Conflict Diamonds: Agency Actions Needed to Enhance
Implementation of the Clean Diamond Trade Act (27-SEP-06,
GAO-06-978).
In 2003, the United States and other countries began implementing
the Kimberley Process Certification Scheme (KPCS) to curtail the
trade of rough diamonds that had fueled severe conflicts in
Africa, known as conflict diamonds. CDTA provides the statutory
framework for U.S. implementation of the KPCS. As mandated in
CDTA, this report (1) describes the institutional framework
established to implement the act, (2) examines implementation of
the domestic provisions of the act and challenges it faces, and
(3) examines how the United States has helped to strengthen the
KPCS and challenges it faces.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-978
ACCNO: A61464
TITLE: Conflict Diamonds: Agency Actions Needed to Enhance
Implementation of the Clean Diamond Trade Act
DATE: 09/27/2006
SUBJECT: Data collection
Documentation
Export regulation
Exporting
Federal law
Foreign trade policies
Import regulation
Importing
Inspection
Internal controls
International cooperation
International organizations
International trade
International trade regulation
Monitoring
Precious stones
Program implementation
Africa
Kimberley Process
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GAO-06-978
* Results in Brief
* Background
* Kimberley Process Certification Scheme
* Clean Diamond Trade Act
* Several U.S. Agencies and USKPA Have Implemented CDTA
* U.S. Agencies and USKPA Have Implemented CDTA's Domestic Pro
* U.S. Agencies Have Implemented the International Provisions
* U.S. Agencies Have Improved Systems for Implementing CDTA's
* Census Has Improved Collection and Reporting of Rough Diamon
* CBP's System to Control Rough Diamond Imports Has Weaknesses
* CBP's Import Control Process Involves Documentation Review o
* CBP Does Not Have a Policy or Plan for Conducting Physical I
* The United States Has Confirmed Few Import Receipts with For
* U.S. System to Control Rough Diamond Exports Shows Weaknesse
* Census, State, and USKPA Have Established System to Control
* U.S. Export Process Involves Limited U.S. Government Monitor
* Monitoring of Export Operations Limited to Electronic Data C
* USKPA does not have a plan to conduct reviews of licensees
* U.S. Trading Partners Report Problems with U.S. Kimberley Pr
* The United States Has Helped to Strengthen KPCS Internationa
* The United States Has Participated in KPCS Activities and Re
* The United States Has Helped Two Countries in Their Efforts
* U.S. Diamond-Related Assistance Helped Sierra Leone Comply w
* Diamond Management Program
* The Diamond Project
* Diamond Policy and Management Project
* Peace Diamond Alliance Support Project
* Integrated Diamond Management Program
* U.S. Diamond-Related Assistance Is Helping Liberia in Its Ef
* Donor Assistance Faces Challenges, But a Regional Approach f
* Conclusions
* Recommendations for Executive Action
* Agency Comments and Our Evaluation
* Appendix I: Objectives, Scope, and Methodology
* Appendix II: U.S. and Global Trade In Rough Diamonds
* Appendix III: Top Polished Diamond Exporting and Top Diamond
* Appendix IV: Timeline of KPCS and CDTA-Related Events
* Appendix V: List of KPCS Participants
* Appendix VI: Comments from the Department of State
* Appendix VII: Comments from the Department of the Treasury
* Appendix VIII: Comments from the Department of Homeland Secu
* Appendix IX: Comments from the Department of Commerce
* Appendix X: Comments from the Department of Interior
* Appendix XI: GAO Contact and Staff Acknowledgments
* GAO Contact
* Staff Acknowledgments
* Order by Mail or Phone
* d06978page1-3v1.pdf
* Results in Brief
* Background
* Kimberley Process Certification Scheme
* Clean Diamond Trade Act
* Several U.S. Agencies and USKPA Have Implemented CDTA
* U.S. Agencies and USKPA Have Implemented CDTA's Domestic Pro
* U.S. Agencies Have Implemented the International Provisions
* U.S. Agencies Have Improved Systems for Implementing CDTA's
* Census Has Improved Collection and Reporting of Rough Diamon
* CBP's System to Control Rough Diamond Imports Has Weaknesses
* CBP's Import Control Process Involves Documentation
Review o
* CBP Does Not Have a Policy or Plan for Conducting
Physical I
* The United States Has Confirmed Few Import Receipts
with For
* U.S. System to Control Rough Diamond Exports Shows Weaknesse
* Census, State, and USKPA Have Established System to
Control
* U.S. Export Process Involves Limited U.S. Government
Monitor
* Monitoring of Export Operations Limited to Electronic
Data C
* USKPA does not have a plan to conduct reviews of
licensees
* U.S. Trading Partners Report Problems with U.S.
Kimberley Pr
* The United States Has Helped to Strengthen KPCS Internationa
* The United States Has Participated in KPCS Activities and Re
* The United States Has Helped Two Countries in Their Efforts
* U.S. Diamond-Related Assistance Helped Sierra Leone
Comply w
* Diamond Management Program
* The Diamond Project
* Diamond Policy and Management Project
* Peace Diamond Alliance Support Project
* Integrated Diamond Management Program
* U.S. Diamond-Related Assistance Is Helping Liberia in
Its Ef
* Donor Assistance Faces Challenges, But a Regional
Approach f
* Conclusions
* Recommendations for Executive Action
* Agency Comments and Our Evaluation
* GAO Contact
* Staff Acknowledgments
* GAO's Mission
* Obtaining Copies of GAO Reports and Testimony
* Order by Mail or Phone
* To Report Fraud, Waste, and Abuse in Federal Programs
* Congressional Relations
* Public Affairs
Contents
Letter 1
Results in Brief 3
Background 6
Several U.S. Agencies and USKPA Have Implemented CDTA 10
U.S. Agencies Have Improved Systems for Implementing CDTA's Domestic
Provisions but Are Still Vulnerable to Illicit Trade 13
The United States Has Helped to Strengthen KPCS Internationally, but
Assistance-Related Efforts Face Challenges 29
Conclusions 38
Recommendations for Executive Action 40
Agency Comments and Our Evaluation 41
Appendix I Objectives, Scope, and Methodology 42
Appendix II U.S. and Global Trade In Rough Diamonds 44
Appendix III Top Polished Diamond Exporting and Top Diamond Mining
Countries 46
Appendix IV Timeline of KPCS and CDTA-Related Events 48
Appendix V List of KPCS Participants 49
Appendix VI Comments from the Department of State 51
Appendix VII Comments from the Department of the Treasury 55
Appendix VIII Comments from the Department of Homeland Security 57
Appendix IX Comments from the Department of Commerce 59
Appendix X Comments from the Department of Interior 61
Appendix XI GAO Contact and Staff Acknowledgments 62
Tables
Table 1: U.S. Agency Responsibilities for Implementing CDTA's
International Provisions 12
Table 2: U.S. Import Confirmations to Select Countries Compared to All
Other Trading Countries, 2004 and 2005 22
Table 3: Number of U.S. Kimberley Process Certificates Issued, 2003-2005
26
Table 4: U.S.-Funded Diamond-Related Projects Supporting the
Implementation of KPCS in Sierra Leone and Liberia 31
Table 5: Top Destinations for U.S. Rough Diamond Exports, 2005 (value > 1
percent of U.S. exports) 44
Table 6: Top Sources of U.S. Rough Diamond Imports, by Exporting
Participant, 2005 (value > 1 percent of US imports) 44
Table 7: Top (Non-Mining) Rough Diamond Exporting KPCS Participants, 2003
(exports > $200 million) 45
Table 8: Economic Importance of Mining for Selected Countries, 2003 45
Figures
Figure 1: KPCS Structure and Responsibilities 8
Figure 2: Discrepancy in U.S. Rough-Diamond Trade Volume and Census Data
Improvements 17
Figure 3: U.S. Import Control Process and Weaknesses 18
Figure 4: U.S. Export Control Process and Weaknesses 24
Figure 5: Diamond Mining Site in Sierra Leone-A Recipient Country of U.S.
Assistance 34
Figure 6: Liberian Ministry of Lands, Mines, and Energy Building and
Secured Annex under Construction for Housing Liberia's Rough Diamond
Exporting and Importing Authority 36
Figure 7: Top Polished Diamond Exporting Countries, 2004 (estimated
exports > $200 million) 46
Figure 8: Top Diamond Mining Countries, 2003 (mining value > $50 million)
47
Abbreviations
AES Automated Export System CBP Customs and Border Protection CDTA Clean
Diamond Trade Act DIPAM Diamond Policy and Management Project IDMP
Integrated Diamond Management Program KPCS Kimberley Process Certification
Scheme MSI Management Systems International PDA Peace Diamond Alliance
Support Project UN United Nations USAID United States Agency for
International Development USGS United States Geological Survey USKPA
United States Kimberley Process Authority WTO World Trade Organization
Report to Congressional Committees
United States Government Accountability Office
GAO
September 2006
CONFLICT DIAMONDS
Agency Actions Needed to Enhance Implementation of the Clean Diamond Trade
Act
GAO-06-978
United States Government Accountability Office
Washington, DC 20548
September 27, 2006 September 27, 2006
The Honorable Charles E. Grassley Chairman The Honorable Max Baucus
Ranking Minority Member Committee on Finance United States Senate The
Honorable Charles E. Grassley Chairman The Honorable Max Baucus Ranking
Minority Member Committee on Finance United States Senate
The Honorable Richard G. Lugar Chairman The Honorable Joseph R. Biden, Jr.
Ranking Minority Member Committee on Foreign Relations United States
Senate The Honorable Richard G. Lugar Chairman The Honorable Joseph R.
Biden, Jr. Ranking Minority Member Committee on Foreign Relations United
States Senate
The Honorable Henry J. Hyde Chairman The Honorable Tom Lantos Ranking
Minority Member Committee on International Relations House of
Representatives The Honorable Henry J. Hyde Chairman The Honorable Tom
Lantos Ranking Minority Member Committee on International Relations House
of Representatives
The Honorable William M. Thomas Chairman The Honorable Charles B. Rangel
Ranking Minority Member Committee on Ways and Means House of
Representatives The Honorable William M. Thomas Chairman The Honorable
Charles B. Rangel Ranking Minority Member Committee on Ways and Means
House of Representatives
When legitimately traded, rough diamonds (uncut and unpolished diamonds)
can make a major contribution to the economies of producing, exporting,
and importing countries, especially developing countries. In the 1990s,
however, rough diamonds that became known as conflict diamonds fueled
severe conflicts and humanitarian crises in countries such as Liberia,
Sierra Leone, the Democratic Republic of the Congo, and Angola.1 When
legitimately traded, rough diamonds (uncut and unpolished diamonds) can
make a major contribution to the economies of producing, exporting, and
importing countries, especially developing countries. In the 1990s,
however, rough diamonds that became known as conflict diamonds fueled
severe conflicts and humanitarian crises in countries such as Liberia,
Sierra Leone, the Democratic Republic of the Congo, and Angola.1 Although
many of these conflicts have now ended and the international community has
taken steps to gain control of the rough diamond trade, the United Nations
(UN) and other sources report that illicit trading of rough diamonds still
exists and could potentially finance civil conflicts as well as criminal
and terrorist activities.2
1The United Nations (UN) General Assembly defines conflict diamonds as
rough diamonds used by rebel movements to finance efforts to undermine or
overthrow legitimate governments. UN General Assembly Resolution 55/56
(Jan. 29, 2001).
