, CONFLICT AND TERRORISM: THE ROLE OF U.S. AGENCIES IN 
                  FIGHTING THE CONFLICT DIAMOND TRADE

                              ----------                              


                      WEDNESDAY, FEBRUARY 13, 2002

                                       U.S. Senate,
         Oversight of Government Management, Restructuring,
                 and the District of Columbia Subcommittee,
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:30 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Richard J. 
Durbin, Chairman of the Subcommittee, presiding.
    Present: Senators Durbin and Collins.

              OPENING STATEMENT OF SENATOR DURBIN

    Senator Durbin. Good morning. I am pleased to welcome you 
to today's hearing before the Subcommittee on Oversight of 
Government Management focusing on ``Illicit Diamonds, Conflict 
and Terrorism: The Role of U.S. Agencies in Fighting the 
Conflict Diamond Trade.''
    In today's hearing, I hope we will learn more about the 
connection between illicit diamonds, conflict, terrorism, and 
crime, and what U.S. agencies are doing to stop this trade in 
conflict diamonds, both here and overseas. I want to learn more 
about how an international system to control the conflict 
diamond trade can be effective, monitored, and enforced.
    We have learned a lot about the horror that has resulted 
when illicit diamonds fueled conflicts in Africa. Rebels from 
the Revolutionary United Front, funded by illegal diamonds and 
supported by Liberia, terrorized the people of Sierra Leone, 
raping, murdering, and mutilating civilians, including 
children. If the fragile peace in Sierra Leone is to be 
maintained, profits from that country's diamonds must not fall 
into the hands of such brutal rebels again. Anti-government 
rebels in Angola and the Democratic Republic of the Congo 
continue to fight and are also supported by the sale of illicit 
diamonds.
    We have learned that members of al Qaeda network may have 
bought large quantities of these illegal conflict diamonds from 
rebels in Sierra Leone in advance of September 11 last year, 
anticipating the United States would seek to cut off its 
sources of funds. An article in the Washington Post by Douglas 
Farah on November 2 outlined the al Qaeda connection and showed 
that al Qaeda terrorists on the FBI's ``most wanted'' list 
bought conflict diamonds at below-market prices and sold them 
in Europe.
    We have learned that the Lebanese terrorist group Hezbollah 
has participated in the conflict diamond trade and that it has 
been a source of funding and a way to launder funds for drug 
dealers and other criminals.
    It is now clear that ending the trade in conflict diamonds 
is not only the just, right, and moral thing to do, it is also 
in our immediate national interest in our fight against terror. 
If the crisis in Afghanistan has taught us anything, it must be 
that we ignore failed, lawless states at our peril.
    American consumers who purchase diamonds for happy 
milestones in their lives, like an engagement, wedding, 
anniversary, or even Valentine's Day, must be assured they are 
buying a diamond from a legitimate, legal, and responsible 
source. Setting up a system that would allow American consumers 
to have confidence that they are buying clean diamonds would 
also serve our local jewelers and diamond retailers. The 
jewelers in our local malls and downtown shops do not want to 
support rebels and terrorists in the world any more than their 
consumers do.
    This hearing is not about a particular piece of 
legislation. Our first panel is made up of a bipartisan group 
of Senators who have supported legislation to end the trade in 
conflict diamonds. There are not many issues that bring 
together Senators and Congressmen from across the spectrum, 
that can bring together the human rights community and the 
diamond industry and can unite leaders of every religious 
denomination.
    The horror of what has happened to the people of Sierra 
Leone, and especially to its children, has brought us together 
to fight this evil by cutting off the rebels' source of 
support, the illicit diamond trade. Now it brings us together 
to fight the terrorists who have murdered our own citizens in 
our own country.
    At this point, without objection, I will enter a statement 
from Senator Voinovich in the record.
    [The prepared statement of Senator Voinovich follows:]
                PREPARED STATEMENT OF SENATOR VOINOVICH
    Thank you, Mr. Chairman.
    I would like to thank you for holding this hearing to examine the 
sale of ``conflict diamonds,'' and the role the U.S. Government might 
play in combating this illicit trade. I would also like to welcome our 
three panels of distinguished witnesses, including the senior Senator 
from the State of Ohio, who has played an important leadership role on 
this issue in the Senate. Thank you all for taking the time to be here 
today.
    It is clear that the sale of conflict diamonds--mined by rebel 
factions in the countries of Sierra Leone, the Democratic Republic of 
Congo (DRC) and Angola--has had a devastating impact on political 
stability in West Africa. The struggle to control these rich resources 
continues to contribute to instability, death and destruction 
throughout the region. There have been untold consequences for 
thousands of innocent men, women and children.
    In Sierra Leone alone, the U.S. Government has documented chilling 
reports of atrocities committed by the rebel group Revolutionary United 
Front (RUF). The State Department's 2000 Human Rights Report attributes 
killings, abductions, deliberate mutilations and rape to RUF 
insurgents.
    The destabilizing influence of the illicit trade in conflict 
diamonds has become even more pronounced in the aftermath of the 
terrorist attacks against the United States on September 11. As press 
reports have indicated, it is believed that conflict diamonds are used 
as a source of funding for al Qaeda, Hezbollah and other terrorist 
groups.
    Diamonds are easy to transport, difficult to detect and relatively 
simple to sell. It is reported that conflict diamonds from Sierra 
Leone, the Democratic Republic of Congo and Angola are bought on the 
cheap in Liberia by al Qaeda operatives, and then sold for high profits 
in Europe. It can be difficult to predict exactly where these profits 
go; but as events of September 11 have shown us, the consequences can 
be monumental.
    Presently, the U.S. Government is working with the international 
community, through the Kimberley Process, to find a way to govern 
international trade in rough diamonds in order to end the trade in 
conflict diamonds. I support these efforts, as well as those initiated 
by Congress to examine ways to curb this illicit trade.
    I look forward to learning your thoughts on how the United States 
might effectively enforce a regulatory system to prohibit the sale of 
conflict diamonds. We must bring an end to the bloodshed tied to the 
diamond trade.

    Senator Durbin. I would just like to say before recognizing 
Senator Collins that Senator Feingold and Senator DeWine have 
joined us. We have worked closely with Congressman Tony Hall, 
who has been a leader on this subject. We are happy with the 
recent announcement of his appointment as an ambassador 
representing the United States for the United Nations in Rome. 
We are going to miss him on Capitol Hill. He has been a great 
leader in the time that he has served here in so many different 
areas involving hunger and international justice and he was the 
inspiration for almost all of the legislation that is before us 
on the diamond issue. We cannot let Congressman Hall's 
departure in any way lessen our resolve to pass this 
legislation as quickly as possible.
    We can set up metal detectors in every doorway in the world 
and diamonds will still pass through them. We can talk about 
tracing every financial transaction of every group, and still 
someone with a handful of diamonds in their pocket is walking 
around with the resources of terrorism if that is their goal. 
So this is an important responsibility and an important 
challenge. I am glad this hearing will address it.
    Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you very much, Mr. Chairman. Let me 
first begin by thanking you for your longstanding leadership in 
combating the trade in illicit diamonds, and I thank you for 
convening this hearing.
    The subject, the control of trade in illicit diamonds, is 
both tragic and timely, timely not only because tomorrow is 
Valentine's Day, a day long associated with diamonds and the 
values and commitments they represent, but also timely because 
news articles have linked illicit diamonds to Osama bin Laden 
and his terrorist network. Even without the link to Osama bin 
Laden, however, the trade of illicit diamonds is often tragic, 
for it has fueled conflicts that have raged, often out of 
control, across large parts of Africa, killing, maiming, and 
devastating thousands of innocent victims.
    I understand that Senator DeWine this morning will tell us 
about one of the horrific effects the illicit diamond trade has 
had on children, who have been murdered, mutilated, raped, even 
burned alive, and of children who have been turned into 
perpetrators of these heinous crimes. In addition to Senator 
DeWine and our Chairman, Senator Feingold, who is here with us 
this morning, and Senator Gregg have also been strong leaders 
in trying to end the trade in conflict diamonds.
    Let me take just a moment to highlight a few statistics 
that I believe paint a chilling portrait of the extent of this 
problem. A Congressional Research Service fact sheet provided 
the following estimates on some of the consequences of diamond-
related African conflicts in just three countries, Sierra 
Leone, Angola, and the Democratic Republic of the Congo. There 
have been more than 870,000 deaths. It has created 992,000 
refugees, displaced more than five million citizens internally, 
resulted in 20,000 child soldiers. These numbers are, of 
course, imprecise and are just estimates. The frightening 
reality, however, is that the actual numbers are probably much 
higher.
    In light of this devastation, it is encouraging to note 
that some developments are occurring. In the international 
arena, the Kimberley Process is underway, and although it is 
not perfect, it does appear to be a step in the right 
direction.
    In Congress, there is also forward movement. The House 
recently passed the Clean Diamond Trade Act and the bill 
introduced by our Chairman and cosponsored by Senator DeWine 
and Senator Feingold, as well as another bill introduced by 
Senator Gregg, are also in committees and I hope that this 
hearing will prompt action on these important bills.
    I look forward to learning from all of you this morning 
about the tragic, deadly trade in conflict diamonds, and again, 
Senator Durbin, I want to thank you for giving us the 
opportunity to do our part to reduce the trade in illicit 
diamonds.
    Senator Durbin. Thank you, Senator Collins.
    I am sorry that Congressman Hall will not be here for the 
reason I mentioned earlier, and also Congressman Frank Wolf, 
who has been a leader in the House. I have spoken to him. He 
will not be able to join us today, but they will submit 
statements for the hearing record.\1\
---------------------------------------------------------------------------
    \1\ The prepared statement of Congressmen Hall and Wolf appears in 
the Appendix on page 78.
---------------------------------------------------------------------------
    Senator Russ Feingold is here, as well as Senator DeWine. 
Senator Feingold is chairman of the African Affairs 
Subcommittee on the Foreign Relations Committee. We are happy 
to have you both here, and Senator Feingold and Senator DeWine, 
if you would like to make your statements.

