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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. 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. [ABSTRACT FROM AUTHOR]

The United Nations (U.N.) General Assembly defines conflict diamonds as rough diamonds used by rebel movements to finance their military activities, including attempts to undermine or overthrow legitimate governments. The United States and much of the international community are trying to sever the link between conflict and diamonds while ensuring that no harm is done to the legitimate diamond industry, which is economically important in many countries. The principal international effort to address these objectives, known as the Kimberley Process, aims to develop and implement an international diamond certification scheme that will deter conflict diamonds from entering the legitimate market. The nature of diamonds and the operations of the international diamond industry create opportunities for illicit trade, including trade in conflict diamonds. Diamonds are mined in remote areas around the world and are virtually untraceable back to their original source once mixed and polished. The United States cannot detect diamonds that might come from conflict sources because the current diamond import control system does not require certification of the country of extraction. At present, there is no international system to certify the source of extraction. The Kimberley Process proposal for an international diamond certification scheme does not contain the elements necessary to provide reasonable assurance that the scheme will be effective in deterring the flow of conflict diamonds. [ABSTRACT FROM AUTHOR]

Easily concealed and transported, and virtually untraceable to their original source, diamonds are often used in lieu of currency in arms deals, money laundering, and other criminal activity. U.S. controls over diamond imports only require certification from the country of last import--and thus cannot identify diamonds from conflict sources. Although the United States bans diamonds documented as coming from the National Union for the Total Independence of Angola, the Revolutionary United Front in Sierra Leone, and Liberia--all of which are subject to U.N. sanctions--this does not prevent such diamonds from being shipped to a second country and mixed into parcels destined for the United States. GAO found that the Kimberley Process's proposal for international diamond certification incorporated some elements of accountability. However, it is not based on a risk assessment, and some high-risk activities are subject only to "recommended" controls. Also, from the time when rough diamonds enter the first foreign port until the final point of sale, there exists only a voluntary industry participation and self-regulated monitoring and enforcement system. These and other shortcomings significantly undermine efforts to deter trade in questionable diamonds. [ABSTRACT FROM AUTHOR]