Global Policy Forum

and Proposals and Recommendations for the Kimberley Process for a
Fully Integrated Certification System (FICS)

Global Witness
April 25, 2001

It is recommended that this review is read in conjunction with the report by the Belgian Government and the HRD (1) and the recent Progress Report on Diamond Policy and Development Program report prepared by the USAID-OTI (2).

This briefing document concentrates on certification as a system. The Kimberley Group has reported that it is not possible to end the trade in conflict diamonds with certificates alone. The Report of the Working Group on Diamonds to the Pretoria Ministerial Conference on 21st September 2000, noted a vital part of the certification system would involve 'a national system of transparency, disclosure and oversight of all diamond operations sufficient to root out all buyers who smuggle or undervalue stones or otherwise commit fraud on fees, licenses and export taxes.' It is in light of this statement that this review has been carried out. Research to date has highlighted the need for a Fully Integrated Certification System (F.I.C.S.) from the point of extraction to the point of import.

Introduction

The establishment of the certification system for Sierra Leone diamond exports following UNSC resolution 1306 has had several immediate results for the Government of Sierra Leone and the diamond industry in Sierra Leone. ‘Under the system only diamonds that are legally mined are allowed to be exported. Legally mined means that they come only from areas under GOSL control, and are the product of a chain of legally authorised transactions, from use of land, permission to mine, purchase by authorised dealers and agents, and export by licensed exporters.' (2) Most notably the revenue that is accrued to the GOSL has increased dramatically on the previous year. However this was not the principle reason for the implementation of UNSC 1306. The urgent need to cut off RUF revenue from their sales of diamonds, and also to protect the legitimate diamond industry of Sierra Leone are complicated and difficult tasks which require a systematic and coordinated approach from many governments, national and international agencies, companies and civil society organisations. Significant steps have been taken towards this goal. Sierra Leone and Angola are taking a lead in the development of an international certification system and being realistic one must expect there to be problems in the development of such a system. Global Witness carried out the research not to find faults but to constructively seek ways to strengthen controls against conflict diamonds.

It is important to remember that the effects of the civil war in Sierra Leone have been far reaching, and have severely affected capacity across many sectors. Despite this there is a clear will to address the issue of conflict and smuggled diamonds and it is positive to note the Presidential decision to create an inclusive GOSL cabinet task force on the issue of certification and conflict diamonds.(3)

1. Summary of Recommendations

Overall Global Witness has found the certification system to be working. Despite this there are some significant problems which need to be addressed so that the system is fully compliant with UNSC resolution 1306 and can be used as a model for the proposed international certification system for diamonds. Global Witness has several key recommendations.

Recommendations for the Sierra Leone Export System:

• Clarification in relation to the awarding of export licences and the export licence system.
• Effective monitoring by a government agency from the mine to the point of export.
• Increased capacity building and coordination between the Ministry of Mineral Resources, the GGDO, MMOs and the Bank of Sierra Leone.
• The establishment of a coordinated intelligence network to target diamond smuggling and smugglers.
• Publication of data on official exports on a regular basis. Publication of manual or handbook of information for exporters, dealers and miners. Implementation of anti-corruption programs.
• The capacity of all importing countries to be able to receive Sierra Leone diamond exports under UNSC 1306 needs to be brought into line with the resolution.
• An increase in the number of diamond experts at the point of import would also greatly improve the efficiency of the system.
• The importing authority to carry out routine examinations and valuations of diamond imports.

Recommendations to the Kimberley Process and the International Certification System:

• Consideration of F.I.C.S. system. Government oversight on all diamond production in all countries with diamond production.
• Independent diamond valuators to be appointed for all countries with diamond production.
• Creation of an independent conflict diamond experts panel to assist individual governments with identification of suspect stones.
• Publication of official export data on a regular basis for all diamond exporting and producing countries.
• Implementation of formal information exchange between governments relating to diamonds, particularly in relation to United Nations expert panel reports, investigations and sanctions regimes.