TESTIMONY OF HON. RUSSELL FEINGOLD,\1\ A U.S. SENATOR FROM THE 
                       STATE OF WISCONSIN

    Senator Feingold. Thank you very much, Mr. Chairman and 
Senator Collins. I want to thank you for inviting me to testify 
before the Subcommittee today and especially to thank you for 
all your efforts to push for serious, viable mechanisms to 
disrupt the global trade in conflict diamonds. It has truly 
been a pleasure to work with you, Mr. Chairman, and you, 
Senator DeWine, on this issue over the past year. I admire your 
leadership on the issue and I very much hope that we can 
continue to work together, as the Chairman said, to pass the 
best possible bill in the months ahead.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Feingold appears in the 
Appendix on page 33.
---------------------------------------------------------------------------
    I also want to echo what the Chairman said about the 
leadership of Congressmen Tony Hall and Frank Wolf. This issue 
would probably have languished in obscurity for far too long 
had we not had their leadership on this issue.
    Mr. Chairman, the first time that you, Senator DeWine, and 
I came together to discuss this issue was last June, when we 
joined to introduce a bill that had the support of both the 
advocacy community and the diamond industry. As I noted then as 
Chairman of the Senate Foreign Relations Committee's 
Subcommittee on African Affairs, I have actually had the 
opportunity to travel to Angola, to the Democratic Republic of 
the Congo, and to Sierra Leone. In each of these cases, I have 
personally witnessed the devastation brought by conflicts 
fueled in large part by a desire for profit, and I have heard 
from people who believe their country's resources to actually 
be a curse.
    But at the same time, over the years that I have served on 
the African Affairs Subcommittee, I have also worked on issues 
relating to countries like South Africa and Botswana. These 
states depend upon legitimate diamond industries to fuel 
economic growth and development and their interests also 
deserve protection.
    I believed then as I believe now that our national values 
and national interest demand that the United States 
disassociate itself from the trade in conflict diamonds. The 
United States must work with the rest of the international 
community to regulate the diamond trade and create a clean 
stream for the legitimate diamond industry and consumers to 
rely upon.
    In the months since that press conference, my sense of 
urgency about this has only grown. As you have both indicated, 
press reports have raised serious questions about the 
connections between international terrorists and the illicit 
diamond trade, and this should come as no surprise.
    In the Foreign Relations Committee, the Subcommittee on 
African Affairs has just embarked on a series of hearings to be 
conducted over the course of this year, prompted by the current 
campaign against terrorism. In the wake of the attacks of 
September 11, the President was right to make clear that the 
United States will not distinguish between the terrorists 
behind the attacks and those who harbor them.
    But state sponsors are only part of the problem. The 
absence of a functioning state is another. So the 
subcommittee's hearings will examine the characteristics of 
some of Africa's weakest states--manifestations of lawlessness, 
such as piracy, illicit air transport networks, and trafficking 
in arms, drugs, diamonds and other gemstones, and even people--
that can make the region attractive to terrorists and other 
international criminals.
    Our subcommittee is trying to identify long-term policy 
options for changing the context in these states so that they 
are no longer appealing to criminal opportunists. Somalia is 
the first case the subcommittee took up, but I have no doubt 
that later hearings will focus on Liberia and the Democratic 
Republic of the Congo, countries involved in the conflict 
diamond trade. The right policy response to these complex 
crises will be distinct, nuanced, and multi-faceted, but it 
will also entail efforts to address some of the trans-national 
criminal networks that operate in weak states. The illicit 
diamond trade is a perfect example, and that is why I am so 
glad you are holding this hearing today.
    I am particularly glad that you will be hearing from the 
administration, because Congress needs to understand the 
position that U.S. negotiators are taking at the Kimberley 
Process negotiations, which Senator Collins referred to. And 
the administration needs to understand the will of Congress and 
the depth of our concern. I know that Worldvision, one of the 
NGOs working on the conflict diamonds issue, recently issued a 
report card on progress toward eliminating conflict diamonds. 
It gives process participants high marks in some areas, but 
fails them in others, particularly noting that the United 
States is fighting a diamond certification system that might be 
viewed as a so-called restriction on trade. This concern 
appears to have led to an abandonment of the clean stream 
approach, which leaves me wondering how the industry and U.S. 
consumers would be protected.
    Mr. Chairman, I know that many had hoped to see this 
legislation passed by Congress and signed by the President last 
year. That was my hope, as well, and I think yours, as well. 
But this issue is an important one and we must take the time to 
make our beset efforts. That said, I want to be very clear. I 
will certainly not let the perfect be the enemy of the good in 
this area of conflict diamonds legislation.
    I look forward to reading the hearing transcript and 
consulting with the Subcommittee, my colleagues on the Senate 
Foreign Relations Committee, and, of course, with Senators 
Gregg and DeWine after the hearing is over. Thank you very 
much, Mr. Chairman.
    Senator Durbin. Thank you, Senator Feingold. I know you 
have another meeting and if you have to leave, that is 
understood.
    I would like to now recognize Senator DeWine.

TESTIMONY OF HON. MIKE DeWINE,\1\ A U.S. SENATOR FROM THE STATE 
                            OF OHIO

    Senator DeWine. Mr. Chairman, thank you very much, thank 
you and Senator Collins for holding this hearing and for your 
dedication to this issue. Let me also congratulate Senator 
Feingold and thank him, as well as Senator Gregg.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator DeWine appears in the 
Appendix on page 36.
---------------------------------------------------------------------------
    As you pointed out, Congressmen Tony Hall and Frank Wolf in 
the House have been real champions of this issue and very 
visionary and I would ask unanimous consent that their 
statements, which I have here, be made a part of the record.
    Senator Durbin. Without objection.
    Senator DeWine. The diamond trade, Mr. Chairman, is one of 
the world's most lucrative industries. With its extreme 
profitability, it is not surprising that a black market trade 
has emerged alongside the legitimate industry. It is also not 
surprising that diamond trading has become an attractive and 
sustainable income source for violent rebel groups and 
terrorist networks around the world. The sale of illicit 
diamonds has yielded disturbing reports in the media, linking 
even Osama bin Laden to this trade. The February 22, 2001, U.S. 
District Court trial, United States v. Osama bin Laden, attests 
to this. Additionally, there is an established link between 
Sierra Leone's diamond trade and well-known Lebanese 
terrorists.
    Currently in Africa, where the majority of the world's 
diamonds are found, there is ongoing strife and struggle 
resulting from the fight for control of this precious gem. 
While violence has erupted in several countries, including 
Sierra Leone, Angola, the Congo, and Liberia, Sierra Leone in 
particular has one of the worst records of violence.
    In this nation, rebel groups, most notably the 
Revolutionary United Front, have seized control of many of the 
country's diamond fields. Once in control of a diamond field, 
the rebels confiscate the diamonds. Then they launder them into 
the legitimate market through other nearby countries, such as 
Liberia, and ultimately, then, finance their own terrorist 
regimes and their continued efforts to overthrow the 
government. Over the past decade, the rebels reaped the 
benefits of, it is estimated, at least $10 billion in smuggled 
diamonds, and that is billions.
    Since the start of the rebel's quest for control of Sierra 
Leone's diamond supply, the children of this small nation have 
borne the brunt of the insurgency. For over 8 years, the RUF 
has conscripted children, children often as young as 7 or 8 
years old, to be soldiers in their makeshift army. They have 
ripped an estimated 12,000 children from their families. After 
the RUF invaded the capital of Freetown in January 1999, at 
least 3,000 children were reported missing.
    Mr. Chairman, as a result of deliberate and systematic 
brutalization, child soldiers have become some of the most 
vicious, even the most effective, fighters within the rebel 
factions. The rebel army, child soldiers included, has 
terrorized Sierra Leone's population, killing, abducting, 
raping, and hacking off the limbs of victims with their 
machetes. This chopping off of limbs is the RUF's trademark 
strategy.
    Now, we can do something about this. We can make a 
difference. We have the power to help put an end to 
indiscriminate suffering and violence in Sierra Leone and 
elsewhere in Africa. As the world's biggest diamond customer, 
purchasing the majority of the world's diamonds, the United 
States has tremendous clout. With that clout, we have the power 
to remove the lucrative financial incentives that drive the 
rebel groups to trade in diamonds in the first place. Simply 
put, if there is no market for their diamonds, there is little 
reason for the rebels to engage in their brutal campaigns to 
secure and protect these diamonds.
    That is why I will continue to work with you, with the 
other Members of this Committee, the other Members who are 
involved in this battle. Senator Gregg and Senator Feingold 
have been working along with us on strong legislation which 
would remove the rebel's market incentives. We need to work 
together with the international community to facilitate the 
implementation of a system of controls on the export and import 
of diamonds so that buyers can be certain that their purchases 
are not fueling the rebel campaign.
    Mr. Chairman, before I conclude my remarks, I want to again 
thank my colleague from Ohio, Congressman Tony Hall, and 
Congressman Frank Wolf from Virginia for the tireless efforts 
that they have made to fight the conflict diamond trade. They 
both wanted to be here today, although their schedules would 
not permit it. In their absence, I would, again, as I said, 
like to submit their statements for the record.
    Let me just say, also, that Congressman Hall announced 
yesterday that he has agreed to be our next ambassador to the 
U.N.'s Food and Agriculture Agency. We are going to miss him 
certainly in the U.S. Congress, but I am confident that he will 
continue his unbelievable commitment to humanitarian 
initiatives and helping those suffering from hunger and human 
abuses around the world.
    Again, Mr. Chairman, thank you for holding this hearing. We 
have an obligation, I believe a moral obligation and 
responsibility, to help eliminate the financial incentives for 
the illicit traders. We owe it to those who unwittingly buy 
conflict diamonds. But more importantly, we owe it to the 
children who have suffered far too long.
    Senator Durbin. Thank you, Senator DeWine, and we 
understand you also have a conflict and will have to leave us, 
but you have been a great friend and ally in this fight.
    Senator Gregg, I am glad you could be here because I think 
that you showed an interest in this issue and initiative early 
on and I am glad that you are still maintaining that interest 
and contributing to this conversation. We welcome your 
testimony.

