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78–621 PDF 2002

S. Hrg. 107–384

ILLICIT DIAMONDS, CONFLICT AND TERRORISM:

THE ROLE OF U.S. AGENCIES IN FIGHTING

THE CONFLICT DIAMOND TRADE

HEARING

BEFORE THE

OVERSIGHT OF GOVERNMENT MANAGEMENT,

RESTRUCTURING, AND THE DISTRICT OF COLUMBIA

SUBCOMMITTEE

OF THE

COMMITTEE ON

GOVERNMENTAL AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

FEBRUARY 13, 2002

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS

JOSEPH I. LIEBERMAN, Connecticut, Chairman

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

MARK DAYTON, Minnesota

FRED THOMPSON, Tennessee

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

PETE V. DOMENICI, New Mexico

THAD COCHRAN, Mississippi

ROBERT F. BENNETT, Utah

JIM BUNNING, Kentucky

JOYCE A. RECHTSCHAFFEN, Staff Director and Counsel

HANNAH S. SISTARE, Minority Staff Director and Counsel

DARLA D. CASSELL, Chief Clerk

SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT MANAGEMENT,

RESTRUCTURING, AND THE DISTRICT OF COLUMBIA

RICHARD J. DURBIN, Illinois, Chairman

DANIEL K. AKAKA, Hawaii

ROBERT G. TORRICELLI, New Jersey

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

MARK DAYTON, Minnesota

GEORGE V. VOINOVICH, Ohio

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

PETE V. DOMENICI, New Mexico

THAD COCHRAN, Mississippi

MARIANNE CLIFFORD UPTON, Staff Director and Chief Counsel

SUSAN S. HARDESTY, Professional Staff Member

ANDREW RICHARDSON, Minority Staff Director

JOHN SALAMONE, Minority Professional Staff Member

JULIE L. VINCENT, Chief Clerk

(III)

C O N T E N T S

Opening statements: Page

Senator Durbin ................................................................................................. 1

Senator Collins ................................................................................................. 3

Prepared statement:

Senator Voinovich ............................................................................................. 2

WITNESSES

WEDNESDAY, FEBRUARY 13, 2002

Hon. Russell Feingold, a U.S. Senator from the State of Wisconsin ................... 4

Hon. Mike DeWine, a U.S. Senator from the State of Ohio ................................. 6

Hon. Judd Gregg, a U.S. Senator from the State of New Hampshire ................. 8

Hon. John E. Leigh, Ambassador of Sierra Leone to the United States ............. 10

Hon. Joseph Melrose, former U.S. Ambassador to Sierra Leone ......................... 12

Loren Yager, Director, International Affairs and Trade, U.S. General Accounting Office ............................................................................................................... 20

Alan Eastham, Special Negotiator for Conflict Diamonds, U.S. Department

of State .................................................................................................................. 21

Timothy Skud, Acting Deputy Assistant Secretary for Regulation, Tariff, and

Trade Enforcement, U.S. Department of the Treasury ..................................... 23

James Mendenhall, Deputy General Counsel, U.S. Trade Representative ........ 24

ALPHABETICAL LIST OF WITNESSES

DeWine, Hon. Mike:

Testimony .......................................................................................................... 6

Prepared statement .......................................................................................... 36

Eastham, Alan:

Testimony .......................................................................................................... 21

Prepared statement .......................................................................................... 66

Feinbold, Hon. Russell:

Testimony .......................................................................................................... 4

Prepared statement .......................................................................................... 33

Gregg, Hon. Judd:

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 39

Leigh, Hon. John E.:

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 41

Melrose, Hon. Joseph:

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 45

Mendenhall, James:

Testimony .......................................................................................................... 24

Prepared statement .......................................................................................... 75

Skud, Timothy:

Testimony .......................................................................................................... 23

Prepared statement .......................................................................................... 71

Yager, Loren:

Testimony .......................................................................................................... 20

Prepared statement .......................................................................................... 48

Page

IV

APPENDIX

Hon. Tony P. Hall, Ohio, and Hon. Frank R. Wolf, Virginia, Representatives in Congress, prepared statement ........................................................ 78

(1)

ILLICIT DIAMONDS, CONFLICT AND TERRORISM: THE ROLE OF U.S. AGENCIES IN

FIGHTING THE CONFLICT DIAMOND TRADE

WEDNESDAY, FEBRUARY 13, 2002

U.S. SENATE,

OVERSIGHT OF GOVERNMENT MANAGEMENT, RESTRUCTURING,

AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE,

OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS, Washington, DC.

The Committee met, pursuant to notice, at 9:30 a.m., in room

SD–342, Dirksen Senate Office Building, Hon. Richard J. Durbin,

Chairman of the Subcommittee, presiding.

Present: Senators Durbin and Collins.

OPENING STATEMENT OF SENATOR DURBIN

Senator DURBIN. Good morning. I am pleased to welcome you to

today’s hearing before the Subcommittee on Oversight of Government Management focusing on ‘‘Illicit Diamonds, Conflict and Terrorism: The Role of U.S. Agencies in Fighting the Conflict Diamond

Trade.’’

In today’s hearing, I hope we will learn more about the connection between illicit diamonds, conflict, terrorism, and crime, and

what U.S. agencies are doing to stop this trade in conflict diamonds, both here and overseas. I want to learn more about how an

international system to control the conflict diamond trade can be

effective, monitored, and enforced.

We have learned a lot about the horror that has resulted when

illicit diamonds fueled conflicts in Africa. Rebels from the Revolutionary United Front, funded by illegal diamonds and supported by

Liberia, terrorized the people of Sierra Leone, raping, murdering,

and mutilating civilians, including children. If the fragile peace in

Sierra Leone is to be maintained, profits from that country’s diamonds must not fall into the hands of such brutal rebels again.

Anti-government rebels in Angola and the Democratic Republic of

the Congo continue to fight and are also supported by the sale of

illicit diamonds.

We have learned that members of al Qaeda network may have

bought large quantities of these illegal conflict diamonds from

rebels in Sierra Leone in advance of September 11 last year, anticipating the United States would seek to cut off its sources of funds.

An article in the Washington Post by Douglas Farah on November

2 outlined the al Qaeda connection and showed that al Qaeda terVerDate 11-MAY-2000 10:44 Oct 21, 2002 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 78621.TXT SAFFAIRS PsN: SAFFAIRS
2

rorists on the FBI’s ‘‘most wanted’’ list bought conflict diamonds at

below-market prices and sold them in Europe.

We have learned that the Lebanese terrorist group Hezbollah has

participated in the conflict diamond trade and that it has been a

source of funding and a way to launder funds for drug dealers and

other criminals.

It is now clear that ending the trade in conflict diamonds is not

only the just, right, and moral thing to do, it is also in our immediate national interest in our fight against terror. If the crisis in

Afghanistan has taught us anything, it must be that we ignore

failed, lawless states at our peril.

American consumers who purchase diamonds for happy milestones in their lives, like an engagement, wedding, anniversary, or

even Valentine’s Day, must be assured they are buying a diamond

from a legitimate, legal, and responsible source. Setting up a system that would allow American consumers to have confidence that

they are buying clean diamonds would also serve our local jewelers

and diamond retailers. The jewelers in our local malls and downtown shops do not want to support rebels and terrorists in the

world any more than their consumers do.

This hearing is not about a particular piece of legislation. Our

first panel is made up of a bipartisan group of Senators who have

supported legislation to end the trade in conflict diamonds. There

are not many issues that bring together Senators and Congressmen

from across the spectrum, that can bring together the human

rights community and the diamond industry and can unite leaders

of every religious denomination.

The horror of what has happened to the people of Sierra Leone,

and especially to its children, has brought us together to fight this

evil by cutting off the rebels’ source of support, the illicit diamond

trade. Now it brings us together to fight the terrorists who have

murdered our own citizens in our own country.

At this point, without objection, I will enter a statement from

Senator Voinovich in the record.

[The prepared statement of Senator Voinovich follows:]

PREPARED STATEMENT OF SENATOR VOINOVICH

Thank you, Mr. Chairman.

I would like to thank you for holding this hearing to examine the sale of ‘‘conflict

diamonds,’’ and the role the U.S. Government might play in combating this illicit

trade. I would also like to welcome our three panels of distinguished witnesses, including the senior Senator from the State of Ohio, who has played an important

leadership role on this issue in the Senate. Thank you all for taking the time to

be here today.

It is clear that the sale of conflict diamonds—mined by rebel factions in the countries of Sierra Leone, the Democratic Republic of Congo (DRC) and Angola—has had

a devastating impact on political stability in West Africa. The struggle to control

these rich resources continues to contribute to instability, death and destruction

throughout the region. There have been untold consequences for thousands of innocent men, women and children.

In Sierra Leone alone, the U.S. Government has documented chilling reports of

atrocities committed by the rebel group Revolutionary United Front (RUF). The

State Department’s 2000 Human Rights Report attributes killings, abductions, deliberate mutilations and rape to RUF insurgents.

The destabilizing influence of the illicit trade in conflict diamonds has become

even more pronounced in the aftermath of the terrorist attacks against the United

States on September 11. As press reports have indicated, it is believed that conflict

3

diamonds are used as a source of funding for al Qaeda, Hezbollah and other terrorist groups.

Diamonds are easy to transport, difficult to detect and relatively simple to sell.

It is reported that conflict diamonds from Sierra Leone, the Democratic Republic of

Congo and Angola are bought on the cheap in Liberia by al Qaeda operatives, and

then sold for high profits in Europe. It can be difficult to predict exactly where these

profits go; but as events of September 11 have shown us, the consequences can be

monumental.

Presently, the U.S. Government is working with the international community,

through the Kimberley Process, to find a way to govern international trade in rough

diamonds in order to end the trade in conflict diamonds. I support these efforts, as

well as those initiated by Congress to examine ways to curb this illicit trade.

I look forward to learning your thoughts on how the United States might effectively enforce a regulatory system to prohibit the sale of conflict diamonds. We must

bring an end to the bloodshed tied to the diamond trade.

Senator DURBIN. I would just like to say before recognizing Senator Collins that Senator Feingold and Senator DeWine have joined

us. We have worked closely with Congressman Tony Hall, who has

been a leader on this subject. We are happy with the recent announcement of his appointment as an ambassador representing the

United States for the United Nations in Rome. We are going to

miss him on Capitol Hill. He has been a great leader in the time

that he has served here in so many different areas involving hunger and international justice and he was the inspiration for almost

all of the legislation that is before us on the diamond issue. We

cannot let Congressman Hall’s departure in any way lessen our resolve to pass this legislation as quickly as possible.

