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entitled 'Conflict Diamonds: Agency Actions Needed to Enhance 
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Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

September 2006: 

Conflict Diamonds: 

Agency Actions Needed to Enhance Implementation of the Clean Diamond 
Trade Act: 

Conflict Diamonds: 

GAO-06-978: 

GAO Highlights: 

Highlights of GAO-06-978, a report to congressional requestors 

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

Figure: Diamond Mining Site in Sierra Leone- A Recipient Country of 
U.S. Assistance: 

[See PDF for Image] 

Source: GAO. 

[End of Figure] 

What GAO Recommends: 

This report contains recommendations to the Secretaries of the 
Departments of State, the Treasury, Homeland Security, and Commerce. It 
recommends improvements in the (1) accuracy of U.S. rough diamond trade 
data; (2) processes for importing and exporting rough diamonds, 
including conducting periodic physical inspections and confirmation of 
rough diamond import receipts with foreign exporting authorities; (3) 
oversight of the activities of USKPA and its licensees who issue 
Kimberley Process certificates; and (4) approach for providing some of 
the U.S. diamond-related assistance. The departments reviewed a draft 
copy of this report and concurred with GAO’s recommendations. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-978]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Loren Yager at (202)512-
4347 or yagerl@gao.gov. 

[End of Section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Several U.S. Agencies and USKPA Have Implemented CDTA: 

U.S. Agencies Have Improved Systems for Implementing CDTA's Domestic 
Provisions but Are Still Vulnerable to Illicit Trade: 

The United States Has Helped to Strengthen KPCS Internationally, but 
Assistance-Related Efforts Face Challenges: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: U.S. and Global Trade In Rough Diamonds: 

Appendix III: Top Polished Diamond Exporting and Top Diamond Mining 
Countries: 

Appendix IV: Timeline of KPCS and CDTA-Related Events: 

Appendix V: List of KPCS Participants: 

Appendix VI: Comments from the Department of State: 

Appendix VII: Comments from the Department of the Treasury: 

Appendix VIII: Comments from the Department of Homeland Security: 

Appendix IX: Comments from the Department of Commerce: 

Appendix X: Comments from the Department of Interior: 

Appendix XI: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: U.S. Agency Responsibilities for Implementing CDTA's 
International Provisions: 

Table 2: U.S. Import Confirmations to Select Countries Compared to All 
Other Trading Countries, 2004 and 2005: 

Table 3: Number of U.S. Kimberley Process Certificates Issued, 2003- 
2005: 

Table 4: U.S.-Funded Diamond-Related Projects Supporting the 
Implementation of KPCS in Sierra Leone and Liberia: 

Table 5: Top Destinations for U.S. Rough Diamond Exports, 2005 (value > 
1 percent of U.S. exports): 

Table 6: Top Sources of U.S. Rough Diamond Imports, by Exporting 
Participant, 2005 (value > 1 percent of US imports): 

Table 7: Top (Non-Mining) Rough Diamond Exporting KPCS Participants, 
2003 (exports > $200 million): 

Table 8: Economic Importance of Mining for Selected Countries, 2003: 

Figures: 

Figure 1: KPCS Structure and Responsibilities: 

Figure 2: Discrepancy in U.S. Rough-Diamond Trade Volume and Census 
Data Improvements: 

Figure 3: U.S. Import Control Process and Weaknesses: 

Figure 4: U.S. Export Control Process and Weaknesses: 

Figure 5: Diamond Mining Site in Sierra Leone--A Recipient Country of 
U.S. Assistance: 

Figure 6: Liberian Ministry of Lands, Mines, and Energy Building and 
Secured Annex under Construction for Housing Liberia's Rough Diamond 
Exporting and Importing Authority: 

Figure 7: Top Polished Diamond Exporting Countries, 2004 (estimated 
exports > $200 million): 

Figure 8: Top Diamond Mining Countries, 2003 (mining value > $50 
million): 

Abbreviations: 

AES: Automated Export System: 
CBP: Customs and Border Protection: 
CDTA: Clean Diamond Trade Act: 
DIPAM: Diamond Policy and Management Project: 
IDMP: Integrated Diamond Management Program: 
KPCS: Kimberley Process Certification Scheme: 
MSI: Management Systems International: 
PDA: Peace Diamond Alliance Support Project: 
UN: United Nations: 
USAID: United States Agency for International Development: 
USGS: United States Geological Survey: 
USKPA: United States Kimberley Process Authority: 
WTO: World Trade Organization: 

United States Government Accountability Office: 

Washington, DC 20548: 

September 27, 2006: 

[See PDF for image] 

[End of figure] 

The Honorable Charles E. Grassley: 
Chairman: 
The Honorable Max Baucus: 
Ranking Minority Member: 
Committee on Finance: 
United States Senate: 

The Honorable Richard G. Lugar: 
Chairman: 
The Honorable Joseph R. Biden, Jr.: 
Ranking Minority Member: 
Committee on Foreign Relations: 
United States Senate: 

The Honorable Henry J. Hyde: 
Chairman: 
The Honorable Tom Lantos: 
Ranking Minority Member: 
Committee on International Relations: 
House of Representatives: 

The Honorable William M. Thomas: 
Chairman: 
The Honorable Charles B. Rangel: 
Ranking Minority Member: 
Committee on Ways and Means: 
House of Representatives: 

When legitimately traded, rough diamonds (uncut and unpolished 
diamonds) can make a major contribution to the economies of producing, 
exporting, and importing countries, especially developing countries. In 
the 1990s, however, rough diamonds that became known as conflict 
diamonds fueled severe conflicts and humanitarian crises in countries 
such as Liberia, Sierra Leone, the Democratic Republic of the Congo, 
and Angola.[Footnote 1] 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.[Footnote 2] 

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.[Footnote 3] 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.[Footnote 4] 

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.[Footnote 5] 

The United States enacted the Clean Diamond Trade Act (CDTA) in April 
2003 to provide the statutory framework for implementing KPCS.[Footnote 
6] 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. 

