Conflict Diamonds
Agency Actions Needed to Enhance Implementation of the Clean Diamond Trade Act Gao ID: GAO-06-978 September 27, 2006In 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.
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.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
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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:
Conflict Diamonds:
GAO-06-978:
GAO Highlights:
Highlights of GAO-06-978, a report to congressional requestors
Why GAO Did This Study:
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 Found:
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.
Figure: Diamond Mining Site in Sierra Leone- A Recipient Country of
U.S. Assistance:
[See PDF for Image]
Source: GAO.
[End of Figure]
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.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-978].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Loren Yager at (202)512-
4347 or yagerl@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Several U.S. Agencies and USKPA Have Implemented CDTA:
U.S. Agencies Have Improved Systems for Implementing CDTA's Domestic
Provisions but Are Still Vulnerable to Illicit Trade:
The United States Has Helped to Strengthen KPCS Internationally, but
Assistance-Related Efforts Face Challenges:
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 Mining
Countries:
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 Security:
Appendix IX: Comments from the Department of Commerce:
Appendix X: Comments from the Department of Interior:
Appendix XI: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: U.S. Agency Responsibilities for Implementing CDTA's
International Provisions:
Table 2: U.S. Import Confirmations to Select Countries Compared to All
Other Trading Countries, 2004 and 2005:
Table 3: Number of U.S. Kimberley Process Certificates Issued, 2003-
2005:
Table 4: U.S.-Funded Diamond-Related Projects Supporting the
Implementation of KPCS in Sierra Leone and Liberia:
Table 5: Top Destinations for U.S. Rough Diamond Exports, 2005 (value >
1 percent of U.S. exports):
Table 6: Top Sources of U.S. Rough Diamond Imports, by Exporting
Participant, 2005 (value > 1 percent of US imports):
Table 7: Top (Non-Mining) Rough Diamond Exporting KPCS Participants,
2003 (exports > $200 million):
Table 8: Economic Importance of Mining for Selected Countries, 2003:
Figures:
Figure 1: KPCS Structure and Responsibilities:
Figure 2: Discrepancy in U.S. Rough-Diamond Trade Volume and Census
Data Improvements:
Figure 3: U.S. Import Control Process and Weaknesses:
Figure 4: U.S. Export Control Process and Weaknesses:
Figure 5: Diamond Mining Site in Sierra Leone--A Recipient Country of
U.S. Assistance:
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:
Figure 7: Top Polished Diamond Exporting Countries, 2004 (estimated
exports > $200 million):
Figure 8: Top Diamond Mining Countries, 2003 (mining value > $50
million):
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:
United States Government Accountability Office:
Washington, DC 20548:
September 27, 2006:
[See PDF for image]
[End of figure]
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 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:
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.[Footnote 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.[Footnote 2]
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.[Footnote 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.[Footnote 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.[Footnote 5]
The United States enacted the Clean Diamond Trade Act (CDTA) in April
2003 to provide the statutory framework for implementing KPCS.[Footnote
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.
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.[Footnote 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.[Footnote 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.
Figure 1: KPCS Structure and Responsibilities:
[See PDF for image]
Source: GAO analysis of KPCS information.
[End of figure]
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:
* enact or amend appropriate laws or regulations to implement and
enforce the certification scheme, and maintain dissuasive and
proportional penalties for transgressions;
* designate importing and exporting authorities;
* 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;
* ensure that a Kimberley Process certificate accompanies each import
and export shipment of rough diamonds;
* acknowledge the receipt of rough diamond import parcels to the
foreign export authority;
* ensure that rough diamonds are imported and exported in tamper-
resistant containers; and:
* 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:
* designate importing and exporting authorities,
* establish an interagency Kimberley Process Implementation
Coordinating Committee for coordinating U.S. implementation efforts,
* 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,
* impose civil and criminal penalties to enforce implementation of
CDTA, and:
* support the collection and exchange of U.S. import and export data on
rough diamonds.
Regarding international implementation, key CDTA provisions:
* urge the U.S. government to strengthen KPCS by monitoring the
effectiveness of the certification scheme and by sharing statistics,
and:
* 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.[Footnote 9]
* 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.[Footnote 10]
* 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.[Footnote 11]
* 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.
* 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.
