HomeConflict Diamonds and the Kimberley Process – Reports and Other Documents...Kimberley Process Review Visit Report on the United States (12/2012)

# 									Kimberley Process Review Visit Report on the United States (12/2012)							

Division for Counter Threat Finance and Sanctions

December 3, 2012

		Conflict Diamonds Archive (2009-2017)		

**REPORT OF THE REVIEW VISIT OF THE KIMBERLEY PROCESS TO USA,****3 – 7, December 2012**

Members of the Review Visit Team
        - Team Leader: India— represented by Mr. Vinay Kwatra & assisted by Mr. Sabyasachi Ray.
        - Angola represented by Mr. Estanislau Buio.
        - European Community represented by Mr. Joris Heeren.
        - Russian Federation represented by Mr. Alexander Pshenichnikov & Mr. Oleg Sharipov.
        - UAE represented by Mr. Mohammed Abdrabboh.
        - Industry represented by – No representation
        - Civil Society represented by – No representation

********************

C O N T E N T S
        - Introduction
        - Methodology
        - Institutional Framework
        - Legislative Framework
        - Import / Export Procedure
        - Internal Control & Industry self regulation
        - Statistics
        - Conclusion
        - Recommendations
        - List of documents provided to the RV team for their use.

Annexure – 1 : List of officials with whom RV team interacted

Annexure – 2 : Program of the Review Visit

Annexure – 3 : List of all Licensees with details of who are empowered to give third party KP certificates.

INTRODUCTION
        - The United States hosted the first round Kimberley Process Review Visit in 2005 and expressed its readiness to host the second round visit since 2008. The second Review Visit was organized on 3-7 December 2012 on the invitation of the U.S.
        - On April 25, 2003, the United States enacted the Clean Diamond Trade Act (Public Law 108-19) which provides the legislative and institutional framework for implementing the Kimberley Process Certification Scheme (KPCS). The United States takes a multi-agency approach to Kimberley Process (KP) implementation and also cooperates with a non-profit industry group, the United States Kimberley Process Authority (USKPA) to assist with U.S. export documentation. With the exception of the requirements to implement the KPCS, rough diamonds are not subject to other special import or export controls or any other special business practices. For example, regulations that are applied to facilitate the movement of commodities, or laws that track financial payments apply broadly to a variety of commodities/sectors.
        - Domestic implementation is coordinated by the following government agencies:           - Department of State
          - Department of Treasury
          - Department of Homeland Security principally through the agencies of U.S. Customs and Border Protection and U.S. Immigration and Customs Enforcement Department of Commerce through the U.S. Census Bureau. 
        - Internationally, the United States participates in KPCS activities and meetings which are led by the Department of State’s Bureau of Economic and Business Affairs which also acts as the KP Focal Point for the U.S. The U.S. offers technical assistance and support to several diamond producing countries in Africa through the State Department’s African Affairs Bureau, the United States Agency for International Development (USAID) and the Department of Interior’s U.S. Geological Survey (USGS). U.S. assistance focuses on better implementation of the KPCS, training of KP authorities in organizing their certification system and programs for alluvial mining.
        - The U.S. is today by far the largest consumer of diamonds and diamond jewellery and an important market in the polished diamond supply chain. New York is a major trading centre for the supply of polished diamonds to wholesalers and retailers. As per BAIN report, the U.S. contributes to around 40% of the diamond market in the world.
        - The United States is not a diamond producing country, but is a significant purchaser of polished (cut) diamonds. In 2011, gross polished diamond imports were US$ 21.69 billion. U.S. gross polished diamond exports in 2011 were recorded as US$17.78 billion. (Department of Commerce). The pre-eminence of the United States as a diamond polishing center has declined over time with fewer and fewer cutting factories in operation. Generally, any remaining firms focus on polishing high value or large carat rough diamonds.
        - The U.S. has a major interest in the success of the KP because it ensures breaking the link between armed conflict and rough diamonds and protects legitimate trade. Nevertheless, the U.S. rough diamond trade is a very small percentage of overall world trade in rough diamonds. In 2011, total U.S. rough diamond imports reached $US 679 million and total U.S. exports were $US470 million, with a further decrease projected for 2012.
        - Total U.S. rough diamond imports and exports (which also includes industrial diamonds) for 2006-2011 is below:
        - The RV Team expresses its sincere gratitude to the U.S. Government and its officials from the State Department, Census Bureau, Customs and Border Protection (CBP) and other agencies for smooth coordination and cooperation in making this visit a success.
        - The RV Team also acknowledges the contribution made by the other stake holders such as USKPA, Standard Chartered Bank, Diamond Manufacturers and Importers Association of America, Jewelers of America, Malca Amit, and other private companies for their time and active participation in the discussions during the visit.
        - The Team acknowledges that a considerable amount of technical assistance is being provided by the USGS, USAID & U.S. Census Bureau to certain KP Participants over a period of time and anticipates that the U.S. will continue to do so.
        - A listing of all U.S. officials/private sector individuals who met with the team in various meetings is at Annexure –

