International Trade
Critical Issues Remain in Deterring Conflict Diamond Trade Gao ID: GAO-02-678 June 14, 2002The United Nations (U.N.) General Assembly defines conflict diamonds as rough diamonds used by rebel movements to finance their military activities, including attempts to undermine or overthrow legitimate governments. The United States and much of the international community are trying to sever the link between conflict and diamonds while ensuring that no harm is done to the legitimate diamond industry, which is economically important in many countries. The principal international effort to address these objectives, known as the Kimberley Process, aims to develop and implement an international diamond certification scheme that will deter conflict diamonds from entering the legitimate market. The nature of diamonds and the operations of the international diamond industry create opportunities for illicit trade, including trade in conflict diamonds. Diamonds are mined in remote areas around the world and are virtually untraceable back to their original source once mixed and polished. The United States cannot detect diamonds that might come from conflict sources because the current diamond import control system does not require certification of the country of extraction. At present, there is no international system to certify the source of extraction. The Kimberley Process proposal for an international diamond certification scheme does not contain the elements necessary to provide reasonable assurance that the scheme will be effective in deterring the flow of conflict diamonds.
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.
Director: Team: Phone:GAO-02-678, International Trade: Critical Issues Remain in Deterring Conflict Diamond Trade
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United States General Accounting Office:
GAO: Report to Congressional Requesters:
International Trad: Critical Issues Remain in Deterring Conflict
Diamond Trade:
GAO-02-678:
GAO Highlights:
INTERNATIONAL TRADE: Critical Issues Remain in Deterring Conflict
Diamond Trade:
This is a test for developing Highlights for a GAO report. The full
report, including GAO‘s objectives, scope, methodology, and analysis
is available at www.gao.gov/cgi-bin/getrpt?GAO-02-678. For additional
information about the report, contact Loren Yager at 202-512-4128. To
provide comments on this test Highlights, contact Keith Fultz
(202-512-3200) or e-mail HighlightsTest@gao.gov.
Highlights of GAO-02-678, a report to Congressional Requesters.
Why GAO Did This Study:
Conflict diamonds are used by rebel movements to finance their
military activities, including attempts to undermine or overthrow
legitimate governments. These conflicts have created severe
humanitarian crises in a number of African countries (see map
below). An international effort called the Kimberley Process,
in which the United States participates, aims to develop a diamond
certification scheme to deter the flow of conflict diamonds. GAO
was asked to assess the challenges associated with deterring trade
in conflict diamonds.
What GAO Found:
The nature of diamonds and the international diamond industry‘s
operations create opportunities for illicit trade, including
trade in conflict diamonds. Diamonds are a high-value commodity
easily concealed and transported, are mined in remote areas
worldwide, and are virtually untraceable to their original sources.
These factors allow diamonds to be used in lieu of currency in
arms deals, money laundering, and other crime. Further, there is
limited information publicly available about diamond industry
operations.
The United States cannot detect diamonds that might come from
conflict sources because the current diamond import control
system does not require certification of the country of extraction.
At present, there is also no international system to certify the
source of extraction. While the United States bans diamonds coming
from Angola, Sierra Leone, and Liberia that are subject to U.N. and
U.S. sanctions, in the absence of an international certification
system, this does not prevent conflict diamonds shipped to an
intermediary country from being mixed into U.S.-destined shipments.
GAO‘s assessment of the Kimberley Process‘s proposal for an
international diamond certification scheme found it did not
contain the controls necessary to ensure that it will be
effective in stemming the flow of conflict diamonds. We
evaluated the proposal using established criteria for assessing
accountability and found that its heavy reliance on voluntary
participation and lack of attention to potential high-risk
areas suggest that participants may face major challenges in
implementing an effective scheme to deter trade in conflict
diamonds.
What GAO Recommends:
GAO recommends that the Secretary of State, in consultation
with relevant government agencies, work with Kimberley Process
participants toward incorporating better controls in the
certification scheme, including a reasonable control environment,
risk assessment, internal controls, information sharing, and
monitoring.
State commented that GAO focused on accountability measures rather
than on the political achievements gained. State recognized the
need for improvements, but did not see these as possible before
launching the certification scheme.
Figure:
[See PDF for Image]
Primary countries associated with conflict diamonds.
[End of Figure]
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Nature of Diamonds and Nontransparent Industry Operations Create
Opportunities for Illicit Trade:
United States Cannot Detect Conflict Diamonds with Present Import
Controls:
Kimberley Certification Scheme Lacks Key Aspects of Accountability:
Conclusion:
Recommendation for Executive Action:
Agency Comments:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Situations in Countries Primarily Associated with
Conflict Diamonds:
Conflict and Diamonds in Angola:
Conflict and Diamonds in the Democratic Republic of the Congo:
Conflict and Diamonds in Liberia:
Conflict and Diamonds in Sierra Leone:
Appendix III: Structure and Economic Importance of the
International Diamond Industry:
Diamond Mining:
Rough Diamond Trading:
Rough Diamond Cutting and Polishing:
Economic Importance of the Diamond Industry:
Appendix IV: Historical Data on African Diamond Exports:
Appendix V: Comments from the Department of State:
Appendix VI: Comments from the Department of the Treasury:
Appendix VII: GAO Contacts and Staff Acknowledgements:
GAO Contacts:
Acknowledgments:
Tables:
Table 1: Differences between Mining and Estimated Rough Diamond
Exports in Selected African Countries, 2000:
Table 2: Estimated Rough Diamond Exports for Selected Nonmining
Countries, 1996, 1998, and 2000:
Table 3: Rough Diamond Export and Import Values for Selected
Countries, 2000:
Table 4: Rough Diamond Mining, 2000:
Table 5: Estimates of the Economic Importance of Diamond Mining for
Selected Countries, 2000:
Table 6: Value of Estimated Rough Diamond Exports from African
Countries, 1990-2000:
Figures:
Figure 1: Map of Angola:
Figure 2: Map of the DRC:
Figure 3: Map of Liberia:
Figure 4: Map of Sierra Leone:
Figure 5: Countries That Mine Rough Diamonds, 2000:
Figure 6: Countries That Export Rough Diamonds, 2000:
Abbreviations:
DRC: Democratic Republic of the Congo:
DTC: Diamond Trading Company:
RUF: Revolutionary United Front:
U.N.: United Nations:
UNITA: The National Union for the Total Independence of Angola:
Letter:
June 14, 2002:
The Honorable Frank R. Wolf
Chairman
Subcommittee on Commerce, Justice, State & Judiciary
Committee on Appropriations
House of Representatives:
The Honorable Judd Gregg
Ranking Minority Member
Subcommittee on Commerce, Justice, State & Judiciary
Committee on Appropriations
United States Senate:
The Honorable Cynthia A. McKinney
Ranking Minority Member
Subcommittee on International Operations and Human Rights
Committee on International Relations
House of Representatives:
The Honorable Tony P. Hall
Ranking Minority Member
Subcommittee on Technology and the House
Committee on Rules
House of Representatives:
The United Nations (U.N.) General Assembly defines conflict diamonds as
rough diamonds used by rebel movements to finance their military
activities, including attempts to undermine or overthrow legitimate
governments.[Footnote 1] These conflicts have created severe
humanitarian crises in countries such as Sierra Leone, Angola, and
Democratic Republic of the Congo (DRC). The United States and much of
the international community are trying to sever the link between
conflict and diamonds while ensuring that no harm is done to the
legitimate diamond industry, which is economically important in many
countries. The principal international effort to address these
objectives, known as the Kimberley Process, aims to develop and
implement an international diamond certification scheme that will deter
conflict diamonds from entering the legitimate market. The Kimberley
participants, including government, diamond industry, and
nongovernmental organization officials, reported back to the U.N.
General Assembly with a proposal they believe provides a good basis for
the envisaged scheme.[Footnote 2] Consistent with the Kimberley
Process, the U.S. Congress has legislation pending that would require
countries exporting diamonds to the United States to have a system of
controls to keep conflict diamonds from entering their stream of
commerce.
You requested that we review the conflict diamond trade and aspects of
U.S. and international efforts to deter this trade. In response, we
determined (1) whether the nature of diamonds and industry operations
are conducive to illicit trade, (2) whether U.S. government controls
over diamond imports enable detection of conflict diamonds, and (3) the
extent to which the Kimberley Process international diamond
certification scheme has the necessary elements to deter trade in
conflict diamonds. As discussed with your offices, our scope was
limited by the lack of timely and full access to State Department
documentation and, as a result, our work on the illicit trade and
related crime was restricted. (See app. I for our scope and
methodology.) This report expands upon and updates information provided
in our February 2002 testimony before the U.S. Senate Committee on
Governmental Affairs Subcommittee on Oversight of Government
Management, Restructuring and the District of Columbia.[Footnote 3]
Results in Brief:
The nature of diamonds and the operations of the international diamond
industry create opportunities for illicit trade, including trade in
conflict diamonds. Diamonds are mined in remote areas around the world
and are virtually untraceable back to their original source once mixed
or polished--factors that make monitoring diamond flows difficult.
Diamonds are also a high-value commodity that is easily concealed and
transported. These conditions allow diamonds to be used in lieu of
currency in illicit arms deals, money laundering, and other crime. Lack
of transparency in industry operations also facilitates illegal
activity. Specifically, the movement of diamonds from mine to consumer
has no set patterns, diamonds can change hands numerous times, and
industry participants often operate on the basis of trust, with
relatively limited documentation. All of these practices reduce
information about diamond transactions. The lack of industry
information is exacerbated by poor data reporting at the country level,
where import, export, and production statistics often contain glaring
inconsistencies.
The United States cannot detect diamonds that might come from conflict
sources because the current diamond import control system does not
require certification of the country of extraction. At present, there
is no international system to certify the source of extraction.
Currently, conflict diamonds are associated with four countries--
Angola, Democratic Republic of the Congo, Liberia, and Sierra Leone.
Rough diamond imports from Angola and Sierra Leone not bearing the
official government certificate of origin as well as all rough diamonds
from Liberia are banned from the United States.[Footnote 4] U.S.
Customs requires that all shipments from Angola and Sierra Leone have a
certificate of origin or other documentation that demonstrates to
Customs authorities that the diamonds were legally imported with the
approval of the exporting country‘s government.[Footnote 5] However,
without an effective international system that can trace the original
source of rough diamonds, U.S. Customs cannot ensure that conflict
diamonds do not enter the United States through an intermediary
country.
The Kimberley Process proposal for an international diamond
certification scheme does not contain the elements necessary to provide
reasonable assurance that the scheme will be effective in deterring the
flow of conflict diamonds. We evaluated the scheme using aspects of
established criteria for accountability--control environment, risk
assessment, control activities, information and communications, and
monitoring,[Footnote 6] which provide insights into the proposed
scheme‘s
ability to deter trade in conflict diamonds. Our evaluation of the
scheme showed that it incorporates some elements of accountability,
such as requiring that Kimberley Process certificates designating
country of origin for unmixed shipments accompany each shipment of
rough diamond exports. However, some important elements are lacking,
and others are listed only as optional or recommended. For example,
the scheme primarily relies on voluntary participation and adherence,
which is not conducive to an adequate control environment. Further,
it is not based on a risk assessment in that some activities that are
important to a successful scheme, such as the flow of diamonds from the
mine or field to the first export are subject only to ’recommended“
elements. Additionally, the period after rough diamonds enter a foreign
port to the point of sale within that country or to export to another
country will be covered by an industry system in which participation
is voluntary and monitoring and enforcement are self-regulated.
Although the Kimberley Process participants have achieved significant
cooperation among industry, nongovernmental organizations, and
governments to address trade in conflict diamonds, our work suggests
that participants face considerable challenges in establishing a system
that will effectively deter this trade.
Without a realistic view of the diamond industry operations and efforts
to address the trade in these diamonds, the international community and
the U.S. government‘s ability to deter trade in conflict diamonds will
continue to be hampered. We make a recommendation in this report to the
Secretary of State to work toward incorporating better controls in the
Kimberley Process international diamond certification scheme.
Background:
Currently, conflict diamonds are primarily associated with four
countries: Sierra Leone, Liberia, Angola, and the DRC. In all four
countries, the production and/or trade of diamonds have played a role
in fueling domestic conflict, or, as is the case with Liberia, fueling
conflict in neighboring Sierra Leone through the Revolutionary United
Front (RUF). U.N. and U.S. sanctions have been targeted at rough
diamond exports from the RUF in Sierra Leone; Liberia; and the National
Union for the Total Independence of Angola (UNITA) in Angola, but not
on the rebel diamond trade in the DRC. Also, the governments of Sierra
Leone and Angola have instituted national diamond certification schemes
in which certificates of origin are issued and accompany rough diamonds
from export to import into a foreign country. (See app. II for
situations in Angola, the DRC, Liberia, and Sierra Leone.):
Adjacent countries, such as Congo-Brazzaville, Guinea, Cote d‘Ivoire,
and the Gambia, have all been listed in U.N. reports as countries
through which conflict diamonds are smuggled. People named in U.N.
reports for their involvement in trading conflict diamonds have been
citizens of the Middle East, Europe, and the United States. Also, media
reports have focused on the possible use of diamonds by terrorists to
fund their activities or store their assets.
International Diamond Industry:
The diamond industry involves over 100 countries across the globe and
contributes to the economic well being of a number of countries that
mine or cut and polish diamonds. In Botswana, for example, diamond
sales account for more than one-third of its gross domestic product.
According to The Mining Journal, the supply of rough diamonds mined
worldwide was valued at $7.86 billion in 2000.[Footnote 7] Once
manufactured into jewelry, industry experts value the polished diamond
content in jewelry retail sales at about $13.7 billion.