* 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.
* 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:
Agency: State;
Unit: Economic Affairs Bureau;
Africa Bureau;
Responsibilities: Leads U.S. efforts in KPCS;
Funded technical assistance to support Sierra Leone and Liberia's KPCS-
related efforts.
Agency: Census;
Unit: Foreign Trade Division;
Responsibilities: Analyzed rough diamond data for KPCS Statistics
Working Group.
Agency: USAID;
Unit: Office of Transition Initiatives/Bureau for Africa;
Responsibilities: Funded technical assistance to support Sierra Leone's
KPCS-related efforts.
Agency: USGS;
Unit: Middle East and Africa Section;
Responsibilities: Under an agreement with State, provided KPCS-related
technical assistance to Liberia;
Analyzed rough diamond data for KPCS Monitoring Working Group.
Source: GAO analysis of U.S. agency information.
[End of table]
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,[Footnote 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,[Footnote 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.[Footnote 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:
* 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.
* 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.[Footnote 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.[Footnote 16]
* 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.[Footnote 17]
* 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.
* 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.
* Census stopped estimating the quantity for shipments that fell
outside of a reasonable price range.[Footnote 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.
Figure 2: Discrepancy in U.S. Rough-Diamond Trade Volume and Census
Data Improvements:
[See PDF for image]
Source: GAO analysis of Census and CBP information.
[End of figure]
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:
[See PDF for image]
Source: GAO analysis of CBP and OFAC information.
[End of figure]
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:
* require imports to contain a valid Kimberley Process certificate;
* ensure that no shipment of rough diamonds is imported from a non-
participant;
* ensure that rough diamonds are imported in tamper-resistant
containers; and:
* 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.[Footnote 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.[Footnote 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.
Table 2: U.S. Import Confirmations to Select Countries Compared to All
Other Trading Countries, 2004 and 2005:
Country reporting: Canada;
KPCS participant: United States;
2004: Number of certificates sent: 32;
2004: Number of imports confirmed: 7;
2004: Percentage confirmed: 22%;
2005: Number of certificates sent: 44;
2005: Number of imports confirmed: 7;
2005: Percentage confirmed: 16%.
Country reporting: Canada;
KPCS participant: All other trading countries;
2004: Number of certificates sent: 139;
2004: Number of imports confirmed: 126;
2004: Percentage confirmed: 91%;
2005: Number of certificates sent: 149;
2005: Number of imports confirmed: 134;
2005: Percentage confirmed: 90%.
Country reporting: United Kingdom;
KPCS participant: United States;
2004: Number of certificates sent: 224;
2004: Number of imports confirmed: 35;
2004: Percentage confirmed: 16%;
2005: Number of certificates sent: 262;
2005: Number of imports confirmed: 132;
2005: Percentage confirmed: 50%.
Country reporting: United Kingdom;
KPCS participant: All other trading countries;
2004: Number of certificates sent: 1,523;
2004: Number of imports confirmed: 1,415;
2004: Percentage confirmed: 93%;
2005: Number of certificates sent: 1,490;
2005: Number of imports confirmed: 1,370;
2005: Percentage confirmed: 92%.
Country reporting: Belgium;
KPCS participant: United States;
2004: Number of certificates sent: 1,466;
2004: Number of imports confirmed: 36;
2004: Percentage confirmed: 2%;
2005: Number of certificates sent: 1,333;
2005: Number of imports confirmed: 236;
2005: Percentage confirmed: 18%.
Country reporting: Belgium;
KPCS participant: All other trading countries;
2004: Number of certificates sent: 3,1778;
2004: Number of imports confirmed: 30,191;
2004: Percentage confirmed: 95;
2005: Number of certificates sent: 31,722;
2005: Number of imports confirmed: 30,710;
2005: Percentage confirmed: 97%.
Country reporting: Israel;
KPCS participant: United States;
2004: Number of certificates sent: 235;
2004: Number of imports confirmed: 3;
2004: Percentage confirmed: 1%;
2005: Number of certificates sent: 286;
2005: Number of imports confirmed: 41;
2005: Percentage confirmed: 14%.