We can set up metal detectors in every doorway in the world and

diamonds will still pass through them. We can talk about tracing

every financial transaction of every group, and still someone with

a handful of diamonds in their pocket is walking around with the

resources of terrorism if that is their goal. So this is an important

responsibility and an important challenge. I am glad this hearing

will address it.

Senator Collins.

OPENING STATEMENT OF SENATOR COLLINS

Senator COLLINS. Thank you very much, Mr. Chairman. Let me

first begin by thanking you for your longstanding leadership in

combating the trade in illicit diamonds, and I thank you for convening this hearing.

The subject, the control of trade in illicit diamonds, is both tragic

and timely, timely not only because tomorrow is Valentine’s Day,

a day long associated with diamonds and the values and commitments they represent, but also timely because news articles have

linked illicit diamonds to Osama bin Laden and his terrorist network. Even without the link to Osama bin Laden, however, the

trade of illicit diamonds is often tragic, for it has fueled conflicts

that have raged, often out of control, across large parts of Africa,

killing, maiming, and devastating thousands of innocent victims.

I understand that Senator DeWine this morning will tell us

about one of the horrific effects the illicit diamond trade has had

on children, who have been murdered, mutilated, raped, even

burned alive, and of children who have been turned into perpetrators of these heinous crimes. In addition to Senator DeWine and

our Chairman, Senator Feingold, who is here with us this morning,

4

1The prepared statement of Congressmen Hall and Wolf appears in the Appendix on page 78.

1The prepared statement of Senator Feingold appears in the Appendix on page 33.

and Senator Gregg have also been strong leaders in trying to end

the trade in conflict diamonds.

Let me take just a moment to highlight a few statistics that I

believe paint a chilling portrait of the extent of this problem. A

Congressional Research Service fact sheet provided the following

estimates on some of the consequences of diamond-related African

conflicts in just three countries, Sierra Leone, Angola, and the

Democratic Republic of the Congo. There have been more than

870,000 deaths. It has created 992,000 refugees, displaced more

than five million citizens internally, resulted in 20,000 child soldiers. These numbers are, of course, imprecise and are just estimates. The frightening reality, however, is that the actual numbers

are probably much higher.

In light of this devastation, it is encouraging to note that some

developments are occurring. In the international arena, the Kimberley Process is underway, and although it is not perfect, it does

appear to be a step in the right direction.

In Congress, there is also forward movement. The House recently

passed the Clean Diamond Trade Act and the bill introduced by

our Chairman and cosponsored by Senator DeWine and Senator

Feingold, as well as another bill introduced by Senator Gregg, are

also in committees and I hope that this hearing will prompt action

on these important bills.

I look forward to learning from all of you this morning about the

tragic, deadly trade in conflict diamonds, and again, Senator Durbin, I want to thank you for giving us the opportunity to do our

part to reduce the trade in illicit diamonds.

Senator DURBIN. Thank you, Senator Collins.

I am sorry that Congressman Hall will not be here for the reason

I mentioned earlier, and also Congressman Frank Wolf, who has

been a leader in the House. I have spoken to him. He will not be

able to join us today, but they will submit statements for the hearing record.1

Senator Russ Feingold is here, as well as Senator DeWine. Senator Feingold is chairman of the African Affairs Subcommittee on

the Foreign Relations Committee. We are happy to have you both

here, and Senator Feingold and Senator DeWine, if you would like

to make your statements.

TESTIMONY OF HON. RUSSELL FEINGOLD,1 A U.S. SENATOR

FROM THE STATE OF WISCONSIN

Senator FEINGOLD. Thank you very much, Mr. Chairman and

Senator Collins. I want to thank you for inviting me to testify before the Subcommittee today and especially to thank you for all

your efforts to push for serious, viable mechanisms to disrupt the

global trade in conflict diamonds. It has truly been a pleasure to

work with you, Mr. Chairman, and you, Senator DeWine, on this

issue over the past year. I admire your leadership on the issue and

I very much hope that we can continue to work together, as the

Chairman said, to pass the best possible bill in the months ahead.

5

I also want to echo what the Chairman said about the leadership

of Congressmen Tony Hall and Frank Wolf. This issue would probably have languished in obscurity for far too long had we not had

their leadership on this issue.

Mr. Chairman, the first time that you, Senator DeWine, and I

came together to discuss this issue was last June, when we joined

to introduce a bill that had the support of both the advocacy community and the diamond industry. As I noted then as Chairman of

the Senate Foreign Relations Committee’s Subcommittee on African Affairs, I have actually had the opportunity to travel to Angola,

to the Democratic Republic of the Congo, and to Sierra Leone. In

each of these cases, I have personally witnessed the devastation

brought by conflicts fueled in large part by a desire for profit, and

I have heard from people who believe their country’s resources to

actually be a curse.

But at the same time, over the years that I have served on the

African Affairs Subcommittee, I have also worked on issues relating to countries like South Africa and Botswana. These states depend upon legitimate diamond industries to fuel economic growth

and development and their interests also deserve protection.

I believed then as I believe now that our national values and national interest demand that the United States disassociate itself

from the trade in conflict diamonds. The United States must work

with the rest of the international community to regulate the diamond trade and create a clean stream for the legitimate diamond

industry and consumers to rely upon.

In the months since that press conference, my sense of urgency

about this has only grown. As you have both indicated, press reports have raised serious questions about the connections between

international terrorists and the illicit diamond trade, and this

should come as no surprise.

In the Foreign Relations Committee, the Subcommittee on African Affairs has just embarked on a series of hearings to be conducted over the course of this year, prompted by the current campaign against terrorism. In the wake of the attacks of September

11, the President was right to make clear that the United States

will not distinguish between the terrorists behind the attacks and

those who harbor them.

But state sponsors are only part of the problem. The absence of

a functioning state is another. So the subcommittee’s hearings will

examine the characteristics of some of Africa’s weakest states—

manifestations of lawlessness, such as piracy, illicit air transport

networks, and trafficking in arms, drugs, diamonds and other

gemstones, and even people—that can make the region attractive

to terrorists and other international criminals.

Our subcommittee is trying to identify long-term policy options

for changing the context in these states so that they are no longer

appealing to criminal opportunists. Somalia is the first case the

subcommittee took up, but I have no doubt that later hearings will

focus on Liberia and the Democratic Republic of the Congo, countries involved in the conflict diamond trade. The right policy response to these complex crises will be distinct, nuanced, and multifaceted, but it will also entail efforts to address some of the transnational criminal networks that operate in weak states. The illicit

6

1The prepared statement of Senator DeWine appears in the Appendix on page 36.

diamond trade is a perfect example, and that is why I am so glad

you are holding this hearing today.

I am particularly glad that you will be hearing from the administration, because Congress needs to understand the position that

U.S. negotiators are taking at the Kimberley Process negotiations,

which Senator Collins referred to. And the administration needs to

understand the will of Congress and the depth of our concern. I

know that Worldvision, one of the NGOs working on the conflict

diamonds issue, recently issued a report card on progress toward

eliminating conflict diamonds. It gives process participants high

marks in some areas, but fails them in others, particularly noting

that the United States is fighting a diamond certification system

that might be viewed as a so-called restriction on trade. This concern appears to have led to an abandonment of the clean stream

approach, which leaves me wondering how the industry and U.S.

consumers would be protected.

Mr. Chairman, I know that many had hoped to see this legislation passed by Congress and signed by the President last year.

That was my hope, as well, and I think yours, as well. But this

issue is an important one and we must take the time to make our

beset efforts. That said, I want to be very clear. I will certainly not

let the perfect be the enemy of the good in this area of conflict diamonds legislation.

I look forward to reading the hearing transcript and consulting

with the Subcommittee, my colleagues on the Senate Foreign Relations Committee, and, of course, with Senators Gregg and DeWine

after the hearing is over. Thank you very much, Mr. Chairman.

Senator DURBIN. Thank you, Senator Feingold. I know you have

another meeting and if you have to leave, that is understood.

I would like to now recognize Senator DeWine.

TESTIMONY OF HON. MIKE DeWINE,1 A U.S. SENATOR FROM

THE STATE OF OHIO

Senator DEWINE. Mr. Chairman, thank you very much, thank

you and Senator Collins for holding this hearing and for your dedication to this issue. Let me also congratulate Senator Feingold and

thank him, as well as Senator Gregg.

As you pointed out, Congressmen Tony Hall and Frank Wolf in

the House have been real champions of this issue and very visionary and I would ask unanimous consent that their statements,

which I have here, be made a part of the record.

Senator DURBIN. Without objection.

Senator DEWINE. The diamond trade, Mr. Chairman, is one of

the world’s most lucrative industries. With its extreme profitability,

it is not surprising that a black market trade has emerged alongside the legitimate industry. It is also not surprising that diamond

trading has become an attractive and sustainable income source for

violent rebel groups and terrorist networks around the world. The

sale of illicit diamonds has yielded disturbing reports in the media,

linking even Osama bin Laden to this trade. The February 22,

2001, U.S. District Court trial, United States v. Osama bin Laden,

7

attests to this. Additionally, there is an established link between

Sierra Leone’s diamond trade and well-known Lebanese terrorists.

Currently in Africa, where the majority of the world’s diamonds

are found, there is ongoing strife and struggle resulting from the

fight for control of this precious gem. While violence has erupted

in several countries, including Sierra Leone, Angola, the Congo,

and Liberia, Sierra Leone in particular has one of the worst records

of violence.

In this nation, rebel groups, most notably the Revolutionary

United Front, have seized control of many of the country’s diamond

fields. Once in control of a diamond field, the rebels confiscate the

diamonds. Then they launder them into the legitimate market

through other nearby countries, such as Liberia, and ultimately,

then, finance their own terrorist regimes and their continued efforts to overthrow the government. Over the past decade, the rebels

reaped the benefits of, it is estimated, at least $10 billion in smuggled diamonds, and that is billions.

Since the start of the rebel’s quest for control of Sierra Leone’s

diamond supply, the children of this small nation have borne the

brunt of the insurgency. For over 8 years, the RUF has conscripted

children, children often as young as 7 or 8 years old, to be soldiers

in their makeshift army. They have ripped an estimated 12,000

children from their families. After the RUF invaded the capital of

Freetown in January 1999, at least 3,000 children were reported

missing.

Mr. Chairman, as a result of deliberate and systematic brutalization, child soldiers have become some of the most vicious, even

the most effective, fighters within the rebel factions. The rebel

army, child soldiers included, has terrorized Sierra Leone’s population, killing, abducting, raping, and hacking off the limbs of victims with their machetes. This chopping off of limbs is the RUF’s

trademark strategy.

Now, we can do something about this. We can make a difference.

