Conflict Diamonds: Agency Actions Needed to Enhance Implementation of the Clean Diamond Trade Act
Published: 2006-09-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 2003, the United States and other countries began implementing the Kimberley Process Certification Scheme (KPCS) to curtail the trade of rough diamonds that had fueled severe conflicts in Africa, known as conflict diamonds. CDTA provides the statutory framework for U.S. implementation of the KPCS. As mandated in CDTA, this report (1) describes the institutional framework established to implement the act, (2) examines implementation of the domestic provisions of the act and challenges it faces, and (3) examines how the United States has helped to strengthen the KPCS and challenges it faces.
section_title: What GAO Found
paragraphs: The United States has used multiple U.S. agencies and a private, not-for-profit entity to implement the domestic and international provisions of the Clean Diamond Trade Act (CDTA). The Departments of State and the Treasury have led U.S. efforts to implement the domestic provisions of the act; State has led the U.S. efforts to curtail trade in conflict diamonds abroad. Domestically, the Departments of State, the Treasury, Homeland Security, and Commerce, and the private entity, called the U.S. Kimberley Process Authority (USKPA), have been responsible for controlling U.S. imports and exports of rough diamonds. Internationally, State, the U.S. Agency for International Development (USAID), and the U.S. Geological Survey have helped to strengthen KPCS. Domestically, the U.S. systems for reporting rough diamond statistics and for controlling imports and exports of these diamonds are vulnerable to illicit trade. The United States has enhanced the quality of its rough diamond trade data by improving its collection processes, but work remains to be done. Also, the United States does not periodically inspect rough diamond imports or exports to ensure that the contents of the rough diamond parcels match the Kimberley Process certificates. In addition, the United States lacks an effective system for confirming receipt of imports--a Kimberley Process requirement for avoiding possible diversions of rough diamond imports. Finally, the United States has not had a plan for monitoring USKPA, but is developing and testing one. Internationally, the United States has helped to strengthen KPCS by participating in KPCS activities and providing assistance to Sierra Leone and Liberia in their efforts to comply with KPCS, but donor assistance to these countries faces challenges. Donors and diamond producing countries are considering a regional approach to help enhance the effectiveness of donor diamond-related assistance because this assistance is constrained by the limited capacity and resources of these countries and the need to harmonize diamond policies among countries vulnerable to illicit cross border diamond trading.

section_title: Letter
paragraphs: When legitimately traded, rough diamonds (uncut and unpolished  When legitimately traded, rough diamonds (uncut and unpolished  diamonds) can make a major contribution to the economies of producing,  diamonds) can make a major contribution to the economies of producing,  exporting, and importing countries, especially developing countries. In the  exporting, and importing countries, especially developing countries. In the  1990s, however, rough diamonds that became known as conflict diamonds  1990s, however, rough diamonds that became known as conflict diamonds  fueled severe conflicts and humanitarian crises in countries such as  fueled severe conflicts and humanitarian crises in countries such as  Liberia, Sierra Leone, the Democratic Republic of the Congo, and Angola.  Liberia, Sierra Leone, the Democratic Republic of the Congo, and Angola.
The United Nations (UN) General Assembly defines conflict diamonds as rough diamonds  used by rebel movements to finance efforts to undermine or overthrow legitimate  governments. UN General Assembly Resolution 55/56 (Jan. 29, 2001).
Although many of these conflicts have now ended and the international  community has taken steps to gain control of the rough diamond trade, the  United Nations (UN) and other sources report that illicit trading of rough  diamonds still exists and could potentially finance civil conflicts as well as  criminal and terrorist activities.
In November 2002, diamond producing and diamond trading countries  launched a voluntary global system, called the Kimberley Process  Certification Scheme (KPCS), to control the trade of rough diamonds and  to assure consumers that the diamonds they purchase have not helped to  finance violent conflicts. Implementation of KPCS began on January 1,  2003. The United States and other KPCS participants are responsible for  ensuring that the integrity of the certification scheme is upheld and that  the Kimberley Process works towards preventing conflict diamonds from  entering the legitimate trade of rough diamonds. In instances of  noncompliance, KPCS can expel or suspend a participant from the  certification scheme. For example, in July 2004, the Chair of KPCS  expelled the Republic of Congo from participation because this country  could not account for the origin of large quantities of rough diamonds.
The United States has a major interest in KPCS because the certification  scheme helps ensure the protection of the legitimate trade in these  diamonds by breaking the link between conflict and rough diamonds.  Although the United States is not a producer of rough diamonds, it is a  significant global trader of rough and polished diamonds and the world’s  largest consumer market for diamond jewelry. In 2003, the United States  was the seventh largest exporter of rough diamonds among non-mining  KPCS participants (exporting about $227 million worth), and the fifth  largest exporter of polished diamonds.
The United States enacted the Clean Diamond Trade Act (CDTA) in April  2003 to provide the statutory framework for implementing KPCS. As  mandated in CDTA, this report (1) describes the institutional framework  the U.S. government has created to implement CDTA, (2) examines how  the United States has implemented the provisions of CDTA domestically  and what principal challenges it faces, and (3) examines how the United  States has helped to strengthen KPCS and what principal challenges it  faces.
To meet these objectives, we examined documents relevant to the  Kimberley Process and CDTA implementation from the UN, KPCS, U.S.  and foreign government agencies, the diamond industry, and non- governmental groups. Additionally, we conducted audit work in the United  States (Washington, D.C., and New York City); Canada; Belgium; Russia;  Italy; Sierra Leone; and Liberia. We also met with representatives from the  Department of State (State), the Department of the Treasury’s (the  Treasury) Office of Foreign Assets Control (OFAC), the Department of  Homeland Security’s (Homeland Security) Bureau of Customs and Border  Protection (CBP) and Bureau of Immigration and Customs Enforcement  (ICE), the Department of Commerce’s (Commerce) Bureau of the Census  (Census), the Department of the Interior’s U.S. Geological Survey (USGS),  the U.S. Agency for International Development (USAID), the Office of the  U.S. Trade Representative (USTR), and the U.S. Kimberley Process  Authority (USKPA); as well as non-governmental groups, the diamond  industry, foreign governments, and the UN and other international  organizations. Furthermore, we analyzed Census data submissions to  KPCS. We conducted our work from September 2005 through September  2006 in accordance with generally accepted government auditing  standards. Appendix I contains a more detailed description of our scope  and methodology.
subsections: section_title: Background
paragraphs: KPCS participants produce and trade the vast majority of rough diamonds  in the world. However, the nature of diamonds and the lack of effective  control systems create opportunities for illicit trade, including trade in  conflict diamonds. By deterring potential illicit trading, effective control  mechanisms could help prevent illicit diamonds from entering the  legitimate trade. For example, without systems to accurately capture and  analyze rough diamond trade data, KPCS participants cannot readily  identify anomalies in imports and exports that could indicate illicit  activity. Also, without effective systems for inspecting imports and exports  or confirming import receipts, illicit rough diamonds could enter the  legitimate trade.