The international diamond industry includes three structural components
for rough diamonds: mining, trading and sorting, and cutting and
polishing. This industry is composed of both large and well-organized
operations as well as small, widely dispersed, unstructured ones. For
example, due to the substantial capital required for deep mining, just
four companies mine 76 percent of the world supply of rough
diamonds.[Footnote 8] Yet, across Africa, countless individual diggers
mine widely scattered alluvial fields for diamonds. Similarly, while De
Beers markets a large percentage of diamond shipments to key trading
centers, U.N. data suggest that more than 100 countries worldwide
participate in rough diamond exporting. In terms of cutting and
polishing, markets have largely evolved to reflect labor costs, with 9
out of 10 rough diamonds cut and polished in India. However, mining
countries such as Russia, South Africa, Botswana, and Namibia are
trying to expand their cutting and polishing activities to supplement
mining revenues. (See app. III for additional information on the
structure of the international diamond industry and the economic
importance of this resource.):
Kimberley Process:
In May 2000, African diamond-producing countries initiated the
Kimberley Process in Kimberley, South Africa, to address the conflict
diamond trade. Participants now include the European Union and about 37
countries[Footnote 9] involved in the production, export, and import of
rough diamonds; as well as representatives from the diamond industry,
notably the World Diamond Council,[Footnote 10] and nongovernmental
organizations. The goal is to create and implement an international
certification scheme for rough diamonds, based primarily on national
certification schemes and internationally agreed minimum standards. The
scheme‘s objectives are to (1) stem the flow of rough diamonds used by
rebels to finance armed conflict aimed at overthrowing legitimate
governments; and (2) protect the legitimate diamond industry, upon
which some countries depend for their economic and social development.
The Kimberley Process participants submitted a progress report to the
U.N. General Assembly accompanied by a proposal, dated November 28,
2001, that provided a basis for the envisaged international
certification scheme.[Footnote 11] The officials of participating
countries recommended that the U.N. General Assembly support
implementation of the proposed scheme for rough diamonds and extended
the Kimberley Process mandate to the end of 2002 to allow time for
resolution of remaining implementation issues. On March 13, 2002, the
General Assembly adopted Resolution 56/263, which encouraged Kimberley
Process participants to resolve outstanding issues; urged finalization
and implementation of the international certification scheme; urged
member states to actively participate in the proposed scheme; and
requested that the Kimberley Process participants issue a progress
report no later than the end of the 2002 session.
Subsequently, Kimberley Process participants met in March 2002 to
resolve outstanding technical issues[Footnote 12] and modified the
November 2001 proposal accordingly.[Footnote 13] Participants agreed
that they would concentrate their efforts on implementing the
international certification scheme at the national level. Those in a
position to issue the Kimberley Process Certificate were asked to do so
immediately. All others were encouraged to do so by June 1, 2002.
Participants plan to hold the next plenary meeting in Switzerland in
November 2002 to prepare for the simultaneous launch of the full
certification scheme by the end of the year.[Footnote 14]:
Nature of Diamonds and Nontransparent Industry Operations Create
Opportunities for Illicit Trade:
The illicit diamond trade, including that in conflict diamonds, is
facilitated by the nature of diamonds and the lack of transparency in
industry operations. Although industry and nongovernmental
organizations have made estimates of both the illicit and conflict
diamond trades, the criminal nature of the activity precludes
determination of the actual extent of the problem. Conflict diamond
estimates vary from about 3 to 15 percent of the rough diamond trade in
value terms and are often based on historical production capacities for
rebel-held areas.Some industry experts dispute the larger percentage,
believing it includes nonconflict related smuggling.
Nature of Diamonds Facilitates Illegal Trade:
The nature of diamonds makes them attractive to criminal elements.
Diamonds are found in remote areas of the world and can be extracted
both through capital-intensive deep mining techniques as well as from
alluvial sources using rudimentary technology. Individual diggers
across west and central Africa mine alluvial fields that are widely
scattered and difficult to monitor, a problem made worse by porous
borders and corruption. Diamonds are easy to conceal and smuggle across
borders, and smuggling routes for rough diamonds are well established
by those who have done so for decades to evade taxes or move stolen
diamonds. Though experts may be able to identify the source of an
unmixed parcel of rough diamonds, once diamonds from various sources
are mixed, they become virtually untraceable. Identifying the origin of
alluvial diamonds is complicated by the fact that the river systems
depositing those diamonds run across government-and rebel-held areas as
well as national borders. Although rough diamonds can be marked, once
they are cut and polished, any form of identification is erased. All of
these factors, combined with inadequate customs and policing worldwide,
make diamonds attractive to criminal elements who may use them to pay
for arms, support insurgencies, and plausibly engage in terrorism.
Likewise, diamonds can be used as a means of currency in connection
with drug deals, money laundering, and other crimes. They may also be
used as a store of wealth for those wishing to hide assets outside the
banking sector where assets could be detected and seized.
Industry‘s Lack of Transparency Also Facilitates Illicit Trade:
The industry‘s lack of transparency is exhibited in the complex and
variable way in which diamonds flow from mine to consumer and the
existence of significant insufficiencies and inconsistencies in
industry data. The current trend to expand cutting and polishing
activities within mining countries may further limit transparency in
international diamond trade flows.
The flow of diamonds from mine to consumer, referred to as the ’diamond
pipeline,“ has no set patterns. Diamonds can change hands numerous
times as shown by the fact that the value of world rough diamond
exports is three times as large as the value of world rough diamond
production. According to industry experts, diamonds are sold back and
forth and mixed and remixed, making tracking a particular shipment
through the pipeline and across borders an arduous if not impossible
task. Diamonds can be traded in smaller markets and diverted through
alternative routes either to disguise origin or in response to lower
taxes and less burdensome regulations. Thus, the threat that the
industry will move to another country has also acted as a disincentive
for individual governments to implement stricter controls.
Limited transparency in diamond flows is also reflected in insufficient
and inconsistent data, not only for African countries but for
industrial countries and other trading nations as well. As shown in
table 1, a comparison of mining data with U.N. trade data suggest that
the value of estimated rough diamond exports in 2000 (calculated from
global import data) for a number of African countries differ
significantly from the value of those countries‘ production. For
example, Liberia‘s production was estimated as worth only about $27
million in 2000 and its estimated rough diamond exports totaled about
$102 million.
Table 1: Differences between Mining and Estimated Rough Diamond Exports
in Selected African Countries, 2000:
Dollars in thousands (U.S.).
Angola; Dollars in thousands (U.S.): Estimated mining: $739,662;
Dollars in thousands (U.S.): Estimated export: $633,265; Dollars in
thousands (U.S.): Difference between mining and: ($106,397).
Central African Republic; Dollars in thousands (U.S.): Estimated
mining: 72,000; Dollars in thousands (U.S.): Estimated export: 168,515;
Dollars in thousands (U.S.): Difference between mining and: 96,515.
Democratic Republic of the Congo (DRC); Dollars in thousands (U.S.):
Estimated mining: 585,000; Dollars in thousands (U.S.): Estimated
export: 728,975; Dollars in thousands (U.S.): Difference between mining
and: 143,975.
Guinea; Dollars in thousands (U.S.): Estimated mining: 103,500; Dollars
in thousands (U.S.): Estimated export: 163,166; Dollars in thousands
(U.S.): Difference between mining and: 59,666.
Liberia; Dollars in thousands (U.S.): Estimated mining: 27,200; Dollars
in thousands (U.S.): Estimated export: 101,861; Dollars in thousands
(U.S.): Difference between mining and: 74,661.
Namibia; Dollars in thousands (U.S.): Estimated mining: 419,120;
Dollars in thousands (U.S.): Estimated export: 709,000; Dollars in
thousands (U.S.): Difference between mining and: 289,880.
Sierra Leone; Dollars in thousands (U.S.): Estimated mining: 87,500;
Dollars in thousands (U.S.): Estimated export: 14,114; Dollars in
thousands (U.S.): Difference between mining and: (73,386).
Tanzania; Dollars in thousands (U.S.): Estimated mining: 45,965;
Dollars in thousands (U.S.): Estimated export: 30,294; Dollars in
thousands (U.S.): Difference between mining and: (15,671).
[A] Estimated exports are derived using the sum of world imports from
each country.
Note: None of these countries reported any rough diamond imports to the
United Nations.
Source: Mining data are from The Mining Journal, Ltd. Trade data are
from the United Nations., except for Namibia, which did not report its
diamond trade statistics to the United Nations. Trade data for Namibia
are from the World Bank.
[End of table]
Table 2 shows that the United Nations reports rough diamond exports
from a number of countries that neither had mining potential in 2000
nor reported any rough diamond imports. For example, estimated rough
diamond exports from Congo-Brazzaville, the Gambia, Aruba, the
Netherlands Antilles, and the United Arab Emirates each exceeded $10
million in 2000. However, for most African nonmining countries, rough
diamond exports have decreased in 2000. (For additional information on
estimated rough diamond exports from African countries for 1990 through
2000, see app. IV.):
Table 2: Estimated Rough Diamond Exports for Selected Nonmining
Countries, 1996, 1998, and 2000:
Dollars in thousands (U.S.).
African countries.
Cameroon; Dollars in thousands (U.S.): 1996: African countries: n/a;
Dollars in thousands (U.S.): 1998: African countries: $5,367; Dollars
in thousands (U.S.): 2000: African countries: $884.
Congo-Brazzaville; Dollars in thousands (U.S.): 1996: African
countries: 647,880; Dollars in thousands (U.S.): 1998: African
countries: 80,858; Dollars in thousands (U.S.): 2000: African
countries: 39,153.
Gambia; Dollars in thousands (U.S.): 1996: African countries: 129,237;
Dollars in thousands (U.S.): 1998: African countries: 101,503; Dollars
in thousands (U.S.): 2000: African countries: 18,396.
Mali; Dollars in thousands (U.S.): 1996: African countries: 8,573;
Dollars in thousands (U.S.): 1998: African countries: 2,043; Dollars in
thousands (U.S.): 2000: African countries: 5,476.
Togo; Dollars in thousands (U.S.): 1996: African countries: 2,865;
Dollars in thousands (U.S.): 1998: African countries: 1,108; Dollars in
thousands (U.S.): 2000: African countries: 214.
Uganda; Dollars in thousands (U.S.): 1996: African countries: n/a;
Dollars in thousands (U.S.): 1998: African countries: 1,364; Dollars in
thousands (U.S.): 2000: African countries: 13.
Non-African countries.
Aruba; Dollars in thousands (U.S.): 1996: African countries: n/a;
Dollars in thousands (U.S.): 1998: African countries: 29,932; Dollars
in thousands (U.S.): 2000: African countries: 19,717.
Cayman Islands; Dollars in thousands (U.S.): 1996: African countries:
21,738; Dollars in thousands (U.S.): 1998: African countries: 5,981;
Dollars in thousands (U.S.): 2000: African countries: 5,240.
Lebanon; Dollars in thousands (U.S.): 1996: African countries: 2,102;
Dollars in thousands (U.S.): 1998: African countries: 2,428; Dollars in
thousands (U.S.): 2000: African countries: 356.
Netherlands Antilles; Dollars in thousands (U.S.): 1996: African
countries: 124,834; Dollars in thousands (U.S.): 1998: African
countries: 28,553; Dollars in thousands (U.S.): 2000: African
countries: 22,892.
Ukraine; Dollars in thousands (U.S.): 1996: African countries: 1,371;
Dollars in thousands (U.S.): 1998: African countries: 129; Dollars in
thousands (U.S.): 2000: African countries: 641.
United Arab Emirates; Dollars in thousands (U.S.): 1996: African
countries: 3,861; Dollars in thousands (U.S.): 1998: African countries:
9,576; Dollars in thousands (U.S.): 2000: African countries: 177,424.
Note: n/a means not available. None of these countries reported any
rough diamond imports to the United Nations. Estimated exports are
derived using the sum of world imports from each country.
Source: U.N. data.
[End of table]
For countries that report rough diamonds imports, U.N. data also
reveals large discrepancies between export and import values in 2000.
For example, as shown in table 3, Belgium reported exporting about $355
million worth of rough diamonds to the United States while the United
States reported importing only about $192 million worth of rough
diamonds from Belgium.
Table 3: Rough Diamond Export and Import Values for Selected Countries,
2000:
Dollars in thousands (U.S.).
Exporter: Belgium; Dollars in thousands (U.S.): Export value of
diamonds: $355,330; Dollars in thousands (U.S.): [Empty]; Dollars
in thousands (U.S.): Importer: United States; Dollars in thousands
(U.S.): [Empty]; Dollars in thousands (U.S.): Import value of diamonds:
$191,849.
Exporter: Canada; Dollars in thousands (U.S.): Export value of
diamonds:
107,477; Dollars in thousands (U.S.): [Empty]; Dollars in thousands
(U.S.): Importer: United Kingdom; Dollars in thousands (U.S.): [Empty];
Dollars in thousands (U.S.): Import value of diamonds: 347,191.
Exporter: China; Dollars in thousands (U.S.): Export value of diamonds:
56,174; Dollars in thousands (U.S.): [Empty]; Dollars in thousands
(U.S.):
Importer: Hong Kong; Dollars in thousands (U.S.): [Empty]; Dollars in
thousands (U.S.): Import value of diamonds: 3,345.
Exporter: Hong Kong; Dollars in thousands (U.S.): Export value of
diamonds: 77,611; Dollars in thousands (U.S.): [Empty]; Dollars in
thousands (U.S.): Importer: Belgium; Dollars in thousands (U.S.):
[Empty]; Dollars in thousands (U.S.): Import value of diamonds:
174,554.