In November 2002, diamond producing and diamond trading countries launched
a voluntary global system, called the Kimberley Process Certification
Scheme (KPCS), to control the trade of rough diamonds and to assure
consumers that the diamonds they purchase have not helped to finance
violent conflicts.3 Implementation of KPCS began on January 1, 2003. The
United States and other KPCS participants are responsible for ensuring
that the integrity of the certification scheme is upheld and that the
Kimberley Process works towards preventing conflict diamonds from entering
the legitimate trade of rough diamonds. In instances of noncompliance,
KPCS can expel or suspend a participant from the certification scheme. For
example, in July 2004, the Chair of KPCS expelled the Republic of Congo
from participation because this country could not account for the origin
of large quantities of rough diamonds.4
The United States has a major interest in KPCS because the certification
scheme helps ensure the protection of the legitimate trade in these
diamonds by breaking the link between conflict and rough diamonds.
Although the United States is not a producer of rough diamonds, it is a
significant global trader of rough and polished diamonds and the world's
largest consumer market for diamond jewelry. In 2003, the United States
was the seventh largest exporter of rough diamonds among non-mining KPCS
participants (exporting about $227 million worth), and the fifth largest
exporter of polished diamonds.5
2In November 2005, KPCS adopted a resolution on the subject of illicit
diamond production in Cote d'Ivoire that outlined a series of measures to
prevent the introduction of conflict diamonds from Cote d'Ivoire into
legitimate trade, including a detailed assessment of the import and export
volumes. The assessment will be carried out in cooperation with the UN.
3In mid-2002, GAO reported on the efforts to develop KPCS. See GAO,
International Trade: Critical Issues Remain in Deterring Conflict Diamond
Trade, GAO-02-678 (Washington, D.C.: June 14, 2002); and GAO,
International Trade: Significant Challenges Remain in Deterring Trade in
Conflict Diamonds, GAO-02-425T (Washington, D.C.: Feb. 13, 2002).
4For additional details regarding KPCS, see www.kimberleyprocess.com .
5Appendixes II and III contain additional rough- and
polished-diamond-related information.
The United States enacted the Clean Diamond Trade Act (CDTA) in April 2003
to provide the statutory framework for implementing KPCS.6 As mandated in
CDTA, this report (1) describes the institutional framework the U.S.
government has created to implement CDTA, (2) examines how the United
States has implemented the provisions of CDTA domestically and what
principal challenges it faces, and (3) examines how the United States has
helped to strengthen KPCS and what principal challenges it faces.
To meet these objectives, we examined documents relevant to the Kimberley
Process and CDTA implementation from the UN, KPCS, U.S. and foreign
government agencies, the diamond industry, and non-governmental groups.
Additionally, we conducted audit work in the United States (Washington,
D.C., and New York City); Canada; Belgium; Russia; Italy; Sierra Leone;
and Liberia. We also met with representatives from the Department of State
(State), the Department of the Treasury's (the Treasury) Office of Foreign
Assets Control (OFAC), the Department of Homeland Security's (Homeland
Security) Bureau of Customs and Border Protection (CBP) and Bureau of
Immigration and Customs Enforcement (ICE), the Department of Commerce's
(Commerce) Bureau of the Census (Census), the Department of the Interior's
U.S. Geological Survey (USGS), the U.S. Agency for International
Development (USAID), the Office of the U.S. Trade Representative (USTR),
and the U.S. Kimberley Process Authority (USKPA); as well as
non-governmental groups, the diamond industry, foreign governments, and
the UN and other international organizations. Furthermore, we analyzed
Census data submissions to KPCS. We conducted our work from September 2005
through September 2006 in accordance with generally accepted government
auditing standards. Appendix I contains a more detailed description of our
scope and methodology.
Results in Brief
The United States uses multiple U.S. agencies and a private,
not-for-profit entity (USKPA) to implement the domestic and international
provisions of CDTA. State and the Treasury lead U.S. efforts to implement
the domestic provisions of the act; State leads the U.S. efforts to
curtail trade in conflict diamonds abroad. Domestically, State, the
Treasury, Homeland Security, Commerce, and USKPA are responsible for
preparing and sharing statistics on the U.S. trade of rough diamonds, and
for controlling U.S. imports and exports of rough diamonds. State and the
Treasury coordinate and lead U.S. agency efforts by convening and
co-chairing regular interagency meetings, as well as ongoing informal
discussions with other U.S. agencies, in which CDTA and KPCS-related
implementation issues are discussed. For example, State and other U.S.
agencies recently met to discuss, among other things, U.S. plans for
providing additional diamond-related technical assistance; U.S. comments
on recommendations made to KPCS on the preliminary results of the 3-year
review of the certification scheme that is currently under way on issues
such as creating and financing a KPCS Secretariat; and the issues raised
at the June 2006 KPCS intersessional meeting in Gaborone, Botswana,
including enhancing KPCS monitoring and statistics. State is also
responsible for overseeing USKPA, which, through 17 licensed private
entities, issues the Kimberley Process certificates that must accompany
U.S. export shipments of rough diamonds. Internationally, State leads U.S.
participation in KPCS. State and USAID have helped Sierra Leone's efforts
to comply with KPCS. State has recently worked with USGS to help Liberia
become a member of KPCS.
6Pub. L. 108-19. The act directs the President to prohibit imports and
exports of rough diamonds that are not controlled through KPCS. The act
defines the term "controlled by the Kimberley Process Certification
Scheme" to include any system that substantially meets standards,
practices, and procedures of KPCS.
Domestically, the U.S. systems for reporting rough diamond statistics and
for controlling imports and exports of these diamonds have improved but
are still vulnerable to illicit trade of rough diamonds. Through Census,
the United States has enhanced the accuracy and reporting of its rough
diamond trade data, but work remains to be done. Despite improving the
accuracy of its trade data on rough diamonds, resulting in a significant
reduction in the excess of exports over imports-from almost 3 million
carats in 2003 to less than 300,000 carats in 2005-the United States does
not know what factors, such as diamond stockpiles, account for the
remaining excess in exports. The United States does not periodically or
regularly inspect rough diamond imports or exports, a control feature that
allows participants to match the contents of the rough diamond parcels and
Kimberley Process certificates and deters illicit trade in rough diamonds.
The United States does not have an effective system for confirming the
receipt of rough diamond import shipments, a control feature that allows
participants to track shipments and prevent their diversion. For example,
by relying on importers to confirm imports and having no U.S. agency to
track these confirmations, the United States did not confirm most import
shipments originating from four key U.S. trading partners-Canada, Belgium,
Israel, and the United Kingdom-in 2004 and 2005, and it does not know the
extent to which it has not confirmed imports with other countries. Despite
recent U.S. efforts to improve the process for confirming receipt of
imports, the percentage of confirmations remains low. The United States
has not implemented a plan for overseeing the activities of USKPA and its
licensees but, according to State officials, the department is developing
and testing such a plan-a control feature that would allow the United
States to conduct periodic or regular, independent, and systematic
oversight of USKPA activities to make sure that they conform with KPCS
standards.
Internationally, the United States has helped to strengthen KPCS by
participating in KPCS activities and providing assistance to help Sierra
Leone and Liberia in their efforts to comply with KPCS; however, donor
assistance to these countries faces challenges. The United States has
helped strengthen KPCS by participating in the activities of its working
groups and committees, such as the working groups on monitoring and
statistics. For instance, U.S. officials including geological experts have
participated on several Kimberley Process peer review teams to help
monitor implementation of the certification scheme among participants.
Also, the United States has recently assumed lead roles within KPCS by
leading a peer review visit to Brazil and offering to identify and
coordinate donor assistance to countries seeking to implement or
strengthen KPCS. The United States has provided approximately $7.57
million in assistance to support Sierra Leone ($6.13 million) and
Liberia's ($1.44 million) efforts to implement systems for controlling
their trade in rough diamonds. The United States has helped Sierra Leone
develop and implement a system for controlling rough diamond exports. The
United States is currently helping Liberia to, among other things, build
and equip a secure facility and train personnel for the Liberian authority
that will be responsible for controlling the rough diamond trade. The
effectiveness of donor assistance in both countries is constrained by
their limited capacity and resources for implementing KPCS, and the need
to harmonize diamond policies among these countries and other countries in
the region vulnerable to illicit cross-border trading. For example,
officials in both Sierra Leone and Liberia noted their lack of resources
for monitoring large mining areas and highly porous borders, which
contributes to illicit mining and trading. Donors and diamond producers
are considering a regional approach to help enhance the effectiveness of
donor assistance. This regional assistance would complement
country-specific assistance provided to diamond-producing countries within
a region.
This report contains recommendations to the Secretaries of State, Homeland
Security, the Treasury, and Commerce. Specifically, it recommends
improvements in (1) the accuracy of U.S. rough diamond trade data to
improve the effectiveness of these data as a tool for detecting illicit
trade in rough diamonds; (2) the processes for importing and exporting
rough diamonds, including conducting physical inspections periodically or
regularly and confirming rough diamond import receipts with foreign
exporting authorities; (3) the oversight of the activities of USKPA and
its licensees; and (4) U.S. diamond-related assistance by developing and
implementing a regional approach for providing some of this assistance.
We received written comments on a draft of this report from State, the
Treasury, Homeland Security, Commerce, and Interior (see apps. VI, VII,
VIII, IX, and X) indicating that they concurred with our recommendations.
We also received technical comments on this draft from State, the
Treasury, USAID, and USTR, which we have incorporated where appropriate.
Background
KPCS participants produce and trade the vast majority of rough diamonds in
the world. However, the nature of diamonds and the lack of effective
control systems create opportunities for illicit trade, including trade in
conflict diamonds. By deterring potential illicit trading, effective
control mechanisms could help prevent illicit diamonds from entering the
legitimate trade. For example, without systems to accurately capture and
analyze rough diamond trade data, KPCS participants cannot readily
identify anomalies in imports and exports that could indicate illicit
activity. Also, without effective systems for inspecting imports and
exports or confirming import receipts, illicit rough diamonds could enter
the legitimate trade.
On November 5, 2002, 37 ministers and heads of official delegations
launched KPCS, which contained elements for participants to consider in
establishing control systems for monitoring the production and trade in
rough diamonds. These elements included, among other things, systems for
collecting and sharing data on production and trade of rough diamonds,
inspecting the contents of import and export shipments to verify the
details declared on the Kimberley Process certificate, and confirming
import receipts with the foreign exporting authority.7 Implementation of
KPCS began on January 1, 2003. Currently, 46 participants, including the
European Community, voluntarily participate in KPCS and account for
approximately 99.8 percent of the global production of rough diamonds.
(See appendix IV for a timeline of KPCS and CDTA-related events and
appendix V for the list of KPCS participants.) Consistent with KPCS
provisions, the United States enacted CDTA on April 25, 2003, to establish
an institutional structure for controlling and monitoring U.S. imports and
exports of rough diamonds.8
Kimberley Process Certification Scheme
The structure of KPCS includes a Chair and Vice-Chair, a Secretariat
serving under the Chair, working groups, and committees; KPCS participants
also hold an annual plenary meeting. Figure 1 depicts KPCS's structure and
the responsibilities of the Chair, Secretariat, working groups, and
committees. In addition to participants, only applicants and official
observers-including representatives from the diamond industry,
non-governmental groups, and international organizations-can participate
in KPCS meetings and activities.