2. Ministry of Mineral Resources

The Ministry of Mineral Resources has responsibility for the implementation of the policy framework for the mining and export of diamonds. At present the awarding of export licences seems to be developing on an ad hoc basis with large numbers of exporters being grouped under single export licences .

This has already created an atmosphere of confusion, with a consistent lack of clarity over the number and status of licensed exporters. The result is that it greatly increases the challenges to tightly controlling the export sector. It also makes controls by importing authorities far more difficult. This is not to question the GOSL's apparent decision to try and use competition to develop the official diamond sector, and arguably it is having a beneficial impact on diamond prices. However the strength of the controls are being compromised by the confusion surrounding the plethora of entities able to export under the same licence. Currently some export licences act as an umbrella licence for three, five or even eighteen separate entities. However this situation can be easily rectified.

A key part of any successful control system are clear and centralised records. These were not apparent, although the Ministry Of Mineral Resources is beginning to develop computerised records. However the Ministry of Mineral Resources should also have a system for recording information and for building up a profile of exporters.

There is very little official information available within Sierra Leone about the production capacity and profile of the rebel held diamond fields, let alone about the government areas. The fact that the offices of the GGDO were ransacked in 1999 has not helped the situation, however there is a pool of historical records and of knowledgeable people which could produce a detailed record of diamond output. As well as being a very useful tool in combating conflict diamonds it would also have obvious commercial benefits for the government.

The Ministry of Mineral Resources main area of responsibility is the oversight of mining licences and of the national diamond market. There is a system in theory but in practice lack of infrastructure and capacity means that it is not able to play the role that it should be able to in countering conflict diamonds. A fully integrated system is needed in order to fully implement UNSC 1306 and to make the controls work effectively. One Ministry of Mineral Resources official noted "We believe the crux of the matter is [sic] the mining areas." Global Witness concurs with this. It is in fact self evident that unless the exporting Government can exercise detailed oversight over the whole system it is very difficult to fully authenticate the flow of diamonds from the export office and to authenticate any accompanying certification. This difficulty is increased in countries where diamonds are more homogenous than in Sierra Leone.

This system of monitoring is carried out by Mines Monitoring Officers (MMOs). However in practice this rarely occurs fully due to a number of factors. The principal of government oversight from the mine to the point of export is and will be an integral part of a successful international certification system and should be widely encouraged as part of the Kimberley process recommendations. Thoroughly implemented it would go a long way to ensuring that the legitimate diamond dealers are complying with UNSC resolution 1306.

The Chief Mines Monitoring Officer of Kenema and Bo districts sends a monthly typewritten report to the Ministry of Mineral Resources. The report is based on physical inspections of the diamond dealer's official record books. Although dealers are obliged to keep these historically it is standard industry practice to only record a small percentage of goods bought, mostly lower value diamonds. The MMO monthly report records the transactions of each diamond dealer and details the values and caratage of diamonds sold. A report is also made for sales in Freetown. However is not clear what facilities there are to analyse the data nor what happens to the information when it arrives at the Ministry. Again this situation can easily be addressed by international assistance to help build up the existing system. Detailed information on individual diamond buyers and dealers is integral to a system of control in order to spot fluctuations in the market relating to type, quality and size of goods. Likewise detailed information about mining licenses issued and the output of the mines are of great importance. Regional trends and variations can be observed so that early warning systems relating to conflict or illicit goods can be installed. Close monitoring of this system has the advantage of keeping a tight financial record of diamond dealers – another very important issue that relates to financial management.

There appears to be very little coordination between the Ministry of Mineral Resources and the MMOs. For a successful system of controls to be in operation it is imperative that all stakeholders are aware of developments and issues relating to their work.

MMOs are also stationed at the airports, however the monitoring system needs to be overhauled and improved. Global Witness was not able to establish whether there had been any actual arrests following searches at Hastings Airport, but were told that none had been made. Currently the checks are not providing an effective deterrent against smugglers of RUF diamonds.