Results in Brief: 

The United States uses multiple U.S. agencies and a private, not-for- 
profit entity (USKPA) to implement the domestic and international 
provisions of CDTA. State and the Treasury lead U.S. efforts to 
implement the domestic provisions of the act; State leads the U.S. 
efforts to curtail trade in conflict diamonds abroad. Domestically, 
State, the Treasury, Homeland Security, Commerce, and USKPA are 
responsible for preparing and sharing statistics on the U.S. trade of 
rough diamonds, and for controlling U.S. imports and exports of rough 
diamonds. State and the Treasury coordinate and lead U.S. agency 
efforts by convening and co-chairing regular interagency meetings, as 
well as ongoing informal discussions with other U.S. agencies, in which 
CDTA and KPCS-related implementation issues are discussed. For example, 
State and other U.S. agencies recently met to discuss, among other 
things, U.S. plans 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. State is also responsible for overseeing 
USKPA, which, through 17 licensed private entities, issues the 
Kimberley Process certificates that must accompany U.S. export 
shipments of rough diamonds. Internationally, State leads U.S. 
participation in KPCS. State and USAID have helped Sierra Leone's 
efforts to comply with KPCS. State has recently worked with USGS to 
help Liberia become a member of KPCS. 

Domestically, the U.S. systems for reporting rough diamond statistics 
and for controlling imports and exports of these diamonds have improved 
but are still vulnerable to illicit trade of rough diamonds. Through 
Census, the United States has enhanced the accuracy and reporting of 
its rough diamond trade data, but work remains to be done. Despite 
improving the accuracy of its trade data on rough diamonds, resulting 
in a significant reduction in the excess of exports over imports--from 
almost 3 million carats in 2003 to less than 300,000 carats in 2005-- 
the United States does not know what factors, such as diamond 
stockpiles, account for the remaining excess in exports. The United 
States does not periodically or regularly inspect rough diamond imports 
or exports, a control feature that allows participants to match the 
contents of the rough diamond parcels and Kimberley Process 
certificates and deters illicit trade in rough diamonds. The United 
States does not have an effective system for confirming the receipt of 
rough diamond import shipments, a control feature that allows 
participants to track shipments and prevent their diversion. For 
example, by relying on importers to confirm imports and having no U.S. 
agency to track these confirmations, the United States did not confirm 
most import shipments originating from four key U.S. trading partners-
-Canada, Belgium, Israel, and the United Kingdom--in 2004 and 2005, and 
it does not know the extent to which it has not confirmed imports with 
other countries. Despite recent U.S. efforts to improve the process for 
confirming receipt of imports, the percentage of confirmations remains 
low. The United States has not implemented a plan for overseeing the 
activities of USKPA and its licensees but, according to State 
officials, the department is developing and testing such a plan--a 
control feature that would allow the United States to conduct periodic 
or regular, independent, and systematic oversight of USKPA activities 
to make sure that they conform with KPCS standards. 

Internationally, the United States has helped to strengthen KPCS by 
participating in KPCS activities and providing assistance to help 
Sierra Leone and Liberia in their efforts to comply with KPCS; 
however, donor assistance to these countries faces challenges. The 
United States has helped strengthen KPCS by participating in the 
activities of its working groups and committees, such as the working 
groups on monitoring and statistics. For instance, U.S. officials 
including geological experts have participated on several Kimberley 
Process peer review teams to help monitor implementation of the 
certification scheme among participants. Also, the United States has 
recently assumed lead roles within KPCS by leading a peer review visit 
to Brazil and offering to identify and coordinate donor assistance to 
countries seeking to implement or strengthen KPCS. The United States 
has provided approximately $7.57 million in assistance to support 
Sierra Leone ($6.13 million) and Liberia's ($1.44 million) efforts to 
implement systems for controlling their trade in rough diamonds. The 
United States has helped Sierra Leone develop and implement a system 
for controlling rough diamond exports. The United States is currently 
helping Liberia to, among other things, build and equip a secure 
facility and train personnel for the Liberian authority that will be 
responsible for controlling the rough diamond trade. The effectiveness 
of donor assistance in both countries is constrained by their limited 
capacity and resources for implementing KPCS, and the need to harmonize 
diamond policies among these countries and other countries in the 
region vulnerable to illicit cross-border trading. For example, 
officials in both Sierra Leone and Liberia noted their lack of 
resources for monitoring large mining areas and highly porous borders, 
which contributes to illicit mining and trading. Donors and diamond 
producers are considering a regional approach to help enhance the 
effectiveness of donor assistance. This regional assistance would 
complement country-specific assistance provided to diamond-producing 
countries within a region. 

This report contains recommendations to the Secretaries of State, 
Homeland Security, the Treasury, and Commerce. Specifically, it 
recommends improvements in (1) the accuracy of U.S. rough diamond trade 
data to improve the effectiveness of these data as a tool for detecting 
illicit trade in rough diamonds; (2) the processes for importing and 
exporting rough diamonds, including conducting physical inspections 
periodically or regularly and confirming rough diamond import receipts 
with foreign exporting authorities; (3) the oversight of the activities 
of USKPA and its licensees; and (4) U.S. diamond-related assistance by 
developing and implementing a regional approach for providing some of 
this assistance. 

We received written comments on a draft of this report from State, the 
Treasury, Homeland Security, Commerce, and Interior (see apps. VI, VII, 
VIII, IX, and X) indicating that 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. 

Background: 

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.[Footnote 7] 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.[Footnote 8] 

Kimberley Process Certification Scheme: 

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. 

Figure 1: KPCS Structure and Responsibilities: 

[See PDF for image] 

Source: GAO analysis of KPCS information. 

[End of figure] 

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 export authority; 

* ensure that rough diamonds are imported and exported in tamper- 
resistant containers; and: 

* collect and maintain rough diamond data on production, imports, and 
exports; and collate and exchange such data with KPCS. 

Clean Diamond Trade Act: 

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. 

Several U.S. Agencies and USKPA Have Implemented CDTA: 

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. 

U.S. Agencies and USKPA Have Implemented CDTA's Domestic Provisions: 

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.[Footnote 9] 

* 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.[Footnote 10] 

* 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.[Footnote 11] 

* 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. 

U.S. Agencies Have Implemented the International Provisions of CDTA: 

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. 

Table 1: U.S. Agency Responsibilities for Implementing CDTA's 
International Provisions: 

Agency: State; 
Unit: Economic Affairs Bureau; 
Africa Bureau; 
Responsibilities: Leads U.S. efforts in KPCS; 
Funded technical assistance to support Sierra Leone and Liberia's KPCS-
related efforts. 

Agency: Census; 
Unit: Foreign Trade Division; 
Responsibilities: Analyzed rough diamond data for KPCS Statistics 
Working Group. 