7To complement worldwide KPCS implementation efforts, the international
diamond and jewelry industry initiated a voluntary system of warranties.
This system requires that for every diamond transaction-rough, polished,
or diamond jewelry-the seller must affirm on the invoice that the diamonds
have been purchased through authorized channels that are not involved in
funding conflict. While the system is voluntary, the industry views the
system as a requirement for all its members involved in the diamond trade.
Noncompliance with the system of warranties can result in expulsion from
diamond trade organizations. The U.S. industry adopted this system of
warranties.
8Several KPCS participants, including the United States (through the U.S.
Trade Representative) obtained a 4-year waiver needed for implementing
KPCS and CDTA from the World Trade Organization (WTO) in 2003. These
participants are currently trying to obtain a 6-year waiver extension from
WTO and expect to get it in November 2006, according to USTR officials. In
the absence of a waiver, WTO could impose sanctions on KPCS participants
if WTO deemed the certification scheme an unauthorized trade barrier.
Also, without a waiver, CDTA might lapse because the act requires that the
President certify the existence of either a WTO waiver or a binding
resolution of the UN Security Council for its provisions to remain in
effect. See Pub. L. 108-19, sec. 15.
Figure 1: KPCS Structure and Responsibilities
The Chair is responsible for overseeing the implementation of KPCS,
leading the annual plenary meeting, overseeing the operations of three
working groups and two committees, and the general administration of the
Kimberley Process. Under the Chair, a Secretariat is responsible for
scheduling meetings, circulating documents among participants, maintaining
the KPCS Web site, and all other duties the Chair designates. The
Secretariat does not have permanent staff. The country chairing the
certification scheme is responsible for staffing the Secretariat.
Currently, Botswana chairs KPCS and the Vice-Chair is from the European
Community.
KPCS holds a plenary meeting normally once per year, in which participants
and official observers typically discuss and assess the implementation of
the certification scheme. KPCS participants and official observers work
together in monitoring, statistics, and diamond experts working groups,
and in the Participation Committee and the Selection Committee, to
strengthen the certification scheme.
KPCS's key provisions require participants to:
o enact or amend appropriate laws or regulations to implement and
enforce the certification scheme, and maintain dissuasive and
proportional penalties for transgressions;
o designate importing and exporting authorities;
o establish control systems designed to eliminate the presence of
conflict diamonds from the rough diamond trade, such as systems
for physically inspecting rough diamond import and export parcels;
o ensure that a Kimberley Process certificate accompanies each
import and export shipment of rough diamonds;
o acknowledge the receipt of rough diamond import parcels to the
foreign export authority;
o ensure that rough diamonds are imported and exported in
tamper-resistant containers; and
o collect and maintain rough diamond data on production, imports,
and exports; and collate and exchange such data with KPCS.
Clean Diamond Trade Act
CDTA provides the institutional structure for implementing its
domestic and international provisions.
Regarding domestic implementation, key CDTA provisions
o designate importing and exporting authorities,
o establish an interagency Kimberley Process Implementation
Coordinating Committee for coordinating U.S. implementation
efforts,
o give the U.S. government responsibility for overseeing any
entity involved in the issuance of the certificates that must
accompany each shipment of rough diamonds exported from the United
States,
o impose civil and criminal penalties to enforce implementation
of CDTA, and
o support the collection and exchange of U.S. import and export
data on rough diamonds.
Regarding international implementation, key CDTA provisions
o urge the U.S. government to strengthen KPCS by monitoring the
effectiveness of the certification scheme and by sharing
statistics, and
o allow U.S. agencies to make technical assistance available to
countries seeking to implement KPCS.
Several U.S. Agencies and USKPA Have Implemented CDTA
Consistent with the provisions of CDTA, the United States has used
several U.S. agencies and USKPA to implement the domestic and
international provisions of the act.
U.S. Agencies and USKPA Have Implemented CDTA's Domestic Provisions
State, the Treasury, Commerce, Homeland Security, and USKPA have
had responsibilities for implementing the domestic provisions of
CDTA. State and the Treasury have led these U.S. implementation
efforts.9
o State: The department co-chairs the U.S. interagency group for
implementing CDTA. State is responsible for reviewing the
activities of USKPA and its licensees and for annually reporting
to the Congress the results of its review.10
o The Treasury: The department co-chairs the interagency group
for implementing CDTA. OFAC is responsible for promulgating the
rough diamond regulations to implement CDTA. One of these
regulations designates the final recipient of the shipment (i.e.,
the ultimate consignee) with the responsibility of confirming,
with the foreign exporting authority, the receipt of a rough
diamond import shipment.11
o Homeland Security: Under CDTA, Homeland Security's CBP is the
importing authority responsible for regulating U.S. rough diamond
imports. The department's Bureau of Immigration and Customs
Enforcement is responsible for pursuing criminal investigations
related to violations of CDTA and its regulations.
o Commerce: Under CDTA, Census is the exporting authority
responsible for regulating U.S. rough diamond exports. Also,
Census is responsible for collecting and analyzing data on the
U.S. trade of rough diamonds and reporting it to KPCS.
o USKPA: Unlike most KPCS participants, the United States has
assigned the responsibility of issuing Kimberley Process
certificates to a private entity rather than to a government
agency. USKPA produces these certificates and currently relies on
17 licensees for issuing them.
o Interagency Coordination Committee: State and the Treasury
co-chair an interagency committee, the Kimberley Process
Implementation Coordinating Committee, that CDTA created for
coordinating U.S. government activities on rough diamonds. Aside
from convening and leading committee meetings, State and the
Treasury have no formal authority over the actual activities of
the other agencies in carrying out their assigned CDTA roles.
Nevertheless, U.S. officials noted that the formal and informal
interagency coordination processes have effectively addressed many
operational issues. For example, State and other U.S. agencies
recently met to discuss topics such as U.S. options for providing
additional diamond-related technical assistance; U.S. comments on
recommendations made to KPCS on the preliminary results of the
3-year review of the certification scheme that is currently under
way on issues such as creating and financing a KPCS Secretariat;
and the issues raised at the June 2006 KPCS intersessional meeting
in Gaborone, Botswana, including enhancing KPCS monitoring and
statistics.
U.S. Agencies Have Implemented the International Provisions of CDTA
State, Census, USAID, and USGS are involved in implementing the
international provisions of the act. See table 1 for a brief
description of the responsibilities of these agencies. Consistent
with KPCS, the key international provisions of the act cover the
United States' participation in KPCS and the U.S. technical
assistance to participants seeking to implement KPCS.
Table 1: U.S. Agency Responsibilities for Implementing CDTA's
International Provisions
Source: GAO analysis of U.S. agency information.
State leads U.S. efforts in KPCS and works with other U.S.
agencies to, among other things, strengthen KPCS by monitoring its
effectiveness in preventing trade in rough diamonds. State and
other U.S. agencies participate in various aspects of KPCS,
including attending annual (and other) KPCS meetings, and serving
on KPCS working groups and committees. For example, State serves
on the KPCS working group on monitoring, which is mandated to
monitor and assess implementation of KPCS by all participants.
Also, State and Census serve on the KPCS statistics working group
and USGS has done statistical analysis of rough diamond trade data
for the monitoring working group.
The CDTA authorizes federal agencies to provide technical
assistance to countries seeking to implement KPCS. Thus far, State
and USAID have provided diamond-related assistance to Sierra
Leone, and State and USGS have provided this assistance to
Liberia. Specifically, through Management Systems International,12
USAID has provided technical assistance to Sierra Leone to help
the country gain control of its trade of rough diamonds. State has
recently funded USGS to provide, through Constella Futures
International,13 technical assistance to Liberia for implementing
KPCS.
U.S. Agencies Have Improved Systems for Implementing CDTA�s Domestic
Provisions but Are Still Vulnerable to Illicit Trade
U.S. entities responsible for implementing the domestic provisions
of CDTA have improved the system for collecting and sharing U.S.
trade data on rough diamonds and have established systems for
controlling the U.S. trade in these diamonds, yet these systems
are still vulnerable to illicit trade. Because most of these
vulnerabilities involve limited government monitoring or
oversight, U.S. control systems cannot help deter illicit rough
diamonds from entering the legitimate trade.14
Census Has Improved Collection and Reporting of Rough Diamond Data,
But Some Work Remains to Be Done
Since the enactment of CDTA in 2003, Census has steadily improved
its system for capturing and reporting U.S. rough diamond trade
statistics in response to KPCS concerns. However, this system
needs further improvement to assure that the rough diamond trade
does not include illicit diamonds. CDTA recommends that the
executive branch keep and publish statistics on rough diamond
imports and exports, recognizing that reliable and comparable data
on the international trade in rough diamonds are an essential tool
to effectively implement the certification scheme. These data can
help to identify any irregularities or anomalies that might
indicate the presence of conflict diamonds in the legitimate trade
in rough diamonds. For example, because the Republic of Congo was
not able to explain its reports of rough diamond exports that were
far in excess of its known production capacity or imports, KPCS
decided to ban this country from participation in the
certification scheme in 2004.
KPCS has expressed several concerns about the trade data the
United States has submitted. Subsequent to the enactment of CDTA,
Census reported U.S. rough diamond trade data to KPCS that
contained a greater volume of exports than imports. For example,
it reported that the United States had exported about 3 million
carats more than it imported in 2003. As a non-producing nation,
this excess in exports was not plausible and raised concerns about
the accuracy of the U.S. trade data and the potential laundering
of rough diamonds through the United States. In fact, because the
United States does not produce rough diamonds and cuts and
polishes some rough diamonds, exported carats should, on average,
be lower than imported carats. In 2005, the KPCS peer review visit
to the United States recommended that Census identify all
anomalies within the systems for recording data and correct them
as necessary, that the United States provide explanations for the
large differences between exports and imports in 2003 and 2004 to
the KPCS Working Group on Statistics, and that the group follow up
on this issue with the U.S. authorities.
