Global Policy Forum

Liberia: UN Panel Raises Concerns Over Diamond Trade

The News
September 3, 2008

The UN panel of experts on Liberia in its June report to the Security Council raised concerns over diamond trade in the country relative to the implementation of the minimum requirements of the Kimberley Process Certification Scheme. The Panel reported that: The legal framework for the Kimberley Process Certification Scheme in Liberia is the New Mineral and Mining Law, passed in 2000. In September 2004, an Act was passed that added provisions for controls on the export, import and transit of rough diamonds. It prohibits the exporting authority from issuing a Kimberley Process certificate until the exporter has provided conclusive evidence that the rough diamonds meant for export have been mined in the Republic or imported in compliance with law. Liberian law includes provisions for non-industrial alluvial mining licenses intended only for Liberians (class C), industrial alluvial mining (class B) and industrial hard-rock/alluvial mining operations (class A). There are also provisions for exploration licenses and mineral development agreements.

The Liberian system requires licensing of diamond brokers and dealers, as well as compulsory documentation of every transaction in the rough-diamond trade chain, from production to export. Holders of class C mining licenses can sell only to licensed brokers or licensed dealers who are parties to a mineral development agreement. Brokers are required to sell only to licensed dealers. The Ministry of Lands, Mines and Energy is the lead ministry on Kimberley Process implementation. The Department of Exploration issues class A mining licenses and exploration licenses, while the Department of Mines issues class B and class C mining licenses, as well as the diamond broker and dealer licenses. The Government Diamond Office receives and values shipments intended for export. Personnel verify all paperwork. The highest of three values (provided by the exporter and Government and independent valuators) is used to determine the 3 per cent Government royalty. Once the dealer verifies payment of the royalty, the Government Diamond Office issues a Kimberley Process certificate and authorizes export. The Office also maintains a computerized, relational database.

Regional Diamond Offices issue vouchers to certify origin. The regional officers must verify that the miner has a license, register the characteristics of the diamonds and issue an authentication voucher. At each exchange, the buyers and sellers must complete a sales receipt that records license numbers for the seller and buyer, and the volume and value of the transaction. In terms of trade in diamonds, the law specifies that diamond miners are able to sell their diamonds to licensed brokers who can sell to licensed dealers. Only licensed dealers can export rough diamonds. The Ministry of Finance also plays an important role in the system of internal controls. Exporters pay royalties to the Central Bank and obtain necessary receipts from the Ministry of Finance. The Department of Customs in the Ministry of Finance monitors exports and imports through Roberts International Airport.

Diamond exploration and mining activities are on the increase. Ten companies have licenses for diamond exploration. Five applications for new diamond-related mineral exploration licenses have been forwarded to the Inter-Ministerial Concessions Committee for consideration. Three of nine existing mineral development agreements are for diamond exploration companies, including Italgems, Kpo and AMA, although the legal status of the latter's 1984 concession agreement is unclear. Since recommencing the issuance of diamond-mining licenses in late July 2007, the Ministry has issued 13 class B licenses, five in 2007 and eight in 2008, as at 2 May. It has also issued a total of 519 class C licenses for artisanal diamond mining, 287 in 2007 and 232 in 2008 up to early May. There are considerable variations between counties and mining agencies in terms of issuance (see annex X). There are no class A diamond-mining licenses. The Ministry had issued 30 diamond broker licenses and 21 diamond dealer licenses as at 29 April 2008. Illicit mining continues in many areas. For example, illicit miners are operating in Kumgbor, Gbarpolu County, and the Panel was informed that in Paris Camp, Sinoe County, there were only 12 licensed class C miners even though there is a population of 10,000 in the camp (information provided by the Bureau of Mines indicates there are only eight diamond-mining licenses in Sinoe County). As at 12 May 2008, the Government Diamond Office had issued a total of 43 Kimberley Process certificates, although four of them were then cancelled. Thus, 39 shipments of rough diamonds have left Liberia with Kimberley Process certificates. This total includes the five stockpile parcels exported in September and October 2007. The 39 valid certificates have authorized the export of 39,971.37 carats of diamonds valued at approximately $5,452,485 (see table 7). Liberia has earned approximately $163,876 in 3 per cent export duties from these shipments.