We have the power to help put an end to indiscriminate suffering

and violence in Sierra Leone and elsewhere in Africa. As the

world’s biggest diamond customer, purchasing the majority of the

world’s diamonds, the United States has tremendous clout. With

that clout, we have the power to remove the lucrative financial incentives that drive the rebel groups to trade in diamonds in the

first place. Simply put, if there is no market for their diamonds,

there is little reason for the rebels to engage in their brutal campaigns to secure and protect these diamonds.

That is why I will continue to work with you, with the other

Members of this Committee, the other Members who are involved

in this battle. Senator Gregg and Senator Feingold have been

working along with us on strong legislation which would remove

the rebel’s market incentives. We need to work together with the

international community to facilitate the implementation of a system of controls on the export and import of diamonds so that buyers can be certain that their purchases are not fueling the rebel

campaign.

Mr. Chairman, before I conclude my remarks, I want to again

thank my colleague from Ohio, Congressman Tony Hall, and Congressman Frank Wolf from Virginia for the tireless efforts that

8

1The prepared statement of Senator Gregg appears in the Appendix on page 39.

they have made to fight the conflict diamond trade. They both

wanted to be here today, although their schedules would not permit

it. In their absence, I would, again, as I said, like to submit their

statements for the record.

Let me just say, also, that Congressman Hall announced yesterday that he has agreed to be our next ambassador to the U.N.’s

Food and Agriculture Agency. We are going to miss him certainly

in the U.S. Congress, but I am confident that he will continue his

unbelievable commitment to humanitarian initiatives and helping

those suffering from hunger and human abuses around the world.

Again, Mr. Chairman, thank you for holding this hearing. We

have an obligation, I believe a moral obligation and responsibility,

to help eliminate the financial incentives for the illicit traders. We

owe it to those who unwittingly buy conflict diamonds. But more

importantly, we owe it to the children who have suffered far too

long.

Senator DURBIN. Thank you, Senator DeWine, and we understand you also have a conflict and will have to leave us, but you

have been a great friend and ally in this fight.

Senator Gregg, I am glad you could be here because I think that

you showed an interest in this issue and initiative early on and I

am glad that you are still maintaining that interest and contributing to this conversation. We welcome your testimony.

TESTIMONY OF HON. JUDD GREGG,1 A U.S. SENATOR FROM

THE STATE OF NEW HAMPSHIRE

Senator GREGG. Thank you, Mr. Chairman and Senator Collins.

It is a pleasure to be here. I want to begin by congratulating you,

Mr. Chairman, on your legislation in this area, which I was happy

to join you in, and talk a little bit about the necessity of passing

this legislation, getting it through the Senate and getting it joined

up with the House language so that we can have laws which control illegal diamonds and conflict, or blood diamonds, which are essentially the same.

I got into this issue about 21⁄2 or 3 years ago as a result of my

chairmanship of the Commerce, State, and Justice Appropriations

Subcommittee. At that time, the war in Sierra Leone was going forward and the United Nations was pursuing a policy which was, in

my opinion, misguided, it essentially empowered the RUF and

Foday Sankoh, allowing them into the government and allowing

them to dominate that country. As a result, at that time, I put a

freeze on the peacekeeping funds in that region. The result of this

was that we reached an agreement between the Congress and thenU.N. Ambassador Holbrook which essentially changed the policy towards the RUF in Sierra Leone, which I thought was an extremely

positive step.

The purpose of the new policy was to put in place a democratic

government that was not influenced by the RUF, an organization

which has been described by Senator DeWine in the harsh details

that it should be described in, an organization which is a terrorist

organization and which treats its people and treats especially the

women and children of Sierra Leone in the harshest way.

9

But the new policy, which was really driven in large part by the

British Government, which I want to congratulate publicly for their

role in this, has put in place a much more responsible approach to

Sierra Leone. As a result, the United Nations’ new policy is seeing

significant progress, although I am not as sure it is as significant

as maybe the press releases would promote it. But at least it is significant progress in the right direction.

However, there remains one major issue in this whole complex

question which has not been adequately resolved and that is the

issue of the RUF’s control over the diamond fields and the fact that

the resources that are being generated from those. The revenues

from selling those diamonds are clearly flowing into terrorist hands

which are then being used to attack us in the United States.

I think if the American people understood that when they buy

a diamond in the United States that happens to be a blood diamond or a conflict diamond, that they are actually underwriting

the type of people who attacked the World Trade Center, Americans would be much more responsive to the need to do something

in this area. Certainly you, Mr. Chairman and Senator Collins, understand the importance of this.

Thus, the attempt by the legitimate diamond trade, which is trying to address this through the Kimberley Accords, to find a way

of managing these diamonds, is something we must encourage. We

as a country must have our own laws that encourage it. As Senator

DeWine mentioned, we are the largest importer of diamonds in the

world and, therefore, we have the market and if we make it clear

that our market is not going to tolerate conflict and blood diamonds, then we will have an impact on the flow of those diamonds.

The problems, however, are not easily resolved. Diamonds are

not easily traced. There is no system in place yet which can mark

a diamond effectively that would allow it to be easily traced. Thus

we must, to some degree, rely on the good intentions and will of

the diamond marketers, especially the European diamond marketers. But in any event, we should clearly have a law that makes the

point that we, as a Nation, are only going to tolerate the importation of non-conflict diamonds.

In addressing this issue, we also have to be sensitive and aware

of the fact that it is not just the Sierra Leone diamond fields that

are the issue here. There are other diamond fields, but there are

also other governments involved here that are having a negative effect and that is clearly the government of Liberia. We as a country

need to address that problem. Charles Taylor and his government

have denied supporting the RUF, but they clearly are involved with

the RUF and they are also clearly profiting from RUF activities in

the diamond fields and are today profiting from their own exploitation of their timber products. We, as a Nation, need to address

that issue as part of a coherent and comprehensive policy towards

the conflict in Sierra Leone, diamond production, and conflict diamonds.

So I do not believe we can effectively resolve the question of conflict diamonds and the flow of the resources and the revenues from

conflict diamonds to terrorists unless we also address the issue of

what is happening in Liberia and its being an umbrella organizaVerDate 11-MAY-2000 10:44 Oct 21, 2002 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6601 78621.TXT SAFFAIRS PsN: SAFFAIRS
10

1The prepared statement of Ambassador Leigh appears in the Appendix on page 41.

tion which protects the RUF’s control over the diamond fields in Sierra Leone.

I appreciate this Subcommittee drawing attention to this issue.

It is a very important issue, in my opinion. It goes to our national

security, but more importantly, it goes to having the people of Sierra Leone have an opportunity to have a decent life and a free society.

Senator DURBIN. Thank you very much, Senator Gregg. We appreciate your testimony and your commitment to this issue.

The beep that you heard earlier is an indication that we are on

a roll call vote, which is usually not too unsettling but for the fact

that we have four roll calls. This means that we are going to have

to stand in recess here for an indeterminate period of time, probably in the range of 30 to 45 minutes. I apologize. It was unexpected. We will return. Someone said that before—General MacArthur. [Laughter.]

We will return and I hope that each of you can stay with us for

this important hearing. The Subcommittee will stand in recess.

[Recess.]

Senator DURBIN. Thank you for your patience. There is still another roll call vote coming, but I decided to come back and try to

get started with our second panel. I again apologize for this inconvenience and I ask your indulgence.

I would like to now welcome our second panel, the Hon. John

Leigh, Ambassador of Sierra Leone to the United States, and the

Hon. Joseph Melrose, former U.S. Ambassador to Sierra Leone,

who both have firsthand understanding of the scourge conflict diamonds helped fuel in Sierra Leone. I want to thank you very much,

both of you, for coming.

It is customary in this Subcommittee to swear in all witnesses

and I ask you to please stand and raise your right hand. Do you

swear the testimony you are about to give before this Subcommittee is the truth, the whole truth, and nothing but the truth,

so help you, God?

Ambassador LEIGH. I do.

Ambassador MELROSE. I do.

Senator DURBIN. Let the record reflect that the witnesses have

answered in the affirmative.

I would ask you if you could try to limit your oral statements and

then questions will follow. Ambassador Leigh, would you please

proceed.

TESTIMONY OF HON. JOHN E. LEIGH,1 AMBASSADOR OF

SIERRA LEONE TO THE UNITED STATES

Ambassador LEIGH. Thank you, Senator Durbin. Members of the

Committee, ladies and gentlemen, we the people of Sierra Leone

and the people of African countries really appreciate the work of

this Senate Subcommittee in focusing attention on the continued

devastation caused by conflict diamonds in Africa.

The international diamond trade is big business. The worldwide

retail trade in diamond jewelry was estimated at approximately

$60 billion in 1999. Conflict diamonds account for anywhere from

11

4 to 15 percent. That is about from $2.4 billion to $9 billion at the

retail level. The total portion that is accounted for by illicit or contraband diamonds from all sources, including conflict diamonds, is

estimated at 20 percent, or nearly $24 billion annually.

Seventy percent of the world trade in diamonds is created in the

United States. It is my view that the large role which contraband

diamonds occupy in the diamond trade is behind the stiff resistance

to the effective reform of the international diamond trade. Contraband diamonds have been a prominent feature of the diamond

trade for many years, many decades, and it is the real precursor

of conflict diamonds. So for us to address the issue of conflict diamonds, we must address also the issue of contraband diamonds. It

is the freedom which the contraband diamonds enjoyed that ultimately led to the situation of conflict diamonds.

In my view, it is the illicit diamond trade that was behind the

collapse of state power in Sierra Leone. Beginning in 1965, diamond exports from Sierra Leone officially declined from 1.3 million

carats annually to genuine gemstones—to only 20,000 carats of industrial diamonds by 1997. Gemstone production was unaccounted

for, for many years. All those stones were accounted for, depriving

the government of Sierra Leone of the revenues it needed to fund

social and economic development.

With a weak government in place, people began to use the situation to fake a civil war. For nearly a decade, beginning in March

1991, a ragtag rebel group calling itself the Revolutionary United

Front purported to wage a civil war for the purpose of bringing democracy, economic and social development in my homeland. What

we know is that at some point the rebels gained control of an area

in Eastern Sierra Leone where alluvial diamonds are present.

Things have never been the same in Sierra Leone since that time.

With their easy access to diamonds, it did not take too long for

the rebels of the area to become a well-equipped army of several

thousand trained troops unleashing a reign of terror against the

people and government of Sierra Leone. Their objective was to gain

access to even more diamond deposits, and eventually to overthrow

the elected government and establish an outlaw state. Had the

RUF succeeded, Sierra Leone would today be another sanctuary for

terrorists and elements of the international Mafioso in West Africa

and populated by people with no rights and by violated people.

