[Federal Register Volume 69, Number 184 (Thursday, September 23, 2004)]
[Rules and Regulations]
[Pages 56936-56942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-21329]


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DEPARTMENT OF THE TREASURY

Office of Foreign Assets Control

31 CFR Part 592


Rough Diamonds Control Regulations

AGENCY: Office of Foreign Assets Control, Treasury.

ACTION: Final rule.

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SUMMARY: The Treasury Department's Office of Foreign Assets Control is 
revising the Rough Diamonds Control Regulations previously issued as an 
interim final rule. The regulations carry out the purposes of Executive 
Order 13312 of July 29, 2003, which implemented the Clean Diamond Trade 
Act and the Kimberley Process Certification Scheme for rough diamonds. 
Based on its experience and that of other involved agencies, OFAC is 
revising certain reporting and recordkeeping requirements of the 
regulations.

DATES: Effective Date: September 23, 2004.

FOR FURTHER INFORMATION CONTACT: OFAC's Chief of Policy Planning and 
Program Management, tel.: (202) 622-4855, or Chief Counsel, tel.: (202) 
622-2410.

SUPPLEMENTARY INFORMATION:

Background

    On July 29, 2003, the President issued Executive Order 13312, to 
implement the Clean Diamond Trade Act (Pub. L. 108-19) and the 
multilateral Kimberley Process Certification Scheme for rough diamonds 
(KPCS). The Clean Diamond Trade Act requires the President, subject to 
certain waiver authorities, to prohibit the importation into, and 
exportation from, the United States of any rough diamond not controlled 
through the KPCS. This means shipments of rough diamonds between the 
United States and non-Participants in the KPCS generally are 
prohibited, and shipments between the United States and Participants 
are permitted only if they are handled in accordance with the 
standards, practices, and procedures of the KPCS set out in these 
regulations.
    The Treasury Department's Office of Foreign Assets Control (OFAC), 
acting pursuant to Executive Order 13312 and delegated authority, 
published the Rough Diamonds Control Regulations, 31 CFR part 592 (the 
Regulations), as an interim final rule on August 4, 2003 (68 FR 45777). 
The Regulations, which are described in detail in the preamble to the 
interim final rule, implement the Clean Diamond Trade Act and the KPCS.
    OFAC requested public comments on the Regulations. No public 
comments were received. However, based on its experience and that of 
other agencies that also participate in the implementation and 
administration of the Clean Diamond Trade Act and the KPCS, OFAC is 
revising the Regulations in four respects: (1) To specify that the 
ultimate consignee is responsible for retaining the original Kimberley 
Process Certificate accompanying an importation into the United States; 
(2) to require the ultimate consignee to report the receipt of a 
shipment of rough diamonds to the relevant foreign exporting authority 
within 15 calendar days of the date that the shipment arrived at a U.S. 
port of entry; (3) to advise persons engaged in the diamond trade of a 
pending requirement of U.S. Customs and Border Protection (Customs) 
that customs brokers, importers, and filers making entry of a shipment 
of rough diamonds either submit through Custom's Automated Broker 
Interface (ABI) system the unique identifying number of the Kimberley 
Process Certificate accompanying the shipment or, for non-ABI entries, 
indicate the certificate number on the Customs Form 7501 Entry Summary 
at each entry line; and (4) to clarify the country-of-origin reporting 
requirements for shipments of

[[Page 56937]]