Dollars in thousands (U.S.): Export value of diamonds: 7,044; Dollars
in thousands (U.S.): [Empty]; Dollars in thousands (U.S.): Importer:
United States; Dollars in thousands (U.S.): [Empty]; Dollars in
thousands (U.S.): Import value of diamonds: 43,491.
Exporter: Israel; Dollars in thousands (U.S.): Export value of
diamonds:
681; Dollars in thousands (U.S.): [Empty]; Dollars in thousands (U.S.):
Importer: Armenia; Dollars in thousands (U.S.): [Empty]; Dollars in
thousands (U.S.): Import value of diamonds: 17,361.
Dollars in thousands (U.S.): Export value of diamonds: 24,165;
Dollars in thousands (U.S.): [Empty]; Dollars in thousands (U.S.):
Importer: Switzerland; Dollars in thousands (U.S.): [Empty];
Dollars in thousands (U.S.): Import value of diamonds: 44.
Dollars in thousands (U.S.): Export value of diamonds: : 112,053;
Dollars in thousands (U.S.): : [Empty]; Dollars in thousands (U.S.):
Importer: : United States; Dollars in thousands (U.S.): : [Empty];
Dollars in thousands (U.S.): Import value of diamonds: : 21,163.
Exporter: Switzerland[A]; Dollars in thousands (U.S.): Export value of
diamonds: 5,918; Dollars in thousands (U.S.): [Empty]; Dollars in
thousands (U.S.): Importer: Belgium; Dollars in thousands (U.S.):
[Empty]; Dollars in thousands (U.S.): Import value of diamonds: 65,398.
Dollars in thousands (U.S.): Export value of diamonds: 105; Dollars
in thousands (U.S.): [Empty]; Dollars in thousands (U.S.): Importer:
United Kingdom; Dollars in thousands (U.S.): [Empty]; Dollars in
thousands (U.S.): Import value of diamonds: 3,137,088.
Exporter: United Kingdom; Dollars in thousands (U.S.): Export value of
diamonds: 437,523; Dollars in thousands (U.S.): [Empty]; Dollars in
thousands (U.S.): Importer: Switzerland; Dollars in thousands (U.S.):
[Empty]; Dollars in thousands (U.S.): Import value of diamonds:
1,206,817.
Dollars in thousands (U.S.): Export value of diamonds: 289,626;
Dollars in thousands (U.S.): [Empty]; Dollars in thousands (U.S.):
Importer: United States; Dollars in thousands (U.S.): [Empty];
Dollars in thousands (U.S.): Import value of diamonds: 197,381.
Exporter: United States; Dollars in thousands (U.S.): Export value of
diamonds: 15,796; Dollars in thousands (U.S.): [Empty]; Dollars in
thousands (U.S.): Importer: Hong Kong; Dollars in thousands (U.S.):
[Empty]; Dollars in thousands (U.S.): Import value of diamonds: 1,267.
[A] In Switzerland, a large share of diamonds traded are actually
internal transfers for De Beers, which uses the area for security and
insurance reasons.
Source: U.N. data.
[End of table]
The data inconsistencies in tables 1 through 3 can be attributed to a
wide variety of factors including:
* differences in the value exporters and importers assign to shipments;
* differences in interpretation of commodity codes so that recorded
trade data is internally inconsistent and inconsistent with production
data;[Footnote 15]
* industry practices such as selling goods on consignment, physical
inspections requiring movements of shipments across borders, or
unloading stockpiles so that trade data differ from production
capacities;
* false declarations by importers on where they obtained their
shipment, leading to data indicating a country‘s exports exceed its
production; or:
* smuggling.
Unfortunately, diamond trade data limitations have been difficult to
rectify given that the industry has historically avoided close
scrutiny. According to industry experts and government officials, U.S.
and international diamond firms do not share trade information freely
and business may be conducted on the basis of a handshake, with limited
documentation. Furthermore, information problems resulting from
industry‘s lack of transparency are made worse by poor data reporting
from many mining and trading nations. Stockpiles may not be reported,
country of last export is recorded instead of country of origin or
extraction,[Footnote 16] and some countries do not publish rough
statistics if the data could reveal commercially sensitive information
about a particular company. Most importantly, comprehensive
international data is not available in volume terms (carats), even
though volume data are a better indicator of true trade flows.
In addition to poor data, another factor with the potential to limit
transparency in the international diamond industry is the current trend
toward merging mining with cutting and polishing activities at the
country level. In response to reduced demand and declining rough
diamond prices, a number of mining countries are encouraging domestic
cutting and polishing. In mining countries, diamonds from other origins
could be mixed with domestically mined diamonds, cut and polished, and
exported without detection.
United States Cannot Detect Conflict Diamonds with Present Import
Controls:
Under its current import control system, the United States cannot
determine the true origin of diamond imports nor ensure that conflict
diamonds do not enter the country. The nature of the commodity and
industry makes verification of origin difficult. In 1998, as a result
of Executive Orders, the United States began to enhance controls to
prevent conflict diamonds from entering the country from U.N.-
sanctioned sources. Since 1998, the United States has conducted eight
diamond-related investigations. However, as of yet, no federal
prosecutions relating to diamond smuggling have been undertaken.
Without an effective international system to identify the origin of
rough diamonds, the United States cannot detect diamonds from conflict
sources sent to second countries and then shipped to the United States.
Diamond Imports Subject to General Import Controls; Limited Controls
Added to Implement U.N. and U.S. Sanctions:
Diamond imports are subject to the same import controls used for most
commodities. Documentation accompanying diamond shipments entering the
United States must include a commercial invoice, country of last
export, total weight, and value. However, the regulations do not
require exporters to certify the country of extraction, with the
exception of rough diamonds directly from Angola and Sierra Leone. For
example, rough diamonds could be mined in one country and traded
several times before reaching their final destination. The ability to
determine the true source of origin is further impeded because U.S.
import shipments can contain diamonds mixed together from numerous
countries.
Until 1998, the United States did not consider conflict diamonds a
commodity of focus. Since 1998, the United States put into place import
controls to target diamonds from UNITA in Angola, RUF in Sierra Leone,
and Liberia--all of which are also targets of U.N. sanctions. Rough
diamonds from Liberia have been banned from the United States. U.S.
Customs requires that all shipments from Angola and Sierra Leone have a
national certificate of origin or other documentation that demonstrates
to authorities that the diamonds were legally imported with the
approval of the exporting country‘s government. However, the controls
cannot prevent diamonds from these conflict sources from being shipped
to a second country and mixed within shipments destined for the United
States. Customs officials stated that determining the original source
of rough diamonds based on physical inspection is virtually impossible;
thus, U.S. Customs officials must rely on the accuracy of the source
cited in accompanying import documentation.
The U.S. ability to detect and deter conflict diamonds is further
complicated by inaccuracies in its diamond trade data. In fiscal year
2000, U.S. Census data reported that about $816 million worth of rough
diamonds from 53 countries officially entered the United States through
21 different ports of entry. However, based on irregularities found
during our analysis of the U.S. Census import and export data, the
validity of this data is questionable. A February 2002 review of U.S.
import and export data by the U.S. Census Bureau found that some of the
irregularities were due to misclassification of the diamonds. They
noted that this problem resulted from the lack of understanding by
importers and exporters of the definition of ’unsorted“ diamonds. For
example, in 2001, diamonds that should have been classified as polished
diamonds with a World Customs Organization Harmonized System code of
7102.39 were actually classified as unsorted rough diamonds with a code
of 7102.10. According to U.S. Census officials, they have notified U.S.
Customs of the problem and both agencies are taking steps to correct
these errors by educating importers and exporters on the correct way to
classify diamonds. Census will revise its 2001 published statistics,
but will not make this process retroactive to include prior year‘s
statistics.[Footnote 17]
Limited Number of Diamond Inspections and Seizures Yield No U.S.
Confirmed Cases of Conflict Diamond Imports:
Since the United States put into place import controls to target
diamonds from UNITA in Angola, RUF in Sierra Leone, and Liberia, there
have been a limited number of diamond inspections and seizures. Under
U.S. Customs regulations, importers of diamonds from Sierra Leone and
Angola must present appropriate documentation to U.S. Customs upon
demand and are responsible for keeping certificates of origin on file
for 5 years after importation. If any intelligence is developed
indicating that certain importers are importing conflict diamonds, U.S.
Customs can seize shipments or develop leads by initiating formal
investigations.
According to U.S. Customs officials, as a part of its regular
compliance inspections, 35 physical inspections of rough diamond mixed
shipments have been performed since 1998. Of these, six cases were
found to have minor discrepancies primarily because of incorrect
documentation or because the diamonds were misdelivered.[Footnote 18]
However, U.S. Customs told us that it recently seized diamonds from
two individuals based on the failure to present proper export
certificates.
Both incidents involved passengers arriving at the Baltimore-Washington
International Airport on Air Ghana flights who had also traveled to
Sierra Leone.
* On December 31, 2001, U.S. Customs inspectors at Baltimore-Washington
International Airport searched a passenger‘s luggage and found
documents that led the officers to believe the passenger might have
been carrying diamonds. When the officers asked if he was carrying
diamonds, the passenger removed a package from his pocket and the
diamonds were detained for formal U.S. Customs entry. The entry was
filed, but there was no accompanying certificate from the Republic of
Sierra Leone and 37 diamonds were seized. The diamonds remain in U.S.
Customs‘ custody, and the importer has petitioned for return of the
diamonds.
* On February 4, 2002, an arriving passenger declared $12,350 in
diamonds to U.S. Customs officers at Baltimore-Washington International
Airport. Upon review of the certificate of origin, the U.S. Customs
inspectors noticed several inconsistencies that led them to believe the
certificate was fraudulent. The stones detained have been released to
the importer. The stones were determined not to be diamonds; however,
the fraudulent certificate has been seized. The U.S. Customs Office of
Investigations is reviewing this incident and further details are
unavailable.
Kimberley Certification Scheme Lacks Key Aspects of Accountability:
The Kimberley Process proposal describing the essential elements of an
international diamond certification scheme does not contain the
controls necessary to provide reasonable assurance that the scheme will
be effective in deterring the flow of conflict diamonds. Without
effective accountability, the certification scheme may provide the
appearance of control while still allowing conflict diamonds to enter
the legitimate diamond trade and, as a result, continue to fuel
conflict.
The Kimberley scheme primarily provides a description of what
participants should do as well as ’recommendations“ and ’options.“ The
March 20, 2002, document describing the scheme is divided into sections
covering definitions, the Kimberley Process Certificate, undertakings
concerning international trade in rough diamonds, internal controls at
the national government and industry levels, cooperation and
transparency, and administrative matters. Elements of internal controls
are addressed throughout the document, including the requirement that
the Kimberley Process certificates, designating the country of origin
for unmixed parcels, accompany each shipment of rough diamonds and that
the certificates be readily accessible for a period of no less than 3
years. However, the scheme lacks key aspects of effective controls, and
some ’controls“ are considered ’recommended“ or ’optional.“
To assess the scheme, we looked at evaluations of other international
certification schemes and other sources for relevant, applicable
criteria. We believe the best criteria available are based on published
standards for internal control that have been developed for
organizations.[Footnote 19] The Kimberley Process participants
recognize the importance of internal controls,[Footnote 20] and the
U.S. government, industry, and international entities such as the World
Bank have accepted these standards. While the Kimberley Process is not
an organization and we do not expect the Kimberley Process scheme to
completely address all aspects of accountability, the criteria provide
useful insights into the Kimberley Process scheme‘s ability to achieve
basic objectives of accountability and transparency.
The guidelines include five control elements--control environment, risk
assessment, control activities, information and communications, and
monitoring. A review of the Kimberley Process scheme using these five
control elements reveals significant challenges despite the gains
reached by bringing together industry, nongovernmental organizations,
and governments to address this serious humanitarian issue.
Control Environment: A control environment is one with a structure,
discipline, and climate conducive to sound controls and conscientious
management. The Kimberley certification scheme faces serious challenges
in achieving these elements.
* The Kimberley Process scheme primarily relies on voluntary
participation and adherence making support and implementation of the
scheme highly dependent on varying levels of political will and
industry commitment. The scheme lacks an international authority or
mandate. There is no authorizing mandate in U.N. Security Council
Resolutions, U.N. General Assembly resolutions, or treaty status at
this time. The form the final document will take (an agreement,
memorandum of understanding, guidance, or some other form) has not yet
been determined. Despite efforts to recruit more members, some key
diamond trading countries have not participated in the Kimberley
Process. Moreover, some participants continue to disagree with the
definitions of conflict diamonds,[Footnote 21] participant, and
observer within the Kimberley Process scheme and it remains unclear
what impact this could have on their future support and participation.
* While Kimberley participants identified some possible administrative
support functions[Footnote 22] and made some preliminary decisions
regarding who may carry out the functions, they have not concluded
their analysis and have made no commitments to staffing or
funding.[Footnote 23] At the March 2002 Kimberley Process plenary
meeting, some participants expressed concern that without this
information it will be difficult, if not impossible, to develop the
national legislation needed to implement the scheme within the expected
time frame.
* Individual participants are required to set up a system of national
internal controls and effective enforcement and penalties. It is
unclear how and when the capabilities of different participants to do
so will be assessed and, where needed, assistance provided. If
countries fail to comply with the essential elements of the scheme,
then they can be excluded from trading with participants. However,
whether national implementation of this provision will comply with
trade agreements such as those under the World Trade Organization has
been a point of contention since early in the process and remains under
discussion.[Footnote 24]
Risk Assessment: A risk assessment is a mechanism to identify, analyze,
prioritize, and manage risks to meet objectives. The Kimberley Process
does not include a formal risk assessment and thus participants cannot
be assured that they have appropriately identified, prioritized, and
addressed the risks. Three potential high-risk areas the Kimberley
Process scheme does not adequately address include the following.