Agency: USAID; 
Unit: Office of Transition Initiatives/Bureau for Africa; 
Responsibilities: Funded technical assistance to support Sierra Leone's 
KPCS-related efforts. 

Agency: USGS; 
Unit: Middle East and Africa Section; 
Responsibilities: Under an agreement with State, provided KPCS-related 
technical assistance to Liberia; 
Analyzed rough diamond data for KPCS Monitoring Working Group. 

Source: GAO analysis of U.S. agency information. 

[End of table] 

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,[Footnote 12] 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,[Footnote 13] 
technical assistance to Liberia for implementing KPCS. 

U.S. Agencies Have Improved Systems for Implementing CDTA's Domestic 
Provisions but Are Still Vulnerable to Illicit Trade: 

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.[Footnote 14] 

Census Has Improved Collection and Reporting of Rough Diamond Data, But 
Some Work Remains to Be Done: 

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.[Footnote 15] 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.[Footnote 16] 

* 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.[Footnote 17] 

* 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.[Footnote 18] 

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. 

Figure 2: Discrepancy in U.S. Rough-Diamond Trade Volume and Census 
Data Improvements: 

[See PDF for image] 

Source: GAO analysis of Census and CBP information. 

[End of figure] 

CBP's System to Control Rough Diamond Imports Has Weaknesses: 

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. 

Figure 3: U.S. Import Control Process and Weaknesses: 

[See PDF for image] 

Source: GAO analysis of CBP and OFAC information. 

[End of figure] 

CBP's Import Control Process Involves Documentation Review of All 
Imports and Physical Inspections: 

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- 
participant; 

* ensure that rough diamonds are imported in tamper-resistant 
containers; and: 

* 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.[Footnote 19] 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. 

CBP Does Not Have a Policy or Plan for Conducting Physical Inspections 
Periodically or Regularly: 

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.[Footnote 20] 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. 

The United States Has Confirmed Few Import Receipts with Foreign 
Exporting Authorities: 

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. 

Table 2: U.S. Import Confirmations to Select Countries Compared to All 
Other Trading Countries, 2004 and 2005: 

Country reporting: Canada; 
KPCS participant: United States; 
2004: Number of certificates sent: 32; 
2004: Number of imports confirmed: 7; 
2004: Percentage confirmed: 22%; 
2005: Number of certificates sent: 44; 
2005: Number of imports confirmed: 7; 
2005: Percentage confirmed: 16%. 

Country reporting: Canada; 
KPCS participant: All other trading countries; 
2004: Number of certificates sent: 139; 
2004: Number of imports confirmed: 126; 
2004: Percentage confirmed: 91%; 
2005: Number of certificates sent: 149; 
2005: Number of imports confirmed: 134; 
2005: Percentage confirmed: 90%. 

Country reporting: United Kingdom; 
KPCS participant: United States; 
2004: Number of certificates sent: 224; 
2004: Number of imports confirmed: 35; 
2004: Percentage confirmed: 16%; 
2005: Number of certificates sent: 262; 
2005: Number of imports confirmed: 132; 
2005: Percentage confirmed: 50%. 

Country reporting: United Kingdom; 
KPCS participant: All other trading countries; 
2004: Number of certificates sent: 1,523; 
2004: Number of imports confirmed: 1,415; 
2004: Percentage confirmed: 93%; 
2005: Number of certificates sent: 1,490; 
2005: Number of imports confirmed: 1,370; 
2005: Percentage confirmed: 92%. 

Country reporting: Belgium; 
KPCS participant: United States; 
2004: Number of certificates sent: 1,466; 
2004: Number of imports confirmed: 36; 
2004: Percentage confirmed: 2%; 
2005: Number of certificates sent: 1,333; 
2005: Number of imports confirmed: 236; 
2005: Percentage confirmed: 18%. 


Country reporting: Belgium; 
KPCS participant: All other trading countries; 
2004: Number of certificates sent: 3,1778; 
2004: Number of imports confirmed: 30,191; 
2004: Percentage confirmed: 95; 
2005: Number of certificates sent: 31,722; 
2005: Number of imports confirmed: 30,710; 
2005: Percentage confirmed: 97%. 

Country reporting: Israel; 
KPCS participant: United States; 
2004: Number of certificates sent: 235; 
2004: Number of imports confirmed: 3; 
2004: Percentage confirmed: 1%; 
2005: Number of certificates sent: 286; 
2005: Number of imports confirmed: 41; 
2005: Percentage confirmed: 14%. 

Country reporting: Israel; 
KPCS participant: All other trading countries; 
2004: Number of certificates sent: 7,476; 
2004: Number of imports confirmed: N/A[A]; 
2004: Percentage confirmed: N/A[A]; 
2005: Number of certificates sent: 7388; 
2005: Number of imports confirmed: N/A[A]; 
2005: Percentage confirmed: N/A[A]. 

Source: GAO analysis based on data from Canada, the United Kingdom, 
Belgium, and Israel. 

[A] Israel could not provide specific numbers, but indicated that all 
other countries confirm most imports from Israel. 

[End of table] 

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. 

U.S. System to Control Rough Diamond Exports Shows Weaknesses: 

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. 

Figure 4: U.S. Export Control Process and Weaknesses: 

[See PDF for image] 

Source: GAO analysis of CBP and USKPA information. 

[End of figure] 

Census, State, and USKPA Have Established System to Control Rough 
Diamond Exports: 

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- 
participant; 

* ensure that rough diamonds are exported in a tamper-resistant 
container; and: 

* 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.[Footnote 21] 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.[Footnote 22] 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.[Footnote 23] 

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. 

Table 3: Number of U.S. Kimberley Process Certificates Issued, 2003- 
2005: 

Year: 2003; 
Number of U.S. certificates issued: 1,516. 

Year: 2004; 
Number of U.S. certificates issued: 1,864. 

Year: 2005; 
Number of U.S. certificates issued: 1,970. 

Source: GAO analysis of State data. 

[End of table] 

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. 

U.S. Export Process Involves Limited U.S. Government Monitoring: 

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. 

Monitoring of Export Operations Limited to Electronic Data Checks with 
No Physical Inspections: 

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.[Footnote 24] 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. 

USKPA does not have a plan to conduct reviews of licensees: 

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. 

U.S. Trading Partners Report Problems with U.S. Kimberley Process 
Certificates: 

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. 