The calling card of the RUF was the kidnapping of women and

girls for sex and domestic servitude and the capture of young boys

to serve as child soldiers. In Sierra Leone, the RUF put child soldiers in front of the attacking troops. Those kids were the ones who

took the brunt of the casualties in the war in Sierra Leone. The

RUF sent children to face government and ECOMOG troops. The

consequent devastation to the youths of Sierra Leone is beyond

words.

Contraband diamonds come from many countries, but conflict

diamonds come from only a few countries, supposedly blessed with

easily accessible diamonds in alluvial plains. Alluvial diamonds are

deposits of diamonds occurring in lowland areas, in old river beds,

in the beds of streams and rivers and in wide swaths of forested

lands. We believe that about 8,000 square miles of Sierra Leone

12

1The prepared statement of Ambassador Melrose appears in the Appendix on page 45.

territory have alluvial diamond deposits and this makes illicit mining almost impossible to control.

The government of Sierra Leone supports the Senate in enacting

legislation that would protect the people of Africa from terrorists,

but at the same time protect the legitimate trade in diamonds. Diamonds are very valuable to many African countries and Sierra

Leone wants nothing to do that will affect that.

We believe that conflict diamonds cannot be addressed by itself

without addressing the issue of contraband diamonds. Although

there have been Presidential orders in favor of prohibiting importation of conflict diamonds into the United States, Liberia has taken

action to bypass those prohibitions by starting to cut and polish

diamonds looted in Sierra Leone. So, unless legislation addresses

all illicit diamonds, whether processed or not, criminals will find

some way to defeat the system.

We should also be aware that narco-dollars are what are being

used to pay for diamonds obtained from rebels in Sierra Leone.

Therefore, addressing the issue of conflict diamonds will also make

it more difficult to launder narco-dollars with diamonds.

Please let me summarize by saying that for a law to be effective

against the illicit diamond trade in Sierra Leone, there should be

a time limit on negotiations. The Kimberley Process has been going

on for far to long and it is now time for this process to come to an

end. To be effective, the Kimberley Process should provide for sanctions, including criminal penalties and the forfeiture of contraband

diamonds. And entities participating in the 70 percent of the international trade in diamonds that is conducted in the United States

must be compelled to obey United States laws. Diamonds illicitly

exported from Sierra Leone and forfeited in the United States

should be set aside to fund appropriate activities in Sierra Leone

to benefit the people. Victims of the illicit diamond trade should be

allowed to sue for damages in United States courts.

Once again, I thank the Subcommittee for allowing me to testify

and for focusing attention on this issue critical to peace in Africa.

I want to thank Congressman Tony Hall, Congressman Frank

Wolf, and their staffs for their leadership in this issue. I also want

to thank this Subcommittee, Senator DeWine, Senator Feingold,

and Senator Gregg for their support for the people of Africa. Thank

you, Mr. Chairman.

Senator DURBIN. Thank you very much, Ambassador Leigh. Ambassador Melrose.

TESTIMONY OF HON. JOSEPH MELROSE,1 FORMER U.S.

AMBASSADOR TO SIERRA LEONE

Ambassador MELROSE. Chairman Durbin, Members of the Subcommittee, thank you for inviting me to testify today on this important issue.

The fact that diamonds as well as other resources have been

used to both fuel and fund conflicts in Africa is now generally accepted as fact. In addition, natural resources from Africa have provided funds for terrorist activities outside of Africa. In the case of

diamonds, their high value, small size, and low weight, combined

13

with the ease in which they can be converted into money and the

difficulty of detection by mechanical means makes them an excellent medium for moving, hoarding, or laundering money.

In the case of Sierra Leone and, indeed, some of the other countries of Africa, the presence of alluvial diamonds provides a particularly conducive situation. These diamonds are not mined in the

traditional way but rather by panning for them in much the same

way Forty-Niners panned for gold in our own country. Digging for

diamonds takes place over a wide geographical area, making it particularly difficult to control. Virtually anybody can dig for diamonds

or hire someone else to do it for them. No expensive mining equipment is needed, and as noted previously, diamonds are easily hidden and transported. The diggers are among the most exploited

people in the world. Those that hire them get rich while the diggers remain in a state of abject poverty and virtual servitude. But

this is only part of the problem.

The conflicts that have engulfed Sierra Leone and other African

countries have meant a lack of government control of these stones

from the field to the market. The environment has provided purveyors of violence with a friendly playing field from which to operate. Nation states in either a state of collapse or near collapse provide both native citizens and unscrupulous outsiders an even more

suitable operating environment.

For example, the Lebanese have long been involved in the Sierra

Leone diamond trade. Funds from the sale of illicit diamonds have

been used to purchase weapons for use in revolutions, crimes, and

terror. In addition, as Washington Post reporter Doug Farah reported several months ago, illicit diamonds have been used as a

means of transfer money from one location to another.

The motivations for most of the individuals that engage in the

illicit diamond trade are simply greed and power. Farah’s assertion

that the rebels of the Revolutionary United Front (RUF) of Sierra

Leone sold diamonds to individuals identified by the U.S. Government as al Qaeda representatives is not surprising. Even the RUF

itself, following its internal investigation into Farah’s story, while

denying that it had a relationship with al Qaeda, acknowledged

that it was not impossible that some of their number did, in fact,

sell stones to representatives of al Qaeda.

In my opinion, this admission is tantamount to accepting the

possibility that their stones went to al Qaeda, with or without the

formal backing of the organization. While it is still in question

whether this was a deliberate effort on the part of the RUF to assist al Qaeda, or not the impact is the same.

Too often, the sellers of diamonds are interested in one thing, the

best price and who has the money. Whether deliberate or not, it

makes little difference in the end. In addition, similar sales have

almost certainly taken place with other designated terrorist organizations, such as Hezbollah. In the case of Hezbollah, a connection

has existed for years to various Lebanese groups.

The need to establish a clean, transparent system for preventing

such illicit commodities from entering the legitimate market is

clear. The customer should be able to know that the diamond he

or she purchased did not get to the retail counter by increasing the

suffering of fellow human beings and that the benefits of the counVerDate 11-MAY-2000 10:44 Oct 21, 2002 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6601 78621.TXT SAFFAIRS PsN: SAFFAIRS
14

try’s natural resources should benefit the citizenry of the country

they come from. The Kimberley Process, while far from perfect, is

a step in the right direction.

Information I have received in the past week indicates that a

large amount of diamonds that were at least in part mined by the

RUF during the conflict have made their way to Guinea for sale to

raise funds to support the RUF in the upcoming Sierra Leone election. As Ambassador Leigh said, diamond traders in Antwerp tell

me that they are seeing stones coming out of Liberia and reaching

the European markets at this time.

The Kimberley Agreement, although no panacea, would be a step

in reducing this trade, the unintended consequences throughout

the world, and the particularly devastating ones in Africa. Despite

its flaws, it is a start and should be supported. By declaring that

trading in conflict diamonds is not acceptable, the world may see

the advent of a new corporate and social responsibility in a sector

that has heretofore relied almost totally on self-policing.

By taking this step, the diverse group of interested parties that

negotiated the Kimberley Agreement, including states, the private

sector, nongovernmental organizations, and even representatives of

civil society, may have begun a process that could impact other sectors where the improper or illicit trade in commodities, such as

gemstones, occur without the necessity of another Kimberley-type

agreement. Individuals and organizations must not have the tools

by which they can take power or hold nations hostage to their demands. If reducing the trade in conflict diamonds can even partially be achieved, it would have a significant benefit in the area

of human rights and the true source of regional conflicts, which all

too often is money.

Our goals should be two. First, we must end these practices by

various organizations and cut off their funding sources. Second, we

must make every effort to ensure that new techniques to circumvent proper channels do not simply take the place of old ones.

To do so will require not only coordination among states, industry,

civil society, but the international security and law enforcement apparatus, as well. While we have seen that various organizations

have been able to successfully benefit from this situation, we must

also recognize that it is certain that others who seek to harm innocent members of society have used this situation for their benefit,

as well.

The United States, as the biggest market for gem-quality stones,

must take a leading role in ending the conditions that permit these

violations of our moral and ethical standards by supporting Kimberley and clean diamond legislation. We must not abdicate our

role, but should continue to press for a tangible, meaningful solution to this problem in consultation with the legitimate diamond industry, as well as the other Kimberley participants. I thank you for

your attention.

Senator DURBIN. Thank you very much, Mr. Ambassador. Let me

ask you this. I know you cannot discuss any classified information

relative to the al Qaeda connection that you may have learned during your service to our country, but I wonder, did you observe any

activities in diamond trading when you were U.S. Ambassador to

15

Sierra Leone that led you to conclude that the press reports about

the al Qaeda connection are likely to be true?

Ambassador MELROSE. Toward the end of my tour in Sierra

Leone, we noticed some aberrations in the diamond market which,

although I was not able to investigate them to the extent that I

would have liked, led me to believe there was a laundering or

hoarding of stones taking place. This was prior to September 11,

but there clearly were some changes which were taking place

which were not subject to normal economic factors.

Senator DURBIN. What kind of changes?

Ambassador MELROSE. Prices were being manipulated. Quantities were being manipulated. Certain kinds of stones were not

available on the market.

Senator DURBIN. Do you have any reason to believe that members of al Qaeda were in the region prior to September 11?

Ambassador MELROSE. Mr. Farah has gotten some, I believe, eyewitness statements that they were. The relationship between a

gentleman that I believe is currently in Burkina Faso by the name

of Ibrahim Bah with certain dissidents, both Lebanese and other

Arab groups is pretty clearly established.

Senator DURBIN. Did you observe, or were you aware of his presence in the region before September 11?

Ambassador MELROSE. He was in Liberia and also in Burkina.

I have met Bah several times and talked to him before that. The

last time I spoke to him was probably about a year ago and he was

at that time in Burkina Faso.

Senator DURBIN. And at least there are allegations of his connection with al Qaeda leadership?

Ambassador MELROSE. There are certainly questions that would

lead one to believe that there could be a relationship, yes.

Senator DURBIN. Have you spoken to officials from any other

countries that might have evidence of al Qaeda operatives purchasing conflict diamonds?

Ambassador MELROSE. I have spoken to members of the diamond

trade and also Belgian officials who initially were doubtful of some

of these connections, whether al Qaeda or other terrorist organizations, but have certainly changed or modified their view since September 11.

Senator DURBIN. All right. Let me ask you about the Hezbollah

situation, because both Ambassador Leigh and yourself have alluded to the involvement of Hezbollah. This seems to be accepted.

There is no controversy involved, that they have been involved in

conflict diamonds for some period of time, is that correct?

Ambassador MELROSE. I would say at least 5 to 10 years, yes.

Senator DURBIN. Well, I think it is worth noting for the record

what this is all about, to try to connect the dots for just a minute,

if we could. When people in the United States learn of child labor

or slave labor making products for sale in the United States, we

find that absolutely repulsive and many companies have suffered

because of accusations and some have suffered even more when it

has been proven that products are being sold to Americans that

could have been the product of those types of outrageous labor

practices.