**METHODOLOGY**
        - The Review Team was led by India and its representatives included Mr. Vinay Kwatra, the team leader, assisted by Mr. Sabyasachi Ray. Russia was represented in the Washington leg by Mr. Alexander Pshenichnikov, and in the New York leg by Mr. Oleg Sharipov. Angola was represented by Mr. Estanislau Buio, the European Community represented by Mr. Joris Heeren and UAE was represented by Mr. Mohammed Abdrabboh. The agenda and programme of the visit is at Annexure-2.
        - The schedule for the Review Visit was communicated to the RV team in advance by the host government. It was extensively discussed among the team members through conference calls. Based on intra-RV team consultations, additional meetings were suggested to the U.S. for incorporation in the programme which include:           - A visit to a land border customs post on the U.S.-Mexico border. The team felt this was important because of several media reports that pointed towards the possibility of smuggling at the U.S.-Mexican border;
          - Meeting with diamond traders in New York;
          - Meeting with relevant financial institutions including the banks to understand process details and their compliance with regulatory framework relating to transfer of funds etc.;
          - Visit to KP implementing agencies, including Customs and Border Protection; and
          - Scheduling of an exit meeting. 
        - The RV team also held a coordination meeting with the host government officials prior to the commencement of the visit. During this meeting, the schedule of the visit was finalized. It was also decided that the RV Team will follow the revised checklist for Review Visit as circulated by Working Group on Monitoring (WGM).
        - The RV Team is thankful to the U.S. State Department and other coordinating agencies that incorporated all the above requests for re-scheduling and substantive requests.
        - With regard to the visit to a land border customs posts on the U.S.-Mexican border, the host country responded, inter-alia that the United States has very little diamond trade with Mexico. Approximately, 85% of all rough diamonds come into the U.S. through J.F. Kennedy Airport, with a small amount coming through Newark, New Jersey, Los Angeles, California and Alaska. U.S. Customs and Border Protection inspects most of the diamonds at J.F. Kennedy Airport. There are National Import Specialists located in New York City for all commodities, including diamonds. If CBP personnel in other parts of the U.S. have questions, they contact the National Import Specialists.
        - The U.S. RV coordinator indicated that she would ask CBP to take up the question of U.S. enforcement in cross-border (by land) diamond flows and bring further information to our meetings, but they had “no plans to visit the border area as part of the visit.” As such, the Review Team did not undertake any visit to the U.S.-Mexican border.
        - During the visit, the RV Team met various government officials from State Department, Customs and Border Protection (CBP), Census Bureau, Office of Foreign Assets Control (OFAC), FinCEN, USGS, USAID, Arkansas Department of Parks and Tourism, etc. as well as representatives from the industry and trade bodies.
        - On 3rd December, the Review Visit started at the U.S. State Department. The RV Team was welcomed by Assistant Secretary of StateJose Fernandez, Bureau of Economic and Business Affairs. In his remarks, he outlined the general and specific objectives of the United States for the KP process.
        - The broad contours of legal and institutional framework of the KP implementation were explained to the RV Team by the U.S. State Department officials. They were then amplified through presentations done by OFAC and Fin CEN (through teleconference) on their role and responsibilities.
        - The Arkansas Department of Parks and Tourism, USAID and the USGS followed it up with a lively presentation on the Crater of Diamonds State Park and U.S. technical assistance given around the world by USGS and USAID.
        - On 4 December 2012, the RV Team had a session at the U.S. Census Bureau where the U.S. Census Bureau, U.S. Immigration and Customs Enforcement (ICE) and the CBP gave presentations on their roles in the implementation of the KPCS.
        - The second leg of the programme was in New York and included field visits at the J.F. Kennedy Airport to the U.S. Customs & Border Protection facility, and the MalcaAmit and cargo centre. The Team visited the walk-in offices of Brinks Global USA in Manhattan.
        - The next day constituted visits in Manhattan to the Malca-Amit office and USKPA office, followed by interaction with the trade, i.e Diamond Manufacturers and Importers Association of America (DMIA). Then the team divided itself into three sub-teams. One team visited the trade representatives of MWI/Eloquence and ALMOD, a second team visited Lieber and Solow (all USKPA Licensees) and another team visited Standard Chartered Bank.
        - On the last day of the visit, the Team visited Jewelers of America (JA) and Tiffany’s retail store on Wall Street. The visit was wrapped up with an exit meeting between the team members and the U.S. State Department and local CBP officials with some of the trade members joining in.
        - It was decided and agreed at the Exit Meeting that U.S. would furnish whatever documentation or additional information RV Team needed following deliberations during the visit. It was recognized that such information would be most essential to finalize the report, as also to make it comprehensive in its coverage. The list of documents at the end contains the information provided by the host government. However, some of the questions remain unanswered and due to which the report may appear inconclusive as relating to points of query.
        - The Team was provided access to institutions, and most of the records and documents that it requested for. The professional approach and homework done by all the agencies that the Review Team met was commendable. It deserves a special mention that most of the agencies were prepared with detailed presentations; were transparent and forthcoming in their approach; and were receptive to suggestions of improvement and suggestions made by the RV Team.
        - The U.S. Census Bureau has undertaken commendable improvements in statistical data collection and meticulous upkeep of its systems since 2005. The RV Team appreciated the detailed manner in which the same was presented.
        - The U.S. has been a participant in the Kimberley Process Certification Scheme since 2003. The Clean Diamond Trade Act was passed by the U.S. Congress and signed by the then President George W. Bush in April 2003. Under this Act, the importation into or the exportation of rough diamonds from the U.S. of rough diamonds from whatever source is prohibited unless it has been controlled through the Kimberley Process Certification Scheme.
        - For the convenience and to simplify the report, in general, the references related to Legal & Institutional Framework, Export/Import Procedure etc. have been taken to the extent possible from the previous annual and review visit reports. The recommendations and observations of the RV team members have been stated at the end of the report.