The United States Has Helped to Strengthen KPCS Internationally, but 
Assistance-Related Efforts Face Challenges: 

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. 

The United States Has Participated in KPCS Activities and Recently Led 
Two of Them: 

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. 

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: 

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. 

Table 4: U.S.-Funded Diamond-Related Projects Supporting the 
Implementation of KPCS in Sierra Leone and Liberia: 

Implementing U.S. agency/contractor: USAID/Office of Transition 
Initiatives/Management Systems International; 
Country/program title: Sierra Leone: Diamond Management Program; 
Amount of disbursement[A](Dollars In Millions): $1.26. 

Implementing U.S. agency/contractor: USAID/Office of Transition 
Initiatives/Management Systems International; 
Country/program title: Sierra Leone: Subtotal; 
Amount of disbursement[A](Dollars In Millions): $1.26. 

Implementing U.S. agency/contractor: USAID/Management Systems 
International; 
Country/program title: Sierra Leone: Diamond Project; 
Amount of disbursement[A](Dollars In Millions): $0.06. 

Implementing U.S. agency/contractor: USAID/Management Systems 
International; 
Country/program title: Sierra Leone: Diamond Policy and Management 
Project (DIPAM); 
Amount of disbursement[A](Dollars In Millions): $0.94. 

Implementing U.S. agency/contractor: USAID/Management Systems 
International; 
Country/program title: Sierra Leone: Peace Diamond Alliance Support 
Project (PDA); 
Amount of disbursement[A](Dollars In Millions): $1.08. 

Implementing U.S. agency/contractor: USAID/Management Systems 
International; 
Country/program title: Sierra Leone: Integrated Diamond Management 
Program (IDMP); 
Amount of disbursement[A](Dollars In Millions): $2.79[B]. 

Implementing U.S. agency/contractor: USAID/Management Systems 
International; 
Country/program title: Sierra Leone: Subtotal; 
Amount of disbursement[A](Dollars In Millions): $4.87. 

Total for Sierra leone: $6.13. 

Implementing U.S. agency/contractor: USGS/Constella Futures 
International; 
Country/program title: Liberia: Kimberley Process Implementation 
Program; 
Amount of disbursement[A](Dollars In Millions): $1.44[B]. 

Total for Liberia: $1.44. 

Total for Sierra leone and Liberia: $7.57. 

Source: GAO analysis of USAID and USGS data. 

[A] Disbursements are outlays for programs completed. State has 
provided $2 million and USAID provided $0.79 million. 

[B] These amounts represent obligations for programs not yet completed. 
State has fully funded this program. 

[End of table] 

U.S. Diamond-Related Assistance Helped Sierra Leone Comply with KPCS: 

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. 

Diamond Management Program: 

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. 

The Diamond Project: 

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. 

Diamond Policy and Management Project: 

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. 

Peace Diamond Alliance Support Project: 

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. 

Figure 5: Diamond Mining Site in Sierra Leone--A Recipient Country of 
U.S. Assistance: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

Integrated Diamond Management Program: 

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. 

U.S. Diamond-Related Assistance Is Helping Liberia in Its Efforts to 
Comply with KPCS: 

In 2005, State asked USAID to transfer funds to USGS for developing and 
implementing a program to help Liberia move toward compliance with 
KPCS.[Footnote 25] 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. 

Figure 6: Liberian Ministry of Lands, Mines, and Energy Building and 
Secured Annex under Construction for Housing Liberia's Rough Diamond 
Exporting and Importing Authority: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

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.[Footnote 
26] 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. 

Donor Assistance Faces Challenges, But a Regional Approach for 
Providing Some Assistance Would Enhance Impact of This Assistance: 

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. 

Conclusions: 

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. 

Recommendations for Executive Action: 

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. 

Agency Comments and Our Evaluation: 

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 [Hyperlink, 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. 

Signed by: 

Loren Yager, Director: 
International Affairs and Trade: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

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. 

[End of section] 

Appendix II:  U.S. and Global Trade In Rough Diamonds: 

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. 

Table 5: Top Destinations for U.S. Rough Diamond Exports, 2005 (value > 
1 percent of U.S. exports): 

KPCS participant: Israel; 
Value of exports: $204,486,572; 
Percent of U.S. exports: 40.0%. 

KPCS participant: European Community; 
Value of exports: $157,386,752; 
Percent of U.S. exports: 30.8%. 

KPCS participant: United Arab Emirates; 
Value of exports: $42,320,452; 
Percent of U.S. exports: 8.3%. 

KPCS participant: South Africa; 
Value of exports: $32,243,114; 
Percent of U.S. exports: 6.3%. 

KPCS participant: India; 
Value of exports: $19,648,240; 
Percent of U.S. exports: 3.8%. 

KPCS participant: Switzerland; 
Value of exports: $14,578,528; 
Percent of U.S. exports: 2.8%. 

KPCS participant: China; 
Value of exports: $13,116,880; 
Percent of U.S. exports: 2.6%. 

KPCS participant: Japan; 
Value of exports: $8,786,284; 
Percent of U.S. exports: 1.7%. 

KPCS participant: Namibia; 
Value of exports: $6,805,390; 
Percent of U.S. exports: 1.3%. 

KPCS participant: Mauritius; 
Value of exports: $6,032,302; 
Percent of U.S. exports: 1.2%. 

Source: GAO analysis of Census data. 

[End of table] 

Table 6: Top Sources of U.S. Rough Diamond Imports, by Exporting 
Participant, 2005 (value > 1 percent of US imports): 

KPCS participant: European Community; 
Value of imports: $581,379,013; 
Percent of U.S. imports: 64.7%. 

KPCS participant: Israel; 
Value of imports: $215,579,636; 
Percent of U.S. imports: 24.0%. 

KPCS participant: South Africa; 
Value of imports: $33,102,427; 
Percent of U.S. imports: 3.7%. 

KPCS participant: United Arab Emirates; 
Value of imports: $21,775,428; 
Percent of U.S. imports: 2.4%. 

KPCS participant: Canada; 
Value of imports: $12,305,324; 
Percent of U.S. imports: 1.4%. 

KPCS participant: Guyana; 
Value of imports: $10,803,495; 
Percent of U.S. imports: 1.2%. 

Source: GAO analysis of Census data. 

[End of table] 

Table 7: Top (Non-Mining)A Rough Diamond Exporting KPCS Participants, 
2003 (exports > $200 million): 

KPCS participant: European Community; 
Value of rough diamond exports: $9,760,320,078. 