16

This raises an important point in relation to Hezbollah.

Hezbollah is a terrorist organization, named by President Bush in

his State of the Union Address and notorious throughout the world,

that was responsible for bombing two American embassies in Beirut, killing 48 people, responsible also for the Marine Corps barracks bombing in Beirut. They also kidnapped an American diplomat and killed him and they have been involved in hijacking of

airplanes, a TWA flight, and have taken credit for the loss of innocent life.

Now, having said that, I hope to bring this full circle. They are

using, or at least it is believed that they are using, these conflict

diamonds to finance at least some part of their operations, and

from your testimony, have been doing so for 5 or 10 years. The reason why this comes close to home is if I find it repugnant to find

a soccer ball made by a tiny child in some third world country to

give to my grandson, imagine if Americans came to believe that the

diamonds that they were buying for engagement presents and wedding presents were really financing the kind of terrorist activity of

Hezbollah which I have just described.

That, I hope, is what comes from this hearing, that Americans

will connect the dots and say, as long as, the ambassador has said,

we are consuming 70 percent of the world’s diamonds in the United

States, we have a moral obligation to ask the question, where are

they coming from? How do they get here? And if they come through

the bloody hands of terrorists, whether it is the RUF or Hezbollah,

I think that that is a red flag to all Americans that we need to do

something to police this situation.

I would like to ask you, if I might, Ambassador Leigh, what is

your knowledge of the involvement of al Qaeda members in the

conflict diamond trade?

Ambassador LEIGH. I do not have any specific knowledge of al

Qaeda in Sierra Leone, but I can tell you one thing. There is a

large Middle Eastern population in Sierra Leone. There are Shiites

in Sierra Leone, Sunis, Christians in Sierra Leone from the Middle

East. There is a large Lebanese population and they have been involved in the contraband diamond trade going back to 1960. And,

in fact, the decline in Sierra Leone’s official diamond exports coincided with the Lebanese civil war. The present speaker of the Lebanese parliament is a Sierra Leone born Lebanese, Nabih Berri. He

was the head of Amal militia, and Amal was funded partly from

the sale of Sierra Leone diamonds. And it is well known that the

Lebanese in Sierra Leone have been supporting various factions in

Lebanon civil war going back to the early 1980’s.

So I can say that if al Qaeda wishes to trade in Sierra Leone diamonds, it would be an easy thing for them to do to accomplish.

There is certainly a strong and powerful Middle Eastern presence

in Sierra Leone going back about a hundred years.

Senator DURBIN. Can you tell us anything more specifically about

Hezbollah in the conflict diamond trade?

Ambassador LEIGH. Just like you have al Qaeda there, there will

be factions in Sierra Leone supporting various militia groups.

Hezbollah would be one of those. Hamas would be another one.

Various Middle Eastern groups in Sierra Leone have always served

as financial support bases for the parent groups in the Middle

17

East. I do not have any specific knowledge of any specific Hezbollah operative in Sierra Leone, but Hezbollah’s presence in Sierra

Leone would not be out of the ordinary at all.

Senator DURBIN. Ambassador Melrose made mention of the Revolutionary United Front selling diamonds in Guinea to raise funds

for the upcoming election in Sierra Leone. That is very disturbing

and I would like to ask you, have you received any information

about this activity?

Ambassador LEIGH. I first heard of that when I was in Sierra

Leone last month, but again, these fellows, they always hide behind the scene, behind closed doors. It is very secretive. They do

not publicize their financial authorities, but there is general knowledge that the RUF is still exporting Sierra Leone diamonds illegally through Guinea and Liberia.

Senator DURBIN. Ambassador Melrose, could you follow up on

that? Do you believe the RUF intends to manipulate the elections

to take power in Sierra Leone?

Ambassador MELROSE. I tend to believe that they will make an

effort. I do not think they will be successful. I think one of the

ways they will use, according to reports coming from certain U.N.

and other NGO observers, is that they have tried to manipulate the

registration process by registering under-age voters that were

members of their organization.

Senator DURBIN. Since September 11, Mr. Ambassador, do you

believe there has been an improvement in U.S. intelligence activities in West Africa concerning the flow of conflict diamonds?

Ambassador MELROSE. To some extent, but not significant.

Senator DURBIN. What is holding it back? Why do you believe it

has not been significant?

Ambassador MELROSE. I think largely, Mr. Chairman, it is a

function of resources. Moving resources in, even if you wanted to,

cannot be done overnight and you cannot develop the contacts overnight. This takes time, even if everybody is desirous of doing it. It

is just the way the intelligence function works.

Senator DURBIN. You know, it strikes me that early on, President

Bush and members of our coalition made it clear that they were

going to go after the financial support of terrorism around the

world and I think that is not only appropriate, it is necessary. But

it strikes me, based on what I have read and heard at this hearing,

that unless we also address the conflict diamond financing of terrorism, we are leaving a gaping hole in this war against terrorism.

Do you agree?

Ambassador MELROSE. Yes, I do. I think the diamonds, not just

for financing, but the transportability of resources, the convertability make diamonds a commodity that must be addressed.

Senator DURBIN. All right. What are your views on the success

of the certification scheme and peacekeeping efforts that currently

exist in Sierra Leone?

Ambassador MELROSE. The certification system was designed as

a result of the U.N. resolution banning the export of diamonds. The

certification system is relatively good, but it only addresses one

portion of the path from the field to the market.

I like to divide the path from the field to market into three sectors: From the field to Freetown, place of export; from the place of

18

export to the place of import, which is what the certification system

deals with; and from the place of import to the market. More work

needs to be done on the other two parts for the certification system

to be more effective.

Senator DURBIN. So from the field to Freetown—— Ambassador MELROSE. Yes.

Senator DURBIN [continuing]. And from the final disposition of

the diamonds.

Ambassador MELROSE. And then you are also hearing, as Ambassador Leigh mentioned, stones that go out of the country through

Guinea, through Liberia, through the Gambia, through Mauritius.

These circumvent the certification process and that is one of the

things the Kimberley Agreement attempts to deal with.

Senator DURBIN. Ambassador Leigh, you did make that point in

your testimony. Would you address that again in terms of where

you think the gaps are in the current certification system and perhaps bring to our attention some things that we should address

with legislation?

Ambassador LEIGH. Ambassador Melrose is quite correct. The

difficulty is from the mines to the government offices, to the export

offices in Freetown. The difficulty is that the prices for Sierra

Leone diamonds are higher in Morovia than in Sierra Leone and

they are higher in Morovia because they use narco-dollars in

Morovia and they use legal currency in Sierra Leone. So people

who want to clean the money are willing to pay a premium for Sierra Leone diamonds to clean their money. So some diamonds are

going to Morovia, to Liberia, and Liberia is now beginning to process those diamonds to defeat the certification scheme.

Diamonds are going through Guinea. Guinea has their own diamond mines, but the bulk of the diamonds in that part of West Africa, 90 percent are in Sierra Leone. So Guinea has a collateral

claim to say they had the diamonds. So it is a difficult problem. It

is very difficult.

Senator DURBIN. We have learned in this war against terrorism

the linkage between narcotics and terrorism and now we are learning that we need to bring diamonds into this conversation, as well,

that, unfortunately, diamonds are part of this whole flow of terrorist activity and narcotics in many parts of the world, and I think

you have given us some good illustrations of how countries that are

not enforcing their laws or do not have any laws or do not have

any ways of investigating are being exploited, and I think even

more importantly, the people of the country are being terrorized

and exploited in that same process.

Speak to me about the Kimberley Process and whether you believe it is moving apace and coming to a conclusion that we can

subscribe to. I think there was some reference to how long it has

taken and how we still have to do much more before we wait for

that conclusion. Ambassador Leigh.

Ambassador LEIGH. I believe the Kimberley Process is proceeding

at a leisurely pace.

Senator DURBIN. Leisurely?

Ambassador LEIGH. Very leisurely. They have meetings in a

number of exotic places, having really nice meetings, but nothing

really effective is coming out within a time frame that is acceptable

19

to the people of Sierra Leone. We are sitting on top of violated children, violated women, damage of infrastructure across the land and

we understand the urgency of addressing this issue.

The Kimberley Process is meeting now for, what is it, 18 months

or more, and what they have done that I like is they are really putting emphasis on warranties, actually maintaining a chain of warranties from the mines through to the final importer. Now, every

single country in the world should join that system. Otherwise, it

is no good. If the countries that have that system in place enforce

it, then the diamond smugglers will go to some other country that

does not have that system. So any Nation that wants to partake

of the 70 percent of the diamonds in the United States should be

in a system where there is international certification and the chain

of warranty of diamonds from the mines are supported by that system or else it is not going to work.

But I would like to see an end to the meetings, the debates, and

something concrete comes out of it in forms of legislation in all

those 30 countries taking part in the process.

Senator DURBIN. Ambassador Melrose, your opinion of the Kimberley Process?

Ambassador MELROSE. I think it is a step in the right direction.

I do not think it is a panacea. I do not think it will cure the whole

problem. There will always be leakage, but clearly, we have to take

the first step.

I agree with Ambassador Leigh that it has been a bit more

drawn out than I would have liked to have seen. I am hopeful now

that it is going to come to some fruition. But once it is complete,

then you have to get into the issue of the other actions that are

needed to make it operational and that is going to take more time.

Senator DURBIN. I thank you both for your testimony and I

thank you for your patience because of the interruption. It is very

important. I am glad it is on the record here, and we are going to

follow through with a third panel and after that, I hope, work with

you to develop some effective legislation. Thank you very much,

both of you, for being here.

Senator DURBIN. I would like to welcome our next panel, which

will address U.S. efforts to stop the trade in conflict diamonds.

Loren Yager is Director of International Affairs and Trade for the

U.S. General Accounting Office. Alan Eastham is the Special Negotiator for Conflict Diamonds with the U.S. Department of State.

Timothy Skud is Acting Deputy Assistant Secretary for Regulation,

Tariff, and Trade Enforcement with the U.S. Department of the

Treasury. The Hon. James Mendenhall is Deputy General Counsel,

of the U.S. Trade Representative.

As is the custom of the Subcommittee, I would like to ask you

to please stand so that I might administer the oath. Would you

raise your right hand. Do you swear the testimony you are about

to give before this Subcommittee is the truth, the whole truth, and

nothing but the truth, so help you, God?

Mr. YAGER. I do.

Mr. EASTHAM. I do.

Mr. SKUD. I do.

Mr. MENDENHALL. I do.

20

1The prepared statement of Mr. Yager appears in the Appendix on page 48.