**INSTITUTIONAL FRAMEWORK**
        - The Clean Diamond Trade Act of 2003 (CDTA) (Public Law 108-19 and the Executive Order 13312 of July 29, 2003 establish the framework for implementation of KPCS.
        - Under the CDTA of 2003, the USA established a Kimberley Process Implementation Coordinating Committee to coordinate the implementation of this Act.
        - This Committee shall be co-chaired by the Secretary of the Treasury and the Secretary of the State. The other members of the Committee also include the Secretary of Commerce, the Secretary of Homeland Security, and the United States Trade Representative.
        - In addition to the formal Committee meetings, officials of these agencies on the Committee conduct frequent informal exchanges regarding implementation of the Clean Diamond Trade Act and administration of the Kimberley Process Certification Scheme.
        - Implementation of the Act is carried out by U.S. Government entities and by a private entity. The three entities involved in the day-to-day implementation of the Clean Diamond Trade Act of 2003, with their full addresses, are identified below           - Importing Authority – CBP has been designated as Importing Authority to enforce import provisions relating to KP, including verification of KP Certificates. United States Customs and Border Protection, 1300 Pennsylvania Avenue, NW. Room 5.2B, Washington DC 20229
          - Exporting Authority: United States Census Bureau has been designated as Exporting Authority to enforce export provisions relating to KP. U.S. Census Bureau, 4600 Silver Hill Road, Washington DC 20233 

36.3 Oversight and Internal/External Cooperation: The State Department is responsible for coordination with the U.S. Import and Export Authorities and other KP Participants. It also has responsibilities for oversight of the USKPA. The State Department also has ongoing cooperation with the U.S. diamond industry through contacts with industry associations, individual firms and through the USKPA. The State Department has a general e-mail inbox for questions and comments from the industry and the public. The same mailbox also receives notifications of the issuance of U.S. KP certificates as well as import notifications from foreign KP offices. USKimberleyProcess@state.gov, U.S. Department of State, Bureau of Economic and Business Affairs, EB/TFS/TFC, Rm 3843, Washington DC 20520.
        - The RV Team was briefed on the functioning of the U.S. Kimberly Process Authority. The following emerged.