parcels of mixed origin rough diamonds. OFAC is now issuing the 
Regulations as a final rule, incorporating these four revisions and the 
others described below.
    Section 592.301 of the Regulations defines the term Controlled 
through the Kimberley Process Certification Scheme. OFAC is revising 
two subsections of this definition and adding a note to the section. 
First, Sec. 592.301(a)(1) requires, among other things, that a shipment 
of rough diamonds imported into the United States be accompanied by a 
Kimberley Process Certificate validated by the relevant exporting 
authority. The certificate must be presented if demanded by Customs. 
Also, Sec. 592.501 of the Regulations requires a United States person 
importing rough diamonds into the United States to maintain full and 
accurate records of the transaction for at least five years after the 
date of the transaction. OFAC has been advised that persons engaged in 
the diamond trade are uncertain which person should maintain possession 
of the original Kimberley Process Certificate accompanying an 
importation into the United States. To eliminate this uncertainty and 
to facilitate OFAC's and Customs' enforcement efforts, OFAC is revising 
Sec. 592.301(a)(1) to specify that the ultimate consignee reported on 
the Customs Form 7501 Entry Summary or its electronic equivalent filed 
with Customs is responsible for retaining that certificate for a period 
of at least five years from the date of the importation.
    Second, Sec. 592.301(a)(3) of the Regulations originally required 
the importer of record in the United States to confirm receipt of a 
shipment of rough diamonds to the relevant foreign exporting authority. 
OFAC is revising this subsection to specify which person involved in an 
importation is required now to report the receipt of a shipment in an 
effective and timely manner. As revised, Sec. 592.301(a)(3) specifies 
that the ultimate consignee reported on the Customs Form 7501 Entry 
Summary or its electronic equivalent filed with Customs is the person 
responsible for reporting receipt of the shipment to the foreign 
exporting authority. Also, the revised Sec. 592.301(a)(3) now requires 
that the ultimate consignee must report specified information about the 
shipment to the foreign exporting authority within 15 calendar days of 
the date that the shipment arrived at a U.S. port of entry.
    OFAC also is adding a note to Sec. 592.301 to reflect a pending 
Customs requirement that customs brokers, importers, and filers making 
entry of a shipment of rough diamonds either submit through Customs' 
Automated Broker Interface (ABI) system the unique identifying number 
of the Kimberley Process Certificate accompanying the shipment or, for 
non-ABI entries, indicate the certificate number on the Customs Form 
7501 Entry Summary at each entry line. This requirement will take 
effect on November 1, 2004. The submission of the Kimberley Process 
Certificate number will facilitate the Census Bureau's compilation of 
statistical data relating to the importation of rough diamonds.
    Section 592.307 of the Regulations defines the term Kimberley 
Process Certificate to include a requirement that the certificate 
identify the country of origin for a shipment of one or more parcels of 
rough diamonds of unmixed (i.e., from the same) origin. The 
definition's silence with respect to the treatment of a shipment that 
includes a parcel of mixed origin rough diamonds has prompted questions 
from importers as to whether the certificate may be used and how it 
should be completed, in such circumstances. A shipment including a 
parcel of mixed-origin rough diamonds is to be entered into the United 
States with the Kimberley Process Certificate validated by the relevant 
exporting authority, and the certificate need not indicate the 
countries of origin of the diamonds. With respect to such a shipment, 
however, OFAC is adding a note to Sec. 592.307(b) to state that the 
country-of-origin field must be filled in with asterisks. The note also 
advises that the shipment still must comply with all other country-of-
origin reporting requirements imposed by law.
    OFAC is also revising the definition of Effective date in 
Sec. 592.302 of the Regulations in light of the new reporting 
requirements imposed by Sec. 592.301(a)(3), as well as revising 
Sec. 592.801 to reflect the Office of Management and Budget's (OMB) 
issuance of three control numbers authorizing the collections of 
information in the Regulations. Finally, OFAC is revising Sec. 592.602 
to reflect properly the basis upon which the Director of OFAC may 
decide to issue a prepenalty notice and to make other minor 
corrections.

Electronic and Facsimile Availability

    This file is available for download without charge in ASCII and 
Adobe Acrobat readable (*.PDF) formats at GPO Access. GPO Access 
supports HTTP, FTP, and Telnet at fedbbs.access.gpo.gov. It may also be 
accessed by modem dialup at (202) 512-1387 followed by typing ``/GO/
FAC.'' Paper copies of this document can be obtained by calling the 
Government Printing Office at (202) 512-1530. Additional information 
concerning the programs administered by OFAC is available for download 
from the Office's Internet Home Page at: http://www.treas.gov/ofac or 
via FTP at ofacftp.treas.gov. Facsimiles of information are available 
through the Office's 24-hour fax-on-demand service: call (202) 622-0077 
using a fax machine, a fax modem, or (within the United States) a 
touch-tone telephone.

Executive Order 12866, Administrative Procedure Act, Regulatory 
Flexibility Act, and Paperwork Reduction Act

    Because the regulations involve a foreign affairs function, the 
provisions of Executive Order 12866 and the Administrative Procedure 
Act (5 U.S.C. 553) requiring notice of proposed rulemaking, opportunity 
for public participation, and delay in effective date are inapplicable. 
Because no notice of proposed rulemaking is required for this rule, the 
Regulatory Flexibility Act (5 U.S.C. 601-612) does not apply.
    With respect to section 3507 of the Paperwork Reduction Act of 1995 
(44 U.S.C. 3501 et seq.), the collections of information in 
Secs. 592.301(a)(1), 592.501, and 592.603 of the Regulations are made 
pursuant to OFAC's Reporting, Procedures and Penalties Regulations (31 
CFR part 501) and have been approved by OMB under control number 1505-
0164. See 31 CFR 501.901. The collection of information in 
Sec. 592.301(a)(4) relating to the Census Bureau's Foreign Trade 
Statistics Regulations (15 CFR part 30) has been approved by OMB under 
control number 0607-0152. See Automated Export System Mandatory Filing 
for Exports (Reexports) of Rough Diamonds, 68 FR 59877 (Oct. 20, 2003).
    The collection of information in Sec. 592.301(a)(3) of the 
Regulations has been submitted to and approved by OMB pending public 
comment and has been assigned OMB control number 1505-0198. Section 
592.301(a)(3) specifies that the ultimate consignee identified on the 
Customs Form 7501 Entry Summary filed with Customs is required to 
report specified information about the shipment of rough diamonds 
imported into the United States to the foreign exporting authority 
within 15 calendar days of the date that the shipment arrived at a U.S. 
port of entry. This collection of information is needed to monitor the 
integrity of international rough diamond shipments, and the information 
collected will be used to further the compliance, enforcement, and 
civil penalty programs of OFAC,

[[Page 56938]]