KPCS participant: Israel; 
Value of rough diamond exports: $2,948,141,887. 

KPCS participant: United Arab Emirates; 
Value of rough diamond exports: $1,006,991,024. 

KPCS participant: Switzerland; 
Value of rough diamond exports: $795,914,964. 

KPCS participant: Armenia; 
Value of rough diamond exports: $486,569,182. 

KPCS participant: Japan; 
Value of rough diamond exports: $299,162,740. 

KPCS participant: United States; 
Value of rough diamond exports: $227,286,017. 

KPCS participant: Thailand; 
Value of rough diamond exports: $225,365,729. 

Source: GAO analysis of KPCS data. 

[A] The KPCS did not record diamond mining for these countries in 2003. 

[End of table] 

Table 8: Economic Importance of Mining for Selected Countries, 2003: 

Country: Botswana; 
Value of mining: $2,225,275,390; 
Mining as a percentage of gross domestic product: 29%; 
Mining as a percentage of exports: 65%. 

Country: Democratic Republic of Congo; 
Value of mining: $910,833,462; 
Mining as a percentage of gross domestic product: 16%; 
Mining as a percentage of exports: 64%. 

Country: Namibia; 
Value of mining: $421,312,014; 
Mining as a percentage of gross domestic product: 9%; 
Mining as a percentage of exports: 24%. 

Country: Sierra Leone; 
Value of mining: $76,700,000; 
Mining as a percentage of gross domestic product: 8%; 
Mining as a percentage of exports: 44%. 

Country: Angola; 
Value of mining: $788,100,104; 
Mining as a percentage of gross domestic product: 6%; 
Mining as a percentage of exports: 8%. 

Country: Guyana; 
Value of mining: $20,626,850; 
Mining as a percentage of gross domestic product: 3%; 
Mining as a percentage of exports: Not available. 

Source: GAO analysis of KPCS, United Nations, World Bank, and U.S. 
Geological Survey data. 

Note: Shares of gross domestic product and exports rounded to the 
nearest percent. 

[End of table] 

[End of section] 

Appendix III: Top Polished Diamond Exporting and Top Diamond Mining 
Countries: 

Figures 7 and 8 depict the top polished diamond exporting countries and 
the top diamond mining countries. 

Figure 10: Top Polished Diamond Exporting Countries, 2004 (estimated 
exports > $200 million): 

[See PDF for image] 

Source: GAO analysis of UN data and MapArt (map). 

Note: Exports are estimated as the sum of partner imports. China's 
estimated exports include Hong Kong. 

[End of figure] 

Figure 11: Top Diamond Mining Countries, 2003 (mining value > $50 
million): 

[See PDF for image] 

Sources: GAO analysis of KPCS and US Geological Survey data, media 
reports, and MapArt (map). 

[End of figure] 

[End of section] 

Appendix IV: Timeline of KPCS and CDTA-Related Events: 

[See PDF for Timeline] 

Source: GAO analysis of UN, WTO, KPCS, diamond industry, and U.S. 
government information. 

[End of section] 

Appendix V: List of KPCS Participants: 

States and regional economic integration organizations who have met the 
minimum requirements of KPCS are: 

Angola: 
Armenia: 
Australia: 
Belarus: 
Botswana: 
Brazil: 
Bulgaria: 
Canada: 
Central African Republic: 
China, People's Republic of: 
Congo, Democratic Republic of: 
Cote D' Ivoire: 
Croatia: 
European Community: 
Ghana: 
Guinea: 
Guyana: 
India: 
Indonesia: 
Israel: 
Japan: 
Korea, Republic of: 
Lao People's Democratic Republic: 
Lebanon: 
Lesotho: 
Malaysia: 
Mauritius: 
Namibia: 
New Zealand: 
Norway: 
Romania: 
Russian Federation: 
Sierra Leone: 
Singapore: 
South Africa: 
Sri Lanka: 
Switzerland: 
Tanzania: 
Thailand: 
Togo: 
Ukraine: 
United Arab Emirates: 
United States of America: 
Venezuela: 
Vietnam: 
Zimbabwe: 

Source: GAO analysis of KPCS information. 

Note: The rough diamond-trading entity of Chinese Taipei has also met 
the minimum requirements of KPCS. 

[End of section] 

Appendix VI: Comments from the Department of State: 

United States Department of State: 
Washington, D. C. 20520: 

SEP 12 2006: 

Ms. Jacquelyn Williams-Bridgers: 
Managing Director: 
International Affairs and Trade: 
Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548-0001: 

Dear Ms. Williams-Bridgers: 

We appreciate the opportunity to review your draft report, "Conflict 
Diamonds: Agency Actions Needed to Enhance Implementation of the Clean 
Diamond Trade," GAO Job Code 320351. 

The enclosed Department of State comments are provided for 
incorporation with this letter as an appendix to the final report. 

If you have any questions concerning this response, please contact Sue 
Saarnio, Economic Advisor, Bureau of Economic and Business Affairs, at 
(202) 647-1713. 

Sincerely, 

Signed by: 

Bradford R. Higgins: 

cc: GAO - Zina Merritt: 
EB - Elizabeth Dibble: 
State/OIG - Mark Duda: 

Department of State Comments on GAO Draft Report: 

Conflict Diamonds: Agency Actions Needed to Enhance Implementation of 
the Clean Diamond Trade (GAO-06-978, GAO Code 320351): 

Thank you for allowing the Department of State the opportunity to 
respond to the report entitled Conflict Diamonds: Agency Actions Needed 
to Enhance Implementation of the Clean Diamond Trade (GAO-06-978, GAO 
Code 320298). 

We appreciate the GAO's thorough review of the Clean Diamond Trade Act, 
its recognition of the positive steps the Department of State has taken 
to strengthen international cooperation on conflict diamonds and its 
recommendations to strengthen controls over the rough diamond trade. We 
share GAO's concerns about the need to prevent conflict diamonds from 
fueling the kinds of conflicts they financed in Africa in the 1990s. 
The Kimberley Process Certification Scheme Has made great strides since 
2003 in efforts to control the international trade in rough diamonds. 
We are pleased that GAO has recognized U.S. contributions to those 
efforts through the Kimberley Process and technical assistance to 
Sierra Leone and Liberia. 