37.1 The U.S, does not have a diamond office, instead the printing and distribution of KP Certificates is managed by the United States Kimberley Process Authority (USKPA). The USKPA is a not for-profit trade association in the United States formed for the purpose of administering and providing U.S. Kimberley Process certificates for the export of rough diamonds from the U.S. The physical location of the USKPA was identified as: United States Kimberley Process Authority, 11 West 47 Street, 11th Floor, New York, NY 10036

37.2. The Team observed that the role of the USKPA was not explicitly described in the U.S. Clean Diamond Trade Act or the Executive Order. During the presentation, it was mentioned by the State Department that an agreement with USKPA exists and a copy would be provided to the RV Team. The Team has requested that a copy of the relevant official / legal order or agreement setting out any understandings between the U.S. Government and the USKPA, including as to the nature and scope of its role be provided.

37.3 The U.S. Government reviews the activities of the USKPA on annual basis which includes a performance review of its procedures and records. The USKPA is also required to file an annual report of its activities and the activities of its licensees with the State Department. Informal exchanges also occur on a frequent basis as well as coordination when an issue arises. A copy of the last formal audit report of the USKPA conducted by the U.S. Government needs to be provided to the Team.
        - The registration of businesses involved in Kimberley Process as recommended by the KP Core Document is being done by the U.S. Department of Treasury. There is no separate registration for diamond trade, and the tax number acts as a unified registration mechanism. Businesses are also required to incorporate and obtain business licenses in the state in which they operate.
        - The Enforcement Agencies for KPCS in U.S. are CBP, OFAC, Fin CEN (though Kimberley Process is not part of Fin CEN’s official mandate, but as per 31CFR1027 – rules for dealers in precious metals, precious stones, or jewels, rough diamonds come under the precious stones) and U.S. Immigration & Customs Enforcement (ICE).
        - The U.S. Census Bureau clarified that while it does collect individual data directly from U.S. CBP, this information cannot be shared with others in accordance with their regulatory requirement on data sharing.
        - In the interest of greater transparency, the RV team requested the list of members of the U.S. Inter-agency Coordination Committee on USKP, as also the minutes of the last meeting of the inter-agency coordination meeting on the KP.

**LEGISLATIVE FRAMEWORK**
        - The Clean Diamond Trade Act (CDTA) was signed into law on April 25, 2003 and is codified at 19 U.S.C. 3901 et seq. The CDTA directed the President to take certain steps to implement the Kimberley Process Certification Scheme (KPCS) for rough diamonds in the U.S. Presidential Executive Order 13313, issued July 29, 2003 consolidates previous Executive Orders related to conflict diamonds and further assigns U.S. agency responsibilities.
        - The Department of Treasury’s Office of Foreign Assets Control (OFAC) issued the Rough Diamonds Control Regulations with the final rule issued in the Federal Register on September 23, 2004. The regulations were amended on 21 May 2008. Known as 31CFR592, the Regulations set forth, among other things, the prohibition on the importation into or the exportation from the United States on or after July 30, 2003 of any rough diamond, unless the rough diamond has been controlled by the Kimberley Process Certification Scheme.
        - As per the information provided by the U.S. officials, the CDTA contains provisions that cover, inter-alia:
        -            - Export and import of rough diamonds;
          - Issuance of certificate;
          - Internal controls
          - Penalties for individuals and companies violating the law or regulations; and
          - Collection and exchange of official import and export data related to rough diamonds. 
        - The Department of Commerce, U.S. Census Bureau issued a final rule on the Automated Export System Mandatory Electronic Filing for Exports (Re-exports) of Rough Diamonds, which was published in the Federal Register on October 20, 2003.
        - The State Department periodically issues a notice in the Federal Register identifying all KP Participants eligible for trade in rough diamonds under the Act and their importing and exporting authorities. The most recent Federal Register Notice was published on 11 May 2012 (Vol.77, No 92).
        - Section 31CFR592.502 of the Rough Diamonds Control Regulations, as amended, requires all importers and exporters of rough diamonds to file an annual report with the U.S. Department of State detailing their import, export, and stockpile information. The reports are to be filed by April 1 of each year to cover the preceding calendar year (January 1-December 31). Any importer or exporter who fails to file a required report shall be subject to a civil penalty not to exceed $10,000 per violation.
        - The Enforcement Authority for the above is the Office of Foreign Assets Control (OFAC). The Team was however informed that to date, OFAC has not issued a civil penalty to any importer or exporter for failure to file a required report under the Regulations.
        - The Team requested the reporting format, if any, that the OFAC/State Department uses for the yearly returns of exports and imports from the licensees (Stockpile Reporting would provide greater understanding of KP implementation).