U.S. Customs and Border Protection, and the Bureau of Immigration and 
Customs Enforcement. See sections 5(a) and 8 of the Clean Diamond Trade 
Act.
    With respect to all of the foregoing collections of information, an 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless the collection of 
information displays a valid control number.
    The likely respondents and recordkeepers affected by the new 
collection of information in Sec. 592.301(a)(3) are business 
organizations and individuals engaged in the international diamond 
trade. The estimated annual number of respondents and recordkeepers is 
250, and the estimated total annual number of responses is 3,000.
    The estimated total annual reporting and/or recordkeeping burden is 
estimated to be 500 hours. The estimated average annual burden per 
respondent/recordkeeper is 2 hours, based on an estimated annual 
frequency of 10 to 15 responses and an estimated time per response of 
10 minutes.
    Comments are invited on: (a) Whether this collection of information 
is necessary for the proper performance of the functions of the agency, 
including whether the information has practical utility; (b) the 
accuracy of the agency's estimate of the burden of the collection of 
information; (c) ways to enhance the quality, utility, and clarity of 
the information to be collected; (d) ways to minimize the burden of the 
collection of information on respondents, including through the use of 
automated collection techniques and other forms of information 
technology; and (e) estimated capital or start-up costs of operation, 
maintenance, and purchase of services to provide information.
    Comments concerning the above information, the accuracy of these 
burden estimates, and suggestions for reducing this burden should be 
directed to OMB, Attention: Desk Officer for the Department of the 
Treasury, Office of Information and Regulatory Affairs, Washington, DC 
20503, with a copy to Chief of Records, Attention: Request for 
Comments, Office of Foreign Assets Control, Department of the Treasury, 
1500 Pennsylvania Avenue, NW., Washington, DC 20220. Any such comments 
should be submitted not later than November 22, 2004. All comments on 
the collection of information in Sec. 592.301(a)(3) will be a matter of 
public record.

List of Subjects in 31 CFR Part 592

    Administrative practice and procedure, Foreign trade, Exports, 
Imports, Kimberley Process, Penalties, Reporting and recordkeeping 
requirements, Rough diamond.


0
For the reasons set forth in the preamble, 31 CFR chapter V, part 592 
is revised to read as follows:

PART 592--ROUGH DIAMONDS CONTROL REGULATIONS

Subpart A--Relation of This Part to Other Laws and Regulations
Sec.
592.101   Relation of this part to other laws and regulations.
Subpart B--Prohibitions
592.201   Prohibited importation and exportation of any rough 
diamond; permitted importation and exportation of any rough diamond.
592.202   Evasions; attempts; conspiracies.
Subpart C--General Definitions
592.301   Controlled through the Kimberley Process Certification 
Scheme.
592.302   Effective date.
592.303   Entity.
592.304   Exporting authority.
592.305   Importation into the United States.
592.306   Importing authority.
592.307   Kimberley Process Certificate.
592.308   Participant.
592.309   Person.
592.310   Rough diamond.
592.311   United States.
592.312   United States person; U.S. person.
Subpart D--Interpretations
592.401   Reference to amended sections.
592.402   Effect of amendment.
592.403   Transshipment or transit through the United States.
592.404   Importation into or release from a bonded warehouse or 
foreign trade zone.
Subpart E--Records and Reports
592.501   Records and reports.
Subpart F--Penalties
592.601   Penalties.
592.602   Prepenalty notice.
592.603   Response to prepenalty notice; informal settlement.
592.604   Penalty imposition or withdrawal.
592.605   Administrative collection; referral to United States 
Department of Justice.
Subpart G--Procedures
592.701   Procedures.
592.702   Delegation by the Secretary of the Treasury.
Subpart H--Paperwork Reduction Act
592.801   Paperwork Reduction Act notice.

    Authority: 3 U.S.C. 301; 31 U.S.C. 321(b); Pub. L. 108-19, 117 
Stat. 631 (19 U.S.C. 3901-3913); E.O. 13312, 68 FR 45151 3 CFR, 2003 
Comp., p. 246. [FEDREG][VOL]*[/VOL][NO]*[/NO][DATE]*[/
DATE][RULES][RULE][PREAMB][AGENCY]*[/AGENCY][SUBJECT]*[/SUBJECT][/
PREAMB][SUPLINF][HED]*[/HED][REGTEXT][P]*[/P]

Subpart A--Relation of This Part to Other Laws and Regulations


Sec. 592.101  Relation of this part to other laws and regulations.

    This part is separate from, and independent of, the other parts of 
this chapter, with the exception of part 501 of this chapter, the 
recordkeeping and reporting requirements and procedures of which apply 
to this part. Actions taken pursuant to part 501 of this chapter with 
respect to the prohibitions contained in this part are considered 
actions taken pursuant to this part. Differing foreign policy and 
national security circumstances may result in differing interpretations 
of similar language among the parts of this chapter. No license or 
authorization contained in or issued pursuant to those other parts 
authorizes any transaction prohibited by this part. No license or 
authorization contained in or issued pursuant to any other provision of 
law or regulation authorizes any transaction prohibited by this part.