Senator DURBIN. Thank you. Let the record reflect that all witnesses answered in the affirmative.

Mr. Yager, if you would be kind enough, your written remarks

will be included in their entirety and if you would like to summarize at this point, I would appreciate it.

TESTIMONY OF LOREN YAGER,1 DIRECTOR, INTERNATIONAL

AFFAIRS AND TRADE, U.S. GENERAL ACCOUNTING OFFICE

Mr. YAGER. Thank you, Mr. Chairman. I am pleased to be here

today to discuss our observations on the U.S. and international efforts to deter trade in conflict diamonds. We have been performing

this work for Senator Judd Gregg and Representatives Tony Hall,

Cynthia McKinney, and Frank Wolf.

Conflicts linked to diamonds have created severe humanitarian

crises in countries such as Sierra Leone, Angola, and the Democratic Republic of Congo. The principal international effort to address this issue, known as the Kimberley Process, aims to develop

and implement an international diamond certification scheme that

will prevent conflict diamonds from entering the legitimate market.

As we heard from the first panel, the Congress is also considering

legislation to ensure the consistency of the U.S. system with this

process.

The primary message of my testimony this morning is that the

nature of the diamond industry makes it extremely difficult for the

U.S. Government and for the international community to deter

trade in conflict diamonds. Specifically, I will discuss three issues:

First, how the nature of diamonds and industry operations are conducive to illicit trade; second, the inability of U.S. import controls

to deter trade in conflict diamonds; and finally, the extent to which

the Kimberley Process has the necessary elements to deter trade

in conflict diamonds.

On the first point, I note in my written statement how 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,

two factors that make monitoring diamond flows difficult. Diamonds are also a high-value commodity that is easily concealed and

transported. Because of these characteristics, not only can diamonds enter the legitimate trade, they can also be used in lieu of

currency in arms deals, money laundering, and other crime. Lack

of transparency in industry operations also facilitates this illegal

activity. 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 second major point is a consequence of these industry characteristics, that U.S. import controls cannot prevent conflict diamonds from entering the United States. The general U.S. import

control system requires documentation listing the country of last

export, which U.S. import requirements consider the country of origin. However, without an effective international system that can

trace the true original source of rough diamonds, the United States

21

1The prepared statement of Mr. Eastham appears in the Appendix on page 66.

could be importing conflict diamonds that have passed through a

number of other countries before entering the United States.

My final point is that these same industry characteristics create

significant challenges for international efforts to control trade in

conflict diamonds. The Kimberley Process incorporates some elements of accountability, such as requiring Kimberley Process certificates designating country of origin for unmixed shipments. But

some elements are lacking and others are listed only as optional or

recommended.

For example, the scheme is not based on a risk assessment,

which is an essential element of an effective control system. As a

result, some activities that would be deemed high risk by industry

experts or by Kimberley Process participants, such as the flow of

diamonds from the mine or the field to the first export, are subject

only to recommended rather than required controls. In addition,

the period after rough diamonds enter a foreign port to the final

point of sale will be covered by an industry system in which participation is voluntary and monitoring and enforcement are self-regulated.

In conclusion, I want to acknowledge that the Kimberley efforts

to date have served to focus attention on a very serious humanitarian crisis and have facilitated cooperation among industry, government, and nongovernmental organizations. However, our work

suggests that the Kimberley Process participants have important

issues to resolve to make the scheme effective in deterring trade in

conflict diamonds.

Mr. Chairman, this concludes my testimony. I would be happy to

answer any questions that you have.

Senator DURBIN. Thank you for being here, and we will have

some questions. Mr. Eastham.

TESTIMONY OF ALAN EASTHAM,1 SPECIAL NEGOTIATOR FOR

CONFLICT DIAMONDS, U.S. DEPARTMENT OF STATE

Mr. EASTHAM. Thank you very much, Mr. Chairman, for inviting

the State Department to come and testify today. I have submitted

a rather lengthy written statement, which I will summarize rather

brutally with your permission.

You asked that we look at developments in the potential effectiveness of the Kimberley Process certification system as well as

whether the proposed regime in that process would be useful to

prevent terrorists from financing their operations through diamond

trading. These are both important questions.

With respect to the first, I believe that the Kimberley Process as

presently outlined and in which there are significant issues to be

settled in our next series of meetings will be effective both in deterring conflict diamonds and in affecting the ability of terrorists to

use diamonds to finance their operations. I will explain that in a

little more detail in a moment and I am sure we will have some

discussion about it in the question period.

We have been working on this problem for some years, both

through the U.N. Security Council, as well as more recently

through the Kimberley Process. The United States has fully impleVerDate 11-MAY-2000 10:44 Oct 21, 2002 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6601 78621.TXT SAFFAIRS PsN: SAFFAIRS
22

mented the Security Council resolutions applicable to Angola, Sierra Leone, and Liberia which affect conflict diamonds and were

active participants in the consideration in New York of resource

issues affecting the Democratic Republic of Congo.

I would like to acknowledge the role of the government of Angola

and the government of Sierra Leone, in particular, in implementing

certification systems which are designed to attack the problem of

conflict diamonds.

In the Kimberley Process, what we are doing in that discussion

is trying to establish principles for a system of certification on the

trade in rough diamonds in order to eliminate conflict diamonds

from international trade. Under the system as outlined by the Kimberley Process up to the present point, every country that trades

in rough diamonds, including the United States of America, would

validate an export document called a Kimberley Process certificate.

What this document would do would be to attest to the fact that

the diamonds being exported were handled in compliance with a

national system of internal controls designed to eliminate the presence of conflict diamonds from our trade. It is our expectation this

system will eventually cover the entire global trade in legitimate

rough diamonds.

The point is not to identify the origin of every diamond but to

set up a system of legitimate trade in which the trade will be recognized as legitimate, to strengthen it, and to enable that trade to

flourish in a way which excludes the bad diamonds. This will, thus,

give the industry the ability to continue to function. It will enable

consumers to have confidence that what they are buying does not

contribute to human misery in another part of the world. And it

will enable us to focus our enforcement resources on the black market, on conflict diamonds and the use of diamonds for other evil

purposes.

We are now working on several remaining issues within the Kimberley Process, getting ready for the next meeting in March in Canada. We are also considering interagency what changes in U.S. law

and procedure might be necessary to implement the proposed

scheme. This is a matter of some urgency, since the last meeting

of the Kimberley Process in November recommended the system

should be implemented as soon as possible with the issuance of certificates beginning immediately by those countries in a position to

do so. Of course, Angola, Sierra Leone, and Guinea are already

issuing certificates to accompany rough diamond shipments, so that

is a start. We would hope that others would begin doing so in the

very near future.

With the strong support of the Congress and active efforts by the

administration, we hope that this can be in place—a simple, effective, cost effective, and global system will be in place by the end

of this year.

Let me conclude briefly with a discussion of the role of diamonds

in terrorist finance, which is of great concern to us as it is to you,

based on your comments earlier. We in the State Department and

our law enforcement agencies are consulting together to look at the

diamond business to identify vulnerabilities in this area, and I

have been talking to our enforcement agencies as well as to other

23

1The prepared statement of Mr. Skud appears in the Appendix on page 71.

countries, participants in the diamond trade, in the past few weeks

on this very issue.

We do not believe that the major participants in the legal diamond business would knowingly countenance the trade in diamonds which are used for terrorist finance. However, there is the

risk that diamonds are being used to hoard wealth and avoid legitimate banking circles by terrorists and this is an area where we are

concentrating our efforts.

Regrettably, there are some on the fringes of the diamond trade

who are willing to overlook warning signs when an opportunity to

buy rough diamonds at a good price comes along. It is important

for the industry to avoid being implicated in this evil, and particularly important for the diamond trade in this country to heed the

best practice of know your supplier. This is an essential first step

in taking effective action against both conflict diamonds and the

use of rough diamonds as a terrorist financing tool. Thank you very

much.

Senator DURBIN. Thank you very much. Mr. Skud.

TESTIMONY OF TIMOTHY SKUD,1 ACTING DEPUTY ASSISTANT

SECRETARY FOR REGULATION, TARIFF, AND TRADE ENFORCEMENT, U.S. DEPARTMENT OF THE TREASURY

Mr. SKUD. Mr. Chairman, thank you for inviting me to speak

about the role of the Treasury and the Customs Service in interdicting conflict diamonds.

The role of diamonds in conflicts in Angola and Sierra Leone has

been well documented. More broadly, diamonds are often used in

criminal networks running parallel to legitimate trade channels.

They offer opportunities to conceal financial and organizational relationships. They can be used in money laundering, arms trafficking, and international terrorism.

Customs recently initiated Operation Green Quest, which aims to

investigate such crimes, including those which may utilize diamonds. In addition, Customs currently enforces specific prohibitions on importation of the diamonds from three countries, Angola,

Sierra Leone, and Liberia. These prohibitions are in place pursuant

to Executive Orders that are consistent with U.N. Security Council

resolutions. These orders prohibit imports of all diamonds exported

from Liberia and only allow diamond imports from Sierra Leone

and Angola that are accompanied by certifying documentation.

Importers must present appropriate documentation to Customs

on demand and have the responsibility to keep certificates on file

for 5 years after importation to be available for further review and

investigation. Customs uses targeted examinations and risk analysis techniques to identify those imports that represent the greatest risk and to focus resources in those areas. This may include

post-importation audits to review importers’ overall trade, to identify anomalies, and to verify claims made at entry. This verification

can include contact with exporting authorities. If any information

on suspect diamonds is obtained, Customs will seize shipments or

initiate formal investigations.

24

1The prepared statement of Mr. Mendenhall appears in the Appendix on page 75.

There have been two recent local interdictions of diamond imports based on failure to present proper export certificates. In December, Customs inspectors at BWI airport seized diamonds from

a passenger who had arrived from Sierra Leone. The passenger had

no accompanying certificate for those diamonds. In February, an

arriving international passenger declared diamonds to Customs officers at BWI, but Customs inspectors believed that certificate to

be fraudulent. The stones and the accompanying documents have

been detained.

In January 2001, the U.N. General Assembly encouraged member states to devise effective and pragmatic measures to address

the problems of conflict diamonds. Over 30 countries have engaged

in the resulting discussions, known as the Kimberley Process. The

objective of the Kimberley certification scheme is to assist in tracking legitimate diamond trade in order to isolate illegal shipments

and identify persons involved in the trade of illicit conflict diamonds. Treasury and Customs have participated in these discussions and have shared information with participating countries on

what we believe are the most modern and effective Customs analysis and interdiction techniques.

The Customs Service would enforce any import regulations concerning Kimberley certificates as it does the existing sanctions with

respect to shipments from Sierra Leone, Angola, and Liberia.