The Government Diamond Office statistics gathered so far have indicated the absence of large and valuable stones from exported shipments. The few large stones that were present were mostly of inferior quality. A major setback occurred on 25 February 2008, when part of the building housing the Government Diamond Office caught fire. While the Office was not affected initially, the fire left the building without a roof and rains later flooded the database room, damaging the computers that store the database. The events affected the functioning of the Office for over a month. The Government prioritized recovery, and reconstruction was completed by early May 2008. Restoration of the digital database was undertaken in March 2008 and the database was fully operational by the time of the Kimberley Process review visit. Further conflict has occurred between local miners and AMA in Kumgbor, Gbarpolu County, over diamond-mining rights. On 26 February 2008, local miners attacked staff of AMA, using shovels, cutlasses and diggers as weapons. Two AMA security guards sustained injuries. A shot was allegedly discharged by AMA security. The Panel accompanied the Minister of Lands, Mines and Energy and UNMIL personnel to the area for a public meeting on 7 March 2008. The Minister mediated the dispute, and, in response to complaints that Ministry action was contributing to the problem, stated that it would demarcate the AMA concession area. The Panel and Kimberley Process team visited the Kumgbor area in late April 2008. The owner of AMA informed members of the Kimberley Process team that while his concession agreement specified 66,242 acres, he had a verbal agreement with a Minister from the National Transitional Government of Liberia for 215,000 acres. He insists that all other miners in the area are illegal. He also informed Kimberley Process team members that AMA had hired some of Charles Taylor's former bodyguards to intimidate local miners. The European Commission moved ahead with a proposal to provide funding for two technical advisers to assist with the implementation of the Kimberley Process system in Liberia. According to the European Commission, those contractors should commence their duties by the end of May 2008.

The Panel reported in S/2007/689, paragraphs 39 to 41, that the Kimberley Process Working Group of Diamond Experts had raised doubts about the origins of one shipment of stockpiled diamonds, stating that they could not exclude the presence of Ivorian diamonds (see also S/2008/235, paras. 68-70, comments by the Group of Experts on Cí´te d'Ivoire). However, upon receiving general agreement to a stockpile clearance process from the Kimberley Process Participation Committee on 10 October 2007, the Government Diamond Office issued Kimberley Process certificate RL01003 (see annex XI) and the shipment was exported on 11 October 2007. The Panel wrote to the Kimberley Process Chair in November 2007, requesting further details about the decision-making process and to clarify whether there were outstanding doubts about the origins of the shipment. The Panel received a response in late December 2007. The Chair's response noted that the Working Group of Diamond Experts had not changed its original conclusions about the shipment after receiving the fluorescence data. The response also noted that the Participation Committee had considered a proposal for clearing stocks in general and had not advised on any particular shipment, which would have been beyond its mandate. The Chair also stressed that it was the responsibility of the national authority to make decisions on whether a particular shipment met the requirements of its national legislation. Further discussions with officials in the Government Diamond Office have revealed that the focus at the time was on clearing the stockpiles and ensuring that diamonds were not smuggled, and that certificates were issued in this context, including for this particular shipment. While the Panel recognizes the constraints the Government of Liberia currently faces, the Panel considers it very regrettable that the Government Diamond Office did not consider further the doubts about this shipment and conduct further investigations to ascertain whether there were indeed conflict diamonds in the parcel. The Panel has also reported that one dealer exported a shipment to Israel without a Kimberley Process certificate (S/2007/689, para. 31). The Panel wrote to the Permanent Mission of Israel to the United Nations on 10 April 2008 requesting further details. The response of 1 May 2008 stated that the shipment of 33.71 carats (HS code 7102.31) had arrived at the Israeli Customs office in Ramat Gan in October 2007 and had been valued at $29,000. After inspection, the parcel was resealed and detained owing to the lack of a Liberian Kimberley Process certificate. The parcel is still being held by Israeli Customs until an appropriate solution is found.

In Liberia, the Government has fined the dealer $20,000. The Panel and Kimberley Process team met with the dealer on 2 May 2008, and he expressed his frustration that the shipment had not yet been released. Inquiries with a broader range of actors in the Kimberley Process have identified similar cases in other countries, however, and have shown that the issue of how to handle shipments without certificates is a problematic area that requires more consideration from the Kimberley Process as a whole. As noted earlier, Liberia has a Kimberley Process system of internal controls in place, and it faces the difficult challenge of implementing this new system in the context of inexperienced governance structures. Table 8 summarizes the status of Liberian compliance with the minimum requirements of the Kimberley Process Certification Scheme. The Panel has found that the Ministry has made significant progress in some areas of implementation of the Certification Scheme and the internal control system. The Government Diamond Office is generally functioning smoothly and has coped extremely well with significant setbacks, such as the fire and subsequent damage to the digital database. Other areas are proving more problematic (see table 8). Despite all the achievements, the Panel must stress that there are a number of issues that the Government of Liberia, the Ministry and the Government Diamond Office must address to be fully compliant with the Kimberley Process Certification Scheme and to ensure that the Government is implementing its own law. The Kimberley Process Certification Scheme must remain a high-priority issue for Liberia.