TESTIMONY OF HON. JUDD GREGG,\1\ A U.S. SENATOR FROM THE STATE 
                        OF NEW HAMPSHIRE

    Senator Gregg. Thank you, Mr. Chairman and Senator Collins. 
It is a pleasure to be here. I want to begin by congratulating 
you, Mr. Chairman, on your legislation in this area, which I 
was happy to join you in, and talk a little bit about the 
necessity of passing this legislation, getting it through the 
Senate and getting it joined up with the House language so that 
we can have laws which control illegal diamonds and conflict, 
or blood diamonds, which are essentially the same.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Gregg appears in the Appendix 
on page 39.
---------------------------------------------------------------------------
    I got into this issue about 2\1/2\ or 3 years ago as a 
result of my chairmanship of the Commerce, State, and Justice 
Appropriations Subcommittee. At that time, the war in Sierra 
Leone was going forward and the United Nations was pursuing a 
policy which was, in my opinion, misguided, it essentially 
empowered the RUF and Foday Sankoh, allowing them into the 
government and allowing them to dominate that country. As a 
result, at that time, I put a freeze on the peacekeeping funds 
in that region. The result of this was that we reached an 
agreement between the Congress and then-U.N. Ambassador 
Holbrook which essentially changed the policy towards the RUF 
in Sierra Leone, which I thought was an extremely positive 
step.
    The purpose of the new policy was to put in place a 
democratic government that was not influenced by the RUF, an 
organization which has been described by Senator DeWine in the 
harsh details that it should be described in, an organization 
which is a terrorist organization and which treats its people 
and treats especially the women and children of Sierra Leone in 
the harshest way.
    But the new policy, which was really driven in large part 
by the British Government, which I want to congratulate 
publicly for their role in this, has put in place a much more 
responsible approach to Sierra Leone. As a result, the United 
Nations' new policy is seeing significant progress, although I 
am not as sure it is as significant as maybe the press releases 
would promote it. But at least it is significant progress in 
the right direction.
    However, there remains one major issue in this whole 
complex question which has not been adequately resolved and 
that is the issue of the RUF's control over the diamond fields 
and the fact that the resources that are being generated from 
those. The revenues from selling those diamonds are clearly 
flowing into terrorist hands which are then being used to 
attack us in the United States.
    I think if the American people understood that when they 
buy a diamond in the United States that happens to be a blood 
diamond or a conflict diamond, that they are actually 
underwriting the type of people who attacked the World Trade 
Center, Americans would be much more responsive to the need to 
do something in this area. Certainly you, Mr. Chairman and 
Senator Collins, understand the importance of this.
    Thus, the attempt by the legitimate diamond trade, which is 
trying to address this through the Kimberley Accords, to find a 
way of managing these diamonds, is something we must encourage. 
We as a country must have our own laws that encourage it. As 
Senator DeWine mentioned, we are the largest importer of 
diamonds in the world and, therefore, we have the market and if 
we make it clear that our market is not going to tolerate 
conflict and blood diamonds, then we will have an impact on the 
flow of those diamonds.
    The problems, however, are not easily resolved. Diamonds 
are not easily traced. There is no system in place yet which 
can mark a diamond effectively that would allow it to be easily 
traced. Thus we must, to some degree, rely on the good 
intentions and will of the diamond marketers, especially the 
European diamond marketers. But in any event, we should clearly 
have a law that makes the point that we, as a Nation, are only 
going to tolerate the importation of non-conflict diamonds.
    In addressing this issue, we also have to be sensitive and 
aware of the fact that it is not just the Sierra Leone diamond 
fields that are the issue here. There are other diamond fields, 
but there are also other governments involved here that are 
having a negative effect and that is clearly the government of 
Liberia. We as a country need to address that problem. Charles 
Taylor and his government have denied supporting the RUF, but 
they clearly are involved with the RUF and they are also 
clearly profiting from RUF activities in the diamond fields and 
are today profiting from their own exploitation of their timber 
products. We, as a Nation, need to address that issue as part 
of a coherent and comprehensive policy towards the conflict in 
Sierra Leone, diamond production, and conflict diamonds.
    So I do not believe we can effectively resolve the question 
of conflict diamonds and the flow of the resources and the 
revenues from conflict diamonds to terrorists unless we also 
address the issue of what is happening in Liberia and its being 
an umbrella organization which protects the RUF's control over 
the diamond fields in Sierra Leone.
    I appreciate this Subcommittee drawing attention to this 
issue. It is a very important issue, in my opinion. It goes to 
our national security, but more importantly, it goes to having 
the people of Sierra Leone have an opportunity to have a decent 
life and a free society.
    Senator Durbin. Thank you very much, Senator Gregg. We 
appreciate your testimony and your commitment to this issue.
    The beep that you heard earlier is an indication that we 
are on a roll call vote, which is usually not too unsettling 
but for the fact that we have four roll calls. This means that 
we are going to have to stand in recess here for an 
indeterminate period of time, probably in the range of 30 to 45 
minutes. I apologize. It was unexpected. We will return. 
Someone said that before--General MacArthur. [Laughter.]
    We will return and I hope that each of you can stay with us 
for this important hearing. The Subcommittee will stand in 
recess.
    [Recess.]
    Senator Durbin. Thank you for your patience. There is still 
another roll call vote coming, but I decided to come back and 
try to get started with our second panel. I again apologize for 
this inconvenience and I ask your indulgence.
    I would like to now welcome our second panel, the Hon. John 
Leigh, Ambassador of Sierra Leone to the United States, and the 
Hon. Joseph Melrose, former U.S. Ambassador to Sierra Leone, 
who both have firsthand understanding of the scourge conflict 
diamonds helped fuel in Sierra Leone. I want to thank you very 
much, both of you, for coming.
    It is customary in this Subcommittee to swear in all 
witnesses and I ask you to please stand and raise your right 
hand. Do you swear the testimony you are about to give before 
this Subcommittee is the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Ambassador Leigh. I do.
    Ambassador Melrose. I do.
    Senator Durbin. Let the record reflect that the witnesses 
have answered in the affirmative.
    I would ask you if you could try to limit your oral 
statements and then questions will follow. Ambassador Leigh, 
would you please proceed.

TESTIMONY OF HON. JOHN E. LEIGH,\1\ AMBASSADOR OF SIERRA LEONE 
                      TO THE UNITED STATES

    Ambassador Leigh. Thank you, Senator Durbin. Members of the 
Committee, ladies and gentlemen, we the people of Sierra Leone 
and the people of African countries really appreciate the work 
of this Senate Subcommittee in focusing attention on the 
continued devastation caused by conflict diamonds in Africa.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ambassador Leigh appears in the 
Appendix on page 41.
---------------------------------------------------------------------------
    The international diamond trade is big business. The 
worldwide retail trade in diamond jewelry was estimated at 
approximately $60 billion in 1999. Conflict diamonds account 
for anywhere from 4 to 15 percent. That is about from $2.4 
billion to $9 billion at the retail level. The total portion 
that is accounted for by illicit or contraband diamonds from 
all sources, including conflict diamonds, is estimated at 20 
percent, or nearly $24 billion annually.
    Seventy percent of the world trade in diamonds is created 
in the United States. It is my view that the large role which 
contraband diamonds occupy in the diamond trade is behind the 
stiff resistance to the effective reform of the international 
diamond trade. Contraband diamonds have been a prominent 
feature of the diamond trade for many years, many decades, and 
it is the real precursor of conflict diamonds. So for us to 
address the issue of conflict diamonds, we must address also 
the issue of contraband diamonds. It is the freedom which the 
contraband diamonds enjoyed that ultimately led to the 
situation of conflict diamonds.
    In my view, it is the illicit diamond trade that was behind 
the collapse of state power in Sierra Leone. Beginning in 1965, 
diamond exports from Sierra Leone officially declined from 1.3 
million carats annually to genuine gemstones--to only 20,000 
carats of industrial diamonds by 1997. Gemstone production was 
unaccounted for, for many years. All those stones were 
accounted for, depriving the government of Sierra Leone of the 
revenues it needed to fund social and economic development.
    With a weak government in place, people began to use the 
situation to fake a civil war. For nearly a decade, beginning 
in March 1991, a ragtag rebel group calling itself the 
Revolutionary United Front purported to wage a civil war for 
the purpose of bringing democracy, economic and social 
development in my homeland. What we know is that at some point 
the rebels gained control of an area in Eastern Sierra Leone 
where alluvial diamonds are present. Things have never been the 
same in Sierra Leone since that time.
    With their easy access to diamonds, it did not take too 
long for the rebels of the area to become a well-equipped army 
of several thousand trained troops unleashing a reign of terror 
against the people and government of Sierra Leone. Their 
objective was to gain access to even more diamond deposits, and 
eventually to overthrow the elected government and establish an 
outlaw state. Had the RUF succeeded, Sierra Leone would today 
be another sanctuary for terrorists and elements of the 
international Mafioso in West Africa and populated by people 
with no rights and by violated people.
    The calling card of the RUF was the kidnapping of women and 
girls for sex and domestic servitude and the capture of young 
boys to serve as child soldiers. In Sierra Leone, the RUF put 
child soldiers in front of the attacking troops. Those kids 
were the ones who took the brunt of the casualties in the war 
in Sierra Leone. The RUF sent children to face government and 
ECOMOG troops. The consequent devastation to the youths of 
Sierra Leone is beyond words.
    Contraband diamonds come from many countries, but conflict 
diamonds come from only a few countries, supposedly blessed 
with easily accessible diamonds in alluvial plains. Alluvial 
diamonds are deposits of diamonds occurring in lowland areas, 
in old river beds, in the beds of streams and rivers and in 
wide swaths of forested lands. We believe that about 8,000 
square miles of Sierra Leone territory have alluvial diamond 
deposits and this makes illicit mining almost impossible to 
control.
    The government of Sierra Leone supports the Senate in 
enacting legislation that would protect the people of Africa 
from terrorists, but at the same time protect the legitimate 
trade in diamonds. Diamonds are very valuable to many African 
countries and Sierra Leone wants nothing to do that will affect 
that.
    We believe that conflict diamonds cannot be addressed by 
itself without addressing the issue of contraband diamonds. 
Although there have been Presidential orders in favor of 
prohibiting importation of conflict diamonds into the United 
States, Liberia has taken action to bypass those prohibitions 
by starting to cut and polish diamonds looted in Sierra Leone. 
So, unless legislation addresses all illicit diamonds, whether 
processed or not, criminals will find some way to defeat the 
system.
    We should also be aware that narco-dollars are what are 
being used to pay for diamonds obtained from rebels in Sierra 
Leone. Therefore, addressing the issue of conflict diamonds 
will also make it more difficult to launder narco-dollars with 
diamonds.
    Please let me summarize by saying that for a law to be 
effective against the illicit diamond trade in Sierra Leone, 
there should be a time limit on negotiations. The Kimberley 
Process has been going on for far to long and it is now time 
for this process to come to an end. To be effective, the 
Kimberley Process should provide for sanctions, including 
criminal penalties and the forfeiture of contraband diamonds. 
And entities participating in the 70 percent of the 
international trade in diamonds that is conducted in the United 
States must be compelled to obey United States laws. Diamonds 
illicitly exported from Sierra Leone and forfeited in the 
United States should be set aside to fund appropriate 
activities in Sierra Leone to benefit the people. Victims of 
the illicit diamond trade should be allowed to sue for damages 
in United States courts.
    Once again, I thank the Subcommittee for allowing me to 
testify and for focusing attention on this issue critical to 
peace in Africa. I want to thank Congressman Tony Hall, 
Congressman Frank Wolf, and their staffs for their leadership 
in this issue. I also want to thank this Subcommittee, Senator 
DeWine, Senator Feingold, and Senator Gregg for their support 
for the people of Africa. Thank you, Mr. Chairman.
    Senator Durbin. Thank you very much, Ambassador Leigh. 
Ambassador Melrose.