Subpart B--Prohibitions


Sec. 592.201  Prohibited importation and exportation of any rough 
diamond; permitted importation or exportation of any rough diamond.

    (a) Except to the extent provided in paragraph (b) of this section, 
and notwithstanding the existence of any rights or obligations 
conferred or imposed by any contract entered into or any license or 
permit granted prior to the effective date, the importation into, or 
exportation from, the United States on or after July 30, 2003, of any 
rough diamond, from whatever source, is prohibited, unless the rough 
diamond has been controlled through the Kimberley Process Certification 
Scheme.
    (b) The prohibitions in paragraph (a) of this section regarding the 
importation into, or exportation from, the United States of any rough 
diamond not controlled through the Kimberley Process Certification 
Scheme do not apply to an importation from, or exportation to, any 
country with respect to which the Secretary of State has granted a 
waiver pursuant to section 4(b) of the Clean Diamond Trade Act (Pub. L. 
108-19) and section 2(a)(i) of Executive Order 13312.


    Note to Sec. 592.201. An importation of any rough diamond from, 
or an exportation of any rough diamond to, a non-Participant is not 
controlled through the Kimberley Process Certification Scheme and 
thus is not permitted, except in the following circumstance. The 
Secretary of State may, pursuant to section 4(b) of the Clean 
Diamond Trade Act, waive the prohibitions contained in section 4(a) 
of that Act with

[[Page 56939]]

respect to a particular country for periods of not more than one 
year each. The Secretary of State will publish a notice in the 
Federal Register identifying any country with respect to which a 
waiver applies and specifying the relevant time period during which 
the waiver will apply.

Sec. 592.202  Evasions; attempts; conspiracies.

    (a) Notwithstanding the existence of any rights or obligations 
conferred or imposed by any contract entered into or any license or 
permit granted prior to July 30, 2003, any transaction by a United 
States person anywhere, or any transaction that occurs in whole or in 
part within the United States, on or after the effective date that 
evades or avoids, or has the purpose of evading or avoiding, or 
attempts to violate, any of the prohibitions set forth in this part is 
prohibited. ?>
    (b) Notwithstanding the existence of any rights or obligations 
conferred or imposed by any contract entered into or any license or 
permit granted prior to July 30, 2003, any conspiracy formed to violate 
any of the prohibitions of this part is prohibited.

Subpart C--General Definitions


Sec. 592.301  Controlled through the Kimberley Process Certification 
Scheme.

    (a) Except as otherwise provided in paragraph (b) of this section, 
the term controlled through the Kimberley Process Certification Scheme 
refers to the following requirements that apply, as appropriate, to the 
importation into the United States from a Participant, or to the 
exportation from the United States to a Participant, of any shipment 
including any rough diamond:
    (1) Kimberley Process Certificate. A shipment of rough diamonds 
imported into, or exported from, the United States must be accompanied 
by an original Kimberley Process Certificate. The certificate must be 
presented in connection with an importation or exportation of rough 
diamonds if demanded by United States customs officials. Pursuant to 31 
CFR Secs. 501.601 and 501.602, the person identified as the ultimate 
consignee (see Customs Directive 3550-079A) on the Customs Form 7501 
Entry Summary or its electronic equivalent filed with U.S. Customs and 
Border Protection in connection with an importation of rough diamonds 
must retain the original Kimberley Process Certificate for a period of 
at least five years from the date of importation and must make such 
certificate available for examination upon demand.
    (2) Tamper-resistant container. A shipment of rough diamonds 
imported into, or exported, from the United States must be sealed in a 
tamper-resistant container;
    (3) Notification requirements for importations into the United 
States. The person identified as the ultimate consignee (see Customs 
Directive 3550-079A) on the Customs Form 7501 Entry Summary or its 
electronic equivalent filed with U.S. Customs and Border Protection in 
connection with an importation of rough diamonds must report that 
person's receipt of a shipment of rough diamonds to the relevant 
foreign exporting authority within 15 calendar days of the date that 
the shipment arrived at the U.S. port of entry. The report must refer 
to the relevant Kimberley Process Certificate by its unique identifying 
number; specify the number of parcels in the shipment; specify the 
total carat weight of the shipment; and identify the importer and 
exporter of the shipment. The report need not be in any particular form 
and may be submitted electronically or by mail or courier; and
    (4) Validation of Kimberley Process Certificate for exportations 
from the United States. With respect to the exportation of rough 
diamonds from the United States and regardless of the destination, the 
U.S. Census Bureau requires the filing of export information through 
the Automated Export System. Submission of export information through 
the Automated Export System must be done in advance and must be 
confirmed by the return of an Internal Transaction Number. The return 
to the filer of the Internal Transaction Number shall constitute the 
validation of the Kimberley Process Certificate for an exportation of 
rough diamonds from the United States to a Participant. The exporter is 
required to report the Internal Transaction Number on the Kimberley 
Process Certificate accompanying any exportation from the United 
States. The Internal Transaction Number is a unique confirmation number 
generated by the Automated Export System to the filer who provides in a 
timely manner the complete commodity shipment data when such data have 
been accepted by the system.
    (b) The Secretary of State, consistent with section 3(2)(B) of the 
Clean Diamond Trade Act (Pub. L. 108-19), may modify the requirements 
set forth in paragraph (a) of this section upon making a determination 
that a Participant has established an alternative system of control for 
rough diamonds that meets substantially the standards, practices, and 
procedures of the Kimberley Process Certification Scheme.