Generally, the Government Diamond Office appears to function well and follow the procedures for valuing diamonds and issuing Kimberley Process certificates. Most export certificates appear to be in order. There are, however, a few cases of issuance of Kimberley Process certificates that are cause for concern. As noted earlier, it is the Panel's opinion that the Government Diamond Office should have undertaken further investigation before issuing certificate RL01003 in October 2007, given the doubts raised by the Kimberley Process Working Group of Diamond Experts about the origin of the diamonds and the fact that the diamonds had not proceeded through the Liberian system of internal controls. Ill-considered decisions only undermine the integrity of Liberia's internal controls and the entire Kimberley Process system, which seeks to prevent conflict diamonds from entering the legal diamond trade. The second case involved the issuance by the Government Diamond Office of a Kimberley Process certificate for a "special shipment". On 5 March 2008, the Ministry received a request from the Reverend Johnny Johnson for permission to export a small shipment to the United States of America (see annex XII). The letter was forwarded by the Minister to the Government Diamond Office for review. On 24 March 2008, the Office issued Kimberley Process certificate RL010026 for the export of 13.7 carats of diamonds valued at $15,100 to Staten Island, New York (see annex XIII). While the shipment did have the requisite vouchers and sales receipts, the exporter did not have a diamond dealer's license and thus was not legally entitled to export rough diamonds from Liberia. In response to enquiries made by the Panel and the Kimberley Process team, Government Diamond Office staff stated that the Minister traditionally had the right to make exceptions, so they had issued the Kimberley Process certificate. They were also concerned that the person might smuggle the diamonds out of Liberia if they did not issue a certificate. This type of discretionary decision is contrary to the law and sends an inappropriate message to those who have legally registered and paid their fees.

In terms of other paperwork issued as part of the system of internal controls, a spot check by the Kimberley Process team found that the data on the various forms generally matched. During a review of vouchers and receipts, however, the Panel found instances of modifications made to the original entries. In many cases, employees were correcting original data-entry errors. The Panel also noted that dates on paperwork were not consistent or necessarily in chronological order. There are sometimes gaps of one month or more between vouchers issued at some Regional Diamond Offices. When reviewing the Government Diamond Office's copies of vouchers on 15 May 2008, the Panel noted there were no vouchers from the last four months for two Regional Diamond Offices (see table 9). The Panel was informed by some regional officers and a number of other stakeholders that regional officers are often absent from their offices. Many regional officers admitted that they were in "go-slow" mode for a few months and that this situation was at least partly due to the unresolved stipend issues, which the Panel described in its last report (S/2007/689, paras. 53-54). The Panel notes with concern that some Regional Diamond Offices are still operating in temporary locations. For example, regional officers are working out of rented space in Weasua and Camp Alpha. At the time of the Panel's visit to Nimba County in early March 2008, the container that housed the office in Sanniquellie was boarded up and the regional officers were reportedly working out of another office, although local UNMIL staff were not aware of this fact (see annex XIV). The Panel notes that there is also considerable variability in the number of vouchers issued by the 10 offices, as evident in table 9. This could be the result of various factors, including the productivity of different mining areas, the volume of legitimate versus illicit mining and trading activities, the accessibility of offices, the operational status of the offices and perhaps their issuance of licenses and cooperation with mining agents. At a minimum, the lack of vouchers in Monrovia in mid-March and again in mid-May indicates a broader problem with the flow of documents from the regions to Monrovia. In a meeting with the Kimberley Process team on 28 April 2008, members of the Liberian Diamond Dealers Association stated that they were concerned that the new system of Regional Diamond Offices and vouchers was unfamiliar to those in the sector and that this extra step discouraged miners from obtaining vouchers. They argued that the extra step was an incentive for the miners and unlicensed brokers to smuggle diamonds to neighboring countries. The dealers have expressed fear that the industry could be affected negatively owing to the smuggling of diamonds from Liberia (see annex XV).