TESTIMONY OF HON. JOSEPH MELROSE,\1\ FORMER U.S. AMBASSADOR TO 
                          SIERRA LEONE

    Ambassador Melrose. Chairman Durbin, Members of the 
Subcommittee, thank you for inviting me to testify today on 
this important issue.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ambassador Melrose appears in the 
Appendix on page 45.
---------------------------------------------------------------------------
    The fact that diamonds as well as other resources have been 
used to both fuel and fund conflicts in Africa is now generally 
accepted as fact. In addition, natural resources from Africa 
have provided funds for terrorist activities outside of Africa. 
In the case of diamonds, their high value, small size, and low 
weight, combined with the ease in which they can be converted 
into money and the difficulty of detection by mechanical means 
makes them an excellent medium for moving, hoarding, or 
laundering money.
    In the case of Sierra Leone and, indeed, some of the other 
countries of Africa, the presence of alluvial diamonds provides 
a particularly conducive situation. These diamonds are not 
mined in the traditional way but rather by panning for them in 
much the same way Forty-Niners panned for gold in our own 
country. Digging for diamonds takes place over a wide 
geographical area, making it particularly difficult to control. 
Virtually anybody can dig for diamonds or hire someone else to 
do it for them. No expensive mining equipment is needed, and as 
noted previously, diamonds are easily hidden and transported. 
The diggers are among the most exploited people in the world. 
Those that hire them get rich while the diggers remain in a 
state of abject poverty and virtual servitude. But this is only 
part of the problem.
    The conflicts that have engulfed Sierra Leone and other 
African countries have meant a lack of government control of 
these stones from the field to the market. The environment has 
provided purveyors of violence with a friendly playing field 
from which to operate. Nation states in either a state of 
collapse or near collapse provide both native citizens and 
unscrupulous outsiders an even more suitable operating 
environment.
    For example, the Lebanese have long been involved in the 
Sierra Leone diamond trade. Funds from the sale of illicit 
diamonds have been used to purchase weapons for use in 
revolutions, crimes, and terror. In addition, as Washington 
Post reporter Doug Farah reported several months ago, illicit 
diamonds have been used as a means of transfer money from one 
location to another.
    The motivations for most of the individuals that engage in 
the illicit diamond trade are simply greed and power. Farah's 
assertion that the rebels of the Revolutionary United Front 
(RUF) of Sierra Leone sold diamonds to individuals identified 
by the U.S. Government as al Qaeda representatives is not 
surprising. Even the RUF itself, following its internal 
investigation into Farah's story, while denying that it had a 
relationship with al Qaeda, acknowledged that it was not 
impossible that some of their number did, in fact, sell stones 
to representatives of al Qaeda.
    In my opinion, this admission is tantamount to accepting 
the possibility that their stones went to al Qaeda, with or 
without the formal backing of the organization. While it is 
still in question whether this was a deliberate effort on the 
part of the RUF to assist al Qaeda, or not the impact is the 
same.
    Too often, the sellers of diamonds are interested in one 
thing, the best price and who has the money. Whether deliberate 
or not, it makes little difference in the end. In addition, 
similar sales have almost certainly taken place with other 
designated terrorist organizations, such as Hezbollah. In the 
case of Hezbollah, a connection has existed for years to 
various Lebanese groups.
    The need to establish a clean, transparent system for 
preventing such illicit commodities from entering the 
legitimate market is clear. The customer should be able to know 
that the diamond he or she purchased did not get to the retail 
counter by increasing the suffering of fellow human beings and 
that the benefits of the country's natural resources should 
benefit the citizenry of the country they come from. The 
Kimberley Process, while far from perfect, is a step in the 
right direction.
    Information I have received in the past week indicates that 
a large amount of diamonds that were at least in part mined by 
the RUF during the conflict have made their way to Guinea for 
sale to raise funds to support the RUF in the upcoming Sierra 
Leone election. As Ambassador Leigh said, diamond traders in 
Antwerp tell me that they are seeing stones coming out of 
Liberia and reaching the European markets at this time.
    The Kimberley Agreement, although no panacea, would be a 
step in reducing this trade, the unintended consequences 
throughout the world, and the particularly devastating ones in 
Africa. Despite its flaws, it is a start and should be 
supported. By declaring that trading in conflict diamonds is 
not acceptable, the world may see the advent of a new corporate 
and social responsibility in a sector that has heretofore 
relied almost totally on self-policing.
    By taking this step, the diverse group of interested 
parties that negotiated the Kimberley Agreement, including 
states, the private sector, nongovernmental organizations, and 
even representatives of civil society, may have begun a process 
that could impact other sectors where the improper or illicit 
trade in commodities, such as gemstones, occur without the 
necessity of another Kimberley-type agreement. Individuals and 
organizations must not have the tools by which they can take 
power or hold nations hostage to their demands. If reducing the 
trade in conflict diamonds can even partially be achieved, it 
would have a significant benefit in the area of human rights 
and the true source of regional conflicts, which all too often 
is money.
    Our goals should be two. First, we must end these practices 
by various organizations and cut off their funding sources. 
Second, we must make every effort to ensure that new techniques 
to circumvent proper channels do not simply take the place of 
old ones. To do so will require not only coordination among 
states, industry, civil society, but the international security 
and law enforcement apparatus, as well. While we have seen that 
various organizations have been able to successfully benefit 
from this situation, we must also recognize that it is certain 
that others who seek to harm innocent members of society have 
used this situation for their benefit, as well.
    The United States, as the biggest market for gem-quality 
stones, must take a leading role in ending the conditions that 
permit these violations of our moral and ethical standards by 
supporting Kimberley and clean diamond legislation. We must not 
abdicate our role, but should continue to press for a tangible, 
meaningful solution to this problem in consultation with the 
legitimate diamond industry, as well as the other Kimberley 
participants. I thank you for your attention.
    Senator Durbin. Thank you very much, Mr. Ambassador. Let me 
ask you this. I know you cannot discuss any classified 
information relative to the al Qaeda connection that you may 
have learned during your service to our country, but I wonder, 
did you observe any activities in diamond trading when you were 
U.S. Ambassador to Sierra Leone that led you to conclude that 
the press reports about the al Qaeda connection are likely to 
be true?
    Ambassador Melrose. Toward the end of my tour in Sierra 
Leone, we noticed some aberrations in the diamond market which, 
although I was not able to investigate them to the extent that 
I would have liked, led me to believe there was a laundering or 
hoarding of stones taking place. This was prior to September 
11, but there clearly were some changes which were taking place 
which were not subject to normal economic factors.
    Senator Durbin. What kind of changes?
    Ambassador Melrose. Prices were being manipulated. 
Quantities were being manipulated. Certain kinds of stones were 
not available on the market.
    Senator Durbin. Do you have any reason to believe that 
members of al Qaeda were in the region prior to September 11?
    Ambassador Melrose. Mr. Farah has gotten some, I believe, 
eyewitness statements that they were. The relationship between 
a gentleman that I believe is currently in Burkina Faso by the 
name of Ibrahim Bah with certain dissidents, both Lebanese and 
other Arab groups is pretty clearly established.
    Senator Durbin. Did you observe, or were you aware of his 
presence in the region before September 11?
    Ambassador Melrose. He was in Liberia and also in Burkina. 
I have met Bah several times and talked to him before that. The 
last time I spoke to him was probably about a year ago and he 
was at that time in Burkina Faso.
    Senator Durbin. And at least there are allegations of his 
connection with al Qaeda leadership?
    Ambassador Melrose. There are certainly questions that 
would lead one to believe that there could be a relationship, 
yes.
    Senator Durbin. Have you spoken to officials from any other 
countries that might have evidence of al Qaeda operatives 
purchasing conflict diamonds?
    Ambassador Melrose. I have spoken to members of the diamond 
trade and also Belgian officials who initially were doubtful of 
some of these connections, whether al Qaeda or other terrorist 
organizations, but have certainly changed or modified their 
view since September 11.
    Senator Durbin. All right. Let me ask you about the 
Hezbollah situation, because both Ambassador Leigh and yourself 
have alluded to the involvement of Hezbollah. This seems to be 
accepted. There is no controversy involved, that they have been 
involved in conflict diamonds for some period of time, is that 
correct?
    Ambassador Melrose. I would say at least 5 to 10 years, 
yes.
    Senator Durbin. Well, I think it is worth noting for the 
record what this is all about, to try to connect the dots for 
just a minute, if we could. When people in the United States 
learn of child labor or slave labor making products for sale in 
the United States, we find that absolutely repulsive and many 
companies have suffered because of accusations and some have 
suffered even more when it has been proven that products are 
being sold to Americans that could have been the product of 
those types of outrageous labor practices.
    This raises an important point in relation to Hezbollah. 
Hezbollah is a terrorist organization, named by President Bush 
in his State of the Union Address and notorious throughout the 
world, that was responsible for bombing two American embassies 
in Beirut, killing 48 people, responsible also for the Marine 
Corps barracks bombing in Beirut. They also kidnapped an 
American diplomat and killed him and they have been involved in 
hijacking of airplanes, a TWA flight, and have taken credit for 
the loss of innocent life.
    Now, having said that, I hope to bring this full circle. 
They are using, or at least it is believed that they are using, 
these conflict diamonds to finance at least some part of their 
operations, and from your testimony, have been doing so for 5 
or 10 years. The reason why this comes close to home is if I 
find it repugnant to find a soccer ball made by a tiny child in 
some third world country to give to my grandson, imagine if 
Americans came to believe that the diamonds that they were 
buying for engagement presents and wedding presents were really 
financing the kind of terrorist activity of Hezbollah which I 
have just described.
    That, I hope, is what comes from this hearing, that 
Americans will connect the dots and say, as long as, the 
ambassador has said, we are consuming 70 percent of the world's 
diamonds in the United States, we have a moral obligation to 
ask the question, where are they coming from? How do they get 
here? And if they come through the bloody hands of terrorists, 
whether it is the RUF or Hezbollah, I think that that is a red 
flag to all Americans that we need to do something to police 
this situation.
    I would like to ask you, if I might, Ambassador Leigh, what 
is your knowledge of the involvement of al Qaeda members in the 
conflict diamond trade?
    Ambassador Leigh. I do not have any specific knowledge of 
al Qaeda in Sierra Leone, but I can tell you one thing. There 
is a large Middle Eastern population in Sierra Leone. There are 
Shiites in Sierra Leone, Sunis, Christians in Sierra Leone from 
the Middle East. There is a large Lebanese population and they 
have been involved in the contraband diamond trade going back 
to 1960. And, in fact, the decline in Sierra Leone's official 
diamond exports coincided with the Lebanese civil war. The 
present speaker of the Lebanese parliament is a Sierra Leone 
born Lebanese, Nabih Berri. He was the head of Amal militia, 
and Amal was funded partly from the sale of Sierra Leone 
diamonds. And it is well known that the Lebanese in Sierra 
Leone have been supporting various factions in Lebanon civil 
war going back to the early 1980's.
    So I can say that if al Qaeda wishes to trade in Sierra 
Leone diamonds, it would be an easy thing for them to do to 
accomplish. There is certainly a strong and powerful Middle 
Eastern presence in Sierra Leone going back about a hundred 
years.
    Senator Durbin. Can you tell us anything more specifically 
about Hezbollah in the conflict diamond trade?
    Ambassador Leigh. Just like you have al Qaeda there, there 
will be factions in Sierra Leone supporting various militia 
groups. Hezbollah would be one of those. Hamas would be another 
one. Various Middle Eastern groups in Sierra Leone have always 
served as financial support bases for the parent groups in the 
Middle East. I do not have any specific knowledge of any 
specific Hezbollah operative in Sierra Leone, but Hezbollah's 
presence in Sierra Leone would not be out of the ordinary at 
all.
    Senator Durbin. Ambassador Melrose made mention of the 
Revolutionary United Front selling diamonds in Guinea to raise 
funds for the upcoming election in Sierra Leone. That is very 
disturbing and I would like to ask you, have you received any 
information about this activity?
    Ambassador Leigh. I first heard of that when I was in 
Sierra Leone last month, but again, these fellows, they always 
hide behind the scene, behind closed doors. It is very 
secretive. They do not publicize their financial authorities, 
but there is general knowledge that the RUF is still exporting 
Sierra Leone diamonds illegally through Guinea and Liberia.
    Senator Durbin. Ambassador Melrose, could you follow up on 
that? Do you believe the RUF intends to manipulate the 
elections to take power in Sierra Leone?
    Ambassador Melrose. I tend to believe that they will make 
an effort. I do not think they will be successful. I think one 
of the ways they will use, according to reports coming from 
certain U.N. and other NGO observers, is that they have tried 
to manipulate the registration process by registering under-age 
voters that were members of their organization.
    Senator Durbin. Since September 11, Mr. Ambassador, do you 
believe there has been an improvement in U.S. intelligence 
activities in West Africa concerning the flow of conflict 
diamonds?
    Ambassador Melrose. To some extent, but not significant.
    Senator Durbin. What is holding it back? Why do you believe 
it has not been significant?
    Ambassador Melrose. I think largely, Mr. Chairman, it is a 
function of resources. Moving resources in, even if you wanted 
to, cannot be done overnight and you cannot develop the 
contacts overnight. This takes time, even if everybody is 
desirous of doing it. It is just the way the intelligence 
function works.
    Senator Durbin. You know, it strikes me that early on, 
President Bush and members of our coalition made it clear that 
they were going to go after the financial support of terrorism 
around the world and I think that is not only appropriate, it 
is necessary. But it strikes me, based on what I have read and 
heard at this hearing, that unless we also address the conflict 
diamond financing of terrorism, we are leaving a gaping hole in 
this war against terrorism. Do you agree?
    Ambassador Melrose. Yes, I do. I think the diamonds, not 
just for financing, but the transportability of resources, the 
convertability make diamonds a commodity that must be 
addressed.
    Senator Durbin. All right. What are your views on the 
success of the certification scheme and peacekeeping efforts 
that currently exist in Sierra Leone?
    Ambassador Melrose. The certification system was designed 
as a result of the U.N. resolution banning the export of 
diamonds. The certification system is relatively good, but it 
only addresses one portion of the path from the field to the 
market.
    I like to divide the path from the field to market into 
three sectors: From the field to Freetown, place of export; 
from the place of export to the place of import, which is what 
the certification system deals with; and from the place of 
import to the market. More work needs to be done on the other 
two parts for the certification system to be more effective.
    Senator Durbin. So from the field to Freetown----
    Ambassador Melrose. Yes.
    Senator Durbin [continuing]. And from the final disposition 
of the diamonds.
    Ambassador Melrose. And then you are also hearing, as 
Ambassador Leigh mentioned, stones that go out of the country 
through Guinea, through Liberia, through the Gambia, through 
Mauritius. These circumvent the certification process and that 
is one of the things the Kimberley Agreement attempts to deal 
with.
    Senator Durbin. Ambassador Leigh, you did make that point 
in your testimony. Would you address that again in terms of 
where you think the gaps are in the current certification 
system and perhaps bring to our attention some things that we 
should address with legislation?
    Ambassador Leigh. Ambassador Melrose is quite correct. The 
difficulty is from the mines to the government offices, to the 
export offices in Freetown. The difficulty is that the prices 
for Sierra Leone diamonds are higher in Morovia than in Sierra 
Leone and they are higher in Morovia because they use narco-
dollars in Morovia and they use legal currency in Sierra Leone. 
So people who want to clean the money are willing to pay a 
premium for Sierra Leone diamonds to clean their money. So some 
diamonds are going to Morovia, to Liberia, and Liberia is now 
beginning to process those diamonds to defeat the certification 
scheme.
    Diamonds are going through Guinea. Guinea has their own 
diamond mines, but the bulk of the diamonds in that part of 
West Africa, 90 percent are in Sierra Leone. So Guinea has a 
collateral claim to say they had the diamonds. So it is a 
difficult problem. It is very difficult.
    Senator Durbin. We have learned in this war against 
terrorism the linkage between narcotics and terrorism and now 
we are learning that we need to bring diamonds into this 
conversation, as well, that, unfortunately, diamonds are part 
of this whole flow of terrorist activity and narcotics in many 
parts of the world, and I think you have given us some good 
illustrations of how countries that are not enforcing their 
laws or do not have any laws or do not have any ways of 
investigating are being exploited, and I think even more 
importantly, the people of the country are being terrorized and 
exploited in that same process.
    Speak to me about the Kimberley Process and whether you 
believe it is moving apace and coming to a conclusion that we 
can subscribe to. I think there was some reference to how long 
it has taken and how we still have to do much more before we 
wait for that conclusion. Ambassador Leigh.
    Ambassador Leigh. I believe the Kimberley Process is 
proceeding at a leisurely pace.
    Senator Durbin. Leisurely?
    Ambassador Leigh. Very leisurely. They have meetings in a 
number of exotic places, having really nice meetings, but 
nothing really effective is coming out within a time frame that 
is acceptable to the people of Sierra Leone. We are sitting on 
top of violated children, violated women, damage of 
infrastructure across the land and we understand the urgency of 
addressing this issue.
    The Kimberley Process is meeting now for, what is it, 18 
months or more, and what they have done that I like is they are 
really putting emphasis on warranties, actually maintaining a 
chain of warranties from the mines through to the final 
importer. Now, every single country in the world should join 
that system. Otherwise, it is no good. If the countries that 
have that system in place enforce it, then the diamond 
smugglers will go to some other country that does not have that 
system. So any Nation that wants to partake of the 70 percent 
of the diamonds in the United States should be in a system 
where there is international certification and the chain of 
warranty of diamonds from the mines are supported by that 
system or else it is not going to work.
    But I would like to see an end to the meetings, the 
debates, and something concrete comes out of it in forms of 
legislation in all those 30 countries taking part in the 
process.
    Senator Durbin. Ambassador Melrose, your opinion of the 
Kimberley Process?
    Ambassador Melrose. I think it is a step in the right 
direction. I do not think it is a panacea. I do not think it 
will cure the whole problem. There will always be leakage, but 
clearly, we have to take the first step.
    I agree with Ambassador Leigh that it has been a bit more 
drawn out than I would have liked to have seen. I am hopeful 
now that it is going to come to some fruition. But once it is 
complete, then you have to get into the issue of the other 
actions that are needed to make it operational and that is 
going to take more time.
    Senator Durbin. I thank you both for your testimony and I 
thank you for your patience because of the interruption. It is 
very important. I am glad it is on the record here, and we are 
going to follow through with a third panel and after that, I 
hope, work with you to develop some effective legislation. 
Thank you very much, both of you, for being here.
    Senator Durbin. I would like to welcome our next panel, 
which will address U.S. efforts to stop the trade in conflict 
diamonds. Loren Yager is Director of International Affairs and 
Trade for the U.S. General Accounting Office. Alan Eastham is 
the Special Negotiator for Conflict Diamonds with the U.S. 
Department of State. Timothy Skud is Acting Deputy Assistant 
Secretary for Regulation, Tariff, and Trade Enforcement with 
the U.S. Department of the Treasury. The Hon. James Mendenhall 
is Deputy General Counsel, of the U.S. Trade Representative.
    As is the custom of the Subcommittee, I would like to ask 
you to please stand so that I might administer the oath. Would 
you raise your right hand. Do you swear the testimony you are 
about to give before this Subcommittee is the truth, the whole 
truth, and nothing but the truth, so help you, God?
    Mr. Yager. I do.
    Mr. Eastham. I do.
    Mr. Skud. I do.
    Mr. Mendenhall. I do.
    Senator Durbin. Thank you. Let the record reflect that all 
witnesses answered in the affirmative.
    Mr. Yager, if you would be kind enough, your written 
remarks will be included in their entirety and if you would 
like to summarize at this point, I would appreciate it.