Since the April 25, 2003, passage of the Clean Diamond Trade Act, the 
July 29, 2003, signing of the Executive Order implementing the Act and 
the September 23, 2004, publication of Rough Diamonds Control 
Regulations, U.S. government agencies have dealt promptly with the 
challenges that have emerged in the operation of this program. There 
has been tremendous interagency cooperation to deal with the types of 
issues which are described in the GAO review. We are strongly committed 
to continue to improve the U.S. government's internal controls over 
rough diamonds in order to prevent their use in fueling future 
conflict. 

Our responses to the GAO's specific recommendations follow: 

Recommendation 1: 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. 

As the GAO report notes, improvements in record keeping have 
dramatically improved U.S. rough diamond trade statistics in the past 
three years. If U.S. rough diamond exports continue to exceed imports, 
the Departments of State and Treasury will continue to coordinate 
interagency efforts to refine the accuracy of our reports. 

Recommendation 3: 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 
those confirmations. The system for tracking import confirmation 
receipts would complement Census' system for tracking export 
confirmation receipts and would help enhance Census' data on rough 
diamond imports and exports. 

While we have made significant improvements in the past year in private 
sector compliance with the confirmation process, we are prepared to 
assume greater governmental responsibility for this Kimberley Process 
obligation. In this regard, the Department of Homeland Security has 
agreed to provide monthly reports to the Department of State on imports 
of rough diamonds. The Department of State will then forward the 
confirmations of receipt to the appropriate foreign exporting 
authority. Implementation will begin immediately following the 
conclusion of appropriate disclosure agreements between the two 
agencies. 

Recommendation 5: The Secretary of State direct the Assistant 
Secretary, Bureau of Economic and Business Affairs, to develop and 
implement a plan for reviewing the activities of the USKPA and its 
licensees. 

As the GAO report notes, the Bureau of Economic and Business Affairs in 
early 2006 developed a plan to review the USKPA and its licensees. 
Implementation of the plan, which includes quarterly visits to USKPA 
licensees, diamond importers and exporters and regular meetings with 
the USKPA board, began in March 2006. We will continue to refine this 
oversight plan and work with the interagency committee to ensure 
compliance with Kimberley Process standards. 

Recommendation 6: The Secretary of State direct the Directors of the 
USKPA to develop and implement a plan for reviewing the activities of 
its licensees. 

The Bureau of Economic and Business Affairs will direct USKPA Directors 
to prepare a formal plan to review the activities of its licensees. 

Recommendation 7: 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. 

The Department of State supports the efforts of regional organizations 
such as the Economic Community of West African States, the Mano River 
Union, the West African Economic and Monetary Union, and the Central 
African Economic and Monetary Community to promote regional 
harmonization and economic integration in Africa. Kimberley Process 
Economic Support Funds appropriated through FY06 are committed to 
projects to support strengthening of land tenure and property rights 
systems. If additional funds are appropriated by the Congress, we will 
consider funding programs with a regional focus. 

Thank you for the opportunity to respond to this report. 

[End of section] 

Appendix VII: Comments from the Department of the Treasury: 

Department Of The Treasury: 
Washington, D.C. 20220: 

SEP 14 2006: 

Loren Yager: 
Director, International Affairs and Trade: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Yager: 

Thank you for the opportunity to respond to GAO's draft report entitled 
"Conflict Diamonds: Agency Actions Needed to Enhance Implementation of 
the Clean Diamond Trade Act." 

The Department of the Treasury's Office of Foreign Assets Control 
(OFAC) takes its responsibility to contribute to the effective 
implementation of the Clean Diamond Trade Act, P.L. 108-19 (CDTA), very 
seriously. I share GAO's concern about the need to prevent conflict 
diamonds from entering the legitimate trade of rough diamonds. As you 
correctly point out in the draft report, OFAC's primary role in 
ensuring the integrity of the Kimberley Process Certification Scheme 
for rough diamonds (KPCS) is through the promulgation of the Rough 
Diamonds Control Regulations, 31 C.F.R. part 592 (RDCR), which 
implement the CDTA and the KPCS. In addition, together with the 
Department of State, OFAC co-chairs the Kimberley Process 
Implementation Coordinating Committee established pursuant to the CDTA. 
OFAC works closely with other U.S. agencies, principally the Department 
of State and the Department of Homeland' Security's Bureau of Customs 
and Border Protection (CBP), to ensure that U.S. importers and 
exporters of rough diamonds comply with the requirements of the RDCR, 
including the requirement that importers of rough diamonds confirm 
receipt of shipments of rough diamonds imported into the United States 
to the appropriate foreign Exporting Authorities. 

I have reviewed the draft report and submit two technical comments for 
your consideration. These edits are as follows: 

1) On page 23, I 'Paragraph, line 6, following the words, "in August 
2006, OFAC", please delete the last three words "also sent letters" on 
that line and instead insert "opened investigations and started to 
issue administrative subpoenas" before the words "to importers who had 
not confirmed import receipts." We would suggest rewording the next 
sentence, beginning on line 7 of that same paragraph, as follows: "If 
any importer continues to fail to confirm import receipts--that is, 
fails to comply with the regulation-civil penalties may result." 

2) On page 43, we have a technical comment with respect to GAO's 
recommendation, set forth in the first bullet, that the Secretary of 
the Treasury direct the Director of OFAC to revise the regulations with 
respect to confirmation of receipt of rough diamond shipments. The 
Secretary of the Treasury has already delegated to the Director of OFAC 
his full authority to issue regulations or take any other action that 
he is authorized to take relating to the Clean Diamond Trade Act. See 
31 C.F.R. § 592.702. Therefore, there is no need to recommend that the 
Secretary "direct OFAC" to amend the RDCR, and this sentence should 
simply read: "OFAC amend the Rough Diamonds Control Regulations to 
reflect the above change." Finally, with regard to the substance of 
this recommendation, at such time as OFAC is advised by the Departments 
of Homeland Security and State that a new system for confirming 
receipts is in place and that the RDCR should be revised, OFAC will 
issue a conforming amendment. 

I hope these comments are helpful in clarifying the above points and 
again, thank you for the opportunity to comment. I look forward to 
reading the final Report. 