IMPORT AND EXPORT PROCEDURES

Import Controls
        - The United States Customs and Border Protection is the Importing Authority responsible for enforcing the import provisions of the Clean Diamond Trade Act. CBP uses a sophisticated Trade Compliance Risk Management Process to manage rough diamond imports. CBP personnel have easy access on their website to samples of all Participants’ Kimberley Process Certificates for comparison purposes with incoming shipments. Physical inspection is carried out based on a risk-based assessment model.
        - A formal entry is required for all importations regardless of value or mode of transportation. CBP Import Specialists conduct a document review, and physical examination of shipment, as necessary. Import after that was explained as a two step process:
        -            - Entry – Information transmitted to CBP for review and merchandise is available for inspection. CBP reviews admissibility and safety concerns at entry.
          - Entry Summary – More detailed information provided to CBP for review. CBP reviews non-admissibility issues (e.g. classification and valuation) during the entry summary review. 
        - While CBP does not, as a matter of general policy, publicly reveal the numbers of physical inspections it conducts, the authorities informed that they undertake a large number of physical inspections. The number of inspections are reported in the Annual Reports submitted to the KP. The enforcement record to date provides assurance that inspections are being conducted in an effective manner.
        - CBP’s internal website is available for designated staff at all field locations , which provide basic information to prospective U.S. importers on the importation and Kimberley Process, and facilitates several functions including the following:           - Post current KP Certificate specimens on CBP’s internal web page to assist field personnel.
          - Assist in liaison between field personnel and State for KPC authentication.
          - Issue guidance when changes occur or vulnerabilities are identified.
          - Give accurate information on the correctness of the certificates. 
        - Most of the rough diamond import shipments enter the United States through the airports located in the New York metropolitan area though minuscule amounts reportedly also enter through Los Angeles.
        - Under the Rough Diamonds Control Regulations, the person identified as the ultimate consignee on customs forms filed in connection with the importation of rough diamonds must retain the original Kimberley Process Certificate for at least five years after the date importation and must make the certificate available on demand.
        - The person identified as the ultimate consignee on customs forms filed in connection with an importation of rough diamonds must also report the receipt of the shipment to the relevant foreign Export Authority within 15 calendar days of the date that the shipment arrived at a U.S. port of entry. The report must refer to the Kimberley Process Certificate by its unique identifying serial number, the number of parcels, the carat weight, and the identity of the importer and exporter of the shipment.

Export Controls
        - The United States Kimberley Process Authority (USKPA) is a not – for – profit trade association in the United States formed for the purpose of providing U.S. Kimberley Process certificates for the export of rough diamonds from the U.S. The USKPA is governed by a Board of Directors, and is located in New York City.
        - The USKPA has an arrangement with the U.S. government to provide U . S .  Kimberley Process certificates to licensed entities for use in exporting rough diamonds from the U.S. The USKPA administers the licensee program.
        - The USKPA enters into licensing agreements with entities seeking to export/re-export rough diamonds from the United States and use Kimberley Process (KP) Certificates for that purpose. All licensees of the USKPA must first meet the requirements under the Automated Export System (AES), as administered by the Customs and Border Protection (U.S. Importing Authority) and the U.S. Census Bureau (the U.S. Exporting Authority).
        - As the Exporting Authority, the U.S. Census Bureau validates the U.S. KP Certificates through the AES. No U.S. KP Certificate can be considered valid by the