 TESTIMONY OF LOREN YAGER,\1\ DIRECTOR, INTERNATIONAL AFFAIRS 
           AND TRADE, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Yager. Thank you, Mr. Chairman. I am pleased to be here 
today to discuss our observations on the U.S. and international 
efforts to deter trade in conflict diamonds. We have been 
performing this work for Senator Judd Gregg and Representatives 
Tony Hall, Cynthia McKinney, and Frank Wolf.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Yager appears in the Appendix on 
page 48.
---------------------------------------------------------------------------
    Conflicts linked to diamonds have created severe 
humanitarian crises in countries such as Sierra Leone, Angola, 
and the Democratic Republic of Congo. The principal 
international effort to address this issue, known as the 
Kimberley Process, aims to develop and implement an 
international diamond certification scheme that will prevent 
conflict diamonds from entering the legitimate market. As we 
heard from the first panel, the Congress is also considering 
legislation to ensure the consistency of the U.S. system with 
this process.
    The primary message of my testimony this morning is that 
the nature of the diamond industry makes it extremely difficult 
for the U.S. Government and for the international community to 
deter trade in conflict diamonds. Specifically, I will discuss 
three issues: First, how the nature of diamonds and industry 
operations are conducive to illicit trade; second, the 
inability of U.S. import controls to deter trade in conflict 
diamonds; and finally, the extent to which the Kimberley 
Process has the necessary elements to deter trade in conflict 
diamonds.
    On the first point, I note in my written statement how the 
nature of diamonds and the operations of the international 
diamond industry create opportunities for illicit trade, 
including trade in conflict diamonds. Diamonds are mined in 
remote areas around the world and are virtually untraceable 
back to their original source, two factors that make monitoring 
diamond flows difficult. Diamonds are also a high-value 
commodity that is easily concealed and transported. Because of 
these characteristics, not only can diamonds enter the 
legitimate trade, they can also be used in lieu of currency in 
arms deals, money laundering, and other crime. Lack of 
transparency in industry operations also facilitates this 
illegal activity. The lack of industry information is 
exacerbated by poor data reporting at the country level, where 
import, export, and production statistics often contain glaring 
inconsistencies.
    The second major point is a consequence of these industry 
characteristics, that U.S. import controls cannot prevent 
conflict diamonds from entering the United States. The general 
U.S. import control system requires documentation listing the 
country of last export, which U.S. import requirements consider 
the country of origin. However, without an effective 
international system that can trace the true original source of 
rough diamonds, the United States could be importing conflict 
diamonds that have passed through a number of other countries 
before entering the United States.
    My final point is that these same industry characteristics 
create significant challenges for international efforts to 
control trade in conflict diamonds. The Kimberley Process 
incorporates some elements of accountability, such as requiring 
Kimberley Process certificates designating country of origin 
for unmixed shipments. But some elements are lacking and others 
are listed only as optional or recommended.
    For example, the scheme is not based on a risk assessment, 
which is an essential element of an effective control system. 
As a result, some activities that would be deemed high risk by 
industry experts or by Kimberley Process participants, such as 
the flow of diamonds from the mine or the field to the first 
export, are subject only to recommended rather than required 
controls. In addition, the period after rough diamonds enter a 
foreign port to the final point of sale will be covered by an 
industry system in which participation is voluntary and 
monitoring and enforcement are self-regulated.
    In conclusion, I want to acknowledge that the Kimberley 
efforts to date have served to focus attention on a very 
serious humanitarian crisis and have facilitated cooperation 
among industry, government, and nongovernmental organizations. 
However, our work suggests that the Kimberley Process 
participants have important issues to resolve to make the 
scheme effective in deterring trade in conflict diamonds.
    Mr. Chairman, this concludes my testimony. I would be happy 
to answer any questions that you have.
    Senator Durbin. Thank you for being here, and we will have 
some questions. Mr. Eastham.