* Industry experts and Kimberley participants agree that unless the
segment of the diamond pipeline from when the diamond is first
discovered in the alluvial field or mine to the point it is first
exported is subject to controls, conflict diamonds may enter the
legitimate trade. The scheme does little to address this issue,
offering only recommendations encouraging participants to license
diamond miners and maintain effective security.
* Industry and others hold stockpiles of diamonds with undocumented
sources, and the number of diamonds held in stockpiles may be
considerable. Since the Kimberley scheme requires information on
origin, it is unclear how these diamonds will be addressed. Apparently,
any conflict diamond could be claimed as a stockpiled diamond at the
scheme‘s initiation.
* The period after rough diamonds enter a foreign port until their
point of sale as rough diamonds, polished diamonds, or jewelry or until
exported to another country will be covered by an industry system
called a chain of warranties in which participation is voluntary and
monitoring and enforcement are self-regulated.[Footnote 25] As rough
diamonds are exported from subsequent countries or the European Union,
governments will issue a new Kimberley certificate to accompany each
shipment, yet it is unclear how governments can rely on the voluntary
industry system to ensure that the shipments are free from conflict
diamonds.
Control Activities: Control activities consist of policies, procedures,
techniques, and mechanisms that ensure that management directives are
carried out in an effective and efficient manner to achieve control
objectives. The Kimberley scheme‘s inconsistent attention to control
activities raises concerns, such as the following:
* While some internal controls are delineated, others are recommended
or considered optional without clear justification, and many controls
are to be developed at the national level where capabilities and
political will differ.
* The industry chain of warranties is based on voluntary participation
and self-regulation. Although the scheme requires that all sales
invoices of participating industry be inspected by independent auditors
to ensure that the diamonds come from nonconflict sources, an audit
trail is problematic in an industry where diamonds are sorted and mixed
many times.
Information and Communications: An information and communication
mechanism is needed for recording and communicating relevant and
reliable information to those who need it in a form and time frame that
enable them to carry out their internal control responsibilities.
Although the Kimberley Process has made progress in identifying
information to be communicated among participants, concerns regarding
the Kimberley Process scheme‘s mechanism for information and
communication remain.
* The Kimberley Process participants recently made progress identifying
statistics to be shared (production, import, and export data) and in
setting reporting time frames. However, the statistics are to be made
available to an ’intergovernmental body“ or another ’appropriate
mechanism“ for compilation and then to be made available for analysis
by ’interested parties“ and by the Kimberley Process participants,
individually or collectively. Thus, participants have not yet reached
agreement on who will compile the statistics, how this will be done,
and at what cost, as well as specifically who will analyze the data,
how they will analyze it, and how and when they will report their
results. This is of particular concern to some countries and industry
that wish to protect what they consider sensitive information and,
conversely, to others including nongovernmental organizations that want
as much transparency as possible.
* Given the problems identified with international rough diamond trade
data, it remains unclear what steps will be taken to improve and
standardize country reporting. It is unclear whether all diamond-
producing countries currently have the capacity to provide accurate
data and what assistance, if any, will be needed or provided.
* The European Union will function as one trading organization under
the Kimberley scheme. It remains unclear how its data will be compiled,
reconciled, and shared in a timely manner. While the predominant
diamond industry is found in Belgium and the United Kingdom, all 15
European Union countries have reported diamond flows to the United
Nations.
Monitoring: A monitoring mechanism consists of continuous monitoring
and evaluation to assess the quality of performance over time in
achieving the objectives and ensuring that the findings of audits and
other reviews are promptly resolved. Even acknowledging sovereignty and
data sensitivity constraints, the Kimberley Process scheme‘s monitoring
mechanisms still lack rigor, relying primarily on voluntary
participation and self-assessment. For example,
* Monitoring is based on participants‘ reporting of other participants‘
transgressions to initiate a review mission. A participant can inform
another participant through the chair if it believes the laws,
regulations, rules, procedures, or practices of that other participant
do not ensure the absence of conflict diamonds in the exports of that
other participant.[Footnote 26] Yet, there is no initial requirement
that any one participant review another participant‘s compliance with
the international certification scheme so as to raise the initial
question about compliance with the chair or other participants. It
appears that only the obvious cases will be addressed.
* Review missions and their size, composition, terms of reference, and
time frame are to be conducted with the consent of the participant
concerned. Terms are to be based on circumstances and established by
the chair in consultation with the participants. Although sovereignty
is a legitimate issue raised by some participants concerned about the
extent of monitoring, the extent to which participants can use
sovereignty and national laws to refuse terms of the review mission
remains unclear.
* A report on the results of a review mission, as well as comments from
the participant concerned, are to be posted to the restricted access
section of an official certification scheme Web site no later than 3
weeks after completion of the mission and are to remain confidential.
The scheme does not discuss a mechanism for ensuring that the findings
of the review missions are promptly resolved and for disclosure of this
information to anyone other than the participating countries.
* The scheme states that participants should exchange information,
including self-assessments, to arrive at best practices; yet no
guidelines were provided for self-assessment.
* Although the scheme states that the industry system of warranties
will help facilitate tracing rough diamond transactions by government
authorities, no government-monitoring plan for the system has been
proposed.
* The scheme has no provision for external audit of the scheme‘s
administration.
Conclusion:
Given the opportunities for illicit trade posed by the nature of
diamonds and diamond industry operations and the varying levels of will
and capacity to address the illicit trade, the challenges to deterring
conflict diamonds are daunting. It is important to set realistic
expectations and recognize that the Kimberley Process international
diamond certification scheme is not expected to stop conflict on its
own. There is the hope, however, that an international diamond
certification scheme will make trade in conflict diamonds more
difficult, resulting in less funding for conflict. But the scheme
cannot accomplish this without reasonable participation and vigilance
by diamond producing and trading countries and industry and inclusion
of sound controls that meet basic accountability and transparency
objectives. Without an effective international system that can trace
the original source of rough diamonds, nations cannot ensure that
conflict diamonds do not enter their countries and without accurate
international trade data, nations cannot readily identify and rectify
transgressions. The scheme as currently designed was achieved through
considerable effort and negotiation, but additional improvements are
needed to establish adequate controls to deter the conflict diamond
trade. Unless the challenges we identified can be reasonably addressed,
the scheme risks the appearance of control while still allowing
conflict diamonds to enter the legitimate diamond trade and, as a
result, continue to fuel conflict.
Recommendation for Executive Action:
To help ensure that Kimberley Process participants, including the
United States, achieve their goal to establish an international
certification scheme for rough diamonds that will stem the flow of
conflict diamonds while protecting the legitimate diamond industry, we
recommend that the Secretary of State in consultation with the relevant
government agencies work with Kimberley Process participants to develop
better controls including a reasonable control environment, risk
assessment, internal controls, information sharing, and monitoring.
Agency Comments:
We received written comments from the Department of State and the
Department of the Treasury. These comments are reprinted in appendixes
V and VI. In addition to their overall comments, Treasury provided
technical comments, which we incorporated in the report as appropriate.
In response to GAO‘s recommendation, the Department of State commented
that GAO had given insufficient weight to the political commitments
achieved through the Kimberley Process in developing the international
rough diamond certification scheme. The State Department commented that
it would be more appropriate to focus on the Kimberley Process scheme
as a dynamic effort to reconcile competing priorities rather than
assess the scheme against a set of accountability measures. While State
agreed that the international rough diamond certification scheme would
need improvement and refinement as participants gain experience with
its practical implementation, it did not believe that additional
controls could be realistically negotiated prior to the scheme‘s
launch.
While we recognize the inherently political and voluntary nature of
international agreements, we believe that in order to attain the stated
goals of the Kimberley Process--to stem the flow of conflict diamonds
while protecting the legitimate trade--it is necessary to go beyond the
political commitment with a view to a realistic assessment of what has
been achieved and what remains to be done. We acknowledge that the
scheme as currently designed was achieved through considerable effort
and negotiation, but additional improvements are needed to establish
adequate controls to deter the conflict diamond trade. We do not expect
the Kimberley Process scheme to completely address all aspects of
accountability, but the criteria we use to assess the scheme provides
useful insights into the scheme‘s ability to achieve basic objectives
of accountability and transparency. Despite the efforts gained through
negotiation, without effective accountability, the certification
scheme may provide the appearance of control while still allowing
conflict diamonds to enter the legitimate diamond trade, and as a
result, continue to fuel conflict. We agree with State that the
international rough diamond certification scheme will need improvement
and since the Kimberley Process remains a dynamic process in which any
participant may propose modifications prior to plenary meetings, we
continue to believe that the process can benefit by State working with
Kimberley Process participants to improve controls.
The Department of State also expressed concern about our statement in
the report describing a scope limitation: ’Our report was limited by
the lack of timely and full access to State Department documentation
and as a result our work on the illicit trade and related crime was
restricted.“ We acknowledge the assistance provided by State during the
review. However, our standards require that we report any
methodological limitations.
The Department of the Treasury did not agree with our recommendation
that the Secretary of State, in consultation with relevant government
agencies, work with Kimberley Process participants to develop better
controls. Treasury believes that such steps would be unlikely to
increase enforcement and would substantially increase costs and divert
enforcement resources. However, Treasury did not explain why improved
controls would not add to effectiveness and how improvements would
substantially increase costs or divert enforcement resources.
We are sending copies of this report to the Secretary of State, the
Secretary of the Treasury, and interested congressional committees. We
also will make copies available to other interested parties upon
request. In addition, the report will be available at no charge on the
GAO Web site at http://www.gao.gov.
If you or your staff have any questions regarding this report, please
call me at (202) 512-4128. Other GAO contacts and staff acknowledgments
are listed in appendix VII.
Loren Yager
Director, International Affairs and Trade:
Signed by Loren Yager:
[End of section]
Appendix I: Scope and Methodology:
To determine whether the nature and operations of the international
diamond industry are conducive to illicit trade, we interviewed and
reviewed documentation from cognizant representatives of the U.S. and
foreign diamond industry, U.S. and foreign governments, the United
Nations, Interpol, and nongovernmental organizations, as well as
recognized industry experts. We acquired official international diamond
production and trade data and reviewed industry journals and reports.
For information on diamond mining, we analyzed data from the Annual
Review of Mining published by The Mining Journal, Ltd.[Footnote 27] For
information on the international rough diamond trade, we analyzed data
from the United Nations‘ Commodity Trade Statistics Database. Where
possible, we supplemented and verified these data with information from
the U.S. International Trade Commission, World Bank Country At a Glance
Tables, International Monetary Fund Country Statistical Appendixes, and
diamond company annual reports. To the extent possible we reviewed
State Department documentation. However, our scope was limited by the
lack of timely and full access to State Department cable traffic and
thus could not be assured that we had reviewed all information
concerning related crime including terrorism.
We note, however, several limitations in the existing data: diamond
trade data can vary significantly depending upon the source, and the
data are often incomplete. Given these data caveats, we found that the
most comprehensive source for international data was the United Nations
(U.N.).[Footnote 28] However, when we examined the U.N. data, we found
that the majority of countries with known diamond mining did not report
their rough diamond export flows. Therefore, given that U.N. import
data were relatively more comprehensive, we often inferred ’estimated
exports“ of rough diamonds using world import flows.[Footnote 29]
Moreover, the data are only as good as what each country reports to the
United Nations, as they are not validated by the United Nations.
To determine whether U.S. government controls over diamond imports
enable detection of conflict diamonds, we examined U.S. Customs‘
procedures for importing, tracking, and monitoring U.S. diamond
imports; applicable laws, executive orders, regulations, and
implementing policies relating to diamond imports; and data on the
value of U.S. rough diamond imports and the number of countries
exporting them to United States, including the ports of entry. We met
with officials at the U.S. Treasury Office of Foreign Asset Control,
U.S. Customs, the Departments of Justice and Commerce, and the Federal
Trade Commission to obtain their views on the effectiveness of U.S.
import controls in deterring the trade of conflict diamonds.
To determine the extent to which the Kimberley Process international
diamond certification scheme has the necessary elements to deter trade
in conflict diamonds, we obtained the most current Kimberley Process
documentation and assessed the scheme using criteria based on standards
of control that have been developed for organizations. To determine the
best available criteria for assessing the scheme, we reviewed
international agreements and certification schemes for other
commodities to find those most applicable to the diamond situation. In
doing so, we reviewed studies and interviewed officials of the U.S.
Trade Representative, State Department, U.S. Fish and Wildlife Service,
United Nations, foreign governments, European Commission,
nongovernmental organizations, and others about such schemes and their
effectiveness. Our review revealed that agreed upon standards for
internal controls that have been developed for organizations provided
the best basis for sound criteria.[Footnote 30] To ensure our
understanding of the components of the Kimberley Process scheme and
challenges to the development and implementation of the scheme, we
interviewed and assessed documentation from Kimberley Process
participants and others including representatives of U.S. and foreign
governments, the diamond industry, nongovernmental organizations, and
the United Nations. We also observed Kimberley Process negotiations in
Brussels, Belgium; Moscow, Russia; London, United Kingdom; and Ottawa,
Canada.
We conducted fieldwork in Washington, D.C., and New York; Antwerp and
Brussels, Belgium; Moscow, Russia; London, United Kingdom; and Ottawa,
Canada. We also met with the government, industry, and nongovernmental
officials of other Kimberley Process participant countries at the
Kimberley Process meetings, the United Nations, their embassies in the
United States, and at our offices in Washington, D.C., and San
Francisco. We performed our work from March 2001 through March 2002 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Situation in Countries Primarily Associated with Conflict
Diamonds:
Conflict diamonds are currently most closely associated with Angola,
Sierra Leone, Liberia, and Democratic Republic of the Congo (DRC).