U.S. Government until it has an Internal Transaction Number (ITN) generated by the AES system and entered on the KP Certificate. The shipment will not be accepted for export by U.S. Customs without an ITN number. The U.S. Government notes that the licensee and the exporter take responsibility for the data entered on the KPC.
        - The USKPA has designed and produced, in consultation with the U.S. Government the Kimberley Process (KP) Certificate, which fulfils the security features and requirements set out in Annex I of the KPCS document. These certificates are maintained by the USKPA in a secure manner. Only business entities licensed by the USKPA are authorized to use U.S. Kimberley Process certificates for the purpose of exporting rough diamonds from the U.S. Licensees pay an annual administrative fee to the USKPA and a modest fee for each certificate issued. U.S. KP Certificates are distributed in small batches by the USKPA and only after firms have been vetted and approved to be licensees.
        - All USKPA licensees must agree to secure storage of their stock of certificates, keep records of their issuances and voids, post information about each certificate issued immediately in the USKPA database, allow annual inspections by the USKPA or government agencies of their records and complete a yearly report as part of their responsibilities as a licensee. Activities of USKPA and the licensees are reported to the U.S. Department of State.
        - The USKPA maintains a secure electronic database of all U.S. KP Certificates issued since November 2009. Each licensee is identified as the entity that possesses an individual certificate. When a licensee seeks to export rough diamonds, the licensee is required to enter all the information required on the KPC and to update the listing when they receive confirmation of receipt. The database is open to all U.S. Government agencies. There are no delays or transmission issues because the database operates in “real time” and data is available as soon as it is posted.
        - In 2012, there were 18 licensees, including four common carriers (Brinks Global USA, Malca-Amit, Ferrari Express and G4S International) that were authorized to issue KP Certificates to a third-party. If an entity wishes to export rough diamonds but does not seek to become licensed, the use of a licensed common carrier is required. Individual businesses (not common carriers) who obtain a USKPA license are not permitted under their licensee agreement to provide

U.S. KP certificates for any third party whatsoever.
        - Almost all rough diamonds are exported by air cargo, so in addition to the export requirements set out by CBP, and the Census Bureau, all U.S. firms seeking to send items via air cargo must apply to become a “Known Shipper” of the U.S. Transportation Security Agency (TSA).
        - For third party issuance of KP Certificates, approved licensees will issue certificates upon application to known exporters that are registered in accordance with U.S. Transportation Security Administration regulations. In order for approved licensees to supply a KP certificate to a known exporter, the exporter must also complete an application requesting a KP certificate. In the application, the exporter attests that the information provided (carat weight, value, identification of exporter and importer, etc.) to the licensee is truthful and accurate and that the diamonds contained in the parcel(s) have been traded in accordance with the provisions of the KPCS.
        - A third-party issuer must keep the exporter’s application, a copy of the KP Certificate issued in conjunction with the application and the unique number of the certificate issued in connection with each application. The licensee must inform the USKPA of all KP Certificates issued, along with the identity of the user of the certificate. Additionally, the licensee must maintain records of confirmations received from importers, confirming the proper receipt of the export and all accompanying documentation. All records and certificates maintained by the licensee are subject to review and confirmation by the USKPA and agencies of the

U.S. government. All records and certificates must be available for examination for at least five years after the date of the transaction.
        - On an immediate basis, most licensees report their usage of KP Certificates to the State Department through an message sent to the Department’s KP e- mailbox. After the USKPA annual performance review of all licensees, a summary report of the licensees’ activity is submitted to the State Department. The State Department will review this report, as part of its annual review of the practices and procedures, of the USKPA.
        - Also, a disclaimer was observed on the U.S. KP Certificates that states, “The issuer of this certificate accepts no responsibility relating to the accuracy of the data recorded by the exporter of the referenced shipment”. The USKPA issues the certificates, but the exporter that uses the certificate possess full liability for the accuracy of the data entered on the certificate. The RV Team would appreciate receiving the U.S. Government’s official view on the ownership and responsibility of the U.S. KP Certificates by the U.S. Government and also their position on the referred disclaimer.