On November 5, 2002, 37 ministers and heads of official delegations  launched KPCS, which contained elements for participants to consider in  establishing control systems for monitoring the production and trade in  rough diamonds. These elements included, among other things, systems  for collecting and sharing data on production and trade of rough  diamonds, inspecting the contents of import and export shipments to  verify the details declared on the Kimberley Process certificate, and  confirming import receipts with the foreign exporting authority.  Implementation of KPCS began on January 1, 2003. Currently, 46  participants, including the European Community, voluntarily participate in  KPCS and account for approximately 99.8 percent of the global production  of rough diamonds. (See appendix IV for a timeline of KPCS and CDTA- related events and appendix V for the list of KPCS participants.)  Consistent with KPCS provisions, the United States enacted CDTA on  April 25, 2003, to establish an institutional structure for controlling and  monitoring U.S. imports and exports of rough diamonds.
subsections: section_title: Kimberley Process Certification Scheme
paragraphs: The structure of KPCS includes a Chair and Vice-Chair, a Secretariat  serving under the Chair, working groups, and committees; KPCS  participants also hold an annual plenary meeting. Figure 1 depicts KPCS’s  structure and the responsibilities of the Chair, Secretariat, working  groups, and committees. In addition to participants, only applicants and  official observers—including representatives from the diamond industry,  non-governmental groups, and international organizations—can  participate in KPCS meetings and activities.
The Chair is responsible for overseeing the implementation of KPCS,  leading the annual plenary meeting, overseeing the operations of three  working groups and two committees, and the general administration of the  Kimberley Process. Under the Chair, a Secretariat is responsible for  scheduling meetings, circulating documents among participants,  maintaining the KPCS Web site, and all other duties the Chair designates.  The Secretariat does not have permanent staff. The country chairing the  certification scheme is responsible for staffing the Secretariat. Currently,  Botswana chairs KPCS and the Vice-Chair is from the European  Community.
KPCS holds a plenary meeting normally once per year, in which  participants and official observers typically discuss and assess the  implementation of the certification scheme. KPCS participants and official  observers work together in monitoring, statistics, and diamond experts  working groups, and in the Participation Committee and the Selection  Committee, to strengthen the certification scheme.
KPCS’s key provisions require participants to:    enact or amend appropriate laws or regulations to implement and enforce  the certification scheme, and maintain dissuasive and proportional  penalties for transgressions;   designate importing and exporting authorities;    establish control systems designed to eliminate the presence of conflict  diamonds from the rough diamond trade, such as systems for physically  inspecting rough diamond import and export parcels;   ensure that a Kimberley Process certificate accompanies each import and  export shipment of rough diamonds;   acknowledge the receipt of rough diamond import parcels to the foreign    ensure that rough diamonds are imported and exported in tamper-resistant    collect and maintain rough diamond data on production, imports, and  exports; and collate and exchange such data with KPCS.
section_title: Clean Diamond Trade Act
paragraphs: CDTA provides the institutional structure for implementing its domestic  and international provisions.
Regarding domestic implementation, key CDTA provisions    designate importing and exporting authorities,    establish an interagency Kimberley Process Implementation Coordinating  Committee for coordinating U.S. implementation efforts,   give the U.S. government responsibility for overseeing any entity involved  in the issuance of the certificates that must accompany each shipment of  rough diamonds exported from the United States, impose civil and criminal penalties to enforce implementation of CDTA,  and    support the collection and exchange of U.S. import and export data on  rough diamonds.
Regarding international implementation, key CDTA provisions    urge the U.S. government to strengthen KPCS by monitoring the  effectiveness of the certification scheme and by sharing statistics, and   allow U.S. agencies to make technical assistance available to countries  seeking to implement KPCS.
section_title: Several U.S. Agencies and USKPA Have Implemented CDTA
paragraphs: Consistent with the provisions of CDTA, the United States has used  several U.S. agencies and USKPA to implement the domestic and  international provisions of the act.
subsections: section_title: U.S. Agencies and USKPA Have Implemented CDTA’s Domestic Provisions
paragraphs: State, the Treasury, Commerce, Homeland Security, and USKPA have had  responsibilities for implementing the domestic provisions of CDTA. State  and the Treasury have led these U.S. implementation efforts.
State: The department co-chairs the U.S. interagency group for  implementing CDTA. State is responsible for reviewing the activities of  USKPA and its licensees and for annually reporting to the Congress the  results of its review.
The Treasury: The department co-chairs the interagency group for  implementing CDTA. OFAC is responsible for promulgating the rough  diamond regulations to implement CDTA. One of these regulations  designates the final recipient of the shipment (i.e., the ultimate consignee)  with the responsibility of confirming, with the foreign exporting authority,  the receipt of a rough diamond import shipment.
Homeland Security: Under CDTA, Homeland Security’s CBP is the  importing authority responsible for regulating U.S. rough diamond  imports. The department’s Bureau of Immigration and Customs  Enforcement is responsible for pursuing criminal investigations related to  violations of CDTA and its regulations.
Commerce: Under CDTA, Census is the exporting authority responsible for  regulating U.S. rough diamond exports. Also, Census is responsible for  collecting and analyzing data on the U.S. trade of rough diamonds and  reporting it to KPCS.
USKPA: Unlike most KPCS participants, the United States has assigned the  responsibility of issuing Kimberley Process certificates to a private entity  rather than to a government agency. USKPA produces these certificates  and currently relies on 17 licensees for issuing them.
Interagency Coordination Committee: State and the Treasury co-chair an  interagency committee, the Kimberley Process Implementation  Coordinating Committee, that CDTA created for coordinating U.S.  government activities on rough diamonds. Aside from convening and  leading committee meetings, State and the Treasury have no formal  authority over the actual activities of the other agencies in carrying out  their assigned CDTA roles. Nevertheless, U.S. officials noted that the  formal and informal interagency coordination processes have effectively  addressed many operational issues. For example, State and other U.S.  agencies recently met to discuss topics such as U.S. options for providing  additional diamond-related technical assistance; U.S. comments on  recommendations made to KPCS on the preliminary results of the 3-year  review of the certification scheme that is currently under way on issues  such as creating and financing a KPCS Secretariat; and the issues raised at  the June 2006 KPCS intersessional meeting in Gaborone, Botswana,  including enhancing KPCS monitoring and statistics.
section_title: U.S. Agencies Have Implemented the International Provisions of CDTA
paragraphs: State, Census, USAID, and USGS are involved in implementing the  international provisions of the act. See table 1 for a brief description of the  responsibilities of these agencies. Consistent with KPCS, the key  international provisions of the act cover the United States’ participation in  KPCS and the U.S. technical assistance to participants seeking to  implement KPCS.
State leads U.S. efforts in KPCS and works with other U.S. agencies to,  among other things, strengthen KPCS by monitoring its effectiveness in  preventing trade in rough diamonds. State and other U.S. agencies  participate in various aspects of KPCS, including attending annual (and  other) KPCS meetings, and serving on KPCS working groups and  committees. For example, State serves on the KPCS working group on  monitoring, which is mandated to monitor and assess implementation of  KPCS by all participants. Also, State and Census serve on the KPCS  statistics working group and USGS has done statistical analysis of rough  diamond trade data for the monitoring working group.