Signed by: 

Adam J. Szubin: 
Director, Office of Foreign Assets Control: 

Enclosure:  

[End of section] 

Appendix VIII: Comments from the Department of Homeland Security: 

U.S. Department of Homeland Security: 
Washington, DC 20528: 

September 8, 2006: 

Mr. Loren Yager: 
Director: 
International Affairs and Trade: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Yager: 

Thank you for the opportunity to review and comment on the Government 
Accountability Office's (GAO's) draft report entitled Conflict 
Diamonds: Agency Actions Needed to Enhance Implementation of the Clean 
Diamond Trade Act (GAO-06-978). 

GAO identified key issues in the report and they are being addressed. 
The report contains several recommendations, one of which is directed 
to U.S. Customs and Border Protection (CBP), and one of which is 
directed to a collaborative effort by the Department of Homeland 
Security and the Department of State. 

The Department agrees with the recommendations and will take the 
appropriate steps needed to implement them. Key actions are listed 
below: 

Recommendation 2: To enhance the U.S. process for inspecting rough 
diamond imports and exports, GAO recommended that 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. 

Corrective Action: 

For imports, CBP will create intensive cargo criteria that will require 
the examination of rough and polished diamond shipments on a periodic 
basis. Using a random selection process, a specific percentage of 
diamond shipments will be subject to examination before release. That 
percentage will either be increased or decreased depending on an annual 
evaluation of the examination results. The examination will include a 
full document review to ensure that a valid and original Kimberly 
Process Certification Scheme (KPCS) certificate has accompanied the 
shipment. It will also include an examination of the packaging for 
compliance with the KPCS and a verification of its contents. 

For exports, CBP will establish a process to target diamond shipments. 
The process will produce regular, random targets for verification. The 
Bureau of the Census has confirmed that all rough diamonds are excluded 
from Option 4 filing in the Automated Export System (AES) and the U.S. 
Principal Party in Interest must transmit the export information prior 
to departure. The time frame for reporting cargo information for air 
shipments is two hours prior to aircraft departure from the last U.S. 
port. 

Recommendation 3: To enhance the U.S. process for confirming the 
receipt of U.S. imports with foreign exporting authorities, GAO 
recommended that 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 complement Census' system for tracking export confirmation 
receipts and would help enhance Census' data on rough diamond imports 
and exports. 

Corrective Action: 

On a monthly basis, CBP will electronically provide the U.S. Department 
of State with the following information regarding the receipt of 
confirmation for each import of rough diamonds: KPCS Certificate 
Number, country of export, import date, value of the shipment, tariff 
number, manufacturer/exporter name, importer name and quantity in 
carats. 

The U.S. Department of State will forward the confirmations of receipt 
to the appropriate exporting authority. Implementation will begin 
immediately upon establishment of appropriate disclosure law agreements 
between the two agencies. 

Thank you again for the opportunity to comment on this draft report and 
we look forward to working with you on future homeland security issues. 

Sincerely, 

Signed by: 

Steven J. Pecinovsky: 
Director: 
Departmental GAO/OIG Liaison Office: 

Appendix IX:  Comments from the Department of Commerce: 

The Deputy Secretary Of Commerce: 
Washington, D.C. 20230: 

September 19, 2006: 

Mr. Loren Yager: 
Director: 
International Affairs and Trade: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Yager: 

The U.S. Department of Commerce appreciates the opportunity to comment 
on the United States Government Accountability Office draft report 
entitled Conflict Diamonds: Agency Actions Needed to Enhance 
Implementation of the Clean Diamond Trade Act (GAO-06-978). I enclose 
the Department's comments on this report. 

Sincerely, 

Signed by: 

David A. Samnpson: 

U.S. Department of Commerce Comments on the United States Government 
Accountability Office Report Entitled Conflict Diamonds: Agency Actions 
Needed to Enhance Implementation of the Clean Diamond Trade Act (GAO- 
06-978): 

The U.S. Census Bureau supports the Kimberley Process Certification 
Scheme (KPCS) and is working with the KPCS authorities to provide the 
most accurate statistics possible. The Census Bureau recognizes there 
are concerns when the United States has greater volumes of rough 
diamond exports than imports. As stated in the report, the Census 
Bureau made several changes to the export processing and collection 
systems to help minimize this trade difference. The Census Bureau also 
started capturing the Kimberley Process (KP) certificates in January 
2006 and is reporting this information to the KPCS. The Census Bureau 
has not received additional funding for the KPCS implementation and 
relies on current resources and funding to perform the required tasks 
for the KPCS. 

The Census Bureau will continue to monitor the trade of rough diamonds 
and reconcile trade with other KP participants. If there continues to 
be a substantial amount of exports over imports, the Census Bureau will 
work with the U.S. Kimberley Process Implementation Coordinating 
Committee to research this issue. 

Finally, a correction is needed on page 25, last paragraph, first 
sentence. The Census Bureau does not provide oversight to the U.S. 
Kimberley Process Authority (USKPA). The State Department is 
responsible for monitoring the USKPA. 

[End of section] 

Appendix X: Comments from the Department of the Interior: 

United States Department of the Interior: 
Office Of The Secretary: 
Washington, D.C. 20240: 

SEP 15 2006: 

Ms. Loren Yager: 
Director, International Affairs and Trade: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Ms. Yager: 

Thank you for providing the Department of the Interior the opportunity 
to review the: 

U.S. Government Accountability Office (GAO) draft report entitled, 
"Conflict Diamonds: Agency Actions Needed to Enhance Implementation of 
the Clean Diamond Trade Act" (Report Number GAO-06-978). 

The GAO staff is to be commended for conducting a thorough, well- 
researched examination of the Clean Diamond Trade Act. The report shows 
the U.S. Geological Survey technical assistance to Liberia in a 
favorable light. We have no substantive comments on the report. 

Sincerely, 

Signed by: 

Mark Limbaugh: 
Assistant Secretary for Water and Science: 

Appendix XI GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Loren Yager, (202) 512-4347: 

Staff Acknowledgments: 

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. 

FOOTNOTES 

[1] 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). 

[2] In November 2005, KPCS adopted a resolution on the subject of 
illicit diamond production in Côte d'Ivoire that outlined a series of 
measures to prevent the introduction of conflict diamonds from Côte 
d'Ivoire into legitimate trade, including a detailed assessment of the 
import and export volumes. The assessment will be carried out in 
cooperation with the UN. 

[3] In mid-2002, GAO reported on the efforts to develop KPCS. See GAO, 
International Trade: Critical Issues Remain in Deterring Conflict 
Diamond Trade, GAO-02-678 (Washington, D.C.: June 14, 2002); 
and GAO, International Trade: Significant Challenges Remain in 
Deterring Trade in Conflict Diamonds, GAO-02-425T (Washington, D.C.: 
Feb. 13, 2002). 