    Note 1 to Sec. 592.301. The Secretary of State will periodically 
publish in the Federal Register an up-to-date listing of all 
Participants and their importing and exporting authorities. Where 
appropriate, such listing also will describe any modification of the 
requirements set forth in paragraph (a) of this section.


    Note 2 to Sec. 592.301. Pursuant to 31 CFR Secs. 501.601 and 
501.602, the recordkeeping and reporting requirements imposed by 
Sec. 592.501 apply to all U.S. persons engaged in the importation 
into, or exportation from, the United States of any shipment of 
rough diamonds.


    Note 3 to Sec. 592.301. Effective November 1, 2004, customs 
brokers, importers, and filers making entry of a shipment of rough 
diamonds must either submit through U.S. Customs' Automated Broker 
Interface (ABI) system the unique identifying number of the 
Kimberley Process Certificate accompanying the shipment or, for non-
ABI entries, indicate the certificate number on the Customs Form 
7501 Entry Summary at each entry line.

Sec. 592.302  Effective date.

    The term effective date refers to the effective date of the 
applicable prohibitions and directives contained in this part as 
follows:
    (a) With respect to all provisions of this part except for 
Sec. 592.301(a)(3), 12:01 a.m., eastern daylight time, July 30, 2003; 
and
    (b) With respect to Sec. 592.301(a)(3), September 23, 2004.


Sec. 592.303  Entity.

    The term entity means a partnership, association, trust, joint 
venture, corporation, or other organization.


Sec. 592.304  Exporting authority.

    (a) The term exporting authority means one or more entities 
designated by a Participant from whose territory a shipment of rough 
diamonds is being exported as having the authority to validate the 
Kimberley Process Certificate.
    (b) The exporting authority for the United States is the U.S. 
Bureau of the Census.


    Note to Sec. 592.304. The Secretary of State will periodically 
publish in the Federal Register an up-to-date listing of the 
exporting authorities of all Participants.

Sec. 592.305  Importation into the United States.

    The term importation into the United States means the bringing of 
goods into the United States.


Sec. 592.306  Importing authority.

    (a) The term importing authority means one or more entities 
designated by a Participant into whose territory a shipment of rough 
diamonds is being

[[Page 56940]]

imported as having the authority to enforce the laws and regulations of 
the Participant regulating imports, including the verification of the 
Kimberley Process Certificate accompanying the shipment.
    (b) The importing authorities for the United States are the U.S. 
Bureau of Customs and Border Protection or, in the case of a territory 
or possession of the United States with its own customs administration, 
analogous officials.


    Note to Sec. 592.306. The Secretary of State will periodically 
publish in the Federal Register an up-to-date listing of the 
importing authorities of all Participants.

Sec. 592.307  Kimberley Process Certificate.

    The term Kimberley Process Certificate means a tamper- and forgery-
resistant document that bears the following information in any 
language, provided that an English translation is incorporated:
    (a) The title ``Kimberley Process Certificate'' and the statement: 
``The rough diamonds in this shipment have been handled in accordance 
with the provisions of the Kimberley Process Certification Scheme for 
rough diamonds'';
    (b) Country of origin for shipment of parcels of unmixed (i.e., 
from the same) origin;


    Note to paragraph (b). A shipment including a parcel of mixed-
origin rough diamonds is to be entered into the United States with 
the Kimberley Process Certificate accompanying the shipment, and the 
certificate need not indicate the countries of origin of the 
diamonds. With respect to such a shipment, the country-of-origin 
field on the certificate must be filled in with asterisks. The 
shipment must, however, still comply with all other country-of-
origin reporting requirements imposed by statute or regulation.


    (c) Unique numbering with the Alpha 2 country code, according to 
ISO 3166-1;
    (d) Date of issuance;
    (e) Date of expiry;
    (f) Name of issuing authority;
    (g) Identification of exporter and importer;
    (h) Carat weight/mass;
    (i) Value in U.S. dollars;
    (j) Number of parcels in the shipment;
    (k) Relevant Harmonized Commodity Description and Coding System; 
and
    (l) Validation by the exporting authority.


    Note to paragraph (l). See Sec. 592.301(a)(4) for procedures 
governing the validation of the Kimberley Process Certificate when 
exporting from the United States.

Sec. 592.308  Participant.

    The term Participant means a state, customs territory, or regional 
economic integration organization identified by the Secretary of State 
as one for which rough diamonds are controlled through the Kimberley 
Process Certification Scheme.


    Note to Sec. 592.308. The Secretary of State will periodically 
publish in the Federal Register an up-to-date listing of all 
Participants.

Sec. 592.309  Person.

    The term person means an individual or entity.


Sec. 592.310  Rough diamond.