The CDTA authorizes federal agencies to provide technical assistance to  countries seeking to implement KPCS. Thus far, State and USAID have  provided diamond-related assistance to Sierra Leone, and State and USGS  have provided this assistance to Liberia. Specifically, through Management  Systems International, USAID has provided technical assistance to Sierra  Leone to help the country gain control of its trade of rough diamonds.  State has recently funded USGS to provide, through Constella Futures  International, technical assistance to Liberia for implementing KPCS.
section_title: U.S. Agencies Have Improved Systems for Implementing CDTA’s Domestic Provisions but Are Still Vulnerable to Illicit Trade
paragraphs: U.S. entities responsible for implementing the domestic provisions of  CDTA have improved the system for collecting and sharing U.S. trade data  on rough diamonds and have established systems for controlling the U.S.  trade in these diamonds, yet these systems are still vulnerable to illicit  trade. Because most of these vulnerabilities involve limited government  monitoring or oversight, U.S. control systems cannot help deter illicit  rough diamonds from entering the legitimate trade.
subsections: section_title: Census Has Improved Collection and Reporting of Rough Diamond Data, But Some Work Remains to Be Done
paragraphs: Since the enactment of CDTA in 2003, Census has steadily improved its  system for capturing and reporting U.S. rough diamond trade statistics in  response to KPCS concerns. However, this system needs further  improvement to assure that the rough diamond trade does not include  illicit diamonds. CDTA recommends that the executive branch keep and  publish statistics on rough diamond imports and exports, recognizing that  reliable and comparable data on the international trade in rough diamonds  are an essential tool to effectively implement the certification scheme.  These data can help to identify any irregularities or anomalies that might  indicate the presence of conflict diamonds in the legitimate trade in rough  diamonds. For example, because the Republic of Congo was not able to  explain its reports of rough diamond exports that were far in excess of its  known production capacity or imports, KPCS decided to ban this country  from participation in the certification scheme in 2004.
KPCS has expressed several concerns about the trade data the United  States has submitted. Subsequent to the enactment of CDTA, Census  reported U.S. rough diamond trade data to KPCS that contained a greater  volume of exports than imports. For example, it reported that the United  States had exported about 3 million carats more than it imported in 2003.  As a non-producing nation, this excess in exports was not plausible and  raised concerns about the accuracy of the U.S. trade data and the potential  laundering of rough diamonds through the United States. In fact, because  the United States does not produce rough diamonds and cuts and polishes  some rough diamonds, exported carats should, on average, be lower than  imported carats. In 2005, the KPCS peer review visit to the United States  recommended that Census identify all anomalies within the systems for  recording data and correct them as necessary, that the United States  provide explanations for the large differences between exports and  imports in 2003 and 2004 to the KPCS Working Group on Statistics, and  that the group follow up on this issue with the U.S. authorities.
To improve the quality of its data and to comply with KPCS data  requirements, Census made a number of changes, including the following:    Census officials indicated they had identified anomalies that affected the  accuracy of the data, including the misclassification of shipments by  individual filers and the Census’ use of a method that altered some  shipments by recalculating quantities of exports or imports based on  historical price data.
Census continues to pursue potential causes of inaccuracy in U.S. rough  diamond import and export data. Specifically, Census officials told us of  their efforts to determine how many carats of rough diamonds are entering  the United States under the generic U.S. Goods Returned Code. In  addition, Census officials also reconcile U.S. trade data bilaterally with  other trading partners, as this can also help to identify any data  anomalies.
In early 2006, Census started collecting and reporting data from Kimberley  Process certificates. This change harmonized the U.S. system for data  collection with the vast majority of other KPCS participants. Before this  change, Census used data from its traditional customs-based method to  report to KPCS, which can be different from data collected based on  Kimberley Process certificates.
Census now checks its own data against the monthly data it receives from  USKPA on the disposition of certificates issued each month. This extra  step has helped Census to identify errors involving quantities or shipments  that were misclassified as rough diamonds.
Census and CBP modified the Automated Export System (AES) and the  Automated Broker Interface (ABI), so that these computer systems,  through which filers enter export and import shipment data, require  Kimberley Process certificate numbers when entering information on  rough diamond exports and imports. With these changes, filers will now  receive an error if they do not provide a Kimberley Process certificate  number after entering a rough diamond tariff code. Prior to these  modifications, polished diamonds and diamond jewelry could be (and  were) misclassified as rough diamonds.
Census stopped estimating the quantity for shipments that fell outside of a  reasonable price range.
As figure 2 shows, Census’ actions resulted in a significant reduction in the  reported discrepancies between U.S. rough diamond export and import  data. Compared to the nearly 3 million carat discrepancy reported  between imports and exports in 2003, by 2005 Census reported an excess  in exports of less than 300,000 carats compared to imports. However,  Census has not determined whether this annual excess of U.S. exports  compared to imports is reasonable for a non-mining country and, thereby,  does not involve illicit rough diamonds. Factors that might contribute to  this annual excess include the levels of inventories held and the volume of  cutting and polishing done in the United States.
section_title: CBP’s System to Control Rough Diamond Imports Has Weaknesses
paragraphs: CBP has established a system for controlling U.S. rough diamond imports  through documentation review and physical inspections. However,  because these physical inspections do not occur periodically or regularly,  the system cannot ensure that illicit shipments of rough diamonds are not  entering the country. Furthermore, since 2003, U.S. importers have failed  to confirm rough diamond import receipts with foreign exporting   authorities, resulting in U.S. non-compliance with this KPCS standard. See  figure 3 for a graphic depiction of the import control process and  weaknesses in U.S. government oversight.
CDTA prohibits the importation into the United States of any rough  diamond that has not been controlled through KPCS, which details a  number of requirements to control imports of rough diamonds. For  example, the United States must:  require imports to contain a valid Kimberley Process certificate;   ensure that no shipment of rough diamonds is imported from a non-   ensure that rough diamonds are imported in tamper-resistant containers;    establish a system of internal controls designed to eliminate the presence  of conflict diamonds from rough diamond import shipments.
To implement CDTA import provisions, CBP created a system that selects  all rough diamond import shipments for documentation reviews.  Depending on the approach CBP uses for physical inspections, the system  might choose all or some of these shipments for physical inspections,  although not periodically or regularly. CBP controls about 300 ports of  entry into the United States. Although rough diamonds come into the  United States through multiple ports of entry, about 85 percent of them  come through one port of entry—John F. Kennedy (JFK) Airport in New  York City. Under the current system, after a rough diamond import arrives  at a port of entry, the customs broker sends the hard-copy entry  documentation to the CBP office at the port, at which time the information  is entered into CBP’s computer system for review.
All rough diamond shipments must, at least, receive a document review by  an import specialist, who verifies that the Kimberley Process certificate is  authentic and ensures that the information on the certificate (such as the  certificate number, and the value and quantity of the rough diamonds)  matches the information on the invoice accompanying the shipment. If the  reviewing import specialist detects a problem with the documentation, the  shipment is detained until CBP obtains the necessary documentation to  release the shipment. The shipment may be seized if the information is not  obtained within a certain time frame.
CBP has used four approaches to select imports of commodities for  physical inspections. In the case of rough diamonds, this means physically  opening and examining the content of import parcels. First, given the large  number of imports arriving into the United States every day, CBP uses an  approach to identify high risk import shipments for physical inspections.  According to CBP documentation, this approach enables CBP to balance  its efforts to enforce CDTA with the agency’s Priority Trade Issues and  other responsibilities. Second, CBP has a compliance measurement  program that randomly selects shipments for physical inspection across all  ports. Less than 1 percent of rough diamond shipments each year are  selected for a physical inspection through this program, according to CBP.  Third, physical inspections occur at the discretion of the ports. At JFK, for  instance, CBP physically inspects shipments for different reasons,  including (1) intelligence information entered into CBP’s computer system  before the shipment arrives at port; (2) suspicious discovery in the  documentation review; (3) shipments from unknown importers; or (4)  other information. Finally, CBP inspected all rough diamond imports that  came into JFK on two occasions in 2004 and 2005. According to CBP  documentation, on these two occasions, inspections found a high rate of  importer compliance with U.S. requirements regarding declaration of  rough diamond imports.