Country reporting: Israel;
KPCS participant: All other trading countries;
2004: Number of certificates sent: 7,476;
2004: Number of imports confirmed: N/A[A];
2004: Percentage confirmed: N/A[A];
2005: Number of certificates sent: 7388;
2005: Number of imports confirmed: N/A[A];
2005: Percentage confirmed: N/A[A].
Source: GAO analysis based on data from Canada, the United Kingdom,
Belgium, and Israel.
[A] Israel could not provide specific numbers, but indicated that all
other countries confirm most imports from Israel.
[End of table]
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:
[See PDF for image]
Source: GAO analysis of CBP and USKPA information.
[End of figure]
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:
* 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;
* ensure that no shipment of rough diamonds is exported to a non-
participant;
* ensure that rough diamonds are exported in a tamper-resistant
container; and:
* 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.[Footnote 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.[Footnote 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.[Footnote 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:
Year: 2003;
Number of U.S. certificates issued: 1,516.
Year: 2004;
Number of U.S. certificates issued: 1,864.
Year: 2005;
Number of U.S. certificates issued: 1,970.
Source: GAO analysis of State data.
[End of table]
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.[Footnote 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:
* 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.
* 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.
* 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.
* 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.
* 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.
Table 4: U.S.-Funded Diamond-Related Projects Supporting the
Implementation of KPCS in Sierra Leone and Liberia:
Implementing U.S. agency/contractor: USAID/Office of Transition
Initiatives/Management Systems International;
Country/program title: Sierra Leone: Diamond Management Program;
Amount of disbursement[A](Dollars In Millions): $1.26.
Implementing U.S. agency/contractor: USAID/Office of Transition
Initiatives/Management Systems International;
Country/program title: Sierra Leone: Subtotal;
Amount of disbursement[A](Dollars In Millions): $1.26.
Implementing U.S. agency/contractor: USAID/Management Systems
International;
Country/program title: Sierra Leone: Diamond Project;
Amount of disbursement[A](Dollars In Millions): $0.06.
Implementing U.S. agency/contractor: USAID/Management Systems
International;
Country/program title: Sierra Leone: Diamond Policy and Management
Project (DIPAM);
Amount of disbursement[A](Dollars In Millions): $0.94.
Implementing U.S. agency/contractor: USAID/Management Systems
International;
Country/program title: Sierra Leone: Peace Diamond Alliance Support
Project (PDA);
Amount of disbursement[A](Dollars In Millions): $1.08.
Implementing U.S. agency/contractor: USAID/Management Systems
International;
Country/program title: Sierra Leone: Integrated Diamond Management
Program (IDMP);
Amount of disbursement[A](Dollars In Millions): $2.79[B].
Implementing U.S. agency/contractor: USAID/Management Systems
International;
Country/program title: Sierra Leone: Subtotal;
Amount of disbursement[A](Dollars In Millions): $4.87.
Total for Sierra leone: $6.13.
Implementing U.S. agency/contractor: USGS/Constella Futures
International;
Country/program title: Liberia: Kimberley Process Implementation
Program;
Amount of disbursement[A](Dollars In Millions): $1.44[B].
Total for Liberia: $1.44.
Total for Sierra leone and Liberia: $7.57.
Source: GAO analysis of USAID and USGS data.
[A] Disbursements are outlays for programs completed. State has
provided $2 million and USAID provided $0.79 million.
[B] These amounts represent obligations for programs not yet completed.
State has fully funded this program.
[End of table]
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:
* 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.
* 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.
* 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.
* 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.
* 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:
[See PDF for image]
Source: GAO.
[End of figure]
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.[Footnote 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:
[See PDF for image]
Source: GAO.
[End of figure]
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.[Footnote
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.
* 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:
- 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.
* To enhance the U.S. process for inspecting rough diamond imports and
exports, we recommend the following:
- 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.
* To enhance the U.S. process for confirming the receipt of U.S.
imports with foreign exporting authorities, we recommend the following:
- 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.
- The Director of OFAC revise the pertinent rough diamond trade
regulations to reflect the above change.
* To enhance the U.S. process for reviewing the activities of USKPA and
its licensees who issue Kimberley Process certificates, we recommend
the following:
-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.
-The Secretary of State direct the Directors of USKPA to develop and
implement a plan for reviewing the activities of its licensees.