Understanding both the major events over time and the diamond industry
in these countries provides context for better understanding the
conflict diamond issue and international as well as U.S. efforts to
address this issue in these countries.
Conflict and Diamonds in Angola:
Timeline of Major Events, 1991-2002:
1991:
Signing of Bicesse Accords ends long-running civil war between Popular
Movement for the Liberation of Angola government and competing forces.
1992:
President Jose Eduardo Dos Santos and the Popular Movement for the
Liberation of Angola government win plurality in United Nations (U.N.)-
monitored elections. The National Union for the Total Independence of
Angola (UNITA), led by Jonas Savimbi, rejects the election results and
resumes fighting.
1993:
United Nations sanctions UNITA.
1994:
Government and UNITA sign Lusaka Protocol in an effort to end fighting.
1995:
United Nations authorizes peacekeeping mission. Various U.N.
verification and peacekeeping missions have been in Angola since 1989.
1997:
Angolan government and UNITA establish power sharing Government of
National Unity and Reconciliation. United Nations approves
establishment of U.N. Observer Mission in Angola to help consolidate
peace.
1998:
Fighting resumes again between government and Jonas Savimbi‘s faction
of UNITA. UNITA‘s participation in government is suspended.
U.N. Security Council imposes worldwide ban on purchases of unofficial
Angolan diamonds and orders UNITA bank accounts and financial assets
frozen.
1999:
Mandate for U.N. Observer Mission in Angola expires and, due to
continued failure of peace process, is not extended.
The U.N. office in Angola is authorized and given a limited, mostly
humanitarian, mandate.
Angolan armed forces destroy conventional military capacity of UNITA
and scatter rebels. UNITA regroups as a guerrilla force.
2000:
Government creates Angola Selling Corporation to market all diamonds
produced in Angola.
Conflict continues with UNITA weaker but persistent as a guerrilla
force.
2001:
President Dos Santos announces he will not run in next elections. Next
elections remain unscheduled.
2002:
UNITA leader Jonas Savimbi is killed by government forces.
UNITA and government sign cease-fire agreement, pledging to abide by
terms of the 1994 peace accord.
Diamonds in Angola:
Diamonds are found throughout the country, though most are in the
northeast provinces of Lunda Norte and Lunda Sul. Approximately 10 to
15 percent of Angolan diamonds are industrial quality with an average
value of $70 per carat, according to industry experts. The rest are
high quality gem diamonds with an average value of $250 to $327 per
carat. Artisanal diggers mine roughly two-thirds of Angolan diamonds.
For a map of Angola, see figure 1.
Figure 1: Map of Angola:
[See PDF for image]
Source: CIA World Factbook 2001.
[End of Figure]
According to a U.N. Security Council report, diamonds have been a
strategic resource for UNITA during its three wars.[Footnote 31] Prior
to the cease-fire agreement, a U.N. official reported that the rebels
were still smuggling diamonds, and the extent of UNITA‘s stockpiles is
unknown. However, after UNITA lost ground in 1999, the government of
Angola began restructuring the diamond industry and established the
Angola Selling Corporation in February 2000 to be the sole legitimate
buyer of Angolan diamonds. The Angola Selling Corporation comprises a
51 percent state interest, in the form of the Sociedade de
Commercializacao de Diamantes, with the remaining 49 percent reportedly
privately owned by Belgian interests and an Israeli diamond buyer with
interests in the Russian diamond industry. The government of Angola
also established a certificate of origin scheme and initiatives to
register miners and traders in order to document the origin of diamonds
and reduce informal markets. Angola Selling Corporation officials claim
that rising government diamond revenues and a decrease in diamond
territories held by UNITA as a result of battlefield losses indicate
that trade in Angolan conflict diamonds is decreasing.
According to industry experts, Angolan diamond production is estimated
at about $740 million in 2000 with the majority of official Angolan
exports sold to Belgium.[Footnote 32] Although the government of Angola
is still struggling to control nonconflict illicit trade, U.N. and
State Department officials have stated that UNITA became a less
important force in the diamond trade as its mining areas were
recaptured. Nonetheless, an October 2001 U.N. report theorized that
UNITA might still be selling between 25 to 30 percent of illegal
diamonds leaving Angola.[Footnote 33]
Conflict and Diamonds in the Democratic Republic of the Congo:
Timeline of Major Events, 1994-2002:
1994/95:
Regional refugee crisis caused by war in neighboring Rwanda introduces
large numbers of ethnic Hutu into the border region between Zaire and
Rwanda. :
1997:
Alliance of Democratic Forces for the Liberation of Congo-Zaire, led by
Laurent Kabila, overthrows regime of Mobutu Sese Seko by armed force,
with the support of the Rwandan and Ugandan governments.Zaire is
renamed Democratic Republic of the Congo.
1998:
War breaks out between the DRC government and rebel forces when Kabila
tries to expel Rwandan military forces that helped him overthrow
Mobutu. Governments of Burundi, Rwanda, and Uganda depend on Rwandan
military presence for protection from armed groups operating in the
eastern DRC, and thus oppose expulsion of Rwandan presence.
1999:
Lusaka Accords signed by the government of the DRC, Angola, Namibia,
Rwanda, Uganda, Zimbabwe, and major rebel forces, calling for a
cessation of hostilities by all forces in DRC. All parties violate
cease-fire agreement.
U.N. Security Council authorizes establishment of the U.N. Organization
Mission in Democratic Republic of the Congo to assist in implementing
the cease-fire.
2000:
Despite U.N. efforts and diplomatic activity, little progress is made
implementing the Lusaka Accords.
2001:
President Kabila is assassinated and his son, Joseph, takes over. Under
Joseph Kabila‘s leadership, progress is made toward establishing peace.
2002:
Some skirmishes by nonstate forces continue.
Inter-Congolese dialogue, as called for in the Lusaka Accords, results
in a political agreement signed by most political parties and rebel
groups in the DRC.
Diamonds in the DRC:
Diamonds in the DRC are generally mined in the East and West Kasai
Provinces around the towns of Tshikapa and Mbuji-Mayi with some mining
around the city of Kisangani. Diamond production in the DRC is more
than half artisanal, and more than 70 percent of DRC diamonds are
industrial quality with an average value of only $35 per carat,
according to industry experts. For a map of the DRC, see figure 2.
Figure 2: Map of the DRC:
[See PDF for image]
Source: CIA World Factbook 2001.
[End of figure]
Societe Miniere de Bakwanga, a parastatal that formerly held a monopoly
over DRC diamond production, is the DRC‘s largest mining company. In
addition to Societe Miniere de Bakwanga, Cosleg, a company owned
jointly by the Zimbabwean Defense Forces and the DRC army, was created
in October 1999 to initiate mining operations in south-central DRC
areas previously owned by Societe Miniere de Bakwanga and to purchase
artisanal diamond production. However, in an attempt to regulate the
diamond trade through a more controllable monopoly system, the Israeli
firm, International Diamond Industries, was given exclusive rights in
July 2000 to buy and market diamonds from Societe Miniere de Bakwana
and other trading firms in territories controlled by the DRC
government. International Diamond Industries‘ tenure was contentious,
however, and the original 18-month contract was repealed in April 2001.
According to an official at the U.N. Development Program, a new mining
code to liberalize trade has been developed in the DRC and is currently
being prepared for implementation.
There is no sanctions regime against diamonds traded from the DRC.
According to a U.N. report, however, the DRC plays a vital role as a
smuggling route for diamonds from Angola and elsewhere, and thus those
seeking to control conflict diamonds need to address the DRC‘s role in
the conflict diamond trade. In addition, diamonds from artisanal mining
have provided funding to rebels in the simmering conflict within the
DRC.
Industry experts estimated that diamond production in the DRC was worth
about $585 million in 2000. U.N. trade data suggest that exports of
rough diamonds totaled about $729 million, with the majority being
imported into Belgium but with South Africa and United States as
important buyers in recent years.
Conflict and Diamonds in Liberia:
Timeline of Major Events, 1989 - 2002:
1989:
National Patriotic Front of Liberia, led by Charles Taylor, begins
rebellion against government.
1990:
Economic Community of West African States sends the West African
Economic Community Military Observer Group as a peacekeeping force.
Liberian President Samuel Doe is executed by splinter group of the
National Patriotic Front of Liberia.
1996:
Abuja Peace Accord signed. Implementation of Abuja Accord begins with
disarmament program managed by the West African Economic Community
Military Observer Group.
1997:
Charles Taylor is elected president in elections declared free and fair
by international observers.
2000:
The United States imposes travel restrictions on Taylor government due
to its ties with Sierra Leone‘s Revolutionary United Front (RUF).
2001:
U.N. Security Council imposes sanctions on Liberia, including a ban on
diamond exports because of Liberia‘s role in fomenting conflict in
Western Africa.
Armed incursions of Liberian rebels from Guinea take place in Liberia‘s
Lofa county. Liberian and Guinean relations continue to deteriorate.
Foreign Ministers of the Mano River Union countries (Liberia, Sierra
Leone, and Guinea) meet in Monrovia to discuss a head of state summit
among the three nations.
2002:
President Charles Taylor declares a state of emergency as Lofa county
fighting spreads towards Monrovia. Refugees from Lofa flow into refugee
camps and neighboring countries. :
Diamonds in Liberia:
Liberian diamond production was estimated by industry experts to have
been 160,000 carats worth approximately $27.2 million in 2000. All of
Liberia‘s current production is alluvial. For a map of Liberia, see
figure 3.
Figure 3: Map of Liberia:
[See PDF for image]
Source: CIA World Factbook 2001.
[End of figure]
Liberia has been linked by the United Nations to the trade in conflict
diamonds, particularly the trade in diamonds produced by Sierra Leone‘s
RUF.[Footnote 34] In March 2001, the U.N. Security Council imposed a
series of punitive sanctions on the Taylor regime, including a global
prohibition on the direct or indirect import of rough diamonds from or
through Liberia. Ironically, follow-up reports by the United Nations
stated that Liberian diamonds are now being smuggled through Sierra
Leone.
According to U.N. data, in both 1998 and 1999, more than $270 million
worth of rough diamonds were imported worldwide from Liberia, most of
which, according to the Congressional Research Service,[Footnote 35]
were attributed to diamonds smuggled from Sierra Leone and the
transshipment and re-export of diamonds from Russia and elsewhere to
avoid Belgian import tax payments. Year 2000 imports of rough diamonds
from Liberia fell to about $102 million, according to U.N. data.
Conflict and Diamonds in Sierra Leone:
Timeline of Major Events, 1991-2002:
1991:
RUF, led by Foday Sankoh, begins rebellion against government of Joseph
Momoh.
1992:
Sierra Leonean Army Captain Valentine Strasser assumes power after
leading a coup to oust Momoh from office.
1994:
RUF overruns diamond areas and begins to threaten Freetown.
1995:
The government of Sierra Leone hires a private security force,
Executive Outcomes, to fight the rebels. Executive Outcomes drives the
RUF from Freetown and proceeds to retake many diamond areas.
1996:
Ahmad Tejan Kabbah of the Sierra Leone People‘s Party wins presidential
elections.
Government of Sierra Leone and RUF negotiate Abidjan peace agreement,
but it fails.
1997:
RUF leader Sankoh is arrested in Nigeria.
Members of Sierra Leone Army, calling themselves the Armed Forces
Revolutionary Council, overthrow Kabbah government and join forces with
the RUF.
1998:
RUF/Armed Forces Revolutionary Council junta is driven out by West
Africa‘s Economic Community Military Observer Group; Kabbah government
is restored to power.
U.N. Security Council establishes U.N. Observer Mission in Sierra
Leone.
1999:
Government and RUF sign power-sharing agreement, the Lome Accord.
Foday Sankoh is released on pardon.
U.N. replaces observer mission with larger mission, the U.N. Mission in
Sierra Leone, to assist government in implementing Lome peace
agreement.
The disarmament and demobilization of combatants stall and fighting
continues.
U.S. Agency for International Development‘s Office of Transition
Initiatives begins providing technical assistance to government of
Sierra Leone to address conflict diamonds.
2000:
RUF takes approximately 500 U.N. peacekeepers and military observers
hostage. All are eventually released.
RUF leader Sankoh is recaptured and imprisoned.
All imports of diamonds from Sierra Leone are banned by U.N. Security
Council Resolution 1306.
Diamond exports resume when government of Sierra Leone presents
elements of new export regime.
RUF and government sign Abuja Agreement cease-fire, but RUF does not
disarm and at end of year controls almost two-thirds of country.
2001:
U.N. Mission in Sierra Leone increases in strength and deploys
throughout the country. Disarmament, demobilization, and reintegration
process gains speed.
United Nations authorizes a Special Court for Sierra Leone and is
working to develop a Truth and Reconciliation Commission for the
country.
2002:
The Joint Committee on Disarmament, Demobilization and Reintegration,
composed of representatives of the government of Sierra Leone, the RUF
and the U.N. Mission in Sierra Leone, declare the disarmament process
complete.
Presidential and parliamentary elections have been announced for May
2002.
Diamonds in Sierra Leone:
Diamonds in Sierra Leone are principally found in the east and
southeast portions of the country. Diamond deposits are primarily
alluvial, with some kimberlite deposits. According to industry experts,
Sierra Leone diamonds are of a high quality with an estimated average
carat value of $250 in 2000. For a map of Sierra Leone, see figure 4.
Figure 4: Map of Sierra Leone:
[See PDF for image]
Source: CIA World Factbook 2001.