Since 2003, CBP has seized seven shipments for violations of CDTA. One  case involved a rough diamond import without a valid Kimberley Process  certificate that was not packed in a sealed tamper-resistant container. Of  the remaining six cases, three closed cases were resolved through the  administrative process, with one resulting in a fine. Three cases are open  and proceeding through the administrative process.
subsections: section_title: CBP Does Not Have a Policy or Plan for Conducting Physical Inspections Periodically or Regularly
paragraphs: Although CBP has used four approaches for selecting rough diamond  import shipments for physical inspections, none of these approaches  results in periodic or regular physical inspections. According to accepted  government internal control standards, control activities such as  periodically or regularly reviewing assets—in this case, rough diamond  shipments—should be evaluated periodically or regularly to ensure that  they are still appropriate and working as intended. While the total  inspection of rough diamond imports at JFK, referred to above, helped  CBP to assess the effectiveness of its import control systems during two  periods of time, the agency has no policy or plan for conducting these total  inspections periodically or regularly in any of its ports of entry.  Furthermore, CBP has no policy or plan for conducting other physical  inspections periodically or regularly. Without these types of physical  inspections, the United States cannot ensure that its import control system  deters illicit rough diamond shipments.
section_title: The United States Has Confirmed Few Import Receipts with Foreign Exporting Authorities
paragraphs: The United States has not fully complied with the KPCS standard that  requires KPCS participants to confirm rough diamond import receipts to  the relevant foreign exporting authority. The 2005 KPCS peer review  reported that the implementation of this requirement has been sporadic  and recommended that the United States take steps to ensure that it  enforces this provision. During our fieldwork, we found that the United  States had not confirmed receipt of most import shipments to foreign  exporting authorities of four KPCS participants, which are key U.S. trading  partners, and the United States did not know the extent to which it had not  confirmed import receipts with the rest of the participants. For example,  the United States confirmed receipt of 2 percent of rough diamond import  shipments from Belgium in 2004, and 18 percent of these shipments in  2005. All other countries confirmed receipt of 95 percent of rough  diamond import shipments from Belgium in 2004, and 97 percent of these  shipments in 2005. See table 2 for U.S. confirmation of import receipts to  four countries, and all other countries’ confirmation of import receipts to  three of these four countries in 2004 and 2005.
The United States has delegated the responsibility for confirming rough  diamond import receipts to importers. Through OFAC, the Treasury  clarified this requirement in its September 2004 revisions to the Rough  Diamond Control Regulations by making the ultimate importer (i.e., the  ultimate consignee instead of the importer-of-record) responsible for  confirming rough diamond import receipts to the relevant foreign  exporting authority. The revised regulation also requires that the ultimate  importer send the confirmation within 15 calendar days of the import’s  arrival at the U.S. port of entry, and clarifies that the confirmation may be  in any form and may be submitted electronically, by mail, or by courier.  The regulations include civil and criminal penalties for any person who  violates, or attempts to violate, any order or regulation issued under  CDTA.
The United States has not made any U.S. agency responsible for tracking  these import confirmations, and has only learned about the U.S. failure to  confirm import receipts when exporting authorities from other countries  have complained about this problem. In response to these complaints, the  United States has recently taken steps to improve the compliance of U.S.  importers with this KPCS requirement. Between April and June 2006, State  sent letters to about 150 U.S. importers reminding them of the requirement  under the rough diamond control regulations to confirm receipt of rough  diamond imports to foreign exporting authorities. Based on information  provided by State to OFAC, in August 2006, OFAC opened investigations  and started to issue administrative subpoenas to importers who had not  confirmed import receipts. If any importer continues to fail to confirm  import receipts, that is, fail to comply with the regulation, civil penalties  may result.
These enforcement efforts have had a positive effect on U.S. compliance  with this requirement, but the United States is not yet fully compliant. As  of June 2006, for instance, Belgium reported receiving confirmations of  import receipts for 35 percent of its shipments to the United States,  compared to 18 percent in 2005. Likewise, Canada reported receiving  confirmations of import receipts for 33 percent of its shipments to the  United States compared to 16 percent in 2005. Despite these  improvements, the United States is far from fully complying with this  requirement. Because the United States has not assigned an agency to  track confirmation of import receipts by importers, it cannot monitor the  compliance of importers with this KPCS standard and also is not able to  detect possible diversions of rough diamond import shipments. See figure  3 for a depiction of the rough diamond import process and existing  weaknesses.
section_title: U.S. System to Control Rough Diamond Exports Shows Weaknesses
paragraphs: State, Census, and USKPA have established a system for controlling U.S.  rough diamond export shipments. However, the system shows weaknesses  because it involves little direct U.S. government monitoring, thereby  preventing the United States from being sure that illicit shipments are not  leaving the country. See figure 4 for a depiction of the export control  process and weaknesses in U.S. government oversight.
CDTA requires exportation of any rough diamond from the United States  to be substantially consistent with KPCS, which details a number of  requirements to control rough diamond exports. For example, the United  States must:    ensure a Kimberley Process certificate accompanies each shipment of  rough diamonds on export, and that the certificates meet the minimum  requirements set out by KPCS;   ensure that no shipment of rough diamonds is exported to a non-   ensure that rough diamonds are exported in a tamper-resistant container;    establish a control system designed to eliminate the presence of conflict  diamonds from export shipments of rough diamonds.
Under the oversight of State, USKPA, through its licensees, issues  Kimberley Process certificates. According to a State report to Congress,  USKPA, which is comprised of representatives of the diamond industry,  was established in 2003 to issue and control Kimberley Process certificates  for rough diamond exports from the United States. To issue U.S.  Kimberley Process certificates, USKPA subcontracted out to 17 licensees.  These licensees represent companies that ship on behalf of third parties,  as well as companies engaged in the business of buying and selling rough  diamonds that agree to fulfill the requirements of KPCS and all relevant  U.S. laws and regulations. Each licensee also agrees, through contractual  agreements, to a set of fixed procedures in order to qualify to obtain and  use Kimberley Process certificates when exporting rough diamonds.  Under these procedures, licensees agree to maintain a supply of Kimberley  Process certificates in safekeeping, keep records for 5 years for each  shipment where a Kimberley Process certificate is issued, and submit to an  audit by USKPA. Also, licensees/shippers agree to complete an application  form.
Licensees submit monthly and annual reports to USKPA with all of the  certificates issued in that period. These reports are forwarded to State and  Census. See table 3 for the number of certificates issued by the United  States from 2003 to 2005.
CDTA requires that State conduct an annual review of the standards,  practices, and procedures of USKPA to determine whether these activities  are in accordance with KPCS, and that State report the results of the  review to Congress. State has reported as required; however, the content  of the annual report is more descriptive than evaluative. According to  State, it has not used a formal plan for overseeing USKPA and its  licensees. State is currently developing this plan and has tested some of its  elements in 2006, according to State officials. The implementation of this  plan would help State to conduct periodic or regular, independent, and  systematic oversight of USKPA and its licensees to make sure that they  conform with KPCS standards.
subsections: section_title: U.S. Export Process Involves Limited U.S. Government Monitoring
paragraphs: The U.S. government monitors the export process using electronic data  checks rather than physical inspections of rough diamond shipments.  While USKPA reviews licensees, it does not have a plan for conducting  these reviews. Finally, KPCS participants reported to us that they had  received U.S. Kimberley Process certificates that did not comply with the  certification scheme requirements.
section_title: Monitoring of Export Operations Limited to Electronic Data Checks with No Physical Inspections
paragraphs: Direct government involvement in the operational export process is  limited to Census’ electronic data checks through AES. Once Census  validates a shipment for export based solely on data submitted through  AES, no other government agency reviews the shipment. The contents of  the parcels are never physically inspected by any government agency,  USKPA, or its licensees. According to a senior official at CBP, no one at  CBP physically inspects rough diamond export shipments before they are  sent, and no requirement exists for submitting a Kimberley Process  certificate to CBP for these export shipments. In its final report, a peer  review team sent by KPCS to the United States to assess implementation  of the certification scheme found that the U.S. export regime would  benefit from a more hands-on approach by the government and  recommended conducting physical inspections of exports periodically or  regularly to ensure that, among other things, the description on the  certificate matches the contents of the shipment.
