USA: Changes in the Works Following GAO Report on Conflict Diamonds

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The one-week-old report from the Governmental Accountability Office (GAO) found some flaws in how the United States tracks diamonds. The report was meant to help legislators understand the nuances of the diamond trade and report on the effectiveness of the Clean Diamond Trade Act of 2003. GAO follows-up on their reports a spokesperson told Rapaport News, “We start looking for action right away — sooner the better.”

At issue — some diamond import processes were not tight enough in order to avoid importing conflict diamonds into the United States. Findings by the GAO included: Rough diamond imports weren’t being inspected with any regularity to ensure they matched Kimberley Process Certificates; the government’s tracking of goods from other Kimberley Process countries was weak; and that import and export data (of rough and polished) was not adding up. [Read the full report.]

Regular drafts of the report were circulated to all agencies involved well ahead of releasing the final document on September 27, which gave these agencies a heads-up to begin working on and implementing recommendations.

One State Department spokesperson told Rapaport, “The recommendations from GAO are being finalized already.” Both the State Department and Department of Homeland Security (parent organization of the customs office)  are working to institute inspections and full document reviews on both imports and exports, the spokesperson said. Summary reports of the findings would  be made monthly.

The United States Kimberley Process Authority (USKPA) has, up until the GAO report not been monitored, but the federal government is now testing a monitoring program.

State Department to Host Single Place for Federal Information

In one such  case involving the diamond trade –and reflecting how communication is handled intra-departmentally and through external documentation–  dates back to November 2005 on rough exports from Cote d’Ivoire (Ivory Coast.)

The State Department placed a ‘red flag’ on all diamond imports from Cote d’Ivoire in communication with the United States Customs Department following the diamond industry’s warnings in the fourth quarter of 2005. However the Customs’ website didn’t reflect the change and still lists (as of press time) the September 23, 2004, asset control regulatory memo implementing the Clean Diamond Trade Act of 2003. The website also lists an updated roster of trading countries dated September 20, 2005, at which time it added Lebanon, and no update was provided for the Cote d’Ivoire.

The United States Treasury website offers a rough diamond trade page, but the information has not been updated to reflect open diamond trading relations with Sierra Leone or the red flag on Cote d’Ivoire. The Treasury’s spokesperson would not comment on the agency’s website content. 

As early as October 6, 2005, then Kimberley Process chairman Vyacheslav Shtyrov alerted the trade to illegal diamond exports from Cote d’Ivoire in conjunction with  an investigative report on the illegal trade conducted by Global Witness.

Weeks later, during the Kimberley Process’ annual plenary session November 15-17, 2005, the Kimberley Process organization recognized that illicit rough diamond production was being carried out in northern Cote d’Ivoire and that those diamonds were possibly being introduced into the legitimate trade. While Cote d’Ivoire remains a Kimberley Process participant, it has banned rough exports since November 2002 and has not been issuing Certificates. [Read a summary of the meeting.]

The World Federation of Diamond Bourses quickly added their call for members to refuse diamonds from Cote d’Ivoire on November 15. On December 15, 2005, the United Nations asked all governments to prevent importing rough from Cote d’Ivoire, confirming diamonds were being used to buy weapons.

It was not until February 7, 2006, that President George W. Bush wrote an executive order banning “goods” from Cote d’Ivoire, which were being blamed for funding armed conflicts in the region — but diamonds weren’t mentioned specifically in the order.

Sharing information across multiple agencies is no small task, but the GAO report on conflict diamonds made enough impact that information sharing on rough diamond trade may become easier shortly.

The State Department is planning to re-launch a web page it controls within a few weeks as a single source of information on diamond trading regulations and conflict diamonds. The page, currently titled Conflict Diamonds, has been static for a couple of years, the spokesperson said, but the need for information in one place drove the website owners to create the upcoming redesign.

At present — rough diamond regulations in various forms for the Kimberly Process Certification and Clean Diamond Trade Act,  embargos, and trade alliance information are spread out across the Treasury Department’s website, BLS (Bureau of Labor Statistics,) and FinCEN. The GAO spokesperson said that BLS shouldn’t even have the documents on its website.

Interim to the State Department’s diamond trading page re-launch, the agency offered one website address, which appears to have the latest documents on asset control (Part 592) of Title 31 Money and Finance. In particular the documents detail the federal rough diamond regulations. The references, while there are some repeats, are easy enough to navigate and download and address requirements for rough imports and penalties associated with evading the rules.

Industry Reaction to the GAO Report

In a joint press statement, Global Witness and Partnership for Africa Canada, praised the GAO report and urged immediate action on adopting recommendations.

Corinna Gilfillan of Global Witness told Rapaport that the GAO report reflected their own assessment of the United States’ diamond trading processes in 2005. “Diamonds are smuggled into the major trading centers and then mixed — just because diamonds didn’t come directly from Cote d’Ivoire for example doesn’t mean it didn’t originate there,” she said.

Partnership for Africa Canada also found in March 2006 that illegal diamond trading in Brazil was leading to the export of those goods into the global mix without  the Kimberley Process. The organization called for banning Brazil from the Kimberley Process until regulations are enforced. [Read the summary report.]

Independently, the Kimberley Process team is working on addressing the mine to export part of the equation. The organization estimates less than one percent of illegal (or conflict) diamonds make their way into the global markets.

“Percentages don’t really matter,” Gilfillan said. “Sierra Leone was a very small percentage of the global diamond trade, but yet that resulted in a lot of havoc and destruction in the country.”

Even a small amount of illicit diamonds, due to their high value, can cause a lot of strife Gilfillan said.

Gilfillan added that the issue is more widespread on tracking diamond imports and exports, “It is not only the United States.”

Jewelers of America also praised the GAO report and its recommendations. Matthew Runci, president of Jewelers of America, said, “The government’s corrective actions will add teeth to U.S. oversight functions, especially in regards to regular monitoring, which is an essential element of any credible system.”

Runci, along with numerous other industry leaders, and organizations such as Global Witness and Partnership Africa Canada  played an integral role in lobbying Congress to pass the Clean Diamond Trade Act of 2003.

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