[End of figure]
The Sierra Leone diamond market suffered from corruption and
mismanagement throughout the 1970s and 1980s, causing a rise in
smuggling. In the 1990s the RUF became involved in mining and trading
diamonds to help fuel its rebellion against the government of Sierra
Leone. Between 1997-1999, only 36,384 carats were officially exported,
compared with roughly 2 million carats annually in the 1960s. According
to a U.N. report, it has been estimated that, in 1999, the government
of Sierra Leone lost approximately $68.8 million worth of diamond
exports to criminal activity.[Footnote 36] The United Nations has also
found that Liberia, Guinea, and Burkina Faso are important destinations
for smuggled Sierra Leone diamonds.
The United Nations banned the import of all diamonds from Sierra Leone
in July 2000, with the provision that rough diamonds controlled by the
government of Sierra Leone through a fully operational diamond
certification scheme would be exempted. By October 2000, the government
of Sierra Leone was able to implement the called for diamond
certification scheme developed with the help of the High Diamond
Council of Belgium, and the governments of the United Kingdom, the
United States, and Belgium, and was thus exempted from the ban.
According to a government official from Sierra Leone, however, some RUF
diamonds might simply be flowing through the legitimate system now. In
addition, diamond mining by all parties has continued at a rapid pace
since disarmament, according to U.S. State Department officials.
The United Nations reports official diamond imports in 2000 from Sierra
Leone as about $14 million. Industry experts, however, report Sierra
Leone production of rough diamonds at more than $87 million in 2000.
[End of section]
Appendix III: Structure and Economic Importance of the International
Diamond Industry:
Further understanding the diamond industry‘s structure and importance
provides insights into the challenges faced by those attempting to
address conflict diamonds. Diamond mining is characterized by large,
contained, deep-mining operations and widely scattered alluvial surface
mining operations, the former of which could be somewhat more easily
subject to controls. While the majority of rough diamonds are traded
through a small number of key countries, diamonds are traded around the
world, contributing to the difficulty in tracking their origin. Though
cutting and polishing is largely driven by labor costs and expertise,
more mining countries are trying to encourage domestic cutting and
polishing activities in order to supplement mining revenues. For a
number of mining countries, revenues earned from the international
diamond industry are economically significant.
Diamond Mining:
Figure 5 shows that diamond mining occurs in approximately 20 different
countries worldwide; however, the majority of rough diamonds are
extracted in deep mines located in seven countries.
Figure 5: Countries That Mine Rough Diamonds, 2000:
[See PDF for image]
Source: The Mining Journal, Ltd.
[End of figure]
Moreover, because of the substantial capitalization and sophisticated
infrastructure required for deep mining, diamond mining in these seven
countries is done primarily by one of four large companies (see table
4).
Table 4: Rough Diamond Mining, 2000:
Currency in thousands of dollars (U.S.).
Mining Company: De Beers Consolidated Mines Ltd.; Currency in thousands
of dollars (U.S.): Location of mining operations: Botswana, Namibia,
South Africa, and Tanzania; Currency in thousands of dollars (U.S.):
Value of mined diamonds: $3,541,720; Currency in thousands of dollars
(U.S.): Percent of world supply of diamonds: 45.
Mining Company: Alrosa Ltd.; Currency in thousands of dollars (U.S.):
Location of mining operations: Russia; Currency in thousands of dollars
(U.S.): Value of mined diamonds: 1,595,000; Currency in thousands of
dollars (U.S.): Percent of world supply of diamonds: 20.
Mining Company: BHP Billiton; Currency in thousands of dollars (U.S.):
Location of mining operations: Canada; Currency in thousands of dollars
(U.S.): Value of mined diamonds: 453,555; Currency in thousands of
dollars (U.S.): Percent of world supply of diamonds: 6.
Mining Company: Rio Tinto; Currency in thousands of dollars (U.S.):
Location of mining operations: Australia; Currency in thousands of
dollars (U.S.): Value of mined diamonds: 360,600; Currency in thousands
of dollars (U.S.): Percent of world supply of diamonds: 5.
Mining Company: Other mining operations; Currency in thousands of
dollars (U.S.): Location of mining operations: Africa, China, and
Latin America; Currency in thousands of dollars (U.S.): Value of
mined diamonds: 1,906,120; Currency in thousands of dollars (U.S.):
Percent of world supply of diamonds: 24.
Mining Company: Total; Currency in thousands of dollars (U.S.):
Location of mining operations: [Empty]; Currency in thousands of
dollars (U.S.): Value of mined diamonds: $7,856,995; Currency in
thousands of dollars (U.S.): Percent of world supply of diamonds: 100.
Note: Companies listed are those that mine in countries characterized
as having primarily deep mining operations.
Source: Mining Journal.
[End of table]
Although world diamond mining is highly concentrated, the share of
rough diamonds mined in African countries by entities other than De
Beers--22 percent--is nevertheless significant in terms of value: about
$1.8 billion in production value and about $2 billion in exports in
2000. For these African countries, much of the rough diamond supply is
found in surface alluvial fields. Alluvial diamonds are collected by
individual artisanal diggers using a simple sieve or shovel, sold to
local dealers, and eventually exported.
Rough Diamond Trading:
As with mining, the majority of rough diamonds are traded through a few
key markets, though a much larger number of countries engage in the
trade. The De Beers Diamond Trading Company (DTC) markets approximately
65 percent of rough diamond production by value. This includes all
diamonds from De Beers‘ mining operations and the operations of its
partnerships in Namibia and Botswana and a portion purchased from
Alrosa Ltd. and BHP Billiton. After purchase, the DTC sorts its rough
diamonds at its London office and sells them to designated buyers
called sight-holders at scheduled times throughout the year. About half
of De Beers‘ sight-holders trade through their offices in Antwerp,
Belgium, which is also the principal market for non-DTC diamonds.
According to the Belgian Ministry of Economic Affairs, Antwerp is the
largest trading center for rough diamonds with between 5 million and 10
million rough stones checked daily at the Antwerp Diamond Office. As
important cutting and polishing markets and hosts to a number of other
De Beers‘ sight-holders, the United States, India, and Israel are also
large diamond trading centers.
Though trading of rough diamonds is dominated by the DTC, United
Nations (U.N.) data suggest that more than 100 countries worldwide
export rough diamonds. Figure 6 shows that 77 percent of total rough
diamond exports in 2000 came from either a mining country or one of
five main trading centers. The remaining, 23 percent of rough diamond
exports, worth approximately $5.4 billion, came from 77 other countries
around the world.
Figure 6: Countries That Export Rough Diamonds, 2000:
[See PDF for image]
[A] The five largest reported trading centers are Belgium, India,
Israel, the United States, and the United Kingdom.
Source: U.N. data except for Botswana, Namibia, and South Africa, which
did not report their diamond trade statistics to the United Nations.
Data for Botswana and Namibia are from the World Bank, and data for
South Africa are from the South African Revenue Service.
[End of figure]
Rough Diamond Cutting and Polishing:
There are a number of established centers for cutting and polishing of
rough diamonds, as well as emerging markets. Currently, India is the
world‘s largest cutting and polishing center with around $6.5 billion
of polished diamond exports in both 1999 and 2000. Driven partially by
low labor costs, 9 out of 10 rough diamonds are cut and polished in
India by a workforce of approximately 700,000. Israel, Belgium, and
China are also large cutting and polishing centers, and the United
States is an important center for polishing of high quality gems.
Despite the existence of established cutting and polishing centers,
some countries that mine rough diamonds are trying to expand cutting
and polishing activities to capture the value added revenues and expand
employment.[Footnote 37] According to industry experts, though mining
countries currently supply less than 10 percent of the polished market,
they expect a larger share of this activity to be diverted from
traditional centers to mining countries due to political and economic
pressure on those governments to create opportunities for increased
mineral wealth. For example, both Namibia and South Africa have
legislation mandating some domestic cutting and polishing.
Economic Importance of the Diamond Industry:
The international diamond industry provides substantial economic
benefits to a number of countries, though direct economic contributions
vary depending on the extent of conflict or nonconflict related
smuggling, the way diamonds are mined, the presence of activities such
as cutting and polishing, and the government tax system.[Footnote 38]
Table 5 lists estimates of the economic importance of diamond mining in
a few select countries and suggests that diamond sales can account for
a significant portion of total merchandise exports and gross domestic
product. For example, in countries with mostly alluvial mining, diamond
exports in 2000 accounted for 74 percent of total merchandise exports
in the Central African Republic and 21 percent of total merchandise
exports in Guinea. In countries with mostly deep mining, this share was
79 percent for Botswana and 48 percent for Namibia.
Table 5: Estimates of the Economic Importance of Diamond Mining for
Selected Countries, 2000:
Currency in dollars (U.S.).
Countries with alluvial mining.
Angola; Currency in dollars (U.S.): Rough diamond exports as% of total
merchandise exports: Countries with alluvial mining: 8.1; Currency in
dollars (U.S.): Value of diamond mining as% of gross domestic product:
Countries with alluvial mining: 8.4; Currency in dollars (U.S.):
Government revenues from diamond industry: Countries with alluvial
mining: $66,000,000; Currency in dollars (U.S.): Current employment in
diamond industry: Countries with alluvial mining: unknown[A].
Central African Republic; Currency in dollars (U.S.): Rough diamond
exports as% of total merchandise exports: Countries with alluvial
mining: 74.2; Currency in dollars (U.S.): Value of diamond mining as%
of gross domestic product: Countries with alluvial mining: 7.4;
Currency in dollars (U.S.): Government revenues from diamond industry:
Countries with alluvial mining: not available; Currency in dollars
(U.S.): Current employment in diamond industry: Countries with alluvial
mining: unknown.
Guinea; Currency in dollars (U.S.): Rough diamond exports as% of total
merchandise exports: Countries with alluvial mining: 21.3; Currency in
dollars (U.S.): Value of diamond mining as% of gross domestic product:
Countries with alluvial mining: 3.3; Currency in dollars (U.S.):
Government revenues from diamond industry: Countries with alluvial
mining: not available; Currency in dollars (U.S.): Current employment
in diamond industry: Countries with alluvial mining: unknown.
Sierra Leone; Currency in dollars (U.S.): Rough diamond exports as% of
total merchandise exports: Countries with alluvial mining: 18.6;
Currency in dollars (U.S.): Value of diamond mining as% of gross
domestic product: Countries with alluvial mining: 13.7; Currency in
dollars (U.S.): Government revenues from diamond industry: Countries
with alluvial mining: 423,418 [B]; Currency in dollars (U.S.): Current
employment in diamond industry: Countries with alluvial mining:
unknown.
Countries with primarily deep mining.
Botswana; Currency in dollars (U.S.): Rough diamond exports as% of
total merchandise exports: Countries with alluvial mining: 78.7;
Currency in dollars (U.S.): Value of diamond mining as% of gross
domestic product: Countries with alluvial mining: 40.1; Currency in
dollars (U.S.): Government revenues from diamond industry: Countries
with alluvial mining: 1,197,800,000; Currency in dollars (U.S.):
Current employment in diamond industry: Countries with alluvial mining:
6,000.
Namibia; Currency in dollars (U.S.): Rough diamond exports as% of total
merchandise exports: Countries with alluvial mining: 47.9; Currency in
dollars (U.S.): Value of diamond mining as% of gross domestic product:
Countries with alluvial mining: 12.0; Currency in dollars (U.S.):
Government revenues from diamond industry: Countries with alluvial
mining: 48,000,000; Currency in dollars (U.S.): Current employment in
diamond industry: Countries with alluvial mining: 2,000.
South Africa; Currency in dollars (U.S.): Rough diamond exports as% of
total merchandise exports: Countries with alluvial mining: 5.0;
Currency in dollars (U.S.): Value of diamond mining as% of gross
domestic product: Countries with alluvial mining: 0.9; Currency in
dollars (U.S.): Government revenues from diamond industry: Countries
with alluvial mining: 53,043,478; Currency in dollars (U.S.): Current
employment in diamond industry: Countries with alluvial mining: 15,200.
[A] In countries with alluvial mining done by artisanal operators, the
number of diggers is often unknown due to the absence of a legal
framework requiring registration.
[B] According to the U.S. Agency for International Development, the
Sierra Leone government started charging a 3 percent tax on rough
diamond exports in 2000. This estimate includes possible export tax
revenues but does not include possible revenues from diamond licenses.
Source: Trade data is from the U.N., except for Botswana and Namibia
whose trade data is from the World Bank. Mining values are from The
Mining Journal, Ltd; Gross domestic product figures are from the World
Bank; and employment estimates are from the U.S. State Department.
Estimates of government revenues are from the following: Angola‘s is
from the diamond mining company Ascorp, Botswana‘s and Namibia‘s are
from De Beers, with supporting data from the World Bank, South Africa‘s
is from the U.S. State Department, with an exchange rate provided by
the World Bank, and Sierra Leone‘s is from the United Nations.
[End of table]
In addition to exports, economic contributions are most visible in
Botswana, where diamond sales account for more than one-third of its
gross domestic product and provide over $1 billion in government
revenues (worth half of total government earnings) and 6,000 jobs.
Debswana, a joint venture mining company between De Beers and the
government, is the second largest employer in the country and returns
more than 70 percent of its profits to Botswana in the form of taxes,
royalties, dividends, and activities such as cutting and polishing.
According to the International Monetary Fund, the diamond industry has
allowed Botswana to earn foreign exchange reserves, create government
budget surpluses, and become a growing economy in Africa.
Though somewhat less prominent, the diamond industry is also visibly
important in Namibia and South Africa. In Namibia, diamond earnings
account for 12 percent of its gross domestic product and the industry
employs up to 2,000 people. Namdeb, a joint venture company between De
Beers and the government, is also the largest taxpayer. In South
Africa, the diamond industry makes up a smaller share of the economy
given the greater level of economic diversification. Nonetheless, more
than 15,000 people are employed in the South African diamond industry
and, according to the U.S. Department of State, an estimated three to
six jobs in support service industries are generated for each job in
mining.