The private sector, through USKPA and its licensees, plays a significant  role in the U.S. export process, yet these private entities do not verify the  contents of rough diamond exports either. According to a co-director of  USKPA, the agency takes no responsibility for the information on the  certificate; the licensee and exporter assume this responsibility. Likewise,  a senior official from State maintained that the licensees are responsible  for providing truthful data—thus ensuring that the contents meet the  information on the documentation.
However, according to two USKPA licensee freight forwarders responsible  for issuing about half of the U.S. Kimberley Process certificates in 2005,  they also do not examine the contents of rough diamond parcels they ship.  For rough diamonds, they rely on the warranty the exporters sign on the  application attesting that the shipment has been handled in accordance  with KPCS. The licensees maintain that the exporters are responsible for  collecting and retaining documentation showing that the diamonds were  legally imported into the United States. Without an effective monitoring  strategy that includes a plan for conducting physical inspections  periodically or regularly, the United States cannot be assured that its  internal controls for exports sufficiently prevent export of illicit  shipments. This weakness of the U.S. export process could allow illicit  diamonds to enter the legitimate trade.
Under its licensing agreement, USKPA can review a licensee’s books,  records, and other documents to verify compliance with the agreement.  According to a USKPA co-director, USKPA has visited five licensees.  However, USKPA does not have a plan to conduct these monitoring visits,  nor does it have any protocol for selecting which licensees will receive a  visit. The visit might include a review of the security measures used to  store the certificates, packing procedures, and record-keeping for every  application received, as well as interviews with the employees involved in  these processes and those who prepare monthly or annual reports. USKPA  gave us visit summaries from its annual reports to State. USKPA did not  give us any other documentation regarding these reviews. Without an  established monitoring strategy, plan, criteria, and documentation, USKPA  cannot be sure that its licensees are meeting their requirements to prevent  illicit exports of rough diamonds from the United States.
section_title: U.S. Trading Partners Report Problems with U.S. Kimberley Process Certificates
paragraphs: Some countries have reported quality control problems with U.S.  Kimberley Process certificates. For example, in 2005, one country reported  receiving 26 U.S. Kimberley Process certificates with corrections  (correction fluid such as Liquid Paper or Wite-Out had been used to amend  errors on them). Also, 10 certificates had typographical errors, and 5 had  incorrect dates. In the same year, another country reported receiving 21  U.S. Kimberley Process certificates with typographical errors and 5  certificates with correction fluid. These quality issues raise the possibility  that the certificates have been tampered with and, thus, do not meet KPCS  requirements. In the absence of physical inspections of U.S. rough  diamond exports, foreign importing authorities have alerted U.S. officials  of these problems. In response, these officials began conducting outreach  efforts to exporters to address these issues.
section_title: The United States Has Helped to Strengthen KPCS Internationally, but Assistance- Related Efforts Face Challenges
paragraphs: Internationally, the United States has helped to strengthen KPCS by  participating in KPCS activities and providing assistance to help Sierra  Leone and Liberia comply with KPCS, but this assistance faces challenges.  The United States has helped strengthen KPCS by participating in the  activities of its working groups and committees and assuming lead roles;  for instance, the United States led a peer review visit to Brazil and offered  to identify and coordinate donor assistance to countries seeking to  implement or strengthen KPCS. Also, the United States has provided  approximately $7.57 million in assistance to the diamond producing  countries of Sierra Leone and Liberia to implement systems for controlling  their trade in rough diamonds. However, the effectiveness of assistance- related efforts in Sierra Leone and Liberia is constrained by the limited  capacity and resources of these countries to implement KPCS and the  need to harmonize diamond policies among these countries and other  countries in the region. Donors and diamond producers are considering a  regional approach to help enhance the effectiveness of donor assistance.
subsections: section_title: The United States Has Participated in KPCS Activities and Recently Led Two of Them
paragraphs: With State leading U.S. efforts, the United States has helped strengthen  KPCS by regularly attending KPCS-related meetings and serving on the  three KPCS working groups and the two KPCS committees. CDTA  expresses the sense of the Congress that the United States should  strengthen KPCS by monitoring the effectiveness of the certification  scheme in stemming trade in rough diamonds not controlled by KPCS. To  this end, the United States has taken the following actions:    The United States regularly attends KPCS meetings, which aim to  strengthen the certification scheme and assess its effectiveness. According  to U.S. officials, the United States has regularly participated in KPCS  meetings, including the annual KPCS plenary and intersessional meetings,  to discuss and assess KPCS implementation. Also, it crafted compromises  and negotiated solutions to disagreements among KPCS participants.
The United States serves as a member of the Statistics Working Group  and, according to U.S. officials, through diplomatic channels has  encouraged and assisted several participants to provide required statistical  reports to KPCS in a timely manner. Also, the United States, through  Census, has analyzed production and trade data for the Statistics Working  Group and, through USGS, has done it for some of the KPCS peer review  teams.
The United States serves as a member of the Monitoring Working Group,  which monitors how individual participants implement KPCS. The primary  activity of the Monitoring Working Group has been to conduct peer  reviews, which include peer review visits to examine participants’ efforts  to implement KPCS. Since the first peer review visit to the United Arab  Emirates in May 2004, KPCS has conducted 31 review visits, including the  KPCS peer review visit to the United States in 2005. Officials from State  and other U.S. entities have participated in KPCS peer review visits to the  following ten participants: United Arab Emirates, Russia, Guinea, India,  Sierra Leone, Sri Lanka, Ghana, Togo, Brazil, and Guyana. The United  States also participated in the recent Kimberley Process special mission to  Liberia.
The United States serves on two KPCS committees: the Participation  Committee, which assists the Chair of the Kimberley Process in handling  the admission of new participants to KPCS; and the Selection Committee,  which reviews and assesses the credentials of candidates for the position  of Vice-Chair.
The United States has recently led two KPCS activities. Specifically, the  United States offered to identify and coordinate donor assistance for  implementing KPCS at the plenary meeting in Moscow, Russia, in  November 2005. Also, the United States led the KPCS peer review visit to  Brazil in April 2006.
section_title: The United States Has Helped Two Countries in Their Efforts to Implement KPCS and Is Considering a Regional Approach to Enhance the Impact of Its Diamond-Related Assistance
paragraphs: The United States has provided about $7.57 million in assistance to help  Sierra Leone ($6.13 million) and Liberia ($1.44 million) implement KPCS,  but the limited capacity and resources of these two recipient countries and  the need to harmonize diamond policies with other countries in the region  have restricted the effectiveness of this assistance. Donors, including the  United States, are considering using a regional approach to enhance the  impact of diamond-related assistance. Table 4 shows the U.S. diamond- related assistance to these two countries.