* Finally, to enhance the impact of U.S. diamond-related technical
assistance and further curtail illicit rough diamond trading, we
recommend the following:
-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.
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 [Hyperlink, 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.
Signed by:
Loren Yager, Director:
International Affairs and Trade:
[End of section]
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:
* the Department of State (Bureau of Economic Affairs and United States
Mission to the United Nations),
* the Department of the Treasury (Office of Foreign Assets Control),
* the Department of Homeland Security (Bureau of Customs and Border
Protection and Bureau of Immigration and Customs Enforcement),
* the Department of Commerce (Bureau of the Census),
* the Department of Interior (U.S. Geological Survey),
* the U.S. Agency for International Development, and:
* 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.
[End of section]
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: Israel;
Value of exports: $204,486,572;
Percent of U.S. exports: 40.0%.
KPCS participant: European Community;
Value of exports: $157,386,752;
Percent of U.S. exports: 30.8%.
KPCS participant: United Arab Emirates;
Value of exports: $42,320,452;
Percent of U.S. exports: 8.3%.
KPCS participant: South Africa;
Value of exports: $32,243,114;
Percent of U.S. exports: 6.3%.
KPCS participant: India;
Value of exports: $19,648,240;
Percent of U.S. exports: 3.8%.
KPCS participant: Switzerland;
Value of exports: $14,578,528;
Percent of U.S. exports: 2.8%.
KPCS participant: China;
Value of exports: $13,116,880;
Percent of U.S. exports: 2.6%.
KPCS participant: Japan;
Value of exports: $8,786,284;
Percent of U.S. exports: 1.7%.
KPCS participant: Namibia;
Value of exports: $6,805,390;
Percent of U.S. exports: 1.3%.
KPCS participant: Mauritius;
Value of exports: $6,032,302;
Percent of U.S. exports: 1.2%.
Source: GAO analysis of Census data.
[End of table]
Table 6: Top Sources of U.S. Rough Diamond Imports, by Exporting
Participant, 2005 (value > 1 percent of US imports):
KPCS participant: European Community;
Value of imports: $581,379,013;
Percent of U.S. imports: 64.7%.
KPCS participant: Israel;
Value of imports: $215,579,636;
Percent of U.S. imports: 24.0%.
KPCS participant: South Africa;
Value of imports: $33,102,427;
Percent of U.S. imports: 3.7%.
KPCS participant: United Arab Emirates;
Value of imports: $21,775,428;
Percent of U.S. imports: 2.4%.
KPCS participant: Canada;
Value of imports: $12,305,324;
Percent of U.S. imports: 1.4%.
KPCS participant: Guyana;
Value of imports: $10,803,495;
Percent of U.S. imports: 1.2%.
Source: GAO analysis of Census data.
[End of table]
Table 7: Top (Non-Mining)A Rough Diamond Exporting KPCS Participants,
2003 (exports > $200 million):
KPCS participant: European Community;
Value of rough diamond exports: $9,760,320,078.
KPCS participant: Israel;
Value of rough diamond exports: $2,948,141,887.
KPCS participant: United Arab Emirates;
Value of rough diamond exports: $1,006,991,024.
KPCS participant: Switzerland;
Value of rough diamond exports: $795,914,964.
KPCS participant: Armenia;
Value of rough diamond exports: $486,569,182.
KPCS participant: Japan;
Value of rough diamond exports: $299,162,740.
KPCS participant: United States;
Value of rough diamond exports: $227,286,017.
KPCS participant: Thailand;
Value of rough diamond exports: $225,365,729.
Source: GAO analysis of KPCS data.
[A] The KPCS did not record diamond mining for these countries in 2003.
[End of table]
Table 8: Economic Importance of Mining for Selected Countries, 2003:
Country: Botswana;
Value of mining: $2,225,275,390;
Mining as a percentage of gross domestic product: 29%;
Mining as a percentage of exports: 65%.
Country: Democratic Republic of Congo;
Value of mining: $910,833,462;
Mining as a percentage of gross domestic product: 16%;
Mining as a percentage of exports: 64%.
Country: Namibia;
Value of mining: $421,312,014;
Mining as a percentage of gross domestic product: 9%;
Mining as a percentage of exports: 24%.
Country: Sierra Leone;
Value of mining: $76,700,000;
Mining as a percentage of gross domestic product: 8%;
Mining as a percentage of exports: 44%.