    The term rough diamond means any diamond that is unworked or simply 
sawn, cleaved, or bruted and classifiable under subheading 7102.10, 
7102.21, or 7102.31 of the Harmonized Tariff Schedule of the United 
States.


Sec. 592.311  United States.

    The term United States, when used in the geographic sense, means 
the several States, the District of Columbia, and any commonwealth, 
territory, or possession of the United States.


Sec. 592.312  United States person; U.S. person.

    The term United States person or U.S. person means any United 
States citizen; any alien admitted for permanent residence into the 
United States; any entity organized under the laws of the United States 
or any jurisdiction within the United States (including its foreign 
branches); or any person in the United States.

Subpart D--Interpretations


Sec. 592.401  Reference to amended sections.

    Except as otherwise specified, reference to any provision in this 
part or chapter or to any other regulation refers to the same as 
currently amended.


Sec. 592.402  Effect of amendment.

    Unless otherwise specifically provided, any amendment, 
modification, or revocation of any provision in or appendix to this 
part or chapter or of any order, regulation, ruling, or instruction 
issued by or under the direction of the Director of the Office of 
Foreign Assets Control does not affect any act done or omitted, or any 
civil or criminal suit or proceeding commenced or pending prior to such 
amendment, modification, or revocation. All penalties, forfeitures, and 
liabilities under any such order, regulation, ruling, or instruction 
continue and may be enforced as if such amendment, modification, or 
revocation had not been made.


Sec. 592.403  Transshipment or transit through the United States.

    The prohibitions in Sec. 592.201 apply to the importation into, or 
exportation from, the United States, for transshipment or transit, of 
any rough diamond intended or destined for any country other than the 
United States, unless the shipment is sealed in a tamper-resistant 
container, accompanied by a Kimberley Process Certificate, and leaves 
the United States in the identical state in which it entered. The 
validation, recordkeeping, and reporting procedures applicable to 
importations and exportations do not apply in this case.


Sec. 592.404  Importation into or release from a bonded warehouse or 
foreign trade zone.

    The requirements of the Kimberley Process Certification Scheme 
apply to all imported shipments of a rough diamond, regardless of 
whether they are destined for entry into, or withdrawal from, a bonded 
warehouse or a foreign trade zone of the United States.

Subpart E--Records and Reports


Sec. 592.501  Records and reports.

    For provisions relating to required records and reports, see part 
501, subpart C, of this chapter. Recordkeeping and reporting 
requirements imposed by part 501 of this chapter with respect to the 
prohibitions contained in this part are considered requirements arising 
pursuant to this part.

Subpart F--Penalties


Sec. 592.601  Penalties.

    (a) Attention is directed to section 8 of the Clean Diamond Trade 
Act (the ``Act'') (Pub. L. 108-19), which provides that:
    (1) A civil penalty not to exceed $10,000 per violation may be 
imposed on any person who violates, or attempts to violate, any order 
or regulation issued under the Act;
    (2) Whoever willfully violates, or willfully attempts to violate, 
any order or regulation issued under this Act shall, upon conviction, 
be fined not more than $50,000, or, if a natural person, may be 
imprisoned for not more than 10 years, or both; and any officer, 
director, or agent of any corporation who willfully participates in 
such violation may be punished by a like fine, imprisonment, or both; 
and
    (3) Those customs laws of the United States, both civil and 
criminal, including those laws relating to seizure

[[Page 56941]]

and forfeiture, that apply to articles imported in violation of such 
laws shall apply with respect to any rough diamond imported in 
violation of the Act.

    Note to paragraph (a). As reflected in paragraphs (a)(1) and (2) 
of this section, section 8(a) of the Clean Diamond Trade Act (Pub. 
L. 108-19) establishes penalties with respect to any violation of 
any regulation issued under the Act. OFAC prepenalty, penalty, and 
administrative collection procedures relating to such violations are 
set forth below in Secs. 592.602 through 592.605. Section 8(c) of 
the Act also authorizes the U.S. Bureau of Customs and Border 
Protection and the U.S. Bureau of Immigration and Customs 
Enforcement, as appropriate, to enforce the penalty provisions set 
forth in paragraph (a) of this section and to enforce the laws and 
regulations governing exports of rough diamonds, including with 
respect to the validation of the Kimberley Process Certificate by 
the U.S. Bureau of the Census. The Office of Foreign Assets Control 
civil penalty procedures set forth below are separate from, and 
independent of, any penalty procedures that may be followed by the 
U.S. Bureau of Customs and Border Protection and the U.S. Bureau of 
Immigration and Customs Enforcement in their exercise of the 
authorities set forth in section 8(c) of the Clean Diamond Trade 
Act.


    (b) The criminal penalties provided in the Act are subject to 
increase pursuant to 18 U.S.C. 3571.
    (c) Attention is also directed to 18 U.S.C. 1001, which provides 
that whoever, in any matter within the jurisdiction of the executive, 
legislative, or judicial branch of the Government of the United States, 
knowingly and willfully falsifies, conceals, or covers up by any trick, 
scheme, or device, a material fact, or makes any materially false, 
fictitious, or fraudulent statement or representation or makes or uses 
any false writing or document knowing the same to contain any 
materially false, fictitious, or fraudulent statement or entry shall be 
fined under title 18, United States Code, or imprisoned not more than 
five years, or both.
    (d) Violations of this part may also be subject to relevant 
provisions of other applicable laws.