The United States, as part of its support to the Lome Peace Accord in 1999,  helped Sierra Leone initiate diamond policy reform. From September 1999  to March 2007, USAID, through five rough diamond-related projects, plans  to provide about $6.13 million in assistance to support Sierra Leone’s  efforts to control rough diamonds at the national and local level. Between  1999 and 2001, USAID’s Office of Transition Initiatives (OTI) provided,  through Management Systems International (MSI), about $1.26 million in  funding under one project to support government efforts to gain control of  its production of and trade in rough diamonds. Between 2002 and 2007,  USAID plans to provide, again through MSI, about $4.87 million in  assistance under four projects to further enhance the country’s efforts to  gain control over its rough diamonds. The specific programs are outlined  below.
subsections: section_title: Diamond Management Program
paragraphs: Between 1999 and 2002, OTI, through MSI, provided about $1.26 million,  under the Diamond Management Program, to support Sierra Leone in its  efforts to develop and implement diamond policies and a system for  controlling the trade in rough diamonds. The two primary objectives of the  program were to (1) help Sierra Leone bring diamonds under control of  the government and (2) cut the trade in conflict diamonds to diminish this  trade’s financing of warfare. According to a USAID-sponsored evaluation,  the primary achievement of the program was to assist the government in  establishing a Certificate of Origin system that the country needed to have  in place to be able to export rough diamonds. Although this program was  largely advisory, it also included providing training and equipment to the  Ministry of Mineral Resources’ monitoring staff. The evaluation considered  the program a success because legitimate exports of rough diamonds  increased from $1.2 million in 1999 to $26 million in 2001.
section_title: The Diamond Project
paragraphs: At the end of the OTI-funded Diamond Management Program, USAID  granted about $62,000 to MSI, under the Diamond Project, to continue  working on rough diamonds from August 2002 to November 2002. This  funding helped MSI get ready to start a larger program, called the Diamond  Policy and Management (DIPAM) program.
section_title: Diamond Policy and Management Project
paragraphs: From 2002 to 2004, USAID, through MSI, provided $940,000, under the  DIPAM program, to further help Sierra Leone control its rough diamonds  at both the national and local level. According to MSI’s project closeout  report, DIPAM had five policy objectives, and successfully implemented  programs in support of each of them:    Legitimize policy reform. MSI, through DIPAM, worked with the  government of Sierra Leone to apply economic incentives to shape the  behavior of both domestic and international actors in the diamond sector,  and promote legitimate mining and marketing. For example, the project  explored ways to reward citizens for mining rough diamonds legally and  for ensuring that their neighbors also did so.
Increase community benefits from mining. DIPAM focused on increasing  community benefits in two ways: by maximizing direct income within the  country from the production and sale of rough diamonds, and by  encouraging the government to return a portion of rough diamond export  tax revenues to communities through the Diamond Area Community  Development Fund (DACDF). DACDF distributes one-fourth of revenue  earned from export taxes on rough diamonds to communities holding  mining licenses. In 2005, over $900,000 in DACDF funds were turned over  to these communities. In one community we visited, these funds helped to  build a police facility and a town hall.
Engage civil society with government in mining policy deliberations  and monitor the government’s performance. DIPAM worked to  strengthen community-based institutions to help them more explicitly  represent community interests with respect to diamond mining and  alternative development activities.
Establish dialogue among communities, the government, and the private  sector in industrial mining. DIPAM established forums where  community voices could be heard. For example, project officials worked  directly to help property owners express their grievances regarding the  mining practices of a large mining company.
Improve environmental management of artisanal mining. In September  2004, DIPAM succeeded in getting the government of Sierra Leone to  release funds to reclaim land at an illegal mining site that was shut down.  The government had set aside a portion of the revenue that it had received  from selling mining licenses to pay for environmental reclamation.  However, the government had never released it before.
section_title: Peace Diamond Alliance Support Project
paragraphs: From 2003 to 2004, USAID, through MSI, provided about $1.08 million,  under the Peace Diamond Alliance Support Project (PDA), to help Sierra  Leone establish a public/private partnership for mining rough diamonds.  MSI implemented this project in an integrated manner with the DIPAM  cooperative agreement discussed above. The approach of the PDA has  been to remove diamonds from the smuggling chain by providing  incentives for legal export, chiefly by increasing benefits at the local level.  Specifically, PDA worked to improved diamond management in mining  communities by encouraging cooperation among government, businesses,  and civil society.
The PDA offered training for members of mining cooperatives (which are  largely made up of unskilled workers) on a number of issues, such as  valuing stones and improving environmental and safety practices. Figure 5  shows diggers working at a diamond mining site in Sierra Leone. In  addition, the PDA helped to organize 35 mining cooperatives between 2003  and 2004, mainly in the Kono District, which is one the main diamond  mining areas in Sierra Leone. However, only five of these cooperatives  mined rough diamonds in 2005 and only one of them continues to mine  rough diamonds in 2006.
The measure of success for the DIPAM/PDA programs was the degree to  which legal diamond exports increased and the degree to which benefits  were returned to communities. By the above measures, the DIPAM/PDA  projects were successful, according to MSI’s project closeout reports. For  instance, legal diamond exports have increased from $10 million in 2000 to  over $140 million in 2005. U.S. and Sierra Leone government officials view  the increase in legal diamond exports as an indicator that more diamonds  are being traded licitly.
From 2004 to 2006, USAID, through MSI, has implemented the Integrated  Diamond Management Program (IDMP), to support Sierra Leone efforts to  improve the management of Sierra Leone’s diamond sector at both the  national and local levels. State has provided about $2 million to support  this program. In July 2006, USAID approved about $790,000 in additional  funding to extend this program until March 2007. At the national level,  IDMP continues to help the High-Level Diamond Steering Committee  (HLDSC) and its ad hoc Technical Committee in their efforts to support  the government of Sierra Leone formulate diamond-related policy. At the  local level, IDMP continues to support the PDA, described above, and  other local initiatives.
Sierra Leone agreed to create HLDSC to advise the government on the  effective management and control of the country’s rough diamond  resources. HLDSC members include Sierra Leonean government ministers  as well as the U.S. Ambassador and equivalent representatives from the  United Kingdom, the European Community, and the UN. The committee  formed a technical advisory group to address issues raised by the  government or donors in early 2004. The committee and its ad hoc  technical committee serve as key policy forums for enhancing national  diamond-sector policy development and implementation. They analyze  strategic policy issues and advise the government on important diamond- sector policy. For example, recent discussions focused on the  establishment of diamond cutting and diamond polishing legislation and  procedures, and policies for transparent land allocation to diamond  companies. MSI serves as the secretariat for both committees. For this  reason, these committees have relied on U.S. assistance for guidance,  recommendations, and support, according to recent program status  reports.
section_title: U.S. Diamond-Related Assistance Is Helping Liberia in Its Efforts to Comply with KPCS
paragraphs: In 2005, State asked USAID to transfer funds to USGS for developing and  implementing a program to help Liberia move toward compliance with  KPCS. With this funding, from September 2005 to December 2006, USGS,  under an agreement with State and through Constella Futures  International, plans to provide about $1.44 million in rough-diamond- related assistance under one project to help Liberia in its efforts to comply  with KPCS.
The U.S. assistance focuses on developing and implementing a capacity- building and a technical training program in a broad range of rough  diamond activities, such as improving the government capacity for  controlling the production and trade in rough diamonds and related  geological and commercial activities. For instance, this program includes  funding for building a secured annex behind the Ministry of Lands, Mines,  and Energy to house Liberia’s rough diamond exporting and importing  authority, as well as for buying vehicles and equipment needed to support  this authority and the ministry’s efforts to monitor rough diamond mining  activities.