Country: Angola;
Value of mining: $788,100,104;
Mining as a percentage of gross domestic product: 6%;
Mining as a percentage of exports: 8%.
Country: Guyana;
Value of mining: $20,626,850;
Mining as a percentage of gross domestic product: 3%;
Mining as a percentage of exports: 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.
[End of table]
[End of section]
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.
Figure 10: Top Polished Diamond Exporting Countries, 2004 (estimated
exports > $200 million):
[See PDF for image]
Source: GAO analysis of UN data and MapArt (map).
Note: Exports are estimated as the sum of partner imports. China's
estimated exports include Hong Kong.
[End of figure]
Figure 11: Top Diamond Mining Countries, 2003 (mining value > $50
million):
[See PDF for image]
Sources: GAO analysis of KPCS and US Geological Survey data, media
reports, and MapArt (map).
[End of figure]
[End of section]
Appendix IV: Timeline of KPCS and CDTA-Related Events:
[See PDF for Timeline]
Source: GAO analysis of UN, WTO, KPCS, diamond industry, and U.S.
government information.
[End of section]
Appendix V: List of KPCS Participants:
States and regional economic integration organizations who have met the
minimum requirements of KPCS are:
Angola:
Armenia:
Australia:
Belarus:
Botswana:
Brazil:
Bulgaria:
Canada:
Central African Republic:
China, People's Republic of:
Congo, Democratic Republic of:
Cote D' Ivoire:
Croatia:
European Community:
Ghana:
Guinea:
Guyana:
India:
Indonesia:
Israel:
Japan:
Korea, Republic of:
Lao People's Democratic Republic:
Lebanon:
Lesotho:
Malaysia:
Mauritius:
Namibia:
New Zealand:
Norway:
Romania:
Russian Federation:
Sierra Leone:
Singapore:
South Africa:
Sri Lanka:
Switzerland:
Tanzania:
Thailand:
Togo:
Ukraine:
United Arab Emirates:
United States of America:
Venezuela:
Vietnam:
Zimbabwe:
Source: GAO analysis of KPCS information.
Note: The rough diamond-trading entity of Chinese Taipei has also met
the minimum requirements of KPCS.
[End of section]
Appendix VI: Comments from the Department of State:
United States Department of State:
Washington, D. C. 20520:
SEP 12 2006:
Ms. Jacquelyn Williams-Bridgers:
Managing Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548-0001:
Dear Ms. Williams-Bridgers:
We appreciate the opportunity to review your draft report, "Conflict
Diamonds: Agency Actions Needed to Enhance Implementation of the Clean
Diamond Trade," GAO Job Code 320351.
The enclosed Department of State comments are provided for
incorporation with this letter as an appendix to the final report.
If you have any questions concerning this response, please contact Sue
Saarnio, Economic Advisor, Bureau of Economic and Business Affairs, at
(202) 647-1713.
Sincerely,
Signed by:
Bradford R. Higgins:
cc: GAO - Zina Merritt:
EB - Elizabeth Dibble:
State/OIG - Mark Duda:
Department of State Comments on GAO Draft Report:
Conflict Diamonds: Agency Actions Needed to Enhance Implementation of
the Clean Diamond Trade (GAO-06-978, GAO Code 320351):
Thank you for allowing the Department of State the opportunity to
respond to the report entitled Conflict Diamonds: Agency Actions Needed
to Enhance Implementation of the Clean Diamond Trade (GAO-06-978, GAO
Code 320298).
We appreciate the GAO's thorough review of the Clean Diamond Trade Act,
its recognition of the positive steps the Department of State has taken
to strengthen international cooperation on conflict diamonds and its
recommendations to strengthen controls over the rough diamond trade. We
share GAO's concerns about the need to prevent conflict diamonds from
fueling the kinds of conflicts they financed in Africa in the 1990s.
The Kimberley Process Certification Scheme Has made great strides since
2003 in efforts to control the international trade in rough diamonds.
We are pleased that GAO has recognized U.S. contributions to those
efforts through the Kimberley Process and technical assistance to
Sierra Leone and Liberia.
