Conflict Diamonds:

Agency Actions Needed to Enhance Implementation of the Clean Diamond Trade Act

GAO-06-978: Published: Sep 27, 2006. Publicly Released: Sep 27, 2006.

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In 2003, the United States and other countries began implementing the Kimberley Process Certification Scheme (KPCS) to curtail the trade of rough diamonds that had fueled severe conflicts in Africa, known as conflict diamonds. CDTA provides the statutory framework for U.S. implementation of the KPCS. As mandated in CDTA, this report (1) describes the institutional framework established to implement the act, (2) examines implementation of the domestic provisions of the act and challenges it faces, and (3) examines how the United States has helped to strengthen the KPCS and challenges it faces.

The United States has used multiple U.S. agencies and a private, not-for-profit entity to implement the domestic and international provisions of the Clean Diamond Trade Act (CDTA). The Departments of State and the Treasury have led U.S. efforts to implement the domestic provisions of the act; State has led the U.S. efforts to curtail trade in conflict diamonds abroad. Domestically, the Departments of State, the Treasury, Homeland Security, and Commerce, and the private entity, called the U.S. Kimberley Process Authority (USKPA), have been responsible for controlling U.S. imports and exports of rough diamonds. Internationally, State, the U.S. Agency for International Development (USAID), and the U.S. Geological Survey have helped to strengthen KPCS. Domestically, the U.S. systems for reporting rough diamond statistics and for controlling imports and exports of these diamonds are vulnerable to illicit trade. The United States has enhanced the quality of its rough diamond trade data by improving its collection processes, but work remains to be done. Also, the United States does not periodically inspect rough diamond imports or exports to ensure that the contents of the rough diamond parcels match the Kimberley Process certificates. In addition, the United States lacks an effective system for confirming receipt of imports--a Kimberley Process requirement for avoiding possible diversions of rough diamond imports. Finally, the United States has not had a plan for monitoring USKPA, but is developing and testing one. Internationally, the United States has helped to strengthen KPCS by participating in KPCS activities and providing assistance to Sierra Leone and Liberia in their efforts to comply with KPCS, but donor assistance to these countries faces challenges. Donors and diamond producing countries are considering a regional approach to help enhance the effectiveness of donor diamond-related assistance because this assistance is constrained by the limited capacity and resources of these countries and the need to harmonize diamond policies among countries vulnerable to illicit cross border diamond trading.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The relevant agencies informed GAO in July 2008 that, to improve the accuracy of U.S. rough diamond trade data, the Department of State and the U.S. Census Bureau have worked to improve U.S. diamond industry reporting of Kimberley Process certificates. Specifically, they have reviewed Kimberley Process rough diamond trade data monthly, conducted outreach to diamond importers and exporters and worked with jewelry and industry trade associations to inform diamond companies of their obligations to fax Kimberley Process certificates to the U.S. Census Bureau. Their rough diamond trade data improved, with revised U.S. imports exceeding exports in both 2006 and 2007. For example, in 2006, U.S. rough diamond imports totaled 4,313,930 carats worth $816.85 million, while rough diamond exports totaled 3,443, 105 carats worth $544.0 million. In 2007, rough diamond imports totaled 5,307,994 carats worth $896.65 million, while rough diamond exports totaled 3,901,904 carats worth $568.95 million. The U.S. Treasury Department's Office of Foreign Assets Control issued new regulations May 21, 2008, to require U.S. rough diamond importers and exporters to file formal entry summaries for all imports. Companies also must file an annual report of imports, exports and stockpiles with the U.S. Department of State.

    Recommendation: To improve the accuracy of U.S. rough diamond trade data--if U.S. rough diamond exports continue to exceed imports--the Secretaries of State and the Treasury should direct the U.S. Kimberley Process Implementation Coordinating Committee to perform such analysis as is necessary to determine what constitutes a normal excess of exports over imports based on a variety of factors, including market factors such as rough diamond stockpiles and domestic diamond cutting and polishing capacities.