In Monrovia, Liberia, we observed a subcontractor working on the secured  annex that will house the exporting and importing authority. Figure 6  shows the secured annex under construction. Recent status reports on the  U.S.-funded assistance effort in Liberia indicate that the U.S program is  helping Liberia make progress in different areas. For example, the  construction of the annex is almost finished, Kimberley Process  certificates are under development, and training of different staff needed  to implement KPCS is under way.
U.S. and program officials noted that, despite the progress made through  the support of the U.S. assistance program, Liberia still does not have an  effective system for controlling its production and trade in rough  diamonds, which is needed to comply with KPCS. In May 2006, the UN  completed an assessment of the status of Liberia’s efforts to comply with  KPCS and a second Kimberley Process Expert Mission visited Liberia to  independently assess the status of these efforts. The UN reported that  Liberia still did not comply with KPCS. The UN report, for instance, noted  that the components needed for a credible, internationally-accredited  certification scheme for rough diamonds were still some months away. In  June 2006, the UN decided to extend its rough diamond-related sanctions  on Liberia for another 6 months, with the option of assessing the country’s  efforts to comply with KPCS again in another 4 months. In August 2006,  the Kimberley Process Expert Mission to Liberia reported that Liberia had  made some progress towards establishing a system of internal controls,  which is crucial to the effective implementation of KPCS. However, it also  noted that Liberia still lacks, for instance, a system of internal controls  that will ensure that conflict diamonds are not entering its production.
section_title: Donor Assistance Faces Challenges, But a Regional Approach for Providing Some Assistance Would Enhance Impact of This Assistance
paragraphs: Sierra Leone and Liberia’s limited capacity and resources to fully  implement KPCS, and the countries’ need to harmonize diamond policies  with other countries in the regions, constrains the effectiveness of donor  assistance. Although U.S. assistance has provided training, equipment, and  vehicles to help Sierra Leone monitor diamond mining areas and borders  to prevent illicit activities, government officials told us during our visit to  that country that they did not have enough capacity and resources to  accomplish their mission. For instance, these officials emphasized that  they did not have enough vehicles for monitoring large diamond mining  areas under their jurisdiction. Because these vehicles included many  motorcycles, these officials also noted that they faced many difficulties  reaching many mining areas given the bad conditions of the roads and  remoteness of mining sites. According to U.S. and Liberian officials,  without the U.S. and other donor assistance that is providing training,  equipment, and vehicles to help Liberia comply with KPCS, the country  would not be able to implement the control systems needed for monitoring  trade in rough diamonds, large mining areas, and highly porous borders.  Also, the UN Mission in Liberia (UNMIL) in March 2006 noted that the  problem of porous borders and insecurity in the Mano River Basin area— which includes Liberia, Sierra Leone, Guinea, and Cote d’Ivoire—has  contributed to difficulties in effectively dealing with illicit trading of  diamonds.
Donors and diamond producers are considering a regional approach to  help enhance the effectiveness of donor assistance because this assistance  is constrained by the limited capacity and resources of these countries and  the need to harmonize diamond policies among countries vulnerable to  illicit cross border diamond trading. In February 2006, at a meeting of  alluvial diamond producers, participants encouraged regional and  subregional cooperation by harmonizing and reinforcing mechanisms to  fight more efficiently the illicit cross border trade of diamonds. Also, the  reports of the KPCS peer review visits to Sierra Leone and Liberia stress  the importance of harmonizing diamond-related policies of these (and  other) countries in the Mano River region to avoid the illegal transfer of  rough diamonds across borders. For instance, when Sierra Leone  significantly raised its diamond-related tax rate above the tax rate of other  countries in the region in early 2006, it experienced a drop of rough  diamond exports that led it to rescind the tax rate increase. Public and  private officials have stated that employing a regional approach for some  rough diamond-related assistance would improve the impact of this  assistance, thereby further deterring illicit diamond trading. These officials  have noted that harmonization of taxation and other laws among countries  within a region is needed to dissuade people from illegally moving  diamonds across borders. In June 2006, representatives from Sierra Leone,  Liberia, Guinea, and Cote D’Ivoire, along with representatives from the  United States and other donors, met to discuss rough diamond-related  issues—including policy areas for potential regional harmonization.  According to U.S. officials, the conference highlighted the importance of  regional harmonization, as well as the complexity—given the differences  in national laws—of trying to find common positions that could be  adopted by all the countries within a region. The United States is  considering using a regional approach to enhance the impact of some of  its diamond-related assistance. This regional assistance would  complement country-specific assistance provided to diamond-producing  countries within a region.
section_title: Conclusions
paragraphs: A system for controlling the trade in rough diamonds will be effective only  if it has control mechanisms designed to curtail or deter the trade in  conflict diamonds. The United States has established a multi-agency  system aimed at controlling trade in rough diamonds (thereby curtailing  trade in conflict diamonds) but, because of weaknesses of the system, the  United States cannot ensure that illicit rough diamonds are not traded. To  succeed, KPCS depends on all participants having strong control systems  and procedures for collecting and sharing trade data on rough diamonds,  for inspecting imports and exports of these diamonds, and for tracking  confirmations of import and export receipts.
Since implementing CDTA, the United States has made significant  improvements to its system and procedures for collecting and sharing data  and for controlling the rough diamond trade. However, a continual excess  of exports over imports raises concerns because the United States is not  expected to have such excess of exports over time (it does not produce  rough diamonds and polishes some rough diamonds domestically) and  because U.S. agencies have not conducted an analysis that might help to  explain a persistent excess of exports. Also, the United States has not had  a policy and plan for periodically or regularly physically inspecting  imports and exports of rough diamonds to ensure that illicit rough  diamonds do not enter the legitimate U.S. trade of these diamonds. In  addition, the United States has failed to confirm most rough diamond  import receipts to foreign export authorities, thereby failing to comply  with a KPCS standard. The United States relies on the ultimate recipients  to confirm import receipts, but it has not tracked whether these recipients  do so. Moreover, although State and Census have received annual activity  reports from USKPA, and State has reported to Congress on USKPA  activities, State has not had a plan for overseeing the activities of USKPA  and its licensees, who issue the U.S. Kimberley Process certificates.  Although USKPA has reviewed the activities of 5 of its 17 licensees, it has  not had a plan and protocols for conducting these reviews. These  weaknesses diminish the effectiveness and deterrent effect of the U.S. and  international systems for controlling imports and exports of rough  diamonds.
The United States has helped to enhance KPCS by, among other things,  participating in the decision making and operational aspects of the  certification scheme, and has supported the adoption of KPCS by  providing technical assistance to two African diamond-producing  countries, Sierra Leone and Liberia. The United States has participated in  KPCS since its inception, and has recently assumed leadership roles, by  identifying and coordinating donor assistance to diamond producing  countries, and leading a peer review visit to Brazil. The United States has  helped Sierra Leone and Liberia in their efforts to meet the minimum  KPCS requirements, but the limited capacity and resources of both  countries—and the need to harmonize diamond policies among these  countries and other countries in the region—has presented a major  challenge to U.S. assistance efforts and the countries’ ability to control  their trade in rough diamonds and monitor large mining areas and highly  porous borders. To enhance the impact of its diamond-related assistance  and further curtail illicit rough diamond trading, the United States, other  donors, and diamond producers are considering using a regional approach  for providing some diamond-related assistance, which would help to  address diamond issues of a regional nature.
section_title: Recommendations for Executive Action
paragraphs: To help the United States ensure that it has a more effective system for  preventing the importation or exportation of conflict diamonds, we are  making seven recommendations.