INTERNAL CONTROLS AND INDUSTRY SELF-REGULATION
        - Customs and Border Protection and Immigration and Customs Enforcement are authorized to enforce the provisions concerning violation s  of CDTA and to enforce the laws and regulations governing exports of rough diamonds including with respect to the validation of the KP Certificate by the exporting authority. OFAC also has the ability to issue financial penalties for non-compliance with the CDTA .
        - In addition to the authority to seize and forfeit shipments or rough diamonds which have not been controlled through the Kimberley Process Certification Scheme, CBP can impose a civil penalty of not exceeding $10,000 on any person who violates or attempts to violate, any license, order or regulation under the CDTA and whoever willfully violates or willfully attempts to violate any license, order or regulation issued under CDTA shall upon conviction, be fined not more than $50,000 or, if a natural person may be imprisoned for not more than 10 years or both.
        - The Jewelers of America (JA) has outreach programs and publications for sensitizing their members about the KPCS.
        - US Customs and Border Protection website:  http://www.cbp.gov/xp/cgov/trade/trade_programs/diamonds/epb_pocs.xml   states that Enforcement Policy Branch Points of Contact has been updated as on
        - (21 December 2011). The site also lists Rough Diamond Importation Procedures under the Kimberley Process as on 30 June 2008.
        - While The U.S. Department of State website:  https://www.state.gov/conflict-diamonds-and-the-kimberley-process/  contains recent information about the international aspects of the Kimberley Process, the subsections such as  “ U.S. Person Compliance with KP Requirements” were last updated in May, 2011 and should be brought up-to-date.
        - U.S. industry stakeholders maintain that they have systems in place to ensure outreach, education, and transparency in the KP implementation process. The RV team commends their commitment to the KPCS and upholding its sanctity. The Jewellers of America’s outreach and education programme is worth emulating by other business associations. DMIA participation in the process was also beyond doubt. The USKPA also has educational materials on its website and Director Cecelia Gardner and the other USKPA Directors provide training on the KP at trade shows and industry meetings.

**GOVERNMENT OVERSIGHT**
        - The US runs a committed and strong system of KPCS implementation. However, the potential to further strengthen the system is there and RV Team has made several recommendations in this regard.
        - Based on the 2005 RV recommendations, some inspections routinely involved a full physical examination using independent valuators. The U.S. in its Annual Report to the KP maintained that CBP does not use independent evaluators to determine the appraisal amount of rough diamond shipments. Instead, Import Specialists verify the value of imports based on invoices, proofs of purchase and bank records.
        - During the visit, the team members met with the CBP officials and the Import Specialists. Also the team went and did a physical check of an import at the Malca-Amit warehouse near J.F. Kennedy Airport. In reply to a specific question, it was pointed out that to find out the difference between diamonds, the Import Specialists use a common diamond tester that checks the hardness instead of spectrum analysis to know the veracity of the diamonds. Diamond testers of this type cannot distinguish between manmade diamond and a natural diamond rough. The Import Specialist stated that CBP did not use spectroscopic verification of the diamonds to identify suspicious shipments of diamonds. Import Specialists at the J.F. Kennedy Airport examine diamond shipments using two different diamond testers (Presidium Gem, and Moissante) which are able to distinguish between natural and manmade diamonds.
        - It was also discovered that there was no weighing balance used to check the caratage of the imported diamonds by the CBP officials. It was felt that this process needs to be more consistent with the best practices recommended in the KP Core Document Clause 23 of the “Recommendations for Import Processes” which states that the Importing Authority should open and inspect the contents of the shipment to verify the details declared on the Certificate.
        - The Team noted the need for CBP to arrange for additional the training of the appropriate CBP personnel/Import Specialists/diamond valuation experts to strengthen their in-house capacity to deal with suspicious shipments.
        - As per the complementary guidance on internal controls  Implementing effective controls of cross-border trade of  Administrative Decision “Improving implementation of internal controls in the KPCS” which states that participants should carry out physical inspections of imports and exports of rough diamonds, consistent with national legislation, either on a comprehensive basis or on the basis of a risk assessment (including random checks); such checks should include examination of the value and, where possible, stated origin of diamonds in a given shipment. However, it was mentioned during the presentations that almost none of the export shipments are opened or physically checked by CBP due to a pre- departure deadline to file a shipment in the AES up to two hours prior to export by air cargo. CBP also told the RV Team that it would be more willing to conduct more thorough physical examinations of exports to support law enforcement operations. But doing physical inspections of diamond exports would expose the shipper and CBP to more cost and risks, because the tamper-resistant packaging would have to be broken before the item entered into international commerce. The U.S. State Department has since clarified that the timeframe of two hours was established in consultation with the U.S. shippers and in accordance with U.S. regulatory procedures by CBP in the Trade Act of 2002, as amended. These procedures were subsequently incorporated in the Census Bureau’s export regulations (15 CFR 30). This timeframe for electronic filing applies to all shipments carrier by air cargo and not just diamonds. The CBP export regulation related to air cargo is is 19 CFR 192.14.
        - The Team felt that physical inspections of imports and exports of rough diamonds, including periodic checks and targeted, risk-based checks should include examination of the value and stated origin of diamonds, where possible. The USKPA and State Department website should contain a note on suspicious shipment or enforcement regulations.
        - The visit to Standard Chartered Bank by the RV Team showed that there could be greater scope for coordination between the financial institutions and the KP agencies, in particular with regard to the documents collected by the banks while verifying the payments for transactions related to rough diamond import / export.
        - It was felt that in regards to international money transfers, the U.S. should make efforts to follow the best practices found in the complementary guidance on internal controls  Implementing effective controls of cross-border trade of  Administrative Decision “Improving implementation of internal controls in the KPCS” as per which the participants should ensure that international payments for all purchases of rough diamonds are routed through banks rather than informal banking systems, and, where possible, supported by verifiable documentation.
        - FinCEN has subsequently clarified that the United States does not regulate the financial transactions of firms specifically involved in the U.S. diamond trade,