Sec. 592.602  Prepenalty notice.

    (a) When required. If the Director of the Office of Foreign Assets 
Control has reason to believe that there has occurred a violation of 
any provision of this part or a violation of the provisions of any 
regulation or order issued by or pursuant to the direction or 
authorization of the Secretary of the Treasury pursuant to this part or 
otherwise under the Clean Diamond Trade Act, and the Director 
determines that further civil proceedings are warranted, the Director 
shall notify the alleged violator of the agency's intent to impose a 
monetary penalty by issuing a prepenalty notice. The prepenalty notice 
shall be in writing. The prepenalty notice may be issued whether or not 
another agency has taken any action with respect to the matter.
    (b) Contents of notice--(1) Facts of violation. The prepenalty 
notice shall describe the violation, specify the laws and regulations 
allegedly violated, and state the amount of the proposed monetary 
penalty.
    (2) Right to respond. The prepenalty notice also shall inform the 
respondent of the respondent's right to make a written presentation 
within the applicable 30-day period set forth in Sec. 592.603 as to why 
a monetary penalty should not be imposed or why, if imposed, the 
monetary penalty should be in a lesser amount than proposed.
    (c) Informal settlement prior to issuance of prepenalty notice. At 
any time prior to the issuance of a prepenalty notice, an alleged 
violator may request in writing that, for a period not to exceed sixty 
(60) days, the agency withhold issuance of the prepenalty notice for 
the exclusive purpose of effecting settlement of the agency's potential 
civil monetary penalty claims. In the event the Director grants the 
request, under terms and conditions within his discretion, the Office 
of Foreign Assets Control will agree to withhold issuance of the 
prepenalty notice for a period not to exceed 60 days and will enter 
into settlement negotiations of the potential civil monetary penalty 
claim.


Sec. 592.603  Response to prepenalty notice; informal settlement.

    (a) Deadline for response. The respondent may submit a response to 
the prepenalty notice within the applicable 30-day period set forth in 
this paragraph. The Director of the Office of Foreign Assets Control 
may grant, at his discretion, an extension of time in which to submit a 
response to the prepenalty notice. The failure to submit a response 
within the applicable time period set forth in this paragraph shall be 
deemed to be a waiver of the right to respond.
    (1) Computation of time for response. A response to the prepenalty 
notice must be postmarked or date-stamped by the U.S. Postal Service 
(or foreign postal service, if mailed abroad) or courier service 
provider (if transmitted to the Office of Foreign Assets Control by 
courier) on or before the 30th day after the postmark date on the 
envelope in which the prepenalty notice was mailed. If the respondent 
refused delivery or otherwise avoided receipt of the prepenalty notice, 
a response must be postmarked or date-stamped on or before the 30th day 
after the date on the stamped postal receipt maintained at the Office 
of Foreign Assets Control. If the prepenalty notice was personally 
delivered to the respondent by a non-U.S. Postal Service agent 
authorized by the Director, a response must be postmarked or date-
stamped on or before the 30th day after the date of delivery.
    (2) Extensions of time for response. If a due date falls on a 
federal holiday or weekend, that due date is extended to include the 
following business day. Any other extensions of time will be granted, 
at the Director's discretion, only upon the respondent's specific 
request to the Office of Foreign Assets Control.
    (b) Form and method of response. The response must be submitted in 
writing and may be handwritten or typed. The response need not be in 
any particular form. A copy of the written response may be sent by 
facsimile, but the original also must be sent to the Office of Foreign 
Assets Control Civil Penalties Division by mail or courier and must be 
postmarked or date-stamped, in accordance with paragraph (a) of this 
section.
    (c) Contents of response. A written response must contain 
information sufficient to indicate that it is in response to the 
prepenalty notice and must include the Office of Foreign Assets Control 
identification number listed on the prepenalty notice.
    (1) A written response must include the respondent's full name, 
address, telephone number, and facsimile number, if available, or those 
of the representative of the respondent.
    (2) A written response should either admit or deny each specific 
violation alleged in the prepenalty notice and also state if the 
respondent has no knowledge of a particular violation. If the written 
response fails to address any specific violation alleged in the 
prepenalty notice, that alleged violation shall be deemed to be 
admitted.
    (3) A written response should include any information in defense, 
evidence in support of an asserted defense, or other factors that the 
respondent requests the Office of Foreign Assets Control to consider. 
Any defense or explanation previously made to the Office of Foreign 
Assets Control or any other agency must be repeated in the written 
response. Any defense not raised in the written response will be 
considered waived. The written response also should set forth the 
reasons why the respondent believes the penalty should not be imposed 
or why, if imposed, it should be in a lesser amount than proposed.