 TESTIMONY OF ALAN EASTHAM,\1\ SPECIAL NEGOTIATOR FOR CONFLICT 
               DIAMONDS, U.S. DEPARTMENT OF STATE

    Mr. Eastham. Thank you very much, Mr. Chairman, for 
inviting the State Department to come and testify today. I have 
submitted a rather lengthy written statement, which I will 
summarize rather brutally with your permission.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Eastham appears in the Appendix 
on page 66.
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    You asked that we look at developments in the potential 
effectiveness of the Kimberley Process certification system as 
well as whether the proposed regime in that process would be 
useful to prevent terrorists from financing their operations 
through diamond trading. These are both important questions.
    With respect to the first, I believe that the Kimberley 
Process as presently outlined and in which there are 
significant issues to be settled in our next series of meetings 
will be effective both in deterring conflict diamonds and in 
affecting the ability of terrorists to use diamonds to finance 
their operations. I will explain that in a little more detail 
in a moment and I am sure we will have some discussion about it 
in the question period.
    We have been working on this problem for some years, both 
through the U.N. Security Council, as well as more recently 
through the Kimberley Process. The United States has fully 
implemented the Security Council resolutions applicable to 
Angola, Sierra Leone, and Liberia which affect conflict 
diamonds and were active participants in the consideration in 
New York of resource issues affecting the Democratic Republic 
of Congo.
    I would like to acknowledge the role of the government of 
Angola and the government of Sierra Leone, in particular, in 
implementing certification systems which are designed to attack 
the problem of conflict diamonds.
    In the Kimberley Process, what we are doing in that 
discussion is trying to establish principles for a system of 
certification on the trade in rough diamonds in order to 
eliminate conflict diamonds from international trade. Under the 
system as outlined by the Kimberley Process up to the present 
point, every country that trades in rough diamonds, including 
the United States of America, would validate an export document 
called a Kimberley Process certificate. What this document 
would do would be to attest to the fact that the diamonds being 
exported were handled in compliance with a national system of 
internal controls designed to eliminate the presence of 
conflict diamonds from our trade. It is our expectation this 
system will eventually cover the entire global trade in 
legitimate rough diamonds.
    The point is not to identify the origin of every diamond 
but to set up a system of legitimate trade in which the trade 
will be recognized as legitimate, to strengthen it, and to 
enable that trade to flourish in a way which excludes the bad 
diamonds. This will, thus, give the industry the ability to 
continue to function. It will enable consumers to have 
confidence that what they are buying does not contribute to 
human misery in another part of the world. And it will enable 
us to focus our enforcement resources on the black market, on 
conflict diamonds and the use of diamonds for other evil 
purposes.
    We are now working on several remaining issues within the 
Kimberley Process, getting ready for the next meeting in March 
in Canada. We are also considering interagency what changes in 
U.S. law and procedure might be necessary to implement the 
proposed scheme. This is a matter of some urgency, since the 
last meeting of the Kimberley Process in November recommended 
the system should be implemented as soon as possible with the 
issuance of certificates beginning immediately by those 
countries in a position to do so. Of course, Angola, Sierra 
Leone, and Guinea are already issuing certificates to accompany 
rough diamond shipments, so that is a start. We would hope that 
others would begin doing so in the very near future.
    With the strong support of the Congress and active efforts 
by the administration, we hope that this can be in place--a 
simple, effective, cost effective, and global system will be in 
place by the end of this year.
    Let me conclude briefly with a discussion of the role of 
diamonds in terrorist finance, which is of great concern to us 
as it is to you, based on your comments earlier. We in the 
State Department and our law enforcement agencies are 
consulting together to look at the diamond business to identify 
vulnerabilities in this area, and I have been talking to our 
enforcement agencies as well as to other countries, 
participants in the diamond trade, in the past few weeks on 
this very issue.
    We do not believe that the major participants in the legal 
diamond business would knowingly countenance the trade in 
diamonds which are used for terrorist finance. However, there 
is the risk that diamonds are being used to hoard wealth and 
avoid legitimate banking circles by terrorists and this is an 
area where we are concentrating our efforts.
    Regrettably, there are some on the fringes of the diamond 
trade who are willing to overlook warning signs when an 
opportunity to buy rough diamonds at a good price comes along. 
It is important for the industry to avoid being implicated in 
this evil, and particularly important for the diamond trade in 
this country to heed the best practice of know your supplier. 
This is an essential first step in taking effective action 
against both conflict diamonds and the use of rough diamonds as 
a terrorist financing tool. Thank you very much.
    Senator Durbin. Thank you very much. Mr. Skud.

TESTIMONY OF TIMOTHY SKUD,\1\ ACTING DEPUTY ASSISTANT SECRETARY 
FOR REGULATION, TARIFF, AND TRADE ENFORCEMENT, U.S. DEPARTMENT 
                        OF THE TREASURY

    Mr. Skud. Mr. Chairman, thank you for inviting me to speak 
about the role of the Treasury and the Customs Service in 
interdicting conflict diamonds.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Skud appears in the Appendix on 
page 71.
---------------------------------------------------------------------------
    The role of diamonds in conflicts in Angola and Sierra 
Leone has been well documented. More broadly, diamonds are 
often used in criminal networks running parallel to legitimate 
trade channels. They offer opportunities to conceal financial 
and organizational relationships. They can be used in money 
laundering, arms trafficking, and international terrorism.
    Customs recently initiated Operation Green Quest, which 
aims to investigate such crimes, including those which may 
utilize diamonds. In addition, Customs currently enforces 
specific prohibitions on importation of the diamonds from three 
countries, Angola, Sierra Leone, and Liberia. These 
prohibitions are in place pursuant to Executive Orders that are 
consistent with U.N. Security Council resolutions. These orders 
prohibit imports of all diamonds exported from Liberia and only 
allow diamond imports from Sierra Leone and Angola that are 
accompanied by certifying documentation.
    Importers must present appropriate documentation to Customs 
on demand and have the responsibility to keep certificates on 
file for 5 years after importation to be available for further 
review and investigation. Customs uses targeted examinations 
and risk analysis techniques to identify those imports that 
represent the greatest risk and to focus resources in those 
areas. This may include post-importation audits to review 
importers' overall trade, to identify anomalies, and to verify 
claims made at entry. This verification can include contact 
with exporting authorities. If any information on suspect 
diamonds is obtained, Customs will seize shipments or initiate 
formal investigations.
    There have been two recent local interdictions of diamond 
imports based on failure to present proper export certificates. 
In December, Customs inspectors at BWI airport seized diamonds 
from a passenger who had arrived from Sierra Leone. The 
passenger had no accompanying certificate for those diamonds. 
In February, an arriving international passenger declared 
diamonds to Customs officers at BWI, but Customs inspectors 
believed that certificate to be fraudulent. The stones and the 
accompanying documents have been detained.
    In January 2001, the U.N. General Assembly encouraged 
member states to devise effective and pragmatic measures to 
address the problems of conflict diamonds. Over 30 countries 
have engaged in the resulting discussions, known as the 
Kimberley Process. The objective of the Kimberley certification 
scheme is to assist in tracking legitimate diamond trade in 
order to isolate illegal shipments and identify persons 
involved in the trade of illicit conflict diamonds. Treasury 
and Customs have participated in these discussions and have 
shared information with participating countries on what we 
believe are the most modern and effective Customs analysis and 
interdiction techniques.
    The Customs Service would enforce any import regulations 
concerning Kimberley certificates as it does the existing 
sanctions with respect to shipments from Sierra Leone, Angola, 
and Liberia.
    The United States is a significant consumer of polished 
diamonds, but rough diamonds are primarily processed elsewhere. 
An effective global regime for excluding conflict diamonds will 
need to rely on effective monitoring mechanisms in countries of 
first extraction, in primary importing countries, and on 
international cooperation.
    The Kimberley Process involves traders and tries to strike 
a balance between trader vigilance and government involvement. 
A system that relies strictly on government enforcement and 
excludes the industry would be far less effective.
    In summary, we support the objectives of the Kimberley 
Process. In addition, Treasury and Customs have actively 
participated in the administration's dialogue with the Congress 
concerning H.R. 2722. We believe this bill complements the 
efforts of the administration to combat trade in conflict 
diamonds under the Executive Orders and through the Kimberley 
Process.
    Thank you, Mr. Chairman, for the opportunity to present 
Treasury's views. I would be happy to answer any questions.
    Senator Durbin. Thank you very much. Mr. Mendenhall.