[4] For additional details regarding KPCS, see 
www.kimberleyprocess.com. 

[5] Appendixes II and III contain additional rough-and polished- 
diamond-related information. 

[6] Pub. L. 108-19. The act directs the President to prohibit imports 
and exports of rough diamonds that are not controlled through KPCS. The 
act defines the term "controlled by the Kimberley Process Certification 
Scheme" to include any system that substantially meets standards, 
practices, and procedures of KPCS. 

[7] To complement worldwide KPCS implementation efforts, the 
international diamond and jewelry industry initiated a voluntary system 
of warranties. This system requires that for every diamond transaction-
-rough, polished, or diamond jewelry--the seller must affirm on the 
invoice that the diamonds have been purchased through authorized 
channels that are not involved in funding conflict. While the system is 
voluntary, the industry views the system as a requirement for all its 
members involved in the diamond trade. Noncompliance with the system of 
warranties can result in expulsion from diamond trade organizations. 
The U.S. industry adopted this system of warranties. 

[8] Several KPCS participants, including the United States (through the 
U.S. Trade Representative) obtained a 4-year waiver needed for 
implementing KPCS and CDTA from the World Trade Organization (WTO) in 
2003. These participants are currently trying to obtain a 6-year waiver 
extension from WTO and expect to get it in November 2006, according to 
USTR officials. In the absence of a waiver, WTO could impose sanctions 
on KPCS participants if WTO deemed the certification scheme an 
unauthorized trade barrier. Also, without a waiver, CDTA might lapse 
because the act requires that the President certify the existence of 
either a WTO waiver or a binding resolution of the UN Security Council 
for its provisions to remain in effect. See Pub. L. 108-19, sec. 15. 

[9] Controlling imports and exports of rough diamonds involves at least 
four entities in the United States. A number of countries, including 
some of those we visited (Belgium, Canada, and Sierra Leone) have used 
a single government entity for controlling their trade of rough 
diamonds. 

[10] State has submitted three reports on USKPA activities to the 
Congress covering 2003, 2004, and 2005 respectively. 

[11] In the United States, issuing Kimberley Process certificates and 
confirming import receipts involves private entities (USKPA and the 
ultimate consignee). These activities are a government responsibility 
in a number of countries, including the three countries we visited 
(Canada, Belgium, and Sierra Leone). 

[12] Management Systems International is a USAID contractor. 

[13] Constella Futures International, formally known as Futures Group 
International, is a USGS contractor. 

[14] Monitoring is an internal control standard that focuses on 
assessing--through ongoing monitoring activities and separate 
evaluations--the quality of performance over time to ensure that the 
government promptly identifies and addresses any problems. See Internal 
Control Management and Evaluation Tool, GAO-01-1008G (Washington, D.C.: 
Aug. 2001). 

[15] According to officials at Census, the U.S. Goods Returned code may 
be used when diamonds that were exported from the United States are 
returned, for example, following a trade show or a failed transaction. 
Since this generic code is used for a variety of commodities, it is 
difficult to identify rough diamond imports classified under this code, 
which could bias the level of imports down. 

[16] If Census detects differences in bilateral trade data, it will ask 
the trading partner to send information on specific shipments. Then 
Census can check if it has the Kimberley Process certificate for the 
shipments in question and can also check ABI to see if the shipment was 
filed at all. However, Census is constrained by Title XIII, which 
prohibits it from discussing individual shipments with other countries; 
this makes it more challenging to perform these reconciliations. 

[17] The Kimberley Process Working Group on Statistics conducted a 
study comparing 2004 KPCS-based data with non-KPCS-based data. They 
found fewer differences between export and import transactions derived 
from KPCS-based data than non-KPCS-based data. 

[18] This method, which used historical prices to estimate a new 
quantity, relied on assumptions that could bias the quantity estimate. 
The procedure, known as imputation, assumes that the quantity was 
recorded incorrectly, and that the shipment value was recorded 
correctly. However, if the shipment value was incorrect, scaling it by 
a historical price will not produce the correct quantity. 

[19] CBP's Priority Trade Issues include risks to the economic 
interests of the United States or the health and safety of the American 
public. Specifically, these issues include Penalties, Revenue, 
Antidumping/Countervailing Duties, Agriculture, Intellectual Property 
Rights, and Textiles. 

[20] See Internal Control Management and Evaluation Tool, GAO-01-1008G. 

[21] The USKPA has three directors who serve without compensation, 
selected by consensus by representatives of the diamond industry. The 
directors are persons familiar with the requirements of KPCS, and are 
not engaged in the buying or selling of diamonds or jewelry containing 
diamonds. The activities of the USKPA are funded through fees paid by 
USKPA licensees. The USKPA designed and produced the Kimberley Process 
certificate in consultation with the U.S. government. 

[22] According to the 2004 USKPA annual report to State, in order to 
qualify as a licensee each entity has to be authorized as a "known 
shipper" under AES. 

[23] The application form that licensees/shippers complete must 
contain: the names, addresses, and tax identification numbers of the 
applicant, exporter, and importer; 
the carat weight of the shipment; 
the value in U.S. dollars; 
the number of parcels in the shipment; 
and the relevant Harmonized Commodity Description and Coding System 
number. In addition, the following warranty statement must appear on 
the application: "The applicant hereby asserts that the rough diamonds 
intended for export referenced in this application have been handled in 
accordance with the provisions of the Kimberley Process International 
Certificate Scheme for Rough Diamonds." 

[24] According to other CBP officials, CBP uses an approach for exports 
that focuses on inspecting high-technology items that could be used by 
potential U.S. enemies. Under this approach, rough diamond shipments do 
not get flagged for inspection. 

[25] The UN Security Council imposed sanctions on the export of rough 
diamonds from Liberia in 2001 for its role in the armed conflict in 
neighboring Sierra Leone. Compliance with KPCS is one of the key 
conditions for lifting the sanctions on diamond exports. 

[26] In February 2005, the first Kimberley Process Mission to Liberia 
found that, while Liberia had enacted the necessary law to implement 
KPCS and designated the Ministry of Lands, Mines, and Energy as the 
focal point for national implementation, this country lacked the means 
to enforce internal controls, including monitoring the activities of 
diamond-producing regions. 

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