[[Page 56942]]

    (d) Failure to respond. Where the Office of Foreign Assets Control 
receives no response to a prepenalty notice within the applicable time 
period set forth in paragraph (a) of this section, a penalty notice 
generally will be issued, taking into account the mitigating and/or 
aggravating factors present in the record. If there are no mitigating 
factors present in the record, or the record contains a preponderance 
of aggravating factors, the proposed prepenalty amount generally will 
be assessed as the final penalty.
    (e) Informal settlement. In addition to or as an alternative to a 
written response to a prepenalty notice, the respondent or respondent's 
representative may contact the Office of Foreign Assets Control as 
advised in the prepenalty notice to propose the settlement of 
allegations contained in the prepenalty notice and related matters. 
However, the requirements set forth in paragraph (f) of this section as 
to oral communication by the representative must first be fulfilled. In 
the event of settlement at the prepenalty stage, the claim proposed in 
the prepenalty notice will be withdrawn, the respondent will not be 
required to take a written position on allegations contained in the 
prepenalty notice, and the Office of Foreign Assets Control will make 
no final determination as to whether a violation occurred. The amount 
accepted in settlement of allegations in a prepenalty notice may vary 
from the civil penalty that might finally be imposed in the event of a 
formal determination of violation. In the event no settlement is 
reached, the time limit specified in paragraph (a) of this section for 
written response to the prepenalty notice will remain in effect unless 
additional time is granted by the Office of Foreign Assets Control.
    (f) Representation. A representative of the respondent may act on 
behalf of the respondent, but any oral communication with the Office of 
Foreign Assets Control prior to a written submission regarding the 
specific allegations contained in the prepenalty notice must be 
preceded by a written letter of representation, unless the prepenalty 
notice was served upon the respondent in care of the representative.


Sec. 592.604  Penalty imposition or withdrawal.

    (a) No violation. If, after considering any response to the 
prepenalty notice and any relevant facts, the Director of the Office of 
Foreign Assets Control determines that there was no violation by the 
respondent named in the prepenalty notice, the Director shall notify 
the respondent in writing of that determination and of the cancellation 
of the proposed monetary penalty.
    (b) Violation. (1) If, after considering any written response to 
the prepenalty notice, or default in the submission of a written 
response, and any relevant facts, the Director of the Office of Foreign 
Assets Control determines that there was a violation by the respondent 
named in the prepenalty notice, the Director is authorized to issue a 
written penalty notice to the respondent of the determination of the 
violation and the imposition of the monetary penalty.
    (2) The penalty notice shall inform the respondent that payment or 
arrangement for installment payment of the assessed penalty must be 
made within 30 days of the date of mailing of the penalty notice by the 
Office of Foreign Assets Control.
    (3) The penalty notice shall inform the respondent of the 
requirement to furnish the respondent's taxpayer identification number 
pursuant to 31 U.S.C. 7701 and that such number will be used for 
purposes of collecting and reporting on any delinquent penalty amount.
    (4) The issuance of the penalty notice finding a violation and 
imposing a monetary penalty shall constitute final agency action. The 
respondent has the right to seek judicial review of that final agency 
action in federal district court.


Sec. 592.605  Administrative collection; referral to United States 
Department of Justice.

    In the event that the respondent does not pay the penalty imposed 
pursuant to this part or make payment arrangements acceptable to the 
Director of the Office of Foreign Assets Control within 30 days of the 
date of mailing of the penalty notice, the matter may be referred for 
administrative collection measures by the Department of the Treasury or 
to the United States Department of Justice for appropriate action to 
recover the penalty in a civil suit in a federal district court.

Subpart G--Procedures


Sec. 592.701  Procedures.

    For procedures relating to rulemaking and requests for documents 
pursuant to the Freedom of Information and Privacy Acts (5 U.S.C. 552 
and 552a), see part 501, subpart E, of this chapter.


Sec. 592.702  Delegation by the Secretary of the Treasury.

    Any action that the Secretary of the Treasury is authorized to take 
pursuant to Executive Order 13312 (FR vol. 68, No. 147, July 31, 2003) 
and any further Executive orders relating to the Clean Diamond Trade 
Act (Pub. L. 108-19) may be taken by the Director of the Office of 
Foreign Assets Control or by any other person to whom the Secretary of 
the Treasury has delegated authority so to act.

Subpart H--Paperwork Reduction Act


Sec. 592.801  Paperwork Reduction Act notice.

    For approval by the Office of Management and Budget (OMB) under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3507) of the information 
collections relating to the recordkeeping and reporting requirements of 
Secs. 592.301(a)(1), subpart C, Sec. 592.501, subpart E, and 592.603, 
subpart F, see Sec. 501.901 of this chapter. The information collection 
requirements in Secs. 592.301(a)(3) and (a)(4), subpart C, have been 
approved by the OMB and assigned control numbers 1505-0198 and 0607-
0152, respectively. An agency may not conduct or sponsor, and a person 
is not required to respond to, a collection of information unless it 
displays a valid control number assigned by OMB.

    Dated: August 20, 2004.
R. Richard Newcomb,
Director, Office of Foreign Assets Control.

    Approved: September 2, 2004.
Juan Zarate,
Assistant Secretary (Terrorist Financing), Department of the Treasury.
[FR Doc. 04-21329 Filed 9-20-04; 10:11 am]
BILLING CODE 4810-25-P