    Agency Affected: Department of the Treasury

  2. Status: Closed - Implemented

    Comments: The relevant agencies informed GAO in July 2008 that, to improve the accuracy of U.S. rough diamond trade data, the Department of State and the U.S. Census Bureau have worked to improve U.S. diamond industry reporting of Kimberley Process certificates. Specifically, they have reviewed Kimberley Process rough diamond trade data monthly, conducted outreach to diamond importers and exporters and worked with jewelry and industry trade associations to inform diamond companies of their obligations to fax Kimberley Process certificates to the U.S. Census Bureau. Their rough diamond trade data improved, with revised U.S. imports exceeding exports in both 2006 and 2007. For example, in 2006, U.S. rough diamond imports totaled 4,313,930 carats worth $816.85 million, while rough diamond exports totaled 3,443, 105 carats worth $544.0 million. In 2007, rough diamond imports totaled 5,307,994 carats worth $896.65 million, while rough diamond exports totaled 3,901,904 carats worth $568.95 million. The U.S. Treasury Department's Office of Foreign Assets Control issued new regulations May 21, 2008, to require U.S. rough diamond importers and exporters to file formal entry summaries for all imports. Companies also must file an annual report of imports, exports and stockpiles with the U.S. Department of State.

    Recommendation: To improve the accuracy of U.S. rough diamond trade data--if U.S. rough diamond exports continue to exceed imports--the Secretaries of State and the Treasury should direct the U.S. Kimberley Process Implementation Coordinating Committee to perform such analysis as is necessary to determine what constitutes a normal excess of exports over imports based on a variety of factors, including market factors such as rough diamond stockpiles and domestic diamond cutting and polishing capacities.

    Agency Affected: Department of Homeland Security: Directorate of Border and Transportation Security: Bureau of Customs and Border Protection

  3. Status: Closed - Implemented

    Comments: In early 2007, CBP began conducting examination of rough and polished diamond shipments on a periodic basis using a random selection process. From January to October 2007, for example, CBP conducted a total of 289 exams. The examination includes a full document review, an examination of packaging and verification of contents. CBP seized 12 rough diamond shipments in 2007. The seized shipments ranged in size from 7 to 11,658 carats. Of these seizures, six cases were administratively forfeited, two cases went through judicial forfeiture and two were closed when it was determined that the diamonds were polished.

    Recommendation: To enhance the U.S. process for inspecting rough diamond imports and exports, the Secretary of Homeland Security should direct the Commissioner of Customs and Border Protection (CBP) to develop and implement a plan for conducting physical inspections of both imports and exports of rough diamonds periodically or regularly, including inspecting the quality of U.S. Kimberley Process certificates.

    Agency Affected: Department of State

  4. Status: Closed - Implemented

    Comments: Relevant agencies also informed GAO in July 2008 that, to enhance the U.S. process for confirming the receipt of U.S. imports with foreign exporting authorities, Customs and Border Protection now provides the Department of State with quarterly reports of rough diamond imports. The Department of State forwards confirmations to foreign exporting authorities. Also, to track receipt of U.S. rough diamond exports, the U.S. Census Bureau began tracking receipt of confirmation of U.S. exports to other KP Participants. Finally, on May 21, 2008, the Department of the Treasury's Office of Foreign Assets Control issued new rough diamond regulations to enhance the U.S. government's oversight of rough diamond imports and exports.

    Recommendation: To enhance the U.S. process for confirming the receipt of U.S. imports with foreign exporting authorities, the Secretaries of State and Homeland Security should develop and implement a plan for confirming the receipt of imports--currently the responsibility of individual importers--and for tracking these confirmations. The system for tracking import confirmation receipts would help enhance Census' data on rough diamond imports and exports.

    Agency Affected: Department of Homeland Security: Directorate of Border and Transportation Security: Bureau of Customs and Border Protection

  5. Status: Closed - Implemented

    Comments: Relevant agencies also informed GAO in July 2008 that, to enhance the U.S. process for confirming the receipt of U.S. imports with foreign exporting authorities, Customs and Border Protection now provides the Department of State with quarterly reports of rough diamond imports. The Department of State forwards confirmations to foreign exporting authorities. Also, to track receipt of U.S. rough diamond exports, the U.S. Census Bureau began tracking receipt of confirmation of U.S. exports to other KP Participants. Finally, on May 21, 2008, the Department of the Treasury's Office of Foreign Assets Control issued new rough diamond regulations to enhance the U.S. government's oversight of rough diamond imports and exports.

    Recommendation: To enhance the U.S. process for confirming the receipt of U.S. imports with foreign exporting authorities, the Secretaries of State and Homeland Security should develop and implement a plan for confirming the receipt of imports--currently the responsibility of individual importers--and for tracking these confirmations. The system for tracking import confirmation receipts would help enhance Census' data on rough diamond imports and exports.

