U.S. Government Watchdog Demands Better Governmental Controls Over Kimberley Process
September 28, 06 by Chaim Even-Zohar
The U.S. Governmental “watchdog”, the GAO, has submitted a 62-page report to the U.S. Congress on the functioning, or rather the lack thereof, of the Kimberley Process Certification Scheme (KPCS) in the United States. This report is exceptionally in depth; it is very well written and almost deserves a Pulitzer Prize for creative, diplomatic, and politically correct writing. If you read between the lines, it is a devastating report and confirms what most of us have known for a long time: that the Kimberley system in the U.S. simply does not really work.
Does it matter? Probably not. Thank God there are virtually no conflict diamonds left in the world. And, at this point in time, it would certainly not be improper for international governmental deliberation to ponder whether the costs associated with the administrative implementation exercise, involving some 46 countries plus the few dozen members of the European community, are proportionate to the benefits. But this is a different issue.
What the GAO signals is a weird situation in which rough exports measured in carats from the United States have been, in certain years, almost double that of rough imports. Needless to say, there are no mines in the United States, and governmental disposal of stockpiles ceased years ago. The GAO writes, “Subsequent to the enactment of Clean Diamond Trading Act (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. [Its 2003 imports were 3.8 million carats. So just imagine what the exports were…. CE-Z] 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 the last year or so, the systems for reporting rough diamond statistics and for controlling imports and exports have considerably improved, “but are still vulnerable to elicit trade of rough diamonds.” Though there is still a substantial excess of exports over imports, the U.S. doesn’t know which factors account for this remaining excess of 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 and prevent their diversion.”
In every country, the government that releases an import shipment confirms the receipt of the received diamond shipment to the exporting country. This is an explicit governmental function, and the Kimberley Process is a governmental process. In 2004, the inability of the U.S. government to fulfill its role forced the government to shift its responsibility to the individual private importers. For instance, a New York importer who had cleared his imports on a shipment from Israel then has 15 days to inform the Israeli government that he has received a parcel of diamonds from Israel. And if he doesn’t do so, he is subject to subpoenas, investigations, penalties, and God knows what.
So the GAO report implies that while the overall system of checking imports/exports doesn’t work, what does seem to work is going after private importers who, acting as proxies for government, are held at fault for failing to do the government’s work. This gets us into much more serious matters.
Half a Dozen Implementation or Oversight Agencies
There are at least half a dozen different governmental agencies to implement or supervise the Kimberley Process. The State Department co-chairs the U.S. Inter-Agency Group for implementation of Kimberley, and it is responsible for reviewing the activities of the United States Kimberley Process authority and its licensees. This Group is also responsible for issuing reports to Congress. The U.S. Treasury’s OFAC is responsible for promulgating the rough diamond regulations, which includes the responsibility of confirming receipt of rough diamond imports to the foreign exporting authority. The Treasury has delegated this function to the individual importers. The Homeland Security Office is responsible for regulating the rough diamond imports; the department’s Bureau of Immigration and Customs Enforcement is responsible for pursuing criminal investigations related to violations of the Kimberley Process and its regulations. Exports are the responsibility of the U.S. Commerce Department. And it is the Census Bureau that is responsible for collecting and analyzing the data of rough diamonds and reporting to the Kimberley system data network.
So we truly have – across the board – a gigantic and incredible bureaucracy responsible for all aspects of the Kimberley Process.
And yet, the Kimberley authority, itself, has been outsourced to private people (in essence, non-profit industry trade associations). The private organization, the U.S. Kimberley Process Authority, prints the certificates, but the actual issuing of these forms is again outsourced to 17 different private licensees of which Malca-Amit and Brinks are the major ones. However, according to Malca-Amit and Brinks, they are not required to examine the contents of the rough diamond parcels they ship; instead, they solely rely on the warrantee that the exporters sign, which attests that the shipment has been handled in accordance with the KP system regulations. Actually, there is not a single government agency that reviews any export shipment.
Technically, U.S. Customs can check import parcels, but this has only been done to test the system, and there is no systematic method in place. To make a long story short, there is no diamond country in the world where so many government agencies are in charge of the Kimberley implementation system involving a relatively modest amount of rough diamonds. Concludes the GAO, “State, Census and the US Kimberley Process Authority 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…” What a nice way is that of saying that the system is faulty – and the U.S. non-compliant.
The GAO cites a co-director of the U.S. Kimberley Process Authority, “The agency takes no responsibility for the information on the certificate. The licensee and exporter assume this responsibility….”
With all these government agencies, the only thing that has effectively been done is to outsource the responsibilities away from government. The GAO doesn’t like that and in virtually every line it implies that government should assume the responsibility and tasks which governments are supposed to fulfill. The GAO doesn’t like the system as it operates and says clearly that illicit diamonds can still enter into, can still be traded in, and can be exported from the United States. In the GAO’s diplomatic language, “the systems have improved … but are still vulnerable to illicit trade of rough diamonds.”
Presently, the Kimberley Process in the U.S. has evolved into an electronic reporting system based on the warrantees of the exporters, and it depends on the importers to send notification to foreign governments. Somewhere deep in the report it is revealed that during a few months, between April and June 2006, the State Department sent some 150 letters to importers reminding them of the rule to confirm receipt of the goods to the foreign government. (Incidentally, there is presently no U.S. agency responsible for tracking these import confirmations.)
This is not the place to review a 62-page document in full. Therefore, to summarize, the GAO concludes that the United States is basically not in compliance with the Kimberley Process. It notes that the government has provided $7.57 million in assistance to help some African countries to implement the Kimberley Process – which is very laudable, but begs the question why a nation that exports good “Kimberley governance” cannot do so at home?
It is obvious that this lack of compliance stems from a government failure and not from a failure on the part of the diamond industry. The industry, as well as the couriers, is doing the required warrantees; it does what the government wants it to do… but it’s not the industry that is responsible for 300 different ports of entry into the U.S. where there are customs authorities.
It is discouraging that the only people who are “threatened” with civil penalties are those who failed to “confirm receipt of goods to foreign governments.” It is about time for the U.S. government to bring order in its own house – and the excellent GAO report will certainly contribute to do so. Or, alternatively, let the U.S. come out and “rethink the system.” Let them keep in mind that conflict diamonds are hardly an issue today – they are largely an issue for historical Hollywood movies. Maybe for this reason it is not desirable that the GAO finds the U.S. non-compliant in keeping conflict diamonds out of the United States.
Have a nice weekend.