The United States is a significant consumer of polished diamonds, but rough diamonds are primarily processed elsewhere. An

effective global regime for excluding conflict diamonds will need to

rely on effective monitoring mechanisms in countries of first extraction, in primary importing countries, and on international cooperation.

The Kimberley Process involves traders and tries to strike a balance between trader vigilance and government involvement. A system that relies strictly on government enforcement and excludes

the industry would be far less effective.

In summary, we support the objectives of the Kimberley Process.

In addition, Treasury and Customs have actively participated in

the administration’s dialogue with the Congress concerning H.R.

2722. We believe this bill complements the efforts of the administration to combat trade in conflict diamonds under the Executive

Orders and through the Kimberley Process.

Thank you, Mr. Chairman, for the opportunity to present Treasury’s views. I would be happy to answer any questions.

Senator DURBIN. Thank you very much. Mr. Mendenhall.

TESTIMONY OF JAMES MENDENHALL,1 DEPUTY GENERAL

COUNSEL, U.S. TRADE REPRESENTATIVE

Mr. MENDENHALL. Thank you, Mr. Chairman, for inviting me to

testify before you today. I appreciate this opportunity to discuss the

efforts that are being made both nationally and internationally to

deal with the tragic problem of conflict diamonds.

As we all know, rebel groups in certain African countries, such

as Angola and Sierra Leone, have for many years funded their activities through the sale of conflict diamonds. These groups have

25

engaged in atrocities that shock the conscience. The international

community is taking action to stop the trade in conflict diamonds

and we are now approaching the point where an effective and comprehensive regime can be put in place. U.S. Trade Representative

(USTR) wholly supports this effort.

Last November, the House of Representatives passed H.R. 2722,

the Clean Diamond Trade Act, by the overwhelming margin of 408

to 6. USTR supported the bill and is pleased that the House passed

it so resoundingly. We applaud the leadership of Ways and Means

Committee Chairman Thomas, as well as that of Representatives

Hall, Wolf, and Houghton, in taking this positive and constructive

step toward severing the tie between diamonds and conflict.

I also applaud you, Mr. Chairman, along with Senators Gregg,

DeWine, and Feingold, for being actively engaged in formulating

legislation to deal with this problem and for giving this issue the

serious attention and consideration that it deserves.

USTR and other agencies in the administration have discussed

conflict diamonds legislation with your staffs and we look forward

to continuing this dialogue. As we have made clear in those discussions, we fully support expeditious Senate approval of H.R. 2722.

H.R. 2722 was the result of long and hard work by Members of

Congress, their staffs, the administration, and the NGO and business communities. USTR participated fully in this process and

sought a bill that would be effective, would not undermine the

Kimberley Process negotiations or other multilateral efforts to prevent trade in conflict diamonds, and would comply with U.S. international obligations. H.R. 2722 achieves each of these objectives.

First, the bill enumerates specific measures that countries could

adopt to help ensure that conflict diamonds do not enter the international stream of commerce.

Second, the bill is designed to complement multilateral efforts to

prevent trade in conflict diamonds. The bill stakes out a clear U.S.

position on the elements of an effective international regime and

encourages countries to adhere to the framework arrangement that

will emerge from the Kimberley Process.

Finally, the bill is designed to comply with international law.

H.R. 2722 is landmark legislation. It places the United States

squarely at the forefront of the effort to stop trade in conflict diamonds. However, as I think we all recognize, the effort to prevent

such trade will be vastly strengthened if all actors in the global diamond trade, including producers, distributors, and governments,

as well as the NGO community, join together in a comprehensive

regime.

Multinational efforts to deal with the problem of conflict diamonds have focused on two fronts, United Nations sanctions and

the negotiation of an international certification regime in the Kimberley Process. The United Nations Security Council has been very

active in taking steps to prevent trade in conflict diamonds and has

issued three resolutions regulating trade in diamonds exported

from Sierra Leone, Angola, and Liberia. H.R. 2722 is meant to

work within the framework created by these sanctions and to encourage other countries to comply with their U.N. obligations.

The Kimberley Process is a much broader initiative. Since its

first meeting in May 2000 in Kimberley, South Africa, it has grown

26

into a sophisticated international negotiation with a growing number of participants. Throughout the Kimberley Process, over 30

members of the international community, including the United

States, have come together to negotiate an international regime to

eliminate trade in conflict diamonds. This effort is truly extraordinary in that the NGO community and the diamond industry participate directly in the discussions and will be key to the operation

of the regime once it is implemented.

The United Nations has played a central role in urging completion of the process and garnering international support. In December 2000, the U.N. General Assembly endorsed the work of the

Kimberley Process when it unanimously passed Resolution 55/56.

Last December in Botswana, the Kimberley participants issued a

working document which sets out the elements of an international

certification scheme for trade in rough diamonds. The document

has been sent to the U.N. General Assembly, where it will be discussed in March.

The State Department has been the lead in the Kimberley Process negotiations and they have done an admirable job in filling that

role and the USTR has participated, as well. Over the coming year,

participants in the Kimberley Process should begin to implement

the elements of the certification scheme. However, there are several key issues that remain to be resolved. These issues include ensuring that the certification system is consistent with international

trade rules.

The participants agreed in Botswana to create a working group

to discuss this issue and report back to the other participants at

the next plenary meeting in Canada in March. Nine countries are

participating in the working group on trade issues, including the

United States. USTR and the State Department are representing

the United States in these discussions. Since December, we have

been actively engaged in discussions with other members of the

working group. The first meeting of the working group will be held

in Geneva this weekend, and by the time the plenary meets in

Canada, we hope to have resolved most or all of the concerns related to compliance with international trade rules.

Thank you again for the invitation to testify here today. I look

forward to working closely with you and your staffs in the future

to address this difficult and complex problem.

Senator DURBIN. Thank you very much, Mr. Mendenhall.

Let me say at the outset that we made a decision in the Senate

once we received the House bill not to pass it and to have this

hearing and to see if we could do a better job, and I do not want

to gainsay any of the efforts made in the House, but I think the

bill originally conceived by Congressman Hall and passed by the

Senate was a much better bill, a much stronger bill. Let me give

you four specific areas of concern, and I want to address those during the course of this conversation.

The bill that came out of the House does not give the President

any authority he does not already have under the Emergency Economic Powers Act, No. 1.

No. 2, the definition of conflict diamonds is so narrow that the

bill would only cover the conflict areas of Sierra Leone, Angola, and

the country of Liberia and only those areas where there have been

27

Security Council resolutions. It would not cover rebel areas in the

Democratic Republic of the Congo or other areas where conflict diamonds are a problem.

No. 3, the bill addresses rough diamonds, of which the United

States imports very few. It does not close the polished diamond and

diamond jewelry loophole.

And No. 4, and I want to get into this in some detail, there seems

to be, after all of the unanimity about our concern over conflict diamonds, a lingering concern over the WTO and the impact it has on

this entire conversation. In other words, if we are all of one mind

in stopping conflict diamonds from financing terrorism and stopping their importation into the United States, there are some who

are reluctant to address it because they think it violates trade

agreements. I want to talk about that.

For WTO reasons, this House bill includes a safe harbor provision that allows countries to export diamonds into the United

States if they are not part of the Kimberley Process. Now that, to

me, is a loophole that is unacceptable. If this is truly the coin of

the realm in the world of terrorism, you cannot take these provisions of the House bill as an effective way of dealing with these

conflict diamonds. Let us go at them, if we can, one by one, and

I will allow you to respond if you would like to.

First, let us talk about WTO. Mr. Eastham and Mr. Mendenhall,

do you believe that the Kimberley Agreement would be sufficient

to establish a national security exception to WTO?

Mr. MENDENHALL. I am not sure I understand. Would the Kimberley Process, the working document itself, establish a security exception?

Senator DURBIN. Here is what I am driving at. If we are in WTO

and we are supposed to have free trade and we decide that we are

not going to allow the export of diamonds unless they meet certain

requirements to the United States, can we take the position that

that is consistent with WTO for national security reasons? Is there

some reluctance here to suggest that we are violating a free trade

agreement under WTO by imposing these restrictions on the export

of diamonds to the United States?

Mr. MENDENHALL. I think to the extent that the diamond trade,

the conflict diamonds represent a threat to national security, there

are steps that we could take to regulate that trade. I think that

is correct.

I think the Kimberley Process, large parts of it, anyway, could

be—I guess one could argue they might fit within that exception.

There are parts of the Kimberley Process, however, that I think

would be hard to justify under that exception. For example, there

is a ban on exports to non-participants. It is not clear to me yet

what the national security reason or justification would be for that.

I am not saying there is not one. I am just saying these are issues

that are still being debated, and I am not sure why banning export

of trade from the United States to a non-participant of diamonds

which are, by definition, legitimate is a national security issue.

But I want to emphasize that one of the reasons that the working group was formed and is going to be meeting in Geneva over

the weekend is to discuss precisely these types of issues. So I think

all of the arguments concerning whether or not the Kimberley

28

Process fits within an exception or does not fit within an exception

or whether it can be justified or handled through other channels,

everything is on the table for discussion.

Senator DURBIN. And do I take it, if you can see a national security exception emanating from the Kimberley Process, that the

same argument could be made based on legislation that we would

enact here?

Mr. MENDENHALL. Are you talking about legislation to implement Kimberley?

Senator DURBIN. If we were to pass legislation with or without

Kimberley in the United States, based on our national security concerns about conflict diamonds—— Mr. MENDENHALL. Right.

Senator DURBIN [continuing]. You do not believe that is inconsistent with WTO?

Mr. MENDENHALL. I think we would need to make sure that the

legislation was effective and tailored to achieve that goal.

Senator DURBIN. Well, I would agree with that.

Mr. Eastham, what are your thoughts on WTO and this conversation?

Mr. EASTHAM. Mr. Chairman, with respect to the specific reference to the national security exception which you made in your

question, I think the issue at hand is an interaction between the

definition of national security and what the Kimberley Process is

trying to do.

At bottom, the Kimberley Process is a regulatory system which

will, if it comes into being in its present form, will regulate the entire global trade in rough diamonds. Estimates of the conflict portion of the rough trade are in the neighborhood of 5 percent. No

one really knows. This is an area where there are a lot of different

possibilities for interpretation.

The question would be whether such an expansive regulatory

scheme could be brought squarely under an exception which is

clearly intended to refer to specifics. In other words, I could think

of a dozen different hypotheticals where an import or an export

might be regulated in the interest of national security. Weapons

come to mind—guns and ammunition, military equipment, that

sort of thing would squarely fall into the national security exception. The question is the interaction between this very broad set of

restrictions intended to regulate what is a very small part of the

trade.