TESTIMONY OF JAMES MENDENHALL,\1\ DEPUTY GENERAL COUNSEL, U.S. 
                      TRADE REPRESENTATIVE

    Mr. Mendenhall. Thank you, Mr. Chairman, for inviting me to 
testify before you today. I appreciate this opportunity to 
discuss the efforts that are being made both nationally and 
internationally to deal with the tragic problem of conflict 
diamonds.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Mendenhall appears in the 
Appendix on page 75.
---------------------------------------------------------------------------
    As we all know, rebel groups in certain African countries, 
such as Angola and Sierra Leone, have for many years funded 
their activities through the sale of conflict diamonds. These 
groups have engaged in atrocities that shock the conscience. 
The international community is taking action to stop the trade 
in conflict diamonds and we are now approaching the point where 
an effective and comprehensive regime can be put in place. U.S. 
Trade Representative (USTR) wholly supports this effort.
    Last November, the House of Representatives passed H.R. 
2722, the Clean Diamond Trade Act, by the overwhelming margin 
of 408 to 6. USTR supported the bill and is pleased that the 
House passed it so resoundingly. We applaud the leadership of 
Ways and Means Committee Chairman Thomas, as well as that of 
Representatives Hall, Wolf, and Houghton, in taking this 
positive and constructive step toward severing the tie between 
diamonds and conflict.
    I also applaud you, Mr. Chairman, along with Senators 
Gregg, DeWine, and Feingold, for being actively engaged in 
formulating legislation to deal with this problem and for 
giving this issue the serious attention and consideration that 
it deserves.
    USTR and other agencies in the administration have 
discussed conflict diamonds legislation with your staffs and we 
look forward to continuing this dialogue. As we have made clear 
in those discussions, we fully support expeditious Senate 
approval of H.R. 2722.
    H.R. 2722 was the result of long and hard work by Members 
of Congress, their staffs, the administration, and the NGO and 
business communities. USTR participated fully in this process 
and sought a bill that would be effective, would not undermine 
the Kimberley Process negotiations or other multilateral 
efforts to prevent trade in conflict diamonds, and would comply 
with U.S. international obligations. H.R. 2722 achieves each of 
these objectives.
    First, the bill enumerates specific measures that countries 
could adopt to help ensure that conflict diamonds do not enter 
the international stream of commerce.
    Second, the bill is designed to complement multilateral 
efforts to prevent trade in conflict diamonds. The bill stakes 
out a clear U.S. position on the elements of an effective 
international regime and encourages countries to adhere to the 
framework arrangement that will emerge from the Kimberley 
Process.
    Finally, the bill is designed to comply with international 
law.
    H.R. 2722 is landmark legislation. It places the United 
States squarely at the forefront of the effort to stop trade in 
conflict diamonds. However, as I think we all recognize, the 
effort to prevent such trade will be vastly strengthened if all 
actors in the global diamond trade, including producers, 
distributors, and governments, as well as the NGO community, 
join together in a comprehensive regime.
    Multinational efforts to deal with the problem of conflict 
diamonds have focused on two fronts, United Nations sanctions 
and the negotiation of an international certification regime in 
the Kimberley Process. The United Nations Security Council has 
been very active in taking steps to prevent trade in conflict 
diamonds and has issued three resolutions regulating trade in 
diamonds exported from Sierra Leone, Angola, and Liberia. H.R. 
2722 is meant to work within the framework created by these 
sanctions and to encourage other countries to comply with their 
U.N. obligations.
    The Kimberley Process is a much broader initiative. Since 
its first meeting in May 2000 in Kimberley, South Africa, it 
has grown into a sophisticated international negotiation with a 
growing number of participants. Throughout the Kimberley 
Process, over 30 members of the international community, 
including the United States, have come together to negotiate an 
international regime to eliminate trade in conflict diamonds. 
This effort is truly extraordinary in that the NGO community 
and the diamond industry participate directly in the 
discussions and will be key to the operation of the regime once 
it is implemented.
    The United Nations has played a central role in urging 
completion of the process and garnering international support. 
In December 2000, the U.N. General Assembly endorsed the work 
of the Kimberley Process when it unanimously passed Resolution 
55/56. Last December in Botswana, the Kimberley participants 
issued a working document which sets out the elements of an 
international certification scheme for trade in rough diamonds. 
The document has been sent to the U.N. General Assembly, where 
it will be discussed in March.
    The State Department has been the lead in the Kimberley 
Process negotiations and they have done an admirable job in 
filling that role and the USTR has participated, as well. Over 
the coming year, participants in the Kimberley Process should 
begin to implement the elements of the certification scheme. 
However, there are several key issues that remain to be 
resolved. These issues include ensuring that the certification 
system is consistent with international trade rules.
    The participants agreed in Botswana to create a working 
group to discuss this issue and report back to the other 
participants at the next plenary meeting in Canada in March. 
Nine countries are participating in the working group on trade 
issues, including the United States. USTR and the State 
Department are representing the United States in these 
discussions. Since December, we have been actively engaged in 
discussions with other members of the working group. The first 
meeting of the working group will be held in Geneva this 
weekend, and by the time the plenary meets in Canada, we hope 
to have resolved most or all of the concerns related to 
compliance with international trade rules.
    Thank you again for the invitation to testify here today. I 
look forward to working closely with you and your staffs in the 
future to address this difficult and complex problem.
    Senator Durbin. Thank you very much, Mr. Mendenhall.
    Let me say at the outset that we made a decision in the 
Senate once we received the House bill not to pass it and to 
have this hearing and to see if we could do a better job, and I 
do not want to gainsay any of the efforts made in the House, 
but I think the bill originally conceived by Congressman Hall 
and passed by the Senate was a much better bill, a much 
stronger bill. Let me give you four specific areas of concern, 
and I want to address those during the course of this 
conversation.
    The bill that came out of the House does not give the 
President any authority he does not already have under the 
Emergency Economic Powers Act, No. 1.
    No. 2, the definition of conflict diamonds is so narrow 
that the bill would only cover the conflict areas of Sierra 
Leone, Angola, and the country of Liberia and only those areas 
where there have been Security Council resolutions. It would 
not cover rebel areas in the Democratic Republic of the Congo 
or other areas where conflict diamonds are a problem.
    No. 3, the bill addresses rough diamonds, of which the 
United States imports very few. It does not close the polished 
diamond and diamond jewelry loophole.
    And No. 4, and I want to get into this in some detail, 
there seems to be, after all of the unanimity about our concern 
over conflict diamonds, a lingering concern over the WTO and 
the impact it has on this entire conversation. In other words, 
if we are all of one mind in stopping conflict diamonds from 
financing terrorism and stopping their importation into the 
United States, there are some who are reluctant to address it 
because they think it violates trade agreements. I want to talk 
about that.
    For WTO reasons, this House bill includes a safe harbor 
provision that allows countries to export diamonds into the 
United States if they are not part of the Kimberley Process. 
Now that, to me, is a loophole that is unacceptable. If this is 
truly the coin of the realm in the world of terrorism, you 
cannot take these provisions of the House bill as an effective 
way of dealing with these conflict diamonds. Let us go at them, 
if we can, one by one, and I will allow you to respond if you 
would like to.
    First, let us talk about WTO. Mr. Eastham and Mr. 
Mendenhall, do you believe that the Kimberley Agreement would 
be sufficient to establish a national security exception to 
WTO?
    Mr. Mendenhall. I am not sure I understand. Would the 
Kimberley Process, the working document itself, establish a 
security exception?
    Senator Durbin. Here is what I am driving at. If we are in 
WTO and we are supposed to have free trade and we decide that 
we are not going to allow the export of diamonds unless they 
meet certain requirements to the United States, can we take the 
position that that is consistent with WTO for national security 
reasons? Is there some reluctance here to suggest that we are 
violating a free trade agreement under WTO by imposing these 
restrictions on the export of diamonds to the United States?
    Mr. Mendenhall. I think to the extent that the diamond 
trade, the conflict diamonds represent a threat to national 
security, there are steps that we could take to regulate that 
trade. I think that is correct.
    I think the Kimberley Process, large parts of it, anyway, 
could be--I guess one could argue they might fit within that 
exception. There are parts of the Kimberley Process, however, 
that I think would be hard to justify under that exception. For 
example, there is a ban on exports to non-participants. It is 
not clear to me yet what the national security reason or 
justification would be for that. I am not saying there is not 
one. I am just saying these are issues that are still being 
debated, and I am not sure why banning export of trade from the 
United States to a non-participant of diamonds which are, by 
definition, legitimate is a national security issue.
    But I want to emphasize that one of the reasons that the 
working group was formed and is going to be meeting in Geneva 
over the weekend is to discuss precisely these types of issues. 
So I think all of the arguments concerning whether or not the 
Kimberley Process fits within an exception or does not fit 
within an exception or whether it can be justified or handled 
through other channels, everything is on the table for 
discussion.
    Senator Durbin. And do I take it, if you can see a national 
security exception emanating from the Kimberley Process, that 
the same argument could be made based on legislation that we 
would enact here?
    Mr. Mendenhall. Are you talking about legislation to 
implement Kimberley?
    Senator Durbin. If we were to pass legislation with or 
without Kimberley in the United States, based on our national 
security concerns about conflict diamonds----
    Mr. Mendenhall. Right.
    Senator Durbin [continuing]. You do not believe that is 
inconsistent with WTO?
    Mr. Mendenhall. I think we would need to make sure that the 
legislation was effective and tailored to achieve that goal.
    Senator Durbin. Well, I would agree with that.
    Mr. Eastham, what are your thoughts on WTO and this 
conversation?
    Mr. Eastham. Mr. Chairman, with respect to the specific 
reference to the national security exception which you made in 
your question, I think the issue at hand is an interaction 
between the definition of national security and what the 
Kimberley Process is trying to do.
    At bottom, the Kimberley Process is a regulatory system 
which will, if it comes into being in its present form, will 
regulate the entire global trade in rough diamonds. Estimates 
of the conflict portion of the rough trade are in the 
neighborhood of 5 percent. No one really knows. This is an area 
where there are a lot of different possibilities for 
interpretation.
    The question would be whether such an expansive regulatory 
scheme could be brought squarely under an exception which is 
clearly intended to refer to specifics. In other words, I could 
think of a dozen different hypotheticals where an import or an 
export might be regulated in the interest of national security. 
Weapons come to mind--guns and ammunition, military equipment, 
that sort of thing would squarely fall into the national 
security exception. The question is the interaction between 
this very broad set of restrictions intended to regulate what 
is a very small part of the trade.
    I do not think there is any question that you could make a 
national security justification for restricting the imports of 
conflict diamonds to this country. I think that is clear. The 
problem, though, as others have identified, is that you cannot 
target that restriction because of the nature of the diamond 
trade. You cannot say, on Tuesday, let us stop all shipments 
from this place because those are conflict diamonds. It is just 
a question of scope.
    Senator Durbin. Let me ask you about scope. The House bill 