To improve the accuracy of U.S. rough diamond trade data—if U.S. rough  diamond exports continue to exceed imports—-we recommend the  following:   The Secretaries of State and the Treasury direct the U.S. Kimberley  Process Implementation Coordinating Committee to perform such  analysis as is necessary to determine what constitutes a normal excess  of exports over imports based on a variety of factors, including market  factors such as rough diamond stockpiles and domestic diamond  cutting and polishing capacities.
To enhance the U.S. process for inspecting rough diamond imports and  exports, we recommend the following:   The Secretary of Homeland Security direct the Commissioner of CBP  to develop and implement a plan for conducting physical inspections of  both imports and exports of rough diamonds periodically or regularly,  including inspecting the quality of U.S. Kimberley Process certificates.
To enhance the U.S. process for confirming the receipt of U.S. imports  with foreign exporting authorities, we recommend the following:   The Secretaries of State and Homeland Security develop and  implement a plan for confirming the receipt of imports—currently the  responsibility of individual importers—and for tracking these  confirmations. The system for tracking import confirmation receipts  would help enhance Census’ data on rough diamond imports and  exports.
The Director of OFAC revise the pertinent rough diamond trade  regulations to reflect the above change.
To enhance the U.S. process for reviewing the activities of USKPA and its  licensees who issue Kimberley Process certificates, we recommend the  following:    The Secretary of State direct the Assistant Secretary, Bureau of  Economic and Business Affairs, to implement a plan for reviewing the  activities of USKPA and its licensees.
The Secretary of State direct the Directors of USKPA to develop and  implement a plan for reviewing the activities of its licensees.
Finally, to enhance the impact of U.S. diamond-related technical  assistance and further curtail illicit rough diamond trading, we  recommend the following:   The Secretary of State direct the Assistant Secretary, Bureau of African  Affairs, to develop and implement a plan for providing some of the  diamond-related assistance using a regional approach so that countries  within a region can harmonize aspects of their systems for controlling  the rough diamond trade across porous borders.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to State, the Treasury, Homeland  Security, Commerce, Interior, USAID, and USTR. We obtained written  comments from State, the Treasury, Homeland Security, Commerce, and  Interior (see apps. VI, VII, VIII, IX, and X). They concurred with our  recommendations. We also received technical comments on this draft  from State, the Treasury, USAID, and USTR, which we have incorporated  where appropriate.
We are sending copies of this report to interested congressional  committees, State, the Treasury, Homeland Security, Commerce, Interior,  USAID, and USTR. We will also make copies available to others upon  request. In addition, the report will be available at no charge on the GAO  Web site at http://www.gao.gov.
If you and your staff have any questions about this report, please contact  me at (202) 512-4347. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  GAO staff who made major contributions to this report are listed in  appendix XI.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: As mandated by the Clean Diamond Trade Act (CDTA), this report focused  on (1) describing the institutional framework the U.S. government has  created to implement CDTA, (2) examining how the United States has  implemented the provisions of CDTA domestically and what principal  challenges it faces, and (3) examining how the United States has helped to  strengthen the Kimberley Process Certification Scheme (KPCS) and what  principal challenges it faces.
To address all of these objectives, we interviewed key officials from  multiple U.S. agencies and the U.S. Kimberley Process Authority (USKPA).  The agencies we interviewed included:  the Department of State (Bureau of Economic Affairs and United States  Mission to the United Nations), the Department of the Treasury (Office of Foreign Assets Control), the Department of Homeland Security (Bureau of Customs and Border  Protection and Bureau of Immigration and Customs Enforcement), the Department of Commerce (Bureau of the Census), the Department of Interior (U.S. Geological Survey), the U.S. Agency for International Development, and the Office of the U.S. Trade Representative.
To address our first objective of describing the institutional framework the  U.S. government has used to implement CDTA and our second objective of  examining how the United States has implemented the provisions of CDTA  domestically and what principal challenges it faces, we reviewed  documents from the U.S. government and USKPA, including relevant laws,  regulations, reports, and briefing documents. Also, we interviewed  representatives and collected documentation from diamond industry  organizations and non-governmental groups that have been involved in the  implementation of CDTA. In addition, we interviewed representatives from  private organizations that have been involved in trading rough diamonds  to and from the United States. We analyzed Census’ rough diamond import  and export flows in conjunction with data collection improvements to  determine the factors contributing to excess exports. These data have  limitations, as discussed in the report. We assessed the quality of data the  Census, the UN, and the KPCS used to describe international trade in  diamonds, and determined that they were sufficiently reliable for our  purposes. Finally, we used data provided to us by foreign governments to  analyze U.S. import receipt confirmations. Based on interviews with  foreign government officials we determined that these data were  sufficiently reliable to support our findings.
To address our third objective of examining how the United States has  helped to strengthen KPCS and what principal challenges it faces, we  reviewed UN, KPCS, and U.S. and foreign government documents,  including relevant legislation, reports, and briefing documents. Also, we  interviewed officials and collected documentation from the UN and other  international organizations, KPCS, diamond industry organizations, non- governmental groups, and the U.S. and foreign governments involved in  the development and implementation of KPCS. In addition, to identify,  describe, and assess U.S. diamond-related assistance efforts, we  interviewed U.S., UN, and foreign government officials and non- governmental groups and private organizations representatives involved in  the development and implementation of the diamond-related assistance  the United States has provided to Sierra Leone and Liberia. We did not  independently verify the U.S. assistance data.
We conducted our work in Washington, D.C.; New York, New York;  Moscow, Russia; Ottawa, Canada; Brussels and Antwerp, Belgium;  Catania, Italy; Freetown and Koidu, Sierra Leone; and Monrovia, Liberia.  We conducted our work from September 2005 through September 2006 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: U.S. and Global Trade In Rough Diamonds
paragraphs: Tables 5 to 8 show information related to the U.S. and global trade in  rough diamonds, including the top destinations for U.S. rough diamond  exports, top sources of U.S. rough diamond imports, top (non-mining)  rough diamond exporting KPCS participants, and the economic  importance of diamond mining for selected countries. We assessed the  quality of data from the Census, the UN, and the KPCS, and, despite  limitations, we determined that they were sufficiently reliable for our  purposes.
section_title: Appendix III: Top Polished Diamond Exporting and Top Diamond Mining Countries
paragraphs: Figures 7 and 8 depict the top polished diamond exporting countries and  the top diamond mining countries.
section_title: Appendix IV: Timeline of KPCS and CDTA- Related Events
paragraphs: December UN Generl Assemly  issu Reoltion 55/56  supporting KPCS (plnned)
May KPCSin 4-yer  WTO wiver.
July Preident ign Exective  Order #112 implementing  CDTA -yer review of the KPCS (plnned)
AuThe U.S. Treasury issu  Rogh Dimond Control  Regtionextenion (plnned)
section_title: Appendix V: List of KPCS Participants
section_title: Appendix VI: Comments from the Department of State
section_title: Appendix VII: Comments from the Department of the Treasury
section_title: Appendix VIII: Comments from the Department of Homeland Security
section_title: Appendix IX: Comments from the Department of Commerce
section_title: Appendix X: Comments from the Department of Interior
section_title: Appendix XI: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: Zina Merritt served as Assistant Director responsible for this report, and  Juan Tapia-Videla was the Analyst-in-Charge. In addition to those named  above, the following individuals made significant contributions to this  report: Kate Blumenreich, Leah DeWolf, David Dornisch, Mark Dowling,  and Michael Hoffman. The team benefited from the expert advice and  assistance of Joe Carney, Randall Cole, Karen Deans, Etana Finkler,  Chanetta Reed, Kendall Schaefer, Jena Sinkfield, and Mark Speight.