Since the April 25, 2003, passage of the Clean Diamond Trade Act, the
July 29, 2003, signing of the Executive Order implementing the Act and
the September 23, 2004, publication of Rough Diamonds Control
Regulations, U.S. government agencies have dealt promptly with the
challenges that have emerged in the operation of this program. There
has been tremendous interagency cooperation to deal with the types of
issues which are described in the GAO review. We are strongly committed
to continue to improve the U.S. government's internal controls over
rough diamonds in order to prevent their use in fueling future
conflict.
Our responses to the GAO's specific recommendations follow:
Recommendation 1: 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:
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.
As the GAO report notes, improvements in record keeping have
dramatically improved U.S. rough diamond trade statistics in the past
three years. If U.S. rough diamond exports continue to exceed imports,
the Departments of State and Treasury will continue to coordinate
interagency efforts to refine the accuracy of our reports.
Recommendation 3: 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
those confirmations. The system for tracking import confirmation
receipts would complement Census' system for tracking export
confirmation receipts and would help enhance Census' data on rough
diamond imports and exports.
While we have made significant improvements in the past year in private
sector compliance with the confirmation process, we are prepared to
assume greater governmental responsibility for this Kimberley Process
obligation. In this regard, the Department of Homeland Security has
agreed to provide monthly reports to the Department of State on imports
of rough diamonds. The Department of State will then forward the
confirmations of receipt to the appropriate foreign exporting
authority. Implementation will begin immediately following the
conclusion of appropriate disclosure agreements between the two
agencies.
Recommendation 5: The Secretary of State direct the Assistant
Secretary, Bureau of Economic and Business Affairs, to develop and
implement a plan for reviewing the activities of the USKPA and its
licensees.
As the GAO report notes, the Bureau of Economic and Business Affairs in
early 2006 developed a plan to review the USKPA and its licensees.
Implementation of the plan, which includes quarterly visits to USKPA
licensees, diamond importers and exporters and regular meetings with
the USKPA board, began in March 2006. We will continue to refine this
oversight plan and work with the interagency committee to ensure
compliance with Kimberley Process standards.
Recommendation 6: The Secretary of State direct the Directors of the
USKPA to develop and implement a plan for reviewing the activities of
its licensees.
The Bureau of Economic and Business Affairs will direct USKPA Directors
to prepare a formal plan to review the activities of its licensees.
Recommendation 7: 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.
The Department of State supports the efforts of regional organizations
such as the Economic Community of West African States, the Mano River
Union, the West African Economic and Monetary Union, and the Central
African Economic and Monetary Community to promote regional
harmonization and economic integration in Africa. Kimberley Process
Economic Support Funds appropriated through FY06 are committed to
projects to support strengthening of land tenure and property rights
systems. If additional funds are appropriated by the Congress, we will
consider funding programs with a regional focus.
Thank you for the opportunity to respond to this report.
[End of section]
Appendix VII: Comments from the Department of the Treasury:
Department Of The Treasury:
Washington, D.C. 20220:
SEP 14 2006:
Loren Yager:
Director, International Affairs and Trade:
United States Government Accountability Office:
Washington, DC 20548:
Dear Mr. Yager:
Thank you for the opportunity to respond to GAO's draft report entitled
"Conflict Diamonds: Agency Actions Needed to Enhance Implementation of
the Clean Diamond Trade Act."
The Department of the Treasury's Office of Foreign Assets Control
(OFAC) takes its responsibility to contribute to the effective
implementation of the Clean Diamond Trade Act, P.L. 108-19 (CDTA), very
seriously. I share GAO's concern about the need to prevent conflict
diamonds from entering the legitimate trade of rough diamonds. As you
correctly point out in the draft report, OFAC's primary role in
ensuring the integrity of the Kimberley Process Certification Scheme
for rough diamonds (KPCS) is through the promulgation of the Rough
Diamonds Control Regulations, 31 C.F.R. part 592 (RDCR), which
implement the CDTA and the KPCS. In addition, together with the
Department of State, OFAC co-chairs the Kimberley Process
Implementation Coordinating Committee established pursuant to the CDTA.
OFAC works closely with other U.S. agencies, principally the Department
of State and the Department of Homeland' Security's Bureau of Customs
and Border Protection (CBP), to ensure that U.S. importers and
exporters of rough diamonds comply with the requirements of the RDCR,
including the requirement that importers of rough diamonds confirm
receipt of shipments of rough diamonds imported into the United States
to the appropriate foreign Exporting Authorities.