limits this to rough diamonds. Do you think that that is a 
legitimate way to stop the trade in conflict diamonds and 
address the problem?
    Mr. Eastham. I think it is the closest to the problem. In 
terms of conflict diamonds, although the definition is tied to 
the Security Council decisions, we all know that conflict 
diamonds are those which are used to fuel rebel activities and 
wars. The rough diamonds are the problem. The problem of 
conflict diamonds derives from the fact that it is easy to dig 
up diamonds from the ground in certain parts of the world and 
there are wars fought over contesting those areas.
    Because of the nature of the trade again, once a diamond 
moves a step or two or three or four, it is no longer clearly 
identifiable as a conflict diamond and the place to attack the 
problem, I genuinely believe, is at the source. It is where the 
money goes to the rebels and that is at the stage when the 
diamonds are rough.
    Senator Durbin. Of course, remember the three steps that 
they described earlier, taking them from the field to Freetown, 
an example given by the Ambassador, and then off to Antwerp or 
some other place where they are polished, finished, and then 
exported in that form perhaps to the United States. If that 
original diamond was mined by mutilating a child and raping a 
woman in a village, the fact that it comes into the United 
States ultimately as a rough diamond is of little consequence, 
or whether it is a finished diamond. The origin of it is really 
what we are after, is it not?
    Mr. Eastham. Yes, sir, and the problem that you have 
identified arises because of the nature of the trade and the 
nature of the commodity. It would--the Kimberley Process is a 
collaborative effort that has had industry involved from the 
first day----
    Senator Durbin. May I add----
    Mr. Eastham [continuing]. And the idea is--yes, sir?
    Senator Durbin. I just want to add for the record, at our 
press conference on this issue, the diamond industry and the 
jewelry industry were there in support. They understand that 
public confidence in their product is at stake here. They have 
not been antagonistic. So when the House bill came back just 
dealing with rough diamonds, I could not understand what 
happened here. We had, I thought, an approach that really dealt 
with this comprehensively and said, however this diamond ends 
up in the United States, whether it is polished or rough, we 
are concerned about how it was mined and who made the money 
when it was mined. That really is the conflict part of conflict 
diamonds. And just to limit the House bill to rough diamonds, I 
am troubled why you would want to narrow that into this one 
category of diamonds.
    Mr. Eastham. I believe the House bill does have language 
which acknowledges the possibility of blocking shipments of 
polished diamonds or diamonds containing jewelry to the United 
States if we have information indicating that that specific 
diamond shipment is composed of conflict diamonds. Where we 
fall afoul of the way the trade works, Mr. Chairman, is in 
trying to answer the question, how would you regulate that?
    If you have a shipment of 1,000 polished diamonds coming 
from a particular overseas source, the reality of the trade is 
such that those diamonds could be from any diamond source in 
the world, and without a fundamental transformation of the 
diamond trade, which the industry has so far been unwilling for 
cost reasons to consider, it would be impossible to administer, 
in my view, an import system which controlled polished. Far 
better to attack it at the source. You attack it at the source 
through sanctions, the Security Council resolutions that I 
mentioned. You attack it at the source by the Kimberley Process 
system of internal controls, intended to ensure that what comes 
out of the source is conflict-free.
    Senator Durbin. What I heard from the Ambassadors earlier 
is that is wishful thinking, to believe that we are going to 
have sufficient law enforcement on the ground in these 
countries to make sure that every diamond is mined in a 
responsible way. What I thought we were after here was a 
certification process which said to the Revolutionary United 
Front in Sierra Leone and other countries, we are going to dry 
up your market, and if you do not have a market for these blood 
diamonds, then, frankly, this may not be the way you want to 
finance your operations.
    But if our goal here instead is to root out the atrocities 
of the Revolutionary United Front, that is a much different 
approach than I think most of us conceived at the outset.
    Mr. Eastham. Well, I think we are doing both. It is not one 
or the other, if I understand your comment just now. This is 
about drying up the market, but it is also about encouraging 
the legitimate diamond trade to continue. In the balance that 
has been struck in the Kimberley Process, people can differ.
    I know that there are different points of view about the 
possible effectiveness of this, but my experience in the last 
three meetings of the Kimberley Process leads me to conclude 
that we should get on with it, get the certification system in 
place, and if we find that there are holes on the ground 
between the mine and the export system, or if we find that an 
export system in a particular country, in any country, is not 
working or it is suborned by smugglers or that enforcement is 
lacking, then we will deal with it once we get a certification 
system in place.
    Senator Durbin. Let me be specific in a question on that. 
What kind of verification for compliance and monitoring do you 
expect from the Kimberley Agreement that will be effective in 
drying up this market, preventing this trade in conflict 
diamonds?
    Mr. Eastham. Well, in the first instance, Senator, I think 
that the market is going to be a very important factor in that.
    Senator Durbin. Is this conversation just limited to rough 
diamonds, incidentally?
    Mr. Eastham. Yes. The Kimberley Process is about rough 
diamonds. It is about conflict diamonds.
    Senator Durbin. So your focus through Kimberley and your 
focus through this legislation, rough diamonds only?
    Mr. Eastham. Yes, not because we do not recognize that, as 
some of my colleagues have said, the purpose of the diamond is 
to be sold to a consumer. We are not ignoring polished diamonds 
because we do not care about the ultimate revenues that flow 
back up the chain. The problem is one of focusing the attention 
on the source of the problem and not taking measures in the 
middle of the trade which would either raise the cost of 
diamonds or drive firms out of the diamond business.
    Senator Durbin. I would just tell you, Mr. Eastham, I do 
not think this is going to work. I do not believe that the 
average consumer in America is going to have confidence that we 
have done all we can do to make certain that one of the most 
important purchases of their life is not funding terrorism by 
just focusing on rough diamonds. I thought from the outset that 
the conversation with the industry went far beyond that. They 
understood that for confidence of the consumers to be 
established, we really could not limit it to rough diamonds.
    I just think you have created a situation where we are 
going to be so focused on such a small part of the problem, we 
are ignoring how people can easily overcome this by finishing 
and polishing diamonds that are just as dirty as anything that 
has been mined in these countries. It is just a terrific gap 
that you have left wide open here.
    Mr. Eastham. We have not been able to devise a way to 
ensure, with respect to what we can control, which is imports 
of this commodity into the United States, that a polished 
diamond is not a conflict diamond. That is a very, very 
difficult proposition.
    Far better to begin at the beginning, and I am confident, 
Senator, that if we get a certification system into place and 
we see people using polishing as a way to get around it, if you 
see polishing centers developing in countries that never had 
polishing centers before, if you see large flows of diamonds 
that are unaccountable in the statistics and in the cooperative 
mechanism that the Kimberley Process is going to set up, that 
we will be able to deal with subversion, circumvention of the 
Kimberley system through polishing. I think we will find a way 
to do that.
    Senator Durbin. Why would we not start there? You know that 
is where they are going to head to. If we allow that loophole 
to exist in our enforcement, clearly, a terrorist is not going 
to say, ``Oh, if I cannot do rough diamonds, I am doing 
nothing.'' I do not believe that. I think they are going to 
turn around and take these rough diamonds and find a way to 
polish and finish them and then we will meet again in a few 
years and say, is it not a shame that the terrorist network is 
still making billions off of diamonds they are selling into the 
United States. Now let us address phase two. What about 
polished and finished diamonds? Why are you not starting with 
that, as challenging as it may be?
    Mr. Eastham. I can answer that. The fundamental reason is 
because the diamond proceeds that fuel conflict come from the 
rough diamonds which are sold by the rebel movements in order 
to buy arms, to finance armies, to commit these horrible 
atrocities which are the reason for our concern. We are focused 
on the fundamentals, and because of the relationship between 
the diamond trade in areas of conflict and the global diamond 
trade, we are trying to zero in on the problem where it creates 
the concerns that have motivated us to take action. That is my 
only answer for you, Senator.
    Senator Durbin. Mr. Yager, you considered the so-called 
chain of warranties, where the industry would step in after 
rough diamonds are being regulated. What is your opinion as to 
how this is going to work?
    Mr. Yager. We have a couple of comments on that aspect of 
the Kimberley system. The chain of warranties, I think, has a 
couple of weaknesses from our standpoint. One, as we and others 
have discussed, the diamond trade is actually quite a complex 
trade and many diamonds are traded around the world numerous 
times before they actually get to the point where they are cut 
and polished, whether that is in India or in some other 
location. So this chain of warranties could, in fact, become 
quite a long chain and the required paperwork would be quite 
extensive.
    A second issue is that the World Diamond Council has 
strongly recommended to its members, both institutional and 
individual members, that they keep up and take part in this 
chain of warranties. However, they cannot require their members 
to do this. And so, in a sense, this chain of warranties is a 
voluntary system.
    Finally, I think there is a question about the monitoring 
and auditing of the chain of warranties. At this point, it 
appears that the process allows for the company's auditors to 
review the chain of warranties, and in essence, the warranty 
itself is a statement on the invoice that the diamond that is 
purchased or sold is conflict-free. But these are going to be 
audited by company auditors who are not necessarily experts in 
the diamond industry, nor are they able to look at the entire 
chain. In a sense, they are looking at just one link in this 
chain of warranties. So we see some issues with the chain of 
warranties that we think could be weaknesses.
    Senator Durbin. Mr. Skud, last question. When Customs 
receives documentation when diamonds are brought into the 
United States, what is at your disposal to verify that that 
documentation is accurate and legal?
    Mr. Skud. Well, the documentation can be examined by the 
Customs officer and compared with examples of what a valid 
certificate is like. If Customs has questions, they have an 
opportunity to contact the exporting authorities.
    Senator Durbin. So you can go back to the source? Is that 
what you do?
    Mr. Skud. We can contact the exporting authorities, yes.
    Senator Durbin. In a practical case, the examples you have 
given us, passengers coming through the airport, one, if I am 
not mistaken, declared that he was carrying $12,000 worth of 
diamonds but another was discovered to be carrying them.
    Mr. Skud. Yes.
    Senator Durbin. When they produce documentation, what is 
the custom? You hold the diamonds until the documents have been 
verified to your satisfaction?
    Mr. Skud. Well, in one case, the trader, the passenger did 
not have proper documentation, clearly. I believe he had a 
different certificate that clearly was not for that shipment. 
In the second case, it was a certificate that, frankly, 
appeared fraudulent on its face to the Customs officer. So in 
both cases, the stones were seized.
    Senator Durbin. Thank you very much. I want to thank this 
panel. This is clearly a challenging issue but one that just 
has to be addressed. I think once we have established this 
connection between terrorism and diamonds as a source of 
funding, that if we are serious about stopping terrorism, we 
have to address this issue effectively.
    I hope this hearing has opened that conversation and 
dialogue and I hope that we can soon come up with legislation 
we can work with the administration in putting together. I 
thank you all for your testimony. Thanks, everyone.
    The Subcommittee stands adjourned.
    [Whereupon, at 12:20 p.m., the Subcommittee was adjourned.]





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