I do not think there is any question that you could make a national security justification for restricting the imports of conflict

diamonds to this country. I think that is clear. The problem,

though, as others have identified, is that you cannot target that restriction because of the nature of the diamond trade. You cannot

say, on Tuesday, let us stop all shipments from this place because

those are conflict diamonds. It is just a question of scope.

Senator DURBIN. Let me ask you about scope. The House bill limits this to rough diamonds. Do you think that that is a legitimate

way to stop the trade in conflict diamonds and address the problem?

Mr. EASTHAM. I think it is the closest to the problem. In terms

of conflict diamonds, although the definition is tied to the Security

29

Council decisions, we all know that conflict diamonds are those

which are used to fuel rebel activities and wars. The rough diamonds are the problem. The problem of conflict diamonds derives

from the fact that it is easy to dig up diamonds from the ground

in certain parts of the world and there are wars fought over contesting those areas.

Because of the nature of the trade again, once a diamond moves

a step or two or three or four, it is no longer clearly identifiable

as a conflict diamond and the place to attack the problem, I genuinely believe, is at the source. It is where the money goes to the

rebels and that is at the stage when the diamonds are rough.

Senator DURBIN. Of course, remember the three steps that they

described earlier, taking them from the field to Freetown, an example given by the Ambassador, and then off to Antwerp or some

other place where they are polished, finished, and then exported in

that form perhaps to the United States. If that original diamond

was mined by mutilating a child and raping a woman in a village,

the fact that it comes into the United States ultimately as a rough

diamond is of little consequence, or whether it is a finished diamond. The origin of it is really what we are after, is it not?

Mr. EASTHAM. Yes, sir, and the problem that you have identified

arises because of the nature of the trade and the nature of the commodity. It would—the Kimberley Process is a collaborative effort

that has had industry involved from the first day—— Senator DURBIN. May I add—— Mr. EASTHAM [continuing]. And the idea is—yes, sir?

Senator DURBIN. I just want to add for the record, at our press

conference on this issue, the diamond industry and the jewelry industry were there in support. They understand that public confidence in their product is at stake here. They have not been antagonistic. So when the House bill came back just dealing with

rough diamonds, I could not understand what happened here. We

had, I thought, an approach that really dealt with this comprehensively and said, however this diamond ends up in the United

States, whether it is polished or rough, we are concerned about

how it was mined and who made the money when it was mined.

That really is the conflict part of conflict diamonds. And just to

limit the House bill to rough diamonds, I am troubled why you

would want to narrow that into this one category of diamonds.

Mr. EASTHAM. I believe the House bill does have language which

acknowledges the possibility of blocking shipments of polished diamonds or diamonds containing jewelry to the United States if we

have information indicating that that specific diamond shipment is

composed of conflict diamonds. Where we fall afoul of the way the

trade works, Mr. Chairman, is in trying to answer the question,

how would you regulate that?

If you have a shipment of 1,000 polished diamonds coming from

a particular overseas source, the reality of the trade is such that

those diamonds could be from any diamond source in the world,

and without a fundamental transformation of the diamond trade,

which the industry has so far been unwilling for cost reasons to

consider, it would be impossible to administer, in my view, an import system which controlled polished. Far better to attack it at the

source. You attack it at the source through sanctions, the Security

30

Council resolutions that I mentioned. You attack it at the source

by the Kimberley Process system of internal controls, intended to

ensure that what comes out of the source is conflict-free.

Senator DURBIN. What I heard from the Ambassadors earlier is

that is wishful thinking, to believe that we are going to have sufficient law enforcement on the ground in these countries to make

sure that every diamond is mined in a responsible way. What I

thought we were after here was a certification process which said

to the Revolutionary United Front in Sierra Leone and other countries, we are going to dry up your market, and if you do not have

a market for these blood diamonds, then, frankly, this may not be

the way you want to finance your operations.

But if our goal here instead is to root out the atrocities of the

Revolutionary United Front, that is a much different approach

than I think most of us conceived at the outset.

Mr. EASTHAM. Well, I think we are doing both. It is not one or

the other, if I understand your comment just now. This is about

drying up the market, but it is also about encouraging the legitimate diamond trade to continue. In the balance that has been

struck in the Kimberley Process, people can differ.

I know that there are different points of view about the possible

effectiveness of this, but my experience in the last three meetings

of the Kimberley Process leads me to conclude that we should get

on with it, get the certification system in place, and if we find that

there are holes on the ground between the mine and the export

system, or if we find that an export system in a particular country,

in any country, is not working or it is suborned by smugglers or

that enforcement is lacking, then we will deal with it once we get

a certification system in place.

Senator DURBIN. Let me be specific in a question on that. What

kind of verification for compliance and monitoring do you expect

from the Kimberley Agreement that will be effective in drying up

this market, preventing this trade in conflict diamonds?

Mr. EASTHAM. Well, in the first instance, Senator, I think that

the market is going to be a very important factor in that.

Senator DURBIN. Is this conversation just limited to rough diamonds, incidentally?

Mr. EASTHAM. Yes. The Kimberley Process is about rough diamonds. It is about conflict diamonds.

Senator DURBIN. So your focus through Kimberley and your focus

through this legislation, rough diamonds only?

Mr. EASTHAM. Yes, not because we do not recognize that, as some

of my colleagues have said, the purpose of the diamond is to be sold

to a consumer. We are not ignoring polished diamonds because we

do not care about the ultimate revenues that flow back up the

chain. The problem is one of focusing the attention on the source

of the problem and not taking measures in the middle of the trade

which would either raise the cost of diamonds or drive firms out

of the diamond business.

Senator DURBIN. I would just tell you, Mr. Eastham, I do not

think this is going to work. I do not believe that the average consumer in America is going to have confidence that we have done

all we can do to make certain that one of the most important purchases of their life is not funding terrorism by just focusing on

31

rough diamonds. I thought from the outset that the conversation

with the industry went far beyond that. They understood that for

confidence of the consumers to be established, we really could not

limit it to rough diamonds.

I just think you have created a situation where we are going to

be so focused on such a small part of the problem, we are ignoring

how people can easily overcome this by finishing and polishing diamonds that are just as dirty as anything that has been mined in

these countries. It is just a terrific gap that you have left wide open

here.

Mr. EASTHAM. We have not been able to devise a way to ensure,

with respect to what we can control, which is imports of this commodity into the United States, that a polished diamond is not a

conflict diamond. That is a very, very difficult proposition.

Far better to begin at the beginning, and I am confident, Senator, that if we get a certification system into place and we see people using polishing as a way to get around it, if you see polishing

centers developing in countries that never had polishing centers before, if you see large flows of diamonds that are unaccountable in

the statistics and in the cooperative mechanism that the Kimberley

Process is going to set up, that we will be able to deal with subversion, circumvention of the Kimberley system through polishing. I

think we will find a way to do that.

Senator DURBIN. Why would we not start there? You know that

is where they are going to head to. If we allow that loophole to

exist in our enforcement, clearly, a terrorist is not going to say,

‘‘Oh, if I cannot do rough diamonds, I am doing nothing.’’ I do not

believe that. I think they are going to turn around and take these

rough diamonds and find a way to polish and finish them and then

we will meet again in a few years and say, is it not a shame that

the terrorist network is still making billions off of diamonds they

are selling into the United States. Now let us address phase two.

What about polished and finished diamonds? Why are you not

starting with that, as challenging as it may be?

Mr. EASTHAM. I can answer that. The fundamental reason is because the diamond proceeds that fuel conflict come from the rough

diamonds which are sold by the rebel movements in order to buy

arms, to finance armies, to commit these horrible atrocities which

are the reason for our concern. We are focused on the fundamentals, and because of the relationship between the diamond trade in

areas of conflict and the global diamond trade, we are trying to

zero in on the problem where it creates the concerns that have motivated us to take action. That is my only answer for you, Senator.

Senator DURBIN. Mr. Yager, you considered the so-called chain of

warranties, where the industry would step in after rough diamonds

are being regulated. What is your opinion as to how this is going

to work?

Mr. YAGER. We have a couple of comments on that aspect of the

Kimberley system. The chain of warranties, I think, has a couple

of weaknesses from our standpoint. One, as we and others have

discussed, the diamond trade is actually quite a complex trade and

many diamonds are traded around the world numerous times before they actually get to the point where they are cut and polished,

whether that is in India or in some other location. So this chain

32

of warranties could, in fact, become quite a long chain and the required paperwork would be quite extensive.

A second issue is that the World Diamond Council has strongly

recommended to its members, both institutional and individual

members, that they keep up and take part in this chain of warranties. However, they cannot require their members to do this. And

so, in a sense, this chain of warranties is a voluntary system.

Finally, I think there is a question about the monitoring and auditing of the chain of warranties. At this point, it appears that the

process allows for the company’s auditors to review the chain of

warranties, and in essence, the warranty itself is a statement on

the invoice that the diamond that is purchased or sold is conflictfree. But these are going to be audited by company auditors who

are not necessarily experts in the diamond industry, nor are they

able to look at the entire chain. In a sense, they are looking at just

one link in this chain of warranties. So we see some issues with

the chain of warranties that we think could be weaknesses.

Senator DURBIN. Mr. Skud, last question. When Customs receives documentation when diamonds are brought into the United

States, what is at your disposal to verify that that documentation

is accurate and legal?

Mr. SKUD. Well, the documentation can be examined by the Customs officer and compared with examples of what a valid certificate

is like. If Customs has questions, they have an opportunity to contact the exporting authorities.

Senator DURBIN. So you can go back to the source? Is that what

you do?

Mr. SKUD. We can contact the exporting authorities, yes.

Senator DURBIN. In a practical case, the examples you have

given us, passengers coming through the airport, one, if I am not

mistaken, declared that he was carrying $12,000 worth of diamonds but another was discovered to be carrying them.

Mr. SKUD. Yes.

Senator DURBIN. When they produce documentation, what is the

custom? You hold the diamonds until the documents have been

verified to your satisfaction?

Mr. SKUD. Well, in one case, the trader, the passenger did not

have proper documentation, clearly. I believe he had a different

certificate that clearly was not for that shipment. In the second

case, it was a certificate that, frankly, appeared fraudulent on its

face to the Customs officer. So in both cases, the stones were

seized.

Senator DURBIN. Thank you very much. I want to thank this

panel. This is clearly a challenging issue but one that just has to

be addressed. I think once we have established this connection between terrorism and diamonds as a source of funding, that if we

are serious about stopping terrorism, we have to address this issue

effectively.

I hope this hearing has opened that conversation and dialogue

and I hope that we can soon come up with legislation we can work

with the administration in putting together. I thank you all for

your testimony. Thanks, everyone.

The Subcommittee stands adjourned.

[Whereupon, at 12:20 p.m., the Subcommittee was adjourned.]

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