I have reviewed the draft report and submit two technical comments for
your consideration. These edits are as follows:
1) On page 23, I 'Paragraph, line 6, following the words, "in August
2006, OFAC", please delete the last three words "also sent letters" on
that line and instead insert "opened investigations and started to
issue administrative subpoenas" before the words "to importers who had
not confirmed import receipts." We would suggest rewording the next
sentence, beginning on line 7 of that same paragraph, as follows: "If
any importer continues to fail to confirm import receipts--that is,
fails to comply with the regulation-civil penalties may result."
2) On page 43, we have a technical comment with respect to GAO's
recommendation, set forth in the first bullet, that the Secretary of
the Treasury direct the Director of OFAC to revise the regulations with
respect to confirmation of receipt of rough diamond shipments. The
Secretary of the Treasury has already delegated to the Director of OFAC
his full authority to issue regulations or take any other action that
he is authorized to take relating to the Clean Diamond Trade Act. See
31 C.F.R. § 592.702. Therefore, there is no need to recommend that the
Secretary "direct OFAC" to amend the RDCR, and this sentence should
simply read: "OFAC amend the Rough Diamonds Control Regulations to
reflect the above change." Finally, with regard to the substance of
this recommendation, at such time as OFAC is advised by the Departments
of Homeland Security and State that a new system for confirming
receipts is in place and that the RDCR should be revised, OFAC will
issue a conforming amendment.
I hope these comments are helpful in clarifying the above points and
again, thank you for the opportunity to comment. I look forward to
reading the final Report.
Signed by:
Adam J. Szubin:
Director, Office of Foreign Assets Control:
Enclosure:
[End of section]
Appendix VIII: Comments from the Department of Homeland Security:
U.S. Department of Homeland Security:
Washington, DC 20528:
September 8, 2006:
Mr. Loren Yager:
Director:
International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Yager:
Thank you for the opportunity to review and comment on the Government
Accountability Office's (GAO's) draft report entitled Conflict
Diamonds: Agency Actions Needed to Enhance Implementation of the Clean
Diamond Trade Act (GAO-06-978).
GAO identified key issues in the report and they are being addressed.
The report contains several recommendations, one of which is directed
to U.S. Customs and Border Protection (CBP), and one of which is
directed to a collaborative effort by the Department of Homeland
Security and the Department of State.
The Department agrees with the recommendations and will take the
appropriate steps needed to implement them. Key actions are listed
below:
Recommendation 2: To enhance the U.S. process for inspecting rough
diamond imports and exports, GAO recommended that 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.
Corrective Action:
For imports, CBP will create intensive cargo criteria that will require
the examination of rough and polished diamond shipments on a periodic
basis. Using a random selection process, a specific percentage of
diamond shipments will be subject to examination before release. That
percentage will either be increased or decreased depending on an annual
evaluation of the examination results. The examination will include a
full document review to ensure that a valid and original Kimberly
Process Certification Scheme (KPCS) certificate has accompanied the
shipment. It will also include an examination of the packaging for
compliance with the KPCS and a verification of its contents.
For exports, CBP will establish a process to target diamond shipments.
The process will produce regular, random targets for verification. The
Bureau of the Census has confirmed that all rough diamonds are excluded
from Option 4 filing in the Automated Export System (AES) and the U.S.
Principal Party in Interest must transmit the export information prior
to departure. The time frame for reporting cargo information for air
shipments is two hours prior to aircraft departure from the last U.S.
port.
Recommendation 3: To enhance the U.S. process for confirming the
receipt of U.S. imports with foreign exporting authorities, GAO
recommended that 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 complement Census' system for tracking export confirmation
receipts and would help enhance Census' data on rough diamond imports
and exports.
Corrective Action:
On a monthly basis, CBP will electronically provide the U.S. Department
of State with the following information regarding the receipt of
confirmation for each import of rough diamonds: KPCS Certificate
Number, country of export, import date, value of the shipment, tariff
number, manufacturer/exporter name, importer name and quantity in
carats.