To improve the quality of its data and to comply with KPCS data
requirements, Census made a number of changes, including the
following:
o Census officials indicated they had identified anomalies that
affected the accuracy of the data, including the misclassification
of shipments by individual filers and the Census' use of a method
that altered some shipments by recalculating quantities of exports
or imports based on historical price data.
o Census continues to pursue potential causes of inaccuracy in
U.S. rough diamond import and export data. Specifically, Census
officials told us of their efforts to determine how many carats of
rough diamonds are entering the United States under the generic
U.S. Goods Returned Code.15 In addition, Census officials also
reconcile U.S. trade data bilaterally with other trading partners,
as this can also help to identify any data anomalies.16
o In early 2006, Census started collecting and reporting data
from Kimberley Process certificates. This change harmonized the
U.S. system for data collection with the vast majority of other
KPCS participants. Before this change, Census used data from its
traditional customs-based method to report to KPCS, which can be
different from data collected based on Kimberley Process
certificates.17
o Census now checks its own data against the monthly data it
receives from USKPA on the disposition of certificates issued each
month. This extra step has helped Census to identify errors
involving quantities or shipments that were misclassified as rough
diamonds.
o Census and CBP modified the Automated Export System (AES) and
the Automated Broker Interface (ABI), so that these computer
systems, through which filers enter export and import shipment
data, require Kimberley Process certificate numbers when entering
information on rough diamond exports and imports. With these
changes, filers will now receive an error if they do not provide a
Kimberley Process certificate number after entering a rough
diamond tariff code. Prior to these modifications, polished
diamonds and diamond jewelry could be (and were) misclassified as
rough diamonds.
o Census stopped estimating the quantity for shipments that fell
outside of a reasonable price range.18
As figure 2 shows, Census' actions resulted in a significant
reduction in the reported discrepancies between U.S. rough diamond
export and import data. Compared to the nearly 3 million carat
discrepancy reported between imports and exports in 2003, by 2005
Census reported an excess in exports of less than 300,000 carats
compared to imports. However, Census has not determined whether
this annual excess of U.S. exports compared to imports is
reasonable for a non-mining country and, thereby, does not involve
illicit rough diamonds. Factors that might contribute to this
annual excess include the levels of inventories held and the
volume of cutting and polishing done in the United States.
9Controlling imports and exports of rough diamonds involves at least four
entities in the United States. A number of countries, including some of
those we visited (Belgium, Canada, and Sierra Leone) have used a single
government entity for controlling their trade of rough diamonds.
10State has submitted three reports on USKPA activities to the Congress
covering 2003, 2004, and 2005 respectively.
11In the United States, issuing Kimberley Process certificates and
confirming import receipts involves private entities (USKPA and the
ultimate consignee). These activities are a government responsibility in a
number of countries, including the three countries we visited (Canada,
Belgium, and Sierra Leone).
Agency Unit Responsibilities
State Economic Affairs Bureau Leads U.S. efforts in KPCS.
Africa Bureau Funded technical assistance to
support Sierra Leone and Liberia's
KPCS-related efforts.
Census Foreign Trade Division Analyzed rough diamond data for KPCS
Statistics Working Group.
USAID Office of Transition Funded technical assistance to
Initiatives/Bureau for Africa support Sierra Leone's KPCS-related
efforts.
USGS Middle East and Africa Section Under an agreement with State,
provided KPCS-related technical
assistance to Liberia.
Analyzed rough diamond data for KPCS
Monitoring Working Group.
12Management Systems International is a USAID contractor.
13Constella Futures International, formally known as Futures Group
International, is a USGS contractor.
14Monitoring is an internal control standard that focuses on assessing-
through ongoing monitoring activities and separate evaluations-the quality
of performance over time to ensure that the government promptly identifies
and addresses any problems. See Internal Control Management and Evaluation
Tool, GAO-01-1008G (Washington, D.C.: Aug. 2001).
15According to officials at Census, the U.S. Goods Returned code may be
used when diamonds that were exported from the United States are returned,
for example, following a trade show or a failed transaction. Since this
generic code is used for a variety of commodities, it is difficult to
identify rough diamond imports classified under this code, which could
bias the level of imports down.
16If Census detects differences in bilateral trade data, it will ask the
trading partner to send information on specific shipments. Then Census can
check if it has the Kimberley Process certificate for the shipments in
question and can also check ABI to see if the shipment was filed at all.
However, Census is constrained by Title XIII, which prohibits it from
discussing individual shipments with other countries; this makes it more
challenging to perform these reconciliations.
17The Kimberley Process Working Group on Statistics conducted a study
comparing 2004 KPCS-based data with non-KPCS-based data. They found fewer
differences between export and import transactions derived from KPCS-based
data than non-KPCS-based data.
18This method, which used historical prices to estimate a new quantity,
relied on assumptions that could bias the quantity estimate. The
procedure, known as imputation, assumes that the quantity was recorded
incorrectly, and that the shipment value was recorded correctly. However,
if the shipment value was incorrect, scaling it by a historical price will
not produce the correct quantity.
Figure 2: Discrepancy in U.S. Rough-Diamond Trade Volume and Census Data
Improvements
CBP's System to Control Rough Diamond Imports Has Weaknesses
CBP has established a system for controlling U.S. rough diamond imports
through documentation review and physical inspections. However, because
these physical inspections do not occur periodically or regularly, the
system cannot ensure that illicit shipments of rough diamonds are not
entering the country. Furthermore, since 2003, U.S. importers have failed
to confirm rough diamond import receipts with foreign exporting
authorities, resulting in U.S. non-compliance with this KPCS standard. See
figure 3 for a graphic depiction of the import control process and
weaknesses in U.S. government oversight.
Figure 3: U.S. Import Control Process and Weaknesses
CBP's Import Control Process Involves Documentation Review of All Imports and
Physical Inspections
CDTA prohibits the importation into the United States of any rough diamond
that has not been controlled through KPCS, which details a number of
requirements to control imports of rough diamonds. For example, the United
States must:
o require imports to contain a valid Kimberley Process
certificate;
o ensure that no shipment of rough diamonds is imported from a
non-participant;
o ensure that rough diamonds are imported in tamper-resistant
containers; and
o establish a system of internal controls designed to eliminate
the presence of conflict diamonds from rough diamond import
shipments.
To implement CDTA import provisions, CBP created a system that
selects all rough diamond import shipments for documentation
reviews. Depending on the approach CBP uses for physical
inspections, the system might choose all or some of these
shipments for physical inspections, although not periodically or
regularly. CBP controls about 300 ports of entry into the United
States. Although rough diamonds come into the United States
through multiple ports of entry, about 85 percent of them come
through one port of entry-John F. Kennedy (JFK) Airport in New
York City. Under the current system, after a rough diamond import
arrives at a port of entry, the customs broker sends the hard-copy
entry documentation to the CBP office at the port, at which time
the information is entered into CBP's computer system for review.
All rough diamond shipments must, at least, receive a document
review by an import specialist, who verifies that the Kimberley
Process certificate is authentic and ensures that the information
on the certificate (such as the certificate number, and the value
and quantity of the rough diamonds) matches the information on the
invoice accompanying the shipment. If the reviewing import
specialist detects a problem with the documentation, the shipment
is detained until CBP obtains the necessary documentation to
release the shipment. The shipment may be seized if the
information is not obtained within a certain time frame.
CBP has used four approaches to select imports of commodities for
physical inspections. In the case of rough diamonds, this means
physically opening and examining the content of import parcels.
First, given the large number of imports arriving into the United
States every day, CBP uses an approach to identify high risk
import shipments for physical inspections. According to CBP
documentation, this approach enables CBP to balance its efforts to
enforce CDTA with the agency's Priority Trade Issues and other
responsibilities.19 Second, CBP has a compliance measurement
program that randomly selects shipments for physical inspection
across all ports. Less than 1 percent of rough diamond shipments
each year are selected for a physical inspection through this
program, according to CBP. Third, physical inspections occur at
the discretion of the ports. At JFK, for instance, CBP physically
inspects shipments for different reasons, including (1)
intelligence information entered into CBP's computer system before
the shipment arrives at port; (2) suspicious discovery in the
documentation review; (3) shipments from unknown importers; or (4)
other information. Finally, CBP inspected all rough diamond
imports that came into JFK on two occasions in 2004 and 2005.
According to CBP documentation, on these two occasions,
inspections found a high rate of importer compliance with U.S.
requirements regarding declaration of rough diamond imports.
Since 2003, CBP has seized seven shipments for violations of CDTA.
One case involved a rough diamond import without a valid Kimberley
Process certificate that was not packed in a sealed
tamper-resistant container. Of the remaining six cases, three
closed cases were resolved through the administrative process,
with one resulting in a fine. Three cases are open and proceeding
through the administrative process.
CBP Does Not Have a Policy or Plan for Conducting Physical Inspections
Periodically or Regularly
Although CBP has used four approaches for selecting rough diamond
import shipments for physical inspections, none of these
approaches results in periodic or regular physical inspections.
According to accepted government internal control standards,
control activities such as periodically or regularly reviewing
assets-in this case, rough diamond shipments-should be evaluated
periodically or regularly to ensure that they are still
appropriate and working as intended.20 While the total inspection
of rough diamond imports at JFK, referred to above, helped CBP to
assess the effectiveness of its import control systems during two
periods of time, the agency has no policy or plan for conducting
these total inspections periodically or regularly in any of its
ports of entry. Furthermore, CBP has no policy or plan for
conducting other physical inspections periodically or regularly.
Without these types of physical inspections, the United States
cannot ensure that its import control system deters illicit rough
diamond shipments.
The United States Has Confirmed Few Import Receipts with Foreign
Exporting Authorities
The United States has not fully complied with the KPCS standard
that requires KPCS participants to confirm rough diamond import
receipts to the relevant foreign exporting authority. The 2005
KPCS peer review reported that the implementation of this
requirement has been sporadic and recommended that the United
States take steps to ensure that it enforces this provision.
During our fieldwork, we found that the United States had not
confirmed receipt of most import shipments to foreign exporting
authorities of four KPCS participants, which are key U.S. trading
partners, and the United States did not know the extent to which
it had not confirmed import receipts with the rest of the
participants. For example, the United States confirmed receipt of
2 percent of rough diamond import shipments from Belgium in 2004,
and 18 percent of these shipments in 2005. All other countries
confirmed receipt of 95 percent of rough diamond import shipments
from Belgium in 2004, and 97 percent of these shipments in 2005.
See table 2 for U.S. confirmation of import receipts to four
countries, and all other countries' confirmation of import
receipts to three of these four countries in 2004 and 2005.
19CBP's Priority Trade Issues include risks to the economic interests of
the United States or the health and safety of the American public.
Specifically, these issues include Penalties, Revenue,
Antidumping/Countervailing Duties, Agriculture, Intellectual Property
Rights, and Textiles.
20See Internal Control Management and Evaluation Tool, GAO-01-1008G .
Table 2: U.S. Import Confirmations to Select Countries Compared to All
Other Trading Countries, 2004 and 2005
2004 2005
Number of Number of Number of Number of
Country KPCS certificates imports Percentage certificates imports Percentage
reporting participant sent confirmed confirmed sent confirmed confirmed
Canada United 32 7 22% 44 7 16%
States
All other 139 126 91% 149 134 90%
trading
countries
United United 224 35 16% 262 132 50%
Kingdom States
All other 1,523 1,415 93% 1,490 1,370 92%
trading
countries
Belgium United 1,466 36 2% 1,333 236 18%
States
All other 3,1778 30,191 95 31,722 30,710 97%
trading
countries
Israel United 235 3 1% 286 41 14%
States
All other 7,476 N/Aa N/Aa 7388 N/Aa N/Aa
trading
countries
Source: GAO analysis based on data from Canada, the United Kingdom,
Belgium, and Israel.
aIsrael could not provide specific numbers, but indicated that all other
countries confirm most imports from Israel.
The United States has delegated the responsibility for confirming rough
diamond import receipts to importers. Through OFAC, the Treasury clarified
this requirement in its September 2004 revisions to the Rough Diamond
Control Regulations by making the ultimate importer (i.e., the ultimate
consignee instead of the importer-of-record) responsible for confirming
rough diamond import receipts to the relevant foreign exporting authority.