[End of section]
Appendix IV: Historical Data on African Diamond Exports:
According to official United Nations (U.N.) data, estimated exports of
rough diamonds from nonmining African countries decreased in 2000. As
shown in table 6, the total value of rough diamonds reportedly exported
from these countries went from about $293 million in 1990 to about $793
million in 1996 to only about $64 million in 2000. Accounting for a
large part of this trend, rough diamond exports went from about $648
million in 1996 to about $39 million in 2000 for Congo-Brazzaville and
from about $129 million in 1996 to about $18 million in 2000 for the
Gambia.
Table 6: Value of Estimated Rough Diamond ExportsAfrom Africa, 1990-
2000:
Currency in thousands of dollars (U.S.).
Producing countries.
Angola; Currency in thousands of dollars (U.S.): 1990: Producing
countries: $260,546; Currency in thousands of dollars (U.S.): 1991:
Producing countries: $48,677; Currency in thousands of dollars
(U.S.): 1992: Producing countries: $182,784; 1993: $143,464; 1994:
$123,535; 1995: $161,510; 1996: $253,636; 1997: $322,969; 1998:
$352,725; 1999: $551,131; 2000: $633,265.
Botswana; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 1,412,000; Currency in thousands of dollars (U.S.):
1991: Producing countries: 1,455,000; Currency in thousands of
dollars (U.S.): 1992: Producing countries: 1,374,000; 1993:
1,379,000; 1994: 1,384,000; 1995: 1,437,000; 1996: 1,721,000;
1997: 2,095,000; 1998: 1,477,000; 1999: 2,132,000; 2000:
2,164,000.
Central African Republic; Currency in thousands of dollars (U.S.):
1990: Producing countries: 75,178; Currency in thousands of dollars
(U.S.): 1991: Producing countries: 78,539; Currency in thousands of
dollars (U.S.): 1992: Producing countries: 76,337; 1993: 84,959;
1994: 62,076; 1995: 90,093; 1996: 112,655; 1997: 106,374; 1998:
160,415; 1999: 156,031; 2000: 168,515.
Democratic Republic of the Congo; Currency in thousands of dollars
(U.S.): 1990: Producing countries: 289,020; Currency in thousands
of dollars (U.S.): 1991: Producing countries: 473,436; Currency
in thousands of dollars (U.S.): 1992: Producing countries:
384,883; 1993: 471,625; 1994: 750,674; 1995: 824,525; 1996:
856,020; 1997: 722,098; 1998: 677,269; 1999: 833,510; 2000:
728,975.
Ghana; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 140,470; Currency in thousands of dollars (U.S.): 1991:
Producing countries: 105,360; Currency in thousands of dollars
(U.S.): 1992: Producing countries: 112,924; 1993: 204,130; 1994:
264,885; 1995: 212,316; 1996: 225,678; 1997: 202,859; 1998:
133,568; 1999: 206,784; 2000: 58,952.
Guinea; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 82,835; Currency in thousands of dollars (U.S.): 1991:
Producing countries: 91,254; Currency in thousands of dollars
(U.S.): 1992: Producing countries: 102,032; 1993: 191,622; 1994:
113,854; 1995: 101,856; 1996: 85,348; 1997: 115,690; 1998: 125,087;
1999: 143,275; 2000: 163,166.
Ivory Coast; Currency in thousands of dollars (U.S.): 1990:
Producing countries: 101,322; Currency in thousands of dollars
(U.S.): 1991: Producing countries: 112,073; Currency in thousands
of dollars (U.S.): 1992: Producing countries: 110,932; 1993:
106,259; 1994: 71,326; 1995: 129,043; 1996: 210,533; 1997:
116,723; 1998: 44,469; 1999: 52,219; 2000: 61,244.
Kenya; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 89; Currency in thousands of dollars (U.S.): 1991:
Producing countries: 27; Currency in thousands of dollars (U.S.):
1992: Producing countries: 1,036; 1993: 306; 1994: 42; 1995: 18;
1996: n/a; 1997: 1; 1998: 46; 1999: 59; 2000: 0.
Liberia; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 390,833; Currency in thousands of dollars (U.S.): 1991:
Producing countries: 136,313; Currency in thousands of dollars
(U.S.): 1992: Producing countries: 312,739; 1993: 291,745; 1994:
318,212; 1995: 766,156; 1996: 556,313; 1997: 328,923; 1998:
277,458; 1999: 290,243; 2000: 101,861.
Namibia; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 328,000; Currency in thousands of dollars (U.S.): 1991:
Producing countries: n/a; Currency in thousands of dollars (U.S.):
1992: Producing countries: n/a; 1993: n/a; 1994: n/a; 1995: n/a;
1996: n/a; 1997: n/a; 1998: n/a; 1999: 459,000; 2000: 709,000.
Sierra Leone; Currency in thousands of dollars (U.S.): 1990:
Producing countries: 84,342; Currency in thousands of dollars
(U.S.): 1991: Producing countries: 131,793; Currency in thousands
of dollars (U.S.): 1992: Producing countries: 210,271; 1993:
92,629; 1994: 104,288; 1995: 108,805; 1996: 113,825; 1997:
129,009; 1998: 73,941; 1999: 34,393; 2000: 14,114.
South Africa; Currency in thousands of dollars (U.S.): 1990:
Producing countries: 516,417; Currency in thousands of dollars
(U.S.): 1991: Producing countries: 329,813; Currency in thousands
of dollars (U.S.): 1992: Producing countries: 154,830; 1993:
167,215; 1994: 146,493; 1995: 194,136; 1996: 515,000; 1997:
860,385; 1998: 851,454; 1999: 1,297,676; 2000: 1,390,456.
Tanzania; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 7,964; Currency in thousands of dollars (U.S.): 1991:
Producing countries: 146; Currency in thousands of dollars (U.S.):
1992: Producing countries: 360; 1993: 222; 1994: 5,974; 1995: 215;
1996: 1,682; 1997: 6,579; 1998: 5,518; 1999: 8,144; 2000: 30,294.
Zimbabwe; Currency in thousands of dollars (U.S.): 1990: Producing
countries: n/a; Currency in thousands of dollars (U.S.): 1991:
Producing countries: 114; Currency in thousands of dollars (U.S.):
1992: Producing countries: 505; 1993: 1,658; 1994: 3,802; 1995:
5,613; 1996: 9,762; 1997: 7,888; 1998: 1,235; 1999: 1,557; 2000:
1,976.
Total: Producing countries; Currency in thousands of dollars (U.S.):
1990: Producing countries: $3,689,017; Currency in thousands of
dollars (U.S.): 1991: Producing countries: $2,962,543; Currency in
thousands of dollars (U.S.): 1992: Producing countries: $3,023,635;
1993: 13,134,833; 1994: $3,349,161; 1995: $4,031,286; 1996:
$4,661,453; 1997: $5,014,499; 1998: $4,180,187; 1999: $6,166,022;
2000: $6,225,819.
Nonproducing countries.
Benin; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 1,162; Currency in thousands of dollars (U.S.): 1991:
Producing countries: n/a; Currency in thousands of dollars (U.S.):
1992: Producing countries: n/a; 1993: n/a; 1994: n/a; 1995: 3,419;
1996: 1,343; 1997: 1,061; 1998: 421; 1999: 103; 2000: 21.
Cameroon; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 205; Currency in thousands of dollars (U.S.): 1991:
Producing countries: 175; Currency in thousands of dollars (U.S.):
1992: Producing countries: 29; 1993: 3; 1994: 4; 1995: 348; 1996:
n/a; 1997: 2,565; 1998: 5,367; 1999: 5,812; 2000: 884.
Congo-Brazzaville; Currency in thousands of dollars (U.S.): 1990:
Producing countries: 122,167; Currency in thousands of dollars
(U.S.): 1991: Producing countries: 167,683; Currency in thousands
of dollars (U.S.): 1992: Producing countries: 335,170; 1993:
327,590; 1994: 260,429; 1995: 430,506; 1996: 647,880; 1997:
503,555; 1998: 80,858; 1999: 64,194; 2000: 39,153.
Gambia; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 77,956; Currency in thousands of dollars (U.S.): 1991:
Producing countries: 102,058; Currency in thousands of dollars
(U.S.): 1992: Producing countries: 130,973; 1993: 64,594; 1994:
59,144; 1995: 122,394; 1996: 129,237; 1997: 132,716; 1998:
101,503; 1999: 54,650; 2000: 18,396.
Guinea Bissau; Currency in thousands of dollars (U.S.): 1990:
Producing countries: n/a; Currency in thousands of dollars (U.S.):
1991: Producing countries: 68; Currency in thousands of dollars
(U.S.): 1992: Producing countries: n/a; 1993: 69; 1994: 32; 1995:
n/a; 1996: n/a; 1997: n/a; 1998: n/a; 1999: 1,289; 2000: n/a.
Mali; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 11,305; Currency in thousands of dollars (U.S.): 1991:
Producing countries: 36,655; Currency in thousands of dollars
(U.S.): 1992: Producing countries: 34,983; 1993: 15,268; 1994:
13,985; 1995: 14,510; 1996: 8,573; 1997: 3,350; 1998: 2,043;
1999: 4,734; 2000: 5,476.
Nigeria; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 73,391; Currency in thousands of dollars (U.S.): 1991:
Producing countries: 53,471; Currency in thousands of dollars
(U.S.): 1992: Producing countries: 647; 1993: 449; 1994: 3,252;
1995: 4; 1996: 20; 1997: n/a; 1998: 4; 1999: n/a; 2000: n/a.
Rwanda; Currency in thousands of dollars (U.S.): 1990: Producing
countries: n/a; Currency in thousands of dollars (U.S.): 1991:
Producing countries: n/a; Currency in thousands of dollars (U.S.):
1992: Producing countries: 213; 1993: n/a; 1994: 29; 1995: 442;
1996: n/a; 1997: 712; 1998: 16; 1999: 236; 2000: n/a.
Senegal; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 326; Currency in thousands of dollars (U.S.): 1991:
Producing countries: 9,415; Currency in thousands of dollars
(U.S.): 1992: Producing countries: 698; 1993: 3; 1994: 875; 1995:
505; 1996: 1,985; 1997: 3,174; 1998: 256; 1999: 58; 2000: n/a.
Togo; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 5,642; Currency in thousands of dollars (U.S.): 1991:
Producing countries: 3,648; Currency in thousands of dollars
(U.S.): 1992: Producing countries: 3,596; 1993: 4,800; 1994:
18,139; 1995: 22,758; 1996: 2,865; 1997: 3,453; 1998: 1,107;
1999: 15,646; 2000:
214.
Uganda; Currency in thousands of dollars (U.S.): 1990: Producing
countries: n/a; Currency in thousands of dollars (U.S.): 1991:
Producing countries: n/a; Currency in thousands of dollars (U.S.):
1992: Producing countries: n/a; 1993: n/a; 1994: n/a; 1995: n/a;
1996: n/a; 1997: 203; 1998: 1,364; 1999: 1,170; 2000: 13.
Zambia; Currency in thousands of dollars (U.S.): 1990: Producing
countries: 1,320; Currency in thousands of dollars (U.S.): 1991:
Producing countries: 3; Currency in thousands of dollars (U.S.):
1992: Producing countries: 8; 1993: 63; 1994: 36; 1995: 688; 1996:
597; 1997: 381; 1998: 25; 1999: 15; 2000: 39.
Total: Nonproducing countries; Currency in thousands of dollars
(U.S.): 1990: Producing countries: $293,473; Currency in thousands
of dollars (U.S.): 1991: Producing countries: $373,175; Currency in
thousands of dollars (U.S.): 1992: Producing countries: $506,316;
1993: $412,840; 1994: $355,924; 1995: $595,573; 1996: $792,500;
1997: $651,171; 1998: $192,965; 1999: $147,907; 2000: $64,197.
Total; Currency in thousands of dollars (U.S.): 1990: Producing
countries: $3,982,489; Currency in thousands of dollars (U.S.):
1991: Producing countries: $3,335,717; Currency in thousands of
dollars (U.S.): 1992: Producing countries: $3,529,950; 1993:
$3,547,673; 1994: $3,705,085; 1995: $4,626,859; 1996: $5,453,953;
1997: $5,665,670; 1998: $4,373,152; 1999: $6,313,929; 2000:
$6,290,016.
[A] Estimated exports are derived using the sum of world imports from
each country.
Note: n/a means not available.
Source: U.N. data except for Botswana, Namibia, and South Africa,
which did not report their diamond trade statistics to the
United Nations. Data for Botswana and Namibia are from the World
Bank. Data for South Africa are from the South African Revenue
Service.
[End of Table]
[End of section]
Appendix V: Comments from the Department of State:
United States Department of State
Washington, D.C. 20520:
May 23, 2002:
Dear Ms. Westin:
We appreciate the opportunity to review your draft report,
’INTERNATIONAL TRADE: Critical Issues Remain in Deterring
Conflict Diamond Trade,“ GAO-02-678, GAO Job Code 320027.
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 Alan Eastham, Special Negotiator, Office of Energy,
Sanctions, & Commodities, Bureau of Economic and Business
Affairs at (202) 647-1625.
Sincerely,
Christopher B. Burnham
Assistant Secretary and Chief Financial Officer:
Enclosure:
As stated.
cc: GAO/IAT0-Mr. Phil Thomas
State/OIG-Mr. Berman
State/EB-Mr. Alan Eastham:
Ms Susan Westin,
Managing Director,
International Affairs and Trade,
U.S. General Accounting Office.