    Agency Affected: Department of the Treasury: Office of Foreign Assets Control

  6. Status: Closed - Implemented

    Comments: Relevant agencies also informed GAO in July 2008 that, to enhance the U.S. process for confirming the receipt of U.S. imports with foreign exporting authorities, Customs and Border Protection now provides the Department of State with quarterly reports of rough diamond imports. The Department of State forwards confirmations to foreign exporting authorities. Also, to track receipt of U.S. rough diamond exports, the U.S. Census Bureau began tracking receipt of confirmation of U.S. exports to other KP Participants. Finally, on May 21, 2008, the Department of the Treasury's Office of Foreign Assets Control issued new rough diamond regulations to enhance the U.S. government's oversight of rough diamond imports and exports.

    Recommendation: To enhance the U.S. process for confirming the receipt of U.S. imports with foreign exporting authorities, the Director of the Office of Foreign Assets Control (OFAC) should revise the pertinent rough diamond trade regulations to reflect the above change.

    Agency Affected: Department of State

  7. Status: Closed - Implemented

    Comments: In July 2008, the Department of State said it had developed an oversight plan and asked the USKPA to develop its own plan to monitor licensees. The plans include regular visits to USKPA licensees, meetings with the USKPA board and telephone and email communications with the USKPA recordkeeping staff. USKPA monthly reports are reviewed for sequential gaps and the U.S. Census Bureau confirms that USKPA licensees are routinely faxing copies of certificates for data collection purposes. USKPA monthly reports are compared to import confirmation information received from foreign importing authorities.

    Recommendation: To enhance the U.S. process for reviewing the activities of USKPA and its licensees who issue Kimberley Process certificates, the Secretary of State should direct the Assistant Secretary, Bureau of Economic and Business Affairs, to implement a plan for reviewing the activities of USKPA and its licensees.

    Agency Affected: Department of Homeland Security

  8. Status: Closed - Implemented

    Comments: In July 2008, the Department of State said it had developed an oversight plan and asked the USKPA to develop its own plan to monitor licensees. The plans include regular visits to USKPA licensees, meetings with the USKPA board and telephone and email communications with the USKPA recordkeeping staff. USKPA monthly reports are reviewed for sequential gaps and the U.S. Census Bureau confirms that USKPA licensees are routinely faxing copies of certificates for data collection purposes. USKPA monthly reports are compared to import confirmation information received from foreign importing authorities.

    Recommendation: To enhance the U.S. process for reviewing the activities of USKPA and its licensees who issue Kimberley Process certificates, the Secretary of State should direct the Directors of USKPA to develop and implement a plan for reviewing the activities of its licensees.

    Agency Affected: Department of the Treasury: Office of Foreign Assets Control

  9. Status: Closed - Implemented

    Comments: In July 2008, the Department of State notified GAO of several actions it has taken to enhance the impact of U.S. diamond-related technical assistance to diamond producing countries mainly in the West Africa region. For example, the Department of State has directed Economic Support Funds to Liberia to develop and implement a system of internal controls for rough diamond exports. The Department of State and USAID has also supported a pilot project to define and strengthen property rights for alluvial diamond miners in Guinea and Central African Republic. State said this activity will strengthen weak regional land administration and the rights registration system, develop enforcement mechanisms for the protection of land tenure and property rights, develop conflict mitigation mechanisms, and create incentives to bring informally mined diamonds into formal export channels. According to State, the pilot project includes a regional component that will examine ways to bring informal and illicit cross-border trade into Kimberley Process channels. U.S. embassies in Guinea, Sierra Leone, and Liberia have supported the Mano River Union states' efforts to provide regional harmonization of tariff and taxation policies. The United States has supported technical experts at the Liberian Bureau of Customs and Excise and the Ministry of Finance to help the Liberian government advance tariff and taxation issues. The Department of State and USAID have also supported the efforts of the Economic Community of West African States to implement a common external tariff and increase regional economic integration.

    Recommendation: To enhance the impact of U.S. diamond-related technical assistance and further curtail illicit rough diamond trading, the Secretary of State should direct the Assistant Secretary, Bureau of African Affairs, to develop and implement a plan for providing some of the diamond-related assistance using a regional approach so that countries within a region can harmonize aspects of their systems for controlling the rough diamond trade across porous borders.

    Agency Affected: Department of State

 

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