The revised regulation also requires that the ultimate importer send the
confirmation within 15 calendar days of the import's arrival at the U.S.
port of entry, and clarifies that the confirmation may be in any form and
may be submitted electronically, by mail, or by courier. The regulations
include civil and criminal penalties for any person who violates, or
attempts to violate, any order or regulation issued under CDTA.
The United States has not made any U.S. agency responsible for tracking
these import confirmations, and has only learned about the U.S. failure to
confirm import receipts when exporting authorities from other countries
have complained about this problem. In response to these complaints, the
United States has recently taken steps to improve the compliance of U.S.
importers with this KPCS requirement. Between April and June 2006, State
sent letters to about 150 U.S. importers reminding them of the requirement
under the rough diamond control regulations to confirm receipt of rough
diamond imports to foreign exporting authorities. Based on information
provided by State to OFAC, in August 2006, OFAC opened investigations and
started to issue administrative subpoenas to importers who had not
confirmed import receipts. If any importer continues to fail to confirm
import receipts, that is, fail to comply with the regulation, civil
penalties may result.
These enforcement efforts have had a positive effect on U.S. compliance
with this requirement, but the United States is not yet fully compliant.
As of June 2006, for instance, Belgium reported receiving confirmations of
import receipts for 35 percent of its shipments to the United States,
compared to 18 percent in 2005. Likewise, Canada reported receiving
confirmations of import receipts for 33 percent of its shipments to the
United States compared to 16 percent in 2005. Despite these improvements,
the United States is far from fully complying with this requirement.
Because the United States has not assigned an agency to track confirmation
of import receipts by importers, it cannot monitor the compliance of
importers with this KPCS standard and also is not able to detect possible
diversions of rough diamond import shipments. See figure 3 for a depiction
of the rough diamond import process and existing weaknesses.
U.S. System to Control Rough Diamond Exports Shows Weaknesses
State, Census, and USKPA have established a system for controlling U.S.
rough diamond export shipments. However, the system shows weaknesses
because it involves little direct U.S. government monitoring, thereby
preventing the United States from being sure that illicit shipments are
not leaving the country. See figure 4 for a depiction of the export
control process and weaknesses in U.S. government oversight.
Figure 4: U.S. Export Control Process and Weaknesses
Census, State, and USKPA Have Established System to Control Rough Diamond
Exports
CDTA requires exportation of any rough diamond from the United States to
be substantially consistent with KPCS, which details a number of
requirements to control rough diamond exports. For example, the United
States must:
o ensure a Kimberley Process certificate accompanies each
shipment of rough diamonds on export, and that the certificates
meet the minimum requirements set out by KPCS;
o ensure that no shipment of rough diamonds is exported to a
non-participant;
o ensure that rough diamonds are exported in a tamper-resistant
container; and
o establish a control system designed to eliminate the presence
of conflict diamonds from export shipments of rough diamonds.
Under the oversight of State, USKPA, through its licensees, issues
Kimberley Process certificates. According to a State report to
Congress, USKPA, which is comprised of representatives of the
diamond industry, was established in 2003 to issue and control
Kimberley Process certificates for rough diamond exports from the
United States.21 To issue U.S. Kimberley Process certificates,
USKPA subcontracted out to 17 licensees. These licensees represent
companies that ship on behalf of third parties, as well as
companies engaged in the business of buying and selling rough
diamonds that agree to fulfill the requirements of KPCS and all
relevant U.S. laws and regulations.22 Each licensee also agrees,
through contractual agreements, to a set of fixed procedures in
order to qualify to obtain and use Kimberley Process certificates
when exporting rough diamonds. Under these procedures, licensees
agree to maintain a supply of Kimberley Process certificates in
safekeeping, keep records for 5 years for each shipment where a
Kimberley Process certificate is issued, and submit to an audit by
USKPA. Also, licensees/shippers agree to complete an application
form.23
Licensees submit monthly and annual reports to USKPA with all of
the certificates issued in that period. These reports are
forwarded to State and Census. See table 3 for the number of
certificates issued by the United States from 2003 to 2005.
Table 3: Number of U.S. Kimberley Process Certificates Issued,
2003-2005
Source: GAO analysis of State data.
CDTA requires that State conduct an annual review of the
standards, practices, and procedures of USKPA to determine whether
these activities are in accordance with KPCS, and that State
report the results of the review to Congress. State has reported
as required; however, the content of the annual report is more
descriptive than evaluative. According to State, it has not used a
formal plan for overseeing USKPA and its licensees. State is
currently developing this plan and has tested some of its elements
in 2006, according to State officials. The implementation of this
plan would help State to conduct periodic or regular, independent,
and systematic oversight of USKPA and its licensees to make sure
that they conform with KPCS standards.
U.S. Export Process Involves Limited U.S. Government Monitoring
The U.S. government monitors the export process using electronic
data checks rather than physical inspections of rough diamond
shipments. While USKPA reviews licensees, it does not have a plan
for conducting these reviews. Finally, KPCS participants reported
to us that they had received U.S. Kimberley Process certificates
that did not comply with the certification scheme requirements.
Monitoring of Export Operations Limited to Electronic Data Checks
with No Physical Inspections
Direct government involvement in the operational export process is
limited to Census' electronic data checks through AES. Once Census
validates a shipment for export based solely on data submitted
through AES, no other government agency reviews the shipment. The
contents of the parcels are never physically inspected by any
government agency, USKPA, or its licensees. According to a senior
official at CBP, no one at CBP physically inspects rough diamond
export shipments before they are sent, and no requirement exists
for submitting a Kimberley Process certificate to CBP for these
export shipments.24 In its final report, a peer review team sent
by KPCS to the United States to assess implementation of the
certification scheme found that the U.S. export regime would
benefit from a more hands-on approach by the government and
recommended conducting physical inspections of exports
periodically or regularly to ensure that, among other things, the
description on the certificate matches the contents of the
shipment.
The private sector, through USKPA and its licensees, plays a
significant role in the U.S. export process, yet these private
entities do not verify the contents of rough diamond exports
either. According to a co-director of USKPA, the agency takes no
responsibility for the information on the certificate; the
licensee and exporter assume this responsibility. Likewise, a
senior official from State maintained that the licensees are
responsible for providing truthful data-thus ensuring that the
contents meet the information on the documentation.
However, according to two USKPA licensee freight forwarders
responsible for issuing about half of the U.S. Kimberley Process
certificates in 2005, they also do not examine the contents of
rough diamond parcels they ship. For rough diamonds, they rely on
the warranty the exporters sign on the application attesting that
the shipment has been handled in accordance with KPCS. The
licensees maintain that the exporters are responsible for
collecting and retaining documentation showing that the diamonds
were legally imported into the United States. Without an effective
monitoring strategy that includes a plan for conducting physical
inspections periodically or regularly, the United States cannot be
assured that its internal controls for exports sufficiently
prevent export of illicit shipments. This weakness of the U.S.
export process could allow illicit diamonds to enter the
legitimate trade.
USKPA does not have a plan to conduct reviews of licensees
Under its licensing agreement, USKPA can review a licensee's
books, records, and other documents to verify compliance with the
agreement. According to a USKPA co-director, USKPA has visited
five licensees. However, USKPA does not have a plan to conduct
these monitoring visits, nor does it have any protocol for
selecting which licensees will receive a visit. The visit might
include a review of the security measures used to store the
certificates, packing procedures, and record-keeping for every
application received, as well as interviews with the employees
involved in these processes and those who prepare monthly or
annual reports. USKPA gave us visit summaries from its annual
reports to State. USKPA did not give us any other documentation
regarding these reviews. Without an established monitoring
strategy, plan, criteria, and documentation, USKPA cannot be sure
that its licensees are meeting their requirements to prevent
illicit exports of rough diamonds from the United States.
U.S. Trading Partners Report Problems with U.S. Kimberley Process
Certificates
Some countries have reported quality control problems with U.S.
Kimberley Process certificates. For example, in 2005, one country
reported receiving 26 U.S. Kimberley Process certificates with
corrections (correction fluid such as Liquid Paper or Wite-Out had
been used to amend errors on them). Also, 10 certificates had
typographical errors, and 5 had incorrect dates. In the same year,
another country reported receiving 21 U.S. Kimberley Process
certificates with typographical errors and 5 certificates with
correction fluid. These quality issues raise the possibility that
the certificates have been tampered with and, thus, do not meet
KPCS requirements. In the absence of physical inspections of U.S.
rough diamond exports, foreign importing authorities have alerted
U.S. officials of these problems. In response, these officials
began conducting outreach efforts to exporters to address these
issues.
The United States Has Helped to Strengthen KPCS Internationally,
but Assistance-Related Efforts Face Challenges
Internationally, the United States has helped to strengthen KPCS
by participating in KPCS activities and providing assistance to
help Sierra Leone and Liberia comply with KPCS, but this
assistance faces challenges. The United States has helped
strengthen KPCS by participating in the activities of its working
groups and committees and assuming lead roles; for instance, the
United States led a peer review visit to Brazil and offered to
identify and coordinate donor assistance to countries seeking to
implement or strengthen KPCS. Also, the United States has provided
approximately $7.57 million in assistance to the diamond producing
countries of Sierra Leone and Liberia to implement systems for
controlling their trade in rough diamonds. However, the
effectiveness of assistance-related efforts in Sierra Leone and
Liberia is constrained by the limited capacity and resources of
these countries to implement KPCS and the need to harmonize
diamond policies among these countries and other countries in the
region. Donors and diamond producers are considering a regional
approach to help enhance the effectiveness of donor assistance.
The United States Has Participated in KPCS Activities and Recently
Led Two of Them
With State leading U.S. efforts, the United States has helped
strengthen KPCS by regularly attending KPCS-related meetings and
serving on the three KPCS working groups and the two KPCS
committees. CDTA expresses the sense of the Congress that the
United States should strengthen KPCS by monitoring the
effectiveness of the certification scheme in stemming trade in
rough diamonds not controlled by KPCS. To this end, the United
States has taken the following actions:
o The United States regularly attends KPCS meetings, which aim to
strengthen the certification scheme and assess its effectiveness.
According to U.S. officials, the United States has regularly
participated in KPCS meetings, including the annual KPCS plenary
and intersessional meetings, to discuss and assess KPCS
implementation. Also, it crafted compromises and negotiated
solutions to disagreements among KPCS participants.
o The United States serves as a member of the Statistics Working
Group and, according to U.S. officials, through diplomatic
channels has encouraged and assisted several participants to
provide required statistical reports to KPCS in a timely manner.
Also, the United States, through Census, has analyzed production
and trade data for the Statistics Working Group and, through USGS,
has done it for some of the KPCS peer review teams.
o The United States serves as a member of the Monitoring Working
Group, which monitors how individual participants implement KPCS.
The primary activity of the Monitoring Working Group has been to
conduct peer reviews, which include peer review visits to examine
participants' efforts to implement KPCS. Since the first peer
review visit to the United Arab Emirates in May 2004, KPCS has
conducted 31 review visits, including the KPCS peer review visit
to the United States in 2005. Officials from State and other U.S.
entities have participated in KPCS peer review visits to the
following ten participants: United Arab Emirates, Russia, Guinea,
India, Sierra Leone, Sri Lanka, Ghana, Togo, Brazil, and Guyana.