The U.S. Department of State will forward the confirmations of receipt
to the appropriate exporting authority. Implementation will begin
immediately upon establishment of appropriate disclosure law agreements
between the two agencies.
Thank you again for the opportunity to comment on this draft report and
we look forward to working with you on future homeland security issues.
Sincerely,
Signed by:
Steven J. Pecinovsky:
Director:
Departmental GAO/OIG Liaison Office:
Appendix IX: Comments from the Department of Commerce:
The Deputy Secretary Of Commerce:
Washington, D.C. 20230:
September 19, 2006:
Mr. Loren Yager:
Director:
International Affairs and Trade:
United States Government Accountability Office:
Washington, DC 20548:
Dear Mr. Yager:
The U.S. Department of Commerce appreciates the opportunity to comment
on the United States Government Accountability Office draft report
entitled Conflict Diamonds: Agency Actions Needed to Enhance
Implementation of the Clean Diamond Trade Act (GAO-06-978). I enclose
the Department's comments on this report.
Sincerely,
Signed by:
David A. Samnpson:
U.S. Department of Commerce Comments on the United States Government
Accountability Office Report Entitled Conflict Diamonds: Agency Actions
Needed to Enhance Implementation of the Clean Diamond Trade Act (GAO-
06-978):
The U.S. Census Bureau supports the Kimberley Process Certification
Scheme (KPCS) and is working with the KPCS authorities to provide the
most accurate statistics possible. The Census Bureau recognizes there
are concerns when the United States has greater volumes of rough
diamond exports than imports. As stated in the report, the Census
Bureau made several changes to the export processing and collection
systems to help minimize this trade difference. The Census Bureau also
started capturing the Kimberley Process (KP) certificates in January
2006 and is reporting this information to the KPCS. The Census Bureau
has not received additional funding for the KPCS implementation and
relies on current resources and funding to perform the required tasks
for the KPCS.
The Census Bureau will continue to monitor the trade of rough diamonds
and reconcile trade with other KP participants. If there continues to
be a substantial amount of exports over imports, the Census Bureau will
work with the U.S. Kimberley Process Implementation Coordinating
Committee to research this issue.
Finally, a correction is needed on page 25, last paragraph, first
sentence. The Census Bureau does not provide oversight to the U.S.
Kimberley Process Authority (USKPA). The State Department is
responsible for monitoring the USKPA.
[End of section]
Appendix X: Comments from the Department of the Interior:
United States Department of the Interior:
Office Of The Secretary:
Washington, D.C. 20240:
SEP 15 2006:
Ms. Loren Yager:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Ms. Yager:
Thank you for providing the Department of the Interior the opportunity
to review the:
U.S. Government Accountability Office (GAO) draft report entitled,
"Conflict Diamonds: Agency Actions Needed to Enhance Implementation of
the Clean Diamond Trade Act" (Report Number GAO-06-978).
The GAO staff is to be commended for conducting a thorough, well-
researched examination of the Clean Diamond Trade Act. The report shows
the U.S. Geological Survey technical assistance to Liberia in a
favorable light. We have no substantive comments on the report.
Sincerely,
Signed by:
Mark Limbaugh:
Assistant Secretary for Water and Science:
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.
FOOTNOTES
[1] The 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).
[2] In November 2005, KPCS adopted a resolution on the subject of
illicit diamond production in Côte d'Ivoire that outlined a series of
measures to prevent the introduction of conflict diamonds from Côte
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.
[3] In 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).
[4] For additional details regarding KPCS, see
www.kimberleyprocess.com.
[5] Appendixes II and III contain additional rough-and polished-
diamond-related information.
[6] Pub. 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.
[7] To 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.
[8] Several 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.
[9] Controlling 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.
[10] State has submitted three reports on USKPA activities to the
Congress covering 2003, 2004, and 2005 respectively.
[11] In 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).
[12] Management Systems International is a USAID contractor.
[13] Constella Futures International, formally known as Futures Group
International, is a USGS contractor.
[14] Monitoring 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).
[15] According 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.
[16] If 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.
[17] The 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.
[18] This 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.
[19] CBP'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.
[20] See Internal Control Management and Evaluation Tool, GAO-01-1008G.
[21] The 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.
[22] According 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.
[23] The 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."
[24] According 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.
[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.
[26] In 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.
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