but that all U.S financial institutions are required to adhere to a number of standards to combat money-laundering and illegal cash flows covered by the anti- money-laundering regulations and the Bank Secrecy Act.

86. 1 For Cash Transactions: All trades and businesses in the U.S. are required to file an Internal Revenuse Service/FinCEN Form 8300 if the business receives more than $10,000 in cash from one buyer as a result of a single transaction or two or more related transactions: http://www.irs.gov/Businesses/Small-Businesses-&-  Self-Employed/Form-8300-and-Reporting-Cash-Payments-of-Over-$10,000

86.2 For Hawalas/MSBs: With regard to hawalas, in general, these must be registered as money transmitters (a subset of “money services business” or MSBs) in the U.S. and are therefore subject to regulation under 31CFR1022, which includes Customer Identification Programs, Currency Transaction Reports, and Suspicious Activity Reporting requirements.

**STATISTICS**
        - USA has been submitting all the required data on the Statistical Website. USA also acts as a Chair of Working Group on Statistics and as such has been managing the website. Based on the suggestions from other participants, USA has made improvements to the website.
        - The US issued new regulations in May 2008 requiring all imports of rough diamonds, regardless of the value of shipment, be entered formally with US Customs and Border Protection (CBP). All rough diamonds imported must filed on CBP Form 7501 Entry Summary or its electronic equivalent. This will help improve the Kimberley Process statistics in particular those imports of shipments that were below the exemption level in the past. In an effort to increase awareness of the Kimberley Process requirements, the US has been actively conducting outreach and education with the trade community. The US State Department informed the review team that rough diamond data was also collected via 1501ABI/ACE on imports and AES on exports.
        - It may be noted that the review visit report 2005 had made several observations relating to the US Statistics. One of the paragraph is reproduced below: “The Census Bureau admitted that there had been difficulties in gripping the subject, brought about in part by a lack of resources the Bureau could devote to it, a theme they returned to on several occasions.”
        - The US Census Bureau has since undertaken commendable improvements in statistical data collection and meticulous upkeep of its systems. The RV Team appreciated the detailed manner in which the same was presented.
        - However the data on the website also posed some questions. It was pointed out during the current review visit that the import and export data across various categories / HS classifications could not be fully reconciled.
        - The data tabulated below is from the annual statistical tables for USA available on the KP website.