The United States also participated in the recent Kimberley
Process special mission to Liberia.
o The United States serves on two KPCS committees: the
Participation Committee, which assists the Chair of the Kimberley
Process in handling the admission of new participants to KPCS; and
the Selection Committee, which reviews and assesses the
credentials of candidates for the position of Vice-Chair.
o The United States has recently led two KPCS activities.
Specifically, the United States offered to identify and coordinate
donor assistance for implementing KPCS at the plenary meeting in
Moscow, Russia, in November 2005. Also, the United States led the
KPCS peer review visit to Brazil in April 2006.
The United States Has Helped Two Countries in Their Efforts to
Implement KPCS and Is Considering a Regional Approach to Enhance
the Impact of Its Diamond-Related Assistance
The United States has provided about $7.57 million in assistance
to help Sierra Leone ($6.13 million) and Liberia ($1.44 million)
implement KPCS, but the limited capacity and resources of these
two recipient countries and the need to harmonize diamond policies
with other countries in the region have restricted the
effectiveness of this assistance. Donors, including the United
States, are considering using a regional approach to enhance the
impact of diamond-related assistance. Table 4 shows the U.S.
diamond-related assistance to these two countries.
21The USKPA has three directors who serve without compensation, selected
by consensus by representatives of the diamond industry. The directors are
persons familiar with the requirements of KPCS, and are not engaged in the
buying or selling of diamonds or jewelry containing diamonds. The
activities of the USKPA are funded through fees paid by USKPA licensees.
The USKPA designed and produced the Kimberley Process certificate in
consultation with the U.S. government.
22According to the 2004 USKPA annual report to State, in order to qualify
as a licensee each entity has to be authorized as a "known shipper" under
AES.
Year Number of U.S. certificates issued
2003 1,516
2004 1,864
2005 1,970
23The application form that licensees/shippers complete must contain: the
names, addresses, and tax identification numbers of the applicant,
exporter, and importer; the carat weight of the shipment; the value in
U.S. dollars; the number of parcels in the shipment; and the relevant
Harmonized Commodity Description and Coding System number. In addition,
the following warranty statement must appear on the application: "The
applicant hereby asserts that the rough diamonds intended for export
referenced in this application have been handled in accordance with the
provisions of the Kimberley Process International Certificate Scheme for
Rough Diamonds."
24According to other CBP officials, CBP uses an approach for exports that
focuses on inspecting high-technology items that could be used by
potential U.S. enemies. Under this approach, rough diamond shipments do
not get flagged for inspection.
Table 4: U.S.-Funded Diamond-Related Projects Supporting the
Implementation of KPCS in Sierra Leone and Liberia
Amount of
Implementing U.S. Country/program disbursementa(dollars in
agency/contractor title millions)
Sierra Leone
USAID/Office of Transition Diamond Management $1.26
Initiatives/Management Systems Program
International
Subtotal $1.26
USAID/Management Systems Diamond Project $0.06
International
Diamond Policy and $0.94
Management Project
(DIPAM)
Peace Diamond $1.08
Alliance Support
Project (PDA)
Integrated Diamond $2.79b
Management Program
(IDMP)
Subtotal $4.87
Total for Sierra $6.13
Leone
Liberia
USGS/Constella Futures Kimberley Process $1.44b
International Implementation
Program
Total for Liberia $1.44
Total for Sierra $7.57
Leone and Liberia
Source: GAO analysis of USAID and USGS data.
aDisbursements are outlays for programs completed. State has provided $2
million and USAID provided $0.79 million.
bThese amounts represent obligations for programs not yet completed. State
has fully funded this program.
U.S. Diamond-Related Assistance Helped Sierra Leone Comply with KPCS
The United States, as part of its support to the Lome Peace Accord in
1999, helped Sierra Leone initiate diamond policy reform. From September
1999 to March 2007, USAID, through five rough diamond-related projects,
plans to provide about $6.13 million in assistance to support Sierra
Leone's efforts to control rough diamonds at the national and local level.
Between 1999 and 2001, USAID's Office of Transition Initiatives (OTI)
provided, through Management Systems International (MSI), about $1.26
million in funding under one project to support government efforts to gain
control of its production of and trade in rough diamonds. Between 2002 and
2007, USAID plans to provide, again through MSI, about $4.87 million in
assistance under four projects to further enhance the country's efforts to
gain control over its rough diamonds. The specific programs are outlined
below.
Diamond Management Program
Between 1999 and 2002, OTI, through MSI, provided about $1.26 million,
under the Diamond Management Program, to support Sierra Leone in its
efforts to develop and implement diamond policies and a system for
controlling the trade in rough diamonds. The two primary objectives of the
program were to (1) help Sierra Leone bring diamonds under control of the
government and (2) cut the trade in conflict diamonds to diminish this
trade's financing of warfare. According to a USAID-sponsored evaluation,
the primary achievement of the program was to assist the government in
establishing a Certificate of Origin system that the country needed to
have in place to be able to export rough diamonds. Although this program
was largely advisory, it also included providing training and equipment to
the Ministry of Mineral Resources' monitoring staff. The evaluation
considered the program a success because legitimate exports of rough
diamonds increased from $1.2 million in 1999 to $26 million in 2001.
The Diamond Project
At the end of the OTI-funded Diamond Management Program, USAID granted
about $62,000 to MSI, under the Diamond Project, to continue working on
rough diamonds from August 2002 to November 2002. This funding helped MSI
get ready to start a larger program, called the Diamond Policy and
Management (DIPAM) program.
Diamond Policy and Management Project
From 2002 to 2004, USAID, through MSI, provided $940,000, under the DIPAM
program, to further help Sierra Leone control its rough diamonds at both
the national and local level. According to MSI's project closeout report,
DIPAM had five policy objectives, and successfully implemented programs in
support of each of them:
o Legitimize policy reform. MSI, through DIPAM, worked with the
government of Sierra Leone to apply economic incentives to shape
the behavior of both domestic and international actors in the
diamond sector, and promote legitimate mining and marketing. For
example, the project explored ways to reward citizens for mining
rough diamonds legally and for ensuring that their neighbors also
did so.
o Increase community benefits from mining. DIPAM focused on
increasing community benefits in two ways: by maximizing direct
income within the country from the production and sale of rough
diamonds, and by encouraging the government to return a portion of
rough diamond export tax revenues to communities through the
Diamond Area Community Development Fund (DACDF). DACDF distributes
one-fourth of revenue earned from export taxes on rough diamonds
to communities holding mining licenses. In 2005, over $900,000 in
DACDF funds were turned over to these communities. In one
community we visited, these funds helped to build a police
facility and a town hall.
o Engage civil society with government in mining policy
deliberations and monitor the government's performance. DIPAM
worked to strengthen community-based institutions to help them
more explicitly represent community interests with respect to
diamond mining and alternative development activities.
o Establish dialogue among communities, the government, and the
private sector in industrial mining. DIPAM established forums
where community voices could be heard. For example, project
officials worked directly to help property owners express their
grievances regarding the mining practices of a large mining
company.
o Improve environmental management of artisanal mining. In
September 2004, DIPAM succeeded in getting the government of
Sierra Leone to release funds to reclaim land at an illegal mining
site that was shut down. The government had set aside a portion of
the revenue that it had received from selling mining licenses to
pay for environmental reclamation. However, the government had
never released it before.
Peace Diamond Alliance Support Project
From 2003 to 2004, USAID, through MSI, provided about $1.08
million, under the Peace Diamond Alliance Support Project (PDA),
to help Sierra Leone establish a public/private partnership for
mining rough diamonds. MSI implemented this project in an
integrated manner with the DIPAM cooperative agreement discussed
above. The approach of the PDA has been to remove diamonds from
the smuggling chain by providing incentives for legal export,
chiefly by increasing benefits at the local level. Specifically,
PDA worked to improved diamond management in mining communities by
encouraging cooperation among government, businesses, and civil
society.
The PDA offered training for members of mining cooperatives (which
are largely made up of unskilled workers) on a number of issues,
such as valuing stones and improving environmental and safety
practices. Figure 5 shows diggers working at a diamond mining site
in Sierra Leone. In addition, the PDA helped to organize 35 mining
cooperatives between 2003 and 2004, mainly in the Kono District,
which is one the main diamond mining areas in Sierra Leone.
However, only five of these cooperatives mined rough diamonds in
2005 and only one of them continues to mine rough diamonds in
2006.
The measure of success for the DIPAM/PDA programs was the degree
to which legal diamond exports increased and the degree to which
benefits were returned to communities. By the above measures, the
DIPAM/PDA projects were successful, according to MSI's project
closeout reports. For instance, legal diamond exports have
increased from $10 million in 2000 to over $140 million in 2005.
U.S. and Sierra Leone government officials view the increase in
legal diamond exports as an indicator that more diamonds are being
traded licitly.
Figure 5: Diamond Mining Site in Sierra Leone-A Recipient Country
of U.S. Assistance
Integrated Diamond Management Program
From 2004 to 2006, USAID, through MSI, has implemented the
Integrated Diamond Management Program (IDMP), to support Sierra
Leone efforts to improve the management of Sierra Leone's diamond
sector at both the national and local levels. State has provided
about $2 million to support this program. In July 2006, USAID
approved about $790,000 in additional funding to extend this
program until March 2007. At the national level, IDMP continues to
help the High-Level Diamond Steering Committee (HLDSC) and its ad
hoc Technical Committee in their efforts to support the government
of Sierra Leone formulate diamond-related policy. At the local
level, IDMP continues to support the PDA, described above, and
other local initiatives.
Sierra Leone agreed to create HLDSC to advise the government on
the effective management and control of the country's rough
diamond resources. HLDSC members include Sierra Leonean government
ministers as well as the U.S. Ambassador and equivalent
representatives from the United Kingdom, the European Community,
and the UN. The committee formed a technical advisory group to
address issues raised by the government or donors in early 2004.
The committee and its ad hoc technical committee serve as key
policy forums for enhancing national diamond-sector policy
development and implementation. They analyze strategic policy
issues and advise the government on important diamond-sector
policy. For example, recent discussions focused on the
establishment of diamond cutting and diamond polishing legislation
and procedures, and policies for transparent land allocation to
diamond companies. MSI serves as the secretariat for both
committees. For this reason, these committees have relied on U.S.
assistance for guidance, recommendations, and support, according
to recent program status reports.
U.S. Diamond-Related Assistance Is Helping Liberia in Its Efforts
to Comply with KPCS
In 2005, State asked USAID to transfer funds to USGS for
developing and implementing a program to help Liberia move toward
compliance with KPCS.25 With this funding, from September 2005 to
December 2006, USGS, under an agreement with State and through
Constella Futures International, plans to provide about $1.44
million in rough-diamond-related assistance under one project to
help Liberia in its efforts to comply with KPCS.
The U.S. assistance focuses on developing and implementing a
capacity-building and a technical training program in a broad
range of rough diamond activities, such as improving the
government capacity for controlling the production and trade in
rough diamonds and related geological and commercial activities.
For instance, this program includes funding for building a secured
annex behind the Ministry of Lands, Mines, and Energy to house
Liberia's rough diamond exporting and importing authority, as well
as for buying vehicles and equipment needed to support this
authority and the ministry's efforts to monitor rough diamond
mining activities.