Department of State comments on GAO Draft Report
INTERNATIONAL TRADE: Critical Issues Remain in Deterring
Conflict Diamonds (GAO report GAO-02-678, Job Code 320027):
We appreciate the opportunity to review GAO‘s draft report
on Conflict Diamonds.
In response to the report‘s sole recommendation, we believe
that GAO has given insufficient weight to the significant
political committments made by all major diamond producing
and trading countries, as reflected in the Kimberly Process
document.
These committments offer unprecedented, highly significant,
and tangible areas of international cooperation in order to
combat trade in conflict diamonds, including:
* Documenting the trade in rough diamonds in detail,
* Exchanging detailed statistics,
* Cooperating to investigate trade anomalies, and:
* Accepting monitoring and assistance missions from other
partners in the process.
Rather than recognizing these breakthrough committments, the
GAO report under review focuses its attention on
accountability measures, using as its yardstick a set of
standards developed for use in government systems under the
control of a single governmental authority. In our view, it
would be more appropriate to recognize that the Kimberley
Process scheme, as developed in a lengthy international
discussion, is a dynamic effort to reconcile competing
priorities among nearly 40 governments, several international
and intergovernmental organizations, and the industry that
will be affected.
As such, the Kimberley Process is subject to adjustment during
its implementation phase, and all participants in the Kimberley
Process recognize that adjustments will be required. We agree
that international certification scheme for the trade in rough
diamonds will need improvement and refinement as participants
gain experience with its practical implementation. However, to
reopen substantive discussion of a virtually completed document
as the system is close to its launch, with a view to negotiating
additional controls, is not a realistic option. Such a step
would not be politically sound and might undo much of the
progress reached thus far.
We note the voluntary nature of the system, which the report
criticizes, reflects a desire on the part of the present
participants to begin implementation as sooon as possible and
to maximize participation by others. Launching the scheme early
on a voluntary basis would not preclude future legally binding
actions. However, legally binding agreements take significantly
longer time to develop and bring into effect.
We welcomed the cordial and effective cooperation between
the GAO team and the Department of State during GAO‘s
investigation. This included, from the Department of State
and other agencies of the Executive Branch, numerous meetings
and telephone contacts, support to GAO employees to facilitate
their attendance at meetings of the Kimberley Process, and
access provided by the State Department to approximately 175
documents. In addition, U.S. embassies in Brussels, Moscow,
and London, and the U.S. Mission to the U.N. in New York,
spent many hours assisting the GAO with additional
appointments and travel arrangements. We were therefore
concerned that the only mention of cooperation by the
Department of State in the draft report cites us critically
with respect to documents provided. We hope that based on
discussions held during the comment period on this report
that the final report will reflect more adequately the
extent of State Department assistance to GAO during this
investigation.
Thank you again for the opportunity to comment on this report.
[End of section]
Appendix VI: Comments from the Department of the Treasury:
Department of the Treasury: Washington:
June 5, 2002:
Ms. Susan S. Westin
Managing Director
International Affairs and Trade
U.S. General Accounting Office:
Dear Ms. Westin:
We appreciate the opportunity to review your draft report,
’INTERNATIONAL TRADE: Critical Issues Remain in Deterring
Conflict Diamond Trade, ’GAO-02-678.
The enclosed Treasury Department comments are provided for
incorporation with this letter as an appendix to the final
report. Also attached are some more technical comments that
have previously shared with your staff.
If you have any questions concerning this response, please
contact me at (202) 622-0220.
Sincerely,
Timothy Skud, Deputy Assistant Secretary, Regulatory, Tariff,
and Trade Enforcement:
Enclosure:
Treasury Department Comments on GAO Draft Report INTERNATIONAL
TRADE: Critical Issues Remain in Deterring Conflict Diamond
Trade GAO Report GAO-02-678:
We appreciate the opportunity to review the GAO report entitled
’International Trade: Critical Issues Remain in Deterring
Conflict Diamond Trade.“
We have carefully reviewed the draft you provided and find
that, while we agree with the description of the difficulties
in monitoring and controlling diamond trade, we do not agree
with the Recommendation for Executive Action concerning the
Kimberly Process. We do not believe that the difficulties you
document can be overcome by a system of government controls
more extensive than those envisioned by the Kimberley Process.
In our view, such steps are unlikely to increase compliance
costs forlegitimate traders and for government administrators,
and would divert enforcement resources from more effective means
of interdicting conflict diamonds.
We believe that it is important to adhere to the stated purpose
of the Kimberly Process, which is to ’break the link between
armed conflict and the trade in rough diamonds through a simple
and workable international certification scheme.“
[End of section]
Appendix VII: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Phillip Thomas (202) 512-9892
Kathleen Monahan (415) 904-2237:
Acknowledgments:
In addition to those individuals named above, Zina Merritt, Kendall
Schaefer, Sharla Draemel, Mark Dowling, and Janey Cohen made key
contributions to this report.
Footnotes:
[1] U.N. General Assembly Resolution 55/56 (Jan. 29, 2001).
[2] The proposal was presented in the form of a Kimberley Process
Working Document titled Essential Elements of an International Scheme
of Certification for Rough Diamonds, With a View to Breaking the Link
Between Armed Conflict and the Trade in Rough Diamonds (Nov. 29, 2001).
Kimberley Process participants made a few technical modifications to
the proposal in March 2002.
[3] U.S. General Accounting Office, International Trade: Significant
Challenges Remain in Deterring Trade in Conflict Diamonds, GAO-02-425T
(Washington, D.C.: Feb. 13, 2002).
[4] The U.N. Security Council has imposed international sanctions on
rough diamond imports from Angola and Sierra Leone not bearing an
official government certificate of origin as well as all rough diamonds
from Liberia.
[5] There are no U.S. sanctions against diamonds traded from the
Democratic Republic of the Congo. Executive Order 13213 dated May 22,
2001, banned all rough diamond shipments from Liberia. In accordance
with section 202(d) of the National Emergency Act (50 U.S.C. 1622(d)),
the President extended the ban through January 15, 2003.
[6] The U.S. government, industry, and international entities such as
the World Bank accept these internal control standards applied to
organizations. See Standards for Internal Control in the Federal
Government, (GAO/AIMD-00-21.3.1, Nov. 12, 1999) and Internal Control--
Integrated Framework (1985) published by the Committee of Sponsoring
Organizations of the Treadway Commission and used by the World Bank.
[7] See Diamond Annual Review (2000), published by The Mining Journal,
Ltd.
[8] These four companies are De Beers Consolidated Mines Ltd., Alrosa
Ltd., Rio Tinto, and BHP Billiton. See Diamond Annual Review (2000),
published by The Mining Journal Ltd.
[9] The U.S. Department of State leads an interagency working group
that provides input and representation at the Kimberley Process
meetings.
[10] The World Diamond Council is an industry association composed of
the World Federation of Diamond Bourses and the International Diamond
Manufacturers Association, which formed this body expressly to address
conflict diamonds.
[11] This document was superceded by a slightly amended document on
November 29, 2001.
[12] The issues included compatibility of the international
certification scheme with international trade law obligations such as
those under the World Trade Organization; the scope, nature, and
publishing of statistics; the nature and scope of monitoring and
implementation (referred to as participant measures); and the nature
and scope of administrative support services required for the optimal
functioning of the scheme.
[13] The proposal remains in the form of a Kimberley Process Working
Document titled Essential Elements of an International Scheme of
Certification for Rough Diamonds, With a View to Breaking the Link
Between Armed Conflict and the Trade in Rough Diamonds, as prepared by
Kimberley Process participants (March 20, 2002).
[14] In the interim, the South African chair of the process plans to
identify a group to address technical issues and remaining concerns
about definitions.
[15] For example, according to the U.S. Department of Commerce, 2001
exports of diamonds that should have been classified as polished
diamonds with a World Customs Organization Harmonized System code of
7102.39 were actually classified as unsorted rough diamonds with a code
of 7102.10.
[16] In particular, for countries like Congo-Brazzaville that do not
report rough diamond imports, a country like Belgium or the United
States could record rough diamond purchases as originating from Congo-
Brazzaville when in effect they are originating from another country.
This is because data reflects country of last export, rather than
country of origin.
[17] It should also be noted that similar data inconsistencies have
been found in the Canadian import and export statistics. See Fire in
the Ice: Benefits, Protection and Regulation in the Canadian Diamond
Industry (Jan. 2002) published by the Diamonds and Human Security
Project.
[18] According to U.S. Customs officials, these compliance inspections
were suspended after September 11, 2001, because the agency‘s primary
focus has shifted to security and antiterrorism efforts. According to
the Treasury Department, these compliance examinations resumed on May
1, 2002.
[19] See Standards for Internal Control in the Federal Government,
(GAO/AIMD-00-21.3.1, Nov. 12, 1999), and Internal Control--Integrated
Framework, published by the Committee of Sponsoring Organizations of
the Treadway Commission.
[20] According to the November 2001 Kimberley Ministerial statement,
’an internal certification scheme will only be credible if all
participants have established effective internal systems of control
designed to eliminate the presence of conflict diamonds in the chain of
producing, exporting, and importing rough diamonds within their
territories—“
[21] Under the Kimberley scheme, conflict diamonds means rough diamonds
used by rebel movements or their allies to finance conflict aimed at
undermining legitimate governments, as described in relevant U.N.
Security Council resolutions as they remain in effect, or in other
similar Security Council resolutions which may be adopted in the
future, and as understood and recognized in U.N. General Assembly
Resolution 55/56, or in other similar General Assembly resolutions
which may be adopted in future. Some participants stated that they
could not agree in advance to what the U.N. may adopt in the future
concerning conflict diamonds.
[22] According to the Kimberley Process proposal, administrative
support functions could include serving as a channel of communications;
and maintaining and making available a collection of laws, regulations;
etc.
[23] Researchers reviewing multilateral environmental agreements have
noted that institutional arrangements have come to be seen as crucial
to such agreements‘ effectiveness, and that the lack of institutions
limits the capacity to monitor states‘ implementation of and compliance
with treaty requirements or to take action when noncompliance is
ascertained.
[24] Under the Kimberley scheme, participants are to ensure that no
shipment of rough diamonds is imported from or exported to a
nonparticipant. However, article XI of the General Agreement on Tariffs
and Trade (GATT), 1994, obligates countries to refrain from imposing
quantitative restrictions or similar measures (as opposed to duties,
taxes or other charges) on the importation of products from other
countries. Two exemptions contained within the GATT may justify a
violation of Article XI. Article XXI (b) allows a country to impose
trade restrictions it considers necessary for the protection of its
essential security interests. Article XX contains an exception for
measures designed to protect human life or health.
[25] According to industry officials, the World Diamond Council will
strongly recommend that its member organizations require their
individual members to make the following statement on all invoices for
the sale of rough diamonds, polished diamonds, and jewelry containing
diamonds. ’The diamonds herein invoiced have been purchased from
legitimate sources not involved in funding conflict and in compliance
with United Nations resolutions. The seller hereby guarantees that
these diamonds are conflict free, based on personal knowledge and/or
written guarantees provided by the supplier of these diamonds.“
Membership in the World Diamond Council and its membership
organizations is voluntary.
[26] Such information may be reviewed at the annual plenary meetings at
which time, participants can, upon the chair‘s recommendation, decide
to implement verification measures such as requesting additional
information and clarification from participants and conducting review
missions when there are credible indications of significant
noncompliance with the international certification scheme.
[27] According to the author, these mining data are based on official
statistics from mining company reports, government data, and estimates
of artisanal production from field observations.
[28] We used the following U.N. Harmonized System of Classification
Codes (HTS) for our data on the rough diamond trade: 7102.10 for
unsorted diamonds, 7102.21 for unworked industrial diamonds, and
7102.31 for unworked nonindustrial diamonds. According to the United
Nations, its commodity trade data are compiled from information sent by
the Customs department, the national statistical office, or the Central
Bank of approximately 110 countries annually.
[29] Inferring exports from import data is a common analytical
technique
since exporters have an incentive to under-declare the value of
shipments to pay fewer taxes.
[30] See Standards for Internal Control in the Federal Government,
(GAO/
AIMD-00-21.3.1, Nov. 12, 1999), and Internal Control--Integrated
framework (1985), published by the Committee of Sponsoring
Organizations of the Treadway Commission.
[31] United Nations Security Council, Final Report of the Monitoring
Mechanism on Angola Sanctions, S/2000/1225 (New York: Dec. 12, 2000).
[32] See Diamond Annual Review (2000) published by The Mining Journal
Ltd.
[33] United Nations Security Council, Supplementary Report of the
Monitoring Mechanism on Sanctions Against UNITA, S/2000/966 (New York:
Oct. 12, 2001).
[34] United Nations Security Council, Report of the Panel of Experts
appointed pursuant to Security Council resolution 1306 (2000),
paragraph 19, in relation to Sierra Leone, S/2000/1195 (New York: Dec.
20, 2000).
[35] Congressional Research Service, Diamonds and Conflict: Policy
Proposals and Background (Dec. 5, 2001).
[36] United Nations Security Council, Report of the Panel of Experts
appointed pursuant to Security Council resolution 1306 (2000),
paragraph 19, in relation to Sierra Leone, S/2000/1195 (New York: Dec.
20, 2000).
[37] Though profit margins in cutting and polishing are relatively
smaller than in mining, cutting and polishing is a labor-intensive
activity and generates employment. Industry experts estimate that in
Botswana, for example, 23 jobs are created for every $2 million of
capital employed in mining while 170 jobs are created for every $2
million of capital employed in cutting and polishing.
[38] Potential direct economic contributions may include diamond sales
revenues, foreign exchange generated from diamond exports, government
revenues, wages for employees, and industry investments. Indirect
benefits may include payments for support services such as
transportation or insurance and/or social investments made by large
diamond companies.
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