Liberia has had two imports of rough diamonds, both re-imports of Liberian diamonds. Inquiries made by the Panel and the Kimberley Process team on 2 May 2008 at Roberts International Airport found that Customs officials did not have records of any import of diamonds. Neither were Government Diamond Office staff aware of any imports, though they were expecting one from China (see paras. 135-136 below). The first shipment was a re-import from Europe of a shipment exported in September 2007. The shipment was brought to the attention of the Government of Liberia during the Kimberley Process review visit by team members who had examined a Kimberley Process report on participant statistics. As of late April, this import had not been reported by Customs at Roberts International Airport. Follow-up by both the Government Diamond Office and the Panel has discovered that Sub sea Resources DMCC [Dubai Multi Commodities Centre] imported the diamonds. The company informed the Panel by telephone on 12 May 2008 that it planned to bring the shipment and Kimberley Process certificate to the Government Diamond Office. The second shipment had been sent to China in December 2007. Chinese authorities seized and investigated the shipment, as the package had been tampered with en route. They communicated with the Liberian authorities and found that the contents were not in accord with Kimberley Process certificate LR010012: the weight of the industrial diamonds was 70.24 rather than 80.12 carats. They concluded that the diamonds were not in compliance with the Kimberley Process Certification Scheme, returned the diamonds to the dealer's agent for re-import to Liberia at the end of February 2008 and informed the Liberian authorities of this action.

The company in question, Avargo International, arrived at the Government Diamond Office on 12 May 2008 while the Panel was present. The company's representatives showed the parcel to the authorities and asked for permission to re-export the shipment. They stated they had imported the shipment four days earlier, but then clarified that the date was 30 April 2008. The Panel was able to confirm this through its inspection of flight manifests at Roberts International Airport. The company claimed that it had declared the shipment upon arrival. After considerable discussion, the Ministry took the shipment into custody in order to undertake an investigation of the circumstances. This investigation is ongoing. While these cases still require further investigation by the Government Diamond Office and Customs, both reveal the need for more attention to import controls, including more education of those trading in diamonds, as well as of the Government Diamond Office and Customs officials.

The Government Diamond Office maintains a digital database. The external evaluator has also been keeping an Excel file of export data for use in analysis. The Office has uploaded data to the Kimberley Process database, as required. The Ministry has provided data to the Kimberley Process, but it has used the export statistics as production statistics. This appears to be a common issue for participants that have small-scale diamond production. However, the purpose of requiring production data to be collected and reported separately is to enable checks to be undertaken on export and import data. The Government Diamond Office has been very open and transparent. It has worked in difficult cases with the Kimberley Process Chair, Working Groups and individual participants to attempt to resolve problems and correct inaccuracies in reporting. The Office is also reportedly transmitting notices of shipments to importing participants, a Kimberley Process recommendation rather than a requirement. The Ministry had not submitted its required annual report by early May 2008 but was preparing it as the Panel was finalizing the present report.

The third Kimberley Process expert mission had a number of recommendations, both pre- and post-admission. Compliance with many of those recommendations has been reported as complete in past reports. Table 10 summarizes the current status of the outstanding recommendations and highlights some others where more attention may be warranted. The Ministry provided the Kimberley Process team with a preliminary list of equipment and training needs during the review visit, in response to a recommendation made by the "friends of Liberia" meeting in the context of the Kimberley Process plenary in November 2007. This is a positive step, as there is an obvious need for ongoing training to ensure implementation of the internal control system, as well as for basic equipment for the regional Diamond Offices and the Government Diamond Office. According to Government Diamond Office staff, generators and fans are being stored in Monrovia, as there are insufficient numbers to be distributed to all of the Regional Diamond Offices.

The stipend issue regarding payments for the Government Diamond Office and regional officers continued to be a problem throughout the reporting period. As at the end of April 2008, the matter was with the Cash Management Committee at the Ministry of Finance. As noted, the system requires an independent valuator to provide a third-party assessment. The Ministry conducted the bidding process, and while three companies expressed interest, only one applied. A final decision has not yet been reached. The current valuator has been funded by the United States Agency for International Development since September 2007. The placement and funding have been extended twice but will definitely expire on 31 May 2008. As noted in the last report, the Government carried out a sensitization programme for miners, brokers and dealers, as well as training of Government officials (Customs, mining agents, regional officers) after joining the Kimberley Process Certification Scheme. However, many miners, brokers and dealers agree that there is a need for more efforts in this regard. In addition, some areas have not had any education programme, most notably the Sinoe County diamond-mining area. Many mining agents appear to have limited training, equipment and understanding of the rules. Diamond dealers have exported and imported diamonds without abiding by the law and have claimed they were not aware of the rules. On 1 May 2008, the Panel and Kimberley Process team met with the LNP Deputy Commissioner of the Crime Services Division and the Chief Investigator of the General Crime Services Division. They stated that LNP was not involved in law enforcement activities related to diamond mining and trading.

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