In Monrovia, Liberia, we observed a subcontractor working on the
secured annex that will house the exporting and importing
authority. Figure 6 shows the secured annex under construction.
Recent status reports on the U.S.-funded assistance effort in
Liberia indicate that the U.S program is helping Liberia make
progress in different areas. For example, the construction of the
annex is almost finished, Kimberley Process certificates are under
development, and training of different staff needed to implement
KPCS is under way.
Figure 6: Liberian Ministry of Lands, Mines, and Energy Building
and Secured Annex under Construction for Housing Liberia's Rough
Diamond Exporting and Importing Authority
U.S. and program officials noted that, despite the progress made
through the support of the U.S. assistance program, Liberia still
does not have an effective system for controlling its production
and trade in rough diamonds, which is needed to comply with KPCS.
In May 2006, the UN completed an assessment of the status of
Liberia's efforts to comply with KPCS and a second Kimberley
Process Expert Mission visited Liberia to independently assess the
status of these efforts.26 The UN reported that Liberia still did
not comply with KPCS. The UN report, for instance, noted that the
components needed for a credible, internationally-accredited
certification scheme for rough diamonds were still some months
away. In June 2006, the UN decided to extend its rough
diamond-related sanctions on Liberia for another 6 months, with
the option of assessing the country's efforts to comply with KPCS
again in another 4 months. In August 2006, the Kimberley Process
Expert Mission to Liberia reported that Liberia had made some
progress towards establishing a system of internal controls, which
is crucial to the effective implementation of KPCS. However, it
also noted that Liberia still lacks, for instance, a system of
internal controls that will ensure that conflict diamonds are not
entering its production.
Donor Assistance Faces Challenges, But a Regional Approach for
Providing Some Assistance Would Enhance Impact of This Assistance
Sierra Leone and Liberia's limited capacity and resources to fully
implement KPCS, and the countries' need to harmonize diamond
policies with other countries in the regions, constrains the
effectiveness of donor assistance. Although U.S. assistance has
provided training, equipment, and vehicles to help Sierra Leone
monitor diamond mining areas and borders to prevent illicit
activities, government officials told us during our visit to that
country that they did not have enough capacity and resources to
accomplish their mission. For instance, these officials emphasized
that they did not have enough vehicles for monitoring large
diamond mining areas under their jurisdiction. Because these
vehicles included many motorcycles, these officials also noted
that they faced many difficulties reaching many mining areas given
the bad conditions of the roads and remoteness of mining sites.
According to U.S. and Liberian officials, without the U.S. and
other donor assistance that is providing training, equipment, and
vehicles to help Liberia comply with KPCS, the country would not
be able to implement the control systems needed for monitoring
trade in rough diamonds, large mining areas, and highly porous
borders. Also, the UN Mission in Liberia (UNMIL) in March 2006
noted that the problem of porous borders and insecurity in the
Mano River Basin area-which includes Liberia, Sierra Leone,
Guinea, and Cote d'Ivoire-has contributed to difficulties in
effectively dealing with illicit trading of diamonds.
Donors and diamond producers are considering a regional approach
to help enhance the effectiveness of donor assistance because this
assistance is constrained by the limited capacity and resources of
these countries and the need to harmonize diamond policies among
countries vulnerable to illicit cross border diamond trading. In
February 2006, at a meeting of alluvial diamond producers,
participants encouraged regional and subregional cooperation by
harmonizing and reinforcing mechanisms to fight more efficiently
the illicit cross border trade of diamonds. Also, the reports of
the KPCS peer review visits to Sierra Leone and Liberia stress the
importance of harmonizing diamond-related policies of these (and
other) countries in the Mano River region to avoid the illegal
transfer of rough diamonds across borders. For instance, when
Sierra Leone significantly raised its diamond-related tax rate
above the tax rate of other countries in the region in early 2006,
it experienced a drop of rough diamond exports that led it to
rescind the tax rate increase. Public and private officials have
stated that employing a regional approach for some rough
diamond-related assistance would improve the impact of this
assistance, thereby further deterring illicit diamond trading.
These officials have noted that harmonization of taxation and
other laws among countries within a region is needed to dissuade
people from illegally moving diamonds across borders. In June
2006, representatives from Sierra Leone, Liberia, Guinea, and Cote
D'Ivoire, along with representatives from the United States and
other donors, met to discuss rough diamond-related
issues-including policy areas for potential regional
harmonization. According to U.S. officials, the conference
highlighted the importance of regional harmonization, as well as
the complexity-given the differences in national laws-of trying to
find common positions that could be adopted by all the countries
within a region. The United States is considering using a regional
approach to enhance the impact of some of its diamond-related
assistance. This regional assistance would complement
country-specific assistance provided to diamond-producing
countries within a region.
Conclusions
A system for controlling the trade in rough diamonds will be
effective only if it has control mechanisms designed to curtail or
deter the trade in conflict diamonds. The United States has
established a multi-agency system aimed at controlling trade in
rough diamonds (thereby curtailing trade in conflict diamonds)
but, because of weaknesses of the system, the United States cannot
ensure that illicit rough diamonds are not traded. To succeed,
KPCS depends on all participants having strong control systems and
procedures for collecting and sharing trade data on rough
diamonds, for inspecting imports and exports of these diamonds,
and for tracking confirmations of import and export receipts.
Since implementing CDTA, the United States has made significant
improvements to its system and procedures for collecting and
sharing data and for controlling the rough diamond trade. However,
a continual excess of exports over imports raises concerns because
the United States is not expected to have such excess of exports
over time (it does not produce rough diamonds and polishes some
rough diamonds domestically) and because U.S. agencies have not
conducted an analysis that might help to explain a persistent
excess of exports. Also, the United States has not had a policy
and plan for periodically or regularly physically inspecting
imports and exports of rough diamonds to ensure that illicit rough
diamonds do not enter the legitimate U.S. trade of these diamonds.
In addition, the United States has failed to confirm most rough
diamond import receipts to foreign export authorities, thereby
failing to comply with a KPCS standard. The United States relies
on the ultimate recipients to confirm import receipts, but it has
not tracked whether these recipients do so. Moreover, although
State and Census have received annual activity reports from USKPA,
and State has reported to Congress on USKPA activities, State has
not had a plan for overseeing the activities of USKPA and its
licensees, who issue the U.S. Kimberley Process certificates.
Although USKPA has reviewed the activities of 5 of its 17
licensees, it has not had a plan and protocols for conducting
these reviews. These weaknesses diminish the effectiveness and
deterrent effect of the U.S. and international systems for
controlling imports and exports of rough diamonds.
The United States has helped to enhance KPCS by, among other
things, participating in the decision making and operational
aspects of the certification scheme, and has supported the
adoption of KPCS by providing technical assistance to two African
diamond-producing countries, Sierra Leone and Liberia. The United
States has participated in KPCS since its inception, and has
recently assumed leadership roles, by identifying and coordinating
donor assistance to diamond producing countries, and leading a
peer review visit to Brazil. The United States has helped Sierra
Leone and Liberia in their efforts to meet the minimum KPCS
requirements, but the limited capacity and resources of both
countries-and the need to harmonize diamond policies among these
countries and other countries in the region-has presented a major
challenge to U.S. assistance efforts and the countries' ability to
control their trade in rough diamonds and monitor large mining
areas and highly porous borders. To enhance the impact of its
diamond-related assistance and further curtail illicit rough
diamond trading, the United States, other donors, and diamond
producers are considering using a regional approach for providing
some diamond-related assistance, which would help to address
diamond issues of a regional nature.
Recommendations for Executive Action
To help the United States ensure that it has a more effective
system for preventing the importation or exportation of conflict
diamonds, we are making seven recommendations.
o To improve the accuracy of U.S. rough diamond trade data-if
U.S. rough diamond exports continue to exceed imports--we
recommend the following:
o The Secretaries of State and the Treasury direct
the U.S. Kimberley Process Implementation
Coordinating Committee to perform such analysis as is
necessary to determine what constitutes a normal
excess of exports over imports based on a variety of
factors, including market factors such as rough
diamond stockpiles and domestic diamond cutting and
polishing capacities.
o To enhance the U.S. process for inspecting rough diamond
imports and exports, we recommend the following:
o The Secretary of Homeland Security direct the
Commissioner of CBP to develop and implement a plan
for conducting physical inspections of both imports
and exports of rough diamonds periodically or
regularly, including inspecting the quality of U.S.
Kimberley Process certificates.
o To enhance the U.S. process for confirming the receipt of U.S.
imports with foreign exporting authorities, we recommend the
following:
o The Secretaries of State and Homeland Security
develop and implement a plan for confirming the
receipt of imports-currently the responsibility of
individual importers-and for tracking these
confirmations. The system for tracking import
confirmation receipts would help enhance Census' data
on rough diamond imports and exports.
o The Director of OFAC revise the pertinent rough
diamond trade regulations to reflect the above
change.
o To enhance the U.S. process for reviewing the activities of
USKPA and its licensees who issue Kimberley Process certificates,
we recommend the following:
o The Secretary of State direct the Assistant
Secretary, Bureau of Economic and Business Affairs,
to implement a plan for reviewing the activities of
USKPA and its licensees.
o The Secretary of State direct the Directors of
USKPA to develop and implement a plan for reviewing
the activities of its licensees.
o Finally, to enhance the impact of U.S. diamond-related
technical assistance and further curtail illicit rough diamond
trading, we recommend the following:
Agency Comments and Our Evaluation
We provided a draft of this report to State, the Treasury,
Homeland Security, Commerce, Interior, USAID, and USTR. We
obtained written comments from State, the Treasury, Homeland
Security, Commerce, and Interior (see apps. VI, VII, VIII, IX, and
X). They concurred with our recommendations. We also received
technical comments on this draft from State, the Treasury, USAID,
and USTR, which we have incorporated where appropriate.
We are sending copies of this report to interested congressional
committees, State, the Treasury, Homeland Security, Commerce,
Interior, USAID, and USTR. We will also make copies available to
others upon request. In addition, the report will be available at
no charge on the GAO Web site at http://www.gao.gov .
If you and your staff have any questions about this report, please
contact me at (202) 512-4347. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the
last page of this report. GAO staff who made major contributions
to this report are listed in appendix XI.
Loren Yager, Director International Affairs and Trade
Appendix I: Objectives, Scope, and Methodology
As mandated by the Clean Diamond Trade Act (CDTA), this report
focused on (1) describing the institutional framework the U.S.
government has created to implement CDTA, (2) examining how the
United States has implemented the provisions of CDTA domestically
and what principal challenges it faces, and (3) examining how the
United States has helped to strengthen the Kimberley Process
Certification Scheme (KPCS) and what principal challenges it
faces.
To address all of these objectives, we interviewed key officials
from multiple U.S. agencies and the U.S. Kimberley Process
Authority (USKPA). The agencies we interviewed included:
o The Secretary of State direct the Assistant
Secretary, Bureau of African Affairs, to develop and
implement a plan for providing some of the
diamond-related assistance using a regional approach
so that countries within a region can harmonize
aspects of their systems for controlling the rough
diamond trade across porous borders.
o the Department of State (Bureau of Economic Affairs and United
States Mission to the United Nations),
o the Department of the Treasury (Office of Foreign Assets
Control),
o the Department of Homeland Security (Bureau of Customs and
Border Protection and Bureau of Immigration and Customs
Enforcement),
o the Department of Commerce (Bureau of the Census),
o the Department of Interior (U.S. Geological Survey),
o the U.S. Agency for International Development, and
o the Office of the U.S. Trade Representative.
