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entitled 'International Trade: Critical Issues Remain in Deterring 
Conflict Diamond Trade' which was released on June 14, 2002.

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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 GAOs 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 industrys 

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.

GAOs assessment of the Kimberley Processs 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 countrys 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 
schemes 

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. governments 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 dIvoire, 

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 

schemes 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.

Industrys Lack of Transparency Also Facilitates Illicit Trade:

The industrys 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, Liberias 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 countrys 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 

industrys 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 countrys 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 years 

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 passengers 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 schemes 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 

schemes 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 schemes 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 schemes 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 schemes 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 participants 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 schemes 

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 GAOs 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 schemes 

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 schemes 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 Savimbis faction 

of UNITA. UNITAs 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 UNITAs 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 Kabilas 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 DRCs 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 DRCs 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 Leones Revolutionary United Front (RUF).

2001:

U.N. Security Council imposes sanctions on Liberia, including a ban on 

diamond exports because of Liberias role in fomenting conflict in 

Western Africa.

Armed incursions of Liberian rebels from Guinea take place in Liberias 

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 

Liberias 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 Leones 

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 Peoples 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 

Africas 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 Developments 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 industrys 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 

worlds 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: Angolas is 

from the diamond mining company Ascorp, Botswanas and Namibias are 

from De Beers, with supporting data from the World Bank, South Africas 

is from the U.S. State Department, with an exchange rate provided by 

the World Bank, and Sierra Leones 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 GAOs draft report 

on Conflict Diamonds. 

In response to the reports 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 GAOs 

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 agencys 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 chairs 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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