To address our first objective of describing the institutional
framework the U.S. government has used to implement CDTA and our
second objective of examining how the United States has
implemented the provisions of CDTA domestically and what principal
challenges it faces, we reviewed documents from the U.S.
government and USKPA, including relevant laws, regulations,
reports, and briefing documents. Also, we interviewed
representatives and collected documentation from diamond industry
organizations and non-governmental groups that have been involved
in the implementation of CDTA. In addition, we interviewed
representatives from private organizations that have been involved
in trading rough diamonds to and from the United States. We
analyzed Census' rough diamond import and export flows in
conjunction with data collection improvements to determine the
factors contributing to excess exports. These data have
limitations, as discussed in the report. We assessed the quality
of data the Census, the UN, and the KPCS used to describe
international trade in diamonds, and determined that they were
sufficiently reliable for our purposes. Finally, we used data
provided to us by foreign governments to analyze U.S. import
receipt confirmations. Based on interviews with foreign government
officials we determined that these data were sufficiently reliable
to support our findings.
To address our third objective of examining how the United States
has helped to strengthen KPCS and what principal challenges it
faces, we reviewed UN, KPCS, and U.S. and foreign government
documents, including relevant legislation, reports, and briefing
documents. Also, we interviewed officials and collected
documentation from the UN and other international organizations,
KPCS, diamond industry organizations, non-governmental groups, and
the U.S. and foreign governments involved in the development and
implementation of KPCS. In addition, to identify, describe, and
assess U.S. diamond-related assistance efforts, we interviewed
U.S., UN, and foreign government officials and non-governmental
groups and private organizations representatives involved in the
development and implementation of the diamond-related assistance
the United States has provided to Sierra Leone and Liberia. We did
not independently verify the U.S. assistance data.
We conducted our work in Washington, D.C.; New York, New York;
Moscow, Russia; Ottawa, Canada; Brussels and Antwerp, Belgium;
Catania, Italy; Freetown and Koidu, Sierra Leone; and Monrovia,
Liberia. We conducted our work from September 2005 through
September 2006 in accordance with generally accepted government
auditing standards.
Appendix II: U.S. and Global Trade In Rough Diamonds
Tables 5 to 8 show information related to the U.S. and global
trade in rough diamonds, including the top destinations for U.S.
rough diamond exports, top sources of U.S. rough diamond imports,
top (non-mining) rough diamond exporting KPCS participants, and
the economic importance of diamond mining for selected countries.
We assessed the quality of data from the Census, the UN, and the
KPCS, and, despite limitations, we determined that they were
sufficiently reliable for our purposes.
Table 5: Top Destinations for U.S. Rough Diamond Exports, 2005
(value > 1 percent of U.S. exports)
KPCS participant Value of exports Percent of U.S. exports
Israel $204,486,572 40.0%
European Community $157,386,752 30.8%
United Arab Emirates $42,320,452 8.3%
South Africa $32,243,114 6.3%
India $19,648,240 3.8%
Switzerland $14,578,528 2.8%
China $13,116,880 2.6%
Japan $8,786,284 1.7%
Namibia $6,805,390 1.3%
Mauritius $6,032,302 1.2%
Source: GAO analysis of Census data.
Table 6: Top Sources of U.S. Rough Diamond Imports, by Exporting
Participant, 2005 (value > 1 percent of US imports)
KPCS participant Value of imports Percent of U.S. imports
European Community $581,379,013 64.7%
Israel $215,579,636 24.0%
South Africa $33,102,427 3.7%
United Arab Emirates $21,775,428 2.4%
Canada $12,305,324 1.4%
Guyana $10,803,495 1.2%
Source: GAO analysis of Census data.
Table 7: Top (Non-Mining)a Rough Diamond Exporting KPCS
Participants, 2003 (exports > $200 million)
KPCS participant Value of rough diamond exports
European Community $9,760,320,078
Israel $2,948,141,887
United Arab Emirates $1,006,991,024
Switzerland $795,914,964
Armenia $486,569,182
Japan $299,162,740
United States $227,286,017
Thailand $225,365,729
Source: GAO analysis of KPCS data.
aThe KPCS did not record diamond mining for these countries in
2003.
Table 8: Economic Importance of Mining for Selected Countries,
2003
Mining as a
Mining as a percentage of percentage of
Country Value of mining gross domestic product exports
Botswana $2,225,275,390 29% 65%
Democratic
Republic of Congo $910,833,462 16% 64%
Namibia $421,312,014 9% 24%
Sierra Leone $76,700,000 8% 44%
Angola $788,100,104 6% 8%
Guyana $20,626,850 3% Not available.
Source: GAO analysis of KPCS, United Nations, World Bank, and U.S.
Geological Survey data.
Note: Shares of gross domestic product and exports rounded to the
nearest percent.
Appendix III: Top Polished Diamond Exporting and Top Diamond
Mining Countries
Figures 7 and 8 depict the top polished diamond exporting
countries and the top diamond mining countries.
25 The UN Security Council imposed sanctions on the export of rough
diamonds from Liberia in 2001 for its role in the armed conflict in
neighboring Sierra Leone. Compliance with KPCS is one of the key
conditions for lifting the sanctions on diamond exports.
26In February 2005, the first Kimberley Process Mission to Liberia found
that, while Liberia had enacted the necessary law to implement KPCS and
designated the Ministry of Lands, Mines, and Energy as the focal point for
national implementation, this country lacked the means to enforce internal
controls, including monitoring the activities of diamond-producing
regions.
Figure 7: Top Polished Diamond Exporting Countries, 2004 (estimated
exports > $200 million)
Note: Exports are estimated as the sum of partner imports. China's
estimated exports include Hong Kong.
Figure 8: Top Diamond Mining Countries, 2003 (mining value > $50 million)
Appendix IV: Timeline of KPCS and CDTA-Related
Events
Appendix V: List of KPCS Participants
States and regional economic integration organizations who have met the
minimum requirements of KPCS are:
1. Angola
2. Armenia
3. Australia
4. Belarus
5. Botswana
6. Brazil
7. Bulgaria
8. Canada
9. Central African Republic
10. China, People's Republic of
11. Congo, Democratic Republic of
12. Cote D' Ivoire
13. Croatia
14. European Community
15. Ghana
16. Guinea
17. Guyana
18. India
19. Indonesia
20. Israel
21. Japan
22. Korea, Republic of
23. Lao People's Democratic Republic
24. Lebanon
25. Lesotho
26. Malaysia
27. Mauritius
28. Namibia
29. New Zealand
30. Norway
31. Romania
32. Russian Federation
33. Sierra Leone
34. Singapore
35. South Africa
36. Sri Lanka
37. Switzerland
38. Tanzania
39. Thailand
40. Togo
41. Ukraine
42. United Arab Emirates
43. United States of America
44. Venezuela
45. Vietnam
46. Zimbabwe
Source: GAO analysis of KPCS information.
Note: The rough diamond-trading entity of Chinese Taipei has also met the
minimum requirements of KPCS.
Appendix VI: Comments from the Department of State
Appendix VII: Comments from the Department of the Treasury
Appendix VIII: Comments from the Department of Homeland Security
Appendix IX: Comments from the Department of Commerce
Appendix X: Comments from the Department of Interior
Appendix XI: GAO Contact and Staff Acknowledgments
GAO Contact
Loren Yager, (202) 512-4347
Staff Acknowledgments
Zina Merritt served as Assistant Director responsible for this report, and
Juan Tapia-Videla was the Analyst-in-Charge. In addition to those named
above, the following individuals made significant contributions to this
report: Kate Blumenreich, Leah DeWolf, David Dornisch, Mark Dowling, and
Michael Hoffman. The team benefited from the expert advice and assistance
of Joe Carney, Randall Cole, Karen Deans, Etana Finkler, Chanetta Reed,
Kendall Schaefer, Jena Sinkfield, and Mark Speight.
(320351)
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Highlights of GAO-06-978, a report to congressional committees
September 2006
CONFLICT DIAMONDS
Agency Actions Needed to Enhance Implementation of the Clean Diamond Trade
Act
In 2003, the United States and other countries began implementing the
Kimberley Process Certification Scheme (KPCS) to curtail the trade of
rough diamonds that had fueled severe conflicts in Africa, known as
conflict diamonds. CDTA provides the statutory framework for U.S.
implementation of the KPCS. As mandated in CDTA, this report (1) describes
the institutional framework established to implement the act, (2) examines
implementation of the domestic provisions of the act and challenges it
faces, and (3) examines how the United States has helped to strengthen the
KPCS and challenges it faces.
What GAO Recommends
This report contains recommendations to the Secretaries of the Departments
of State, the Treasury, Homeland Security, and Commerce. It recommends
improvements in the (1) accuracy of U.S. rough diamond trade data; (2)
processes for importing and exporting rough diamonds, including conducting
periodic physical inspections and confirmation of rough diamond import
receipts with foreign exporting authorities; (3) oversight of the
activities of USKPA and its licensees who issue Kimberley Process
certificates; and (4) approach for providing some of the U.S.
diamond-related assistance. The departments reviewed a draft copy of this
report and concurred with GAO's recommendations.
The United States has used multiple U.S. agencies and a private,
not-for-profit entity to implement the domestic and international
provisions of the Clean Diamond Trade Act (CDTA). The Departments of State
and the Treasury have led U.S. efforts to implement the domestic
provisions of the act; State has led the U.S. efforts to curtail trade in
conflict diamonds abroad. Domestically, the Departments of State, the
Treasury, Homeland Security, and Commerce, and the private entity, called
the U.S. Kimberley Process Authority (USKPA), have been responsible for
controlling U.S. imports and exports of rough diamonds. Internationally,
State, the U.S. Agency for International Development (USAID), and the U.S.
Geological Survey have helped to strengthen KPCS.
Domestically, the U.S. systems for reporting rough diamond statistics and
for controlling imports and exports of these diamonds are vulnerable to
illicit trade. The United States has enhanced the quality of its rough
diamond trade data by improving its collection processes, but work remains
to be done. Also, the United States does not periodically inspect rough
diamond imports or exports to ensure that the contents of the rough
diamond parcels match the Kimberley Process certificates. In addition, the
United States lacks an effective system for confirming receipt of
imports-a Kimberley Process requirement for avoiding possible diversions
of rough diamond imports. Finally, the United States has not had a plan
for monitoring USKPA, but is developing and testing one.
Internationally, the United States has helped to strengthen KPCS by
participating in KPCS activities and providing assistance to Sierra Leone
and Liberia in their efforts to comply with KPCS, but donor assistance to
these countries faces challenges. Donors and diamond producing countries
are considering a regional approach to help enhance the effectiveness of
donor diamond-related assistance because this assistance is constrained by
the limited capacity and resources of these countries and the need to
harmonize diamond policies among countries vulnerable to illicit cross
border diamond trading.
Diamond Mining Site in Sierra Leone-A Recipient Country of U.S. Assistance
Conflict Diamonds Conflict Diamonds Conflict Diamonds
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*** End of document. ***