Recommendations to the Ministry of Mineral Resources:

• The Ministry of Mineral Resources needs to develop clear written policy guidelines for the allocation of export licences.
• An export licence should only be held by one individual or company.
• The Ministry of Mineral Resources needs to produce a definitive record of individuals and companies that have paid for, and hold, an export licence. This record should be publicly available and should be updated on a regular basis.
• The Ministry of Mineral Resources needs to give more information to the MMOs to help them improve their monitoring capacity, and to generally improve the information flow between the head office and the regions.
• The Ministry of Mineral Resources needs to clarify its position over the un-receipted $400 'war effort tax' that numerous diamond dealers and exporters claim they are having to pay.
• A detailed profile of the capacity and production of the diamond fields needs to be developed.
• Increase the number of MMOs across the country.
• Increase the ability of MMOs to be able to communicate with each other through a networked radio system.
• Increase the ability of MMOs to be able to monitor mine sites. The donation or purchase of motorbikes and four wheel drive vehicles is recommended.
• A long term capacity building program should be implemented in relation to the financial reporting requirements.
• Conduct training in relation to the identification of regional difference of Sierra Leone's diamonds.
• Increase in the salaries to nationally competitive levels.
• Increase cooperation between the Sierra Leone national police and the MMOs to create a coordinated approach so that greater action can be taken against diamond smugglers.
• Clarification of MMO inspection procedure is required; Global Witness found that in some cases as many as five MMOs were signing off the books of individual diamond dealers leading to duplication of effort and suspicions of possible corruption.
• Implement effective search procedures at Sierra Leone's airports. Training and assistance could be offered by international customs organisations. There needs to be a strengthened system of oversight of the MMOs operating at the airports.

3. The Government Gold and Diamond Office – GGDO

The re-establishment of the GGDO as a functioning department is of considerable credit to the members of its staff and the GOSL. It is important to remember that this system has been operating since October 2000. In general the system is working however there are problems that need to be addressed.

As in any system of control it is vital that the correct procedures are adhered to otherwise the system will inevitably fail. Global Witness, which observed the valuation and preparation of a parcel for export, noted that although the process worked well there was a failure to ensure the presence of the customs official throughout the process and the customs seal was used when the officer was not present. This needs to be addressed.

Staff at the GGDO seem genuinely motivated to make the HRD designed system work. In February the GGDO started to include more information relating to the exports of specials. This was to enable the GGDO to build a profile of the goods and what exporters are doing. In terms of developing a monitoring system it is precisely these sort of actions that will be able to highlight anomalies and show up potential ways around the system. The system as designed did not incorporate any kind of timeframe alarm to alert the GGDO as to whether goods authorised and documented for export had actually arrived at their destination. When this issue was raised with the GGDO they agreed the importance of incorporating an automatic message alert. The data storage and retrieval system needs to be improved in order to handle large quantities of data and to be able to retrieve data efficiently.

As stated in the USAID-OTI report ‘the official GGDO valuator is responsible for identifying stones he believes originate from areas under rebel control. He has the expert knowledge of Sierra Leonean diamonds to do this, however this is a subjective judgement. There is no scientific test available at the present time to definitively determine the exact geographic origin of a diamond. The independent valuator also has the expert knowledge to identify the probable source of a Sierra Leonean diamond. He can validate a judgement of the Ministry of Mineral Resources valuator, or could make an identification not detected by the GGDO. The GOSL should confiscate conflict stones.' 2

During the valuation that Global Witness attended a suspect stone was discovered. Both the GGDO evaluator and the IDV agreed that it was a stone from the RUF held Kono diamond fields. The distinguishing features of the stone and its value were discussed and agreed at $200. It was noted that occasionally individual small stones are being allowed through that are believed to come from the Kono area. The reasoning given for this is that if dealers are penalised for including an occasional stone of a questionable, but not profitable, nature then dealers will simply continue to smuggle and will not use the new system. This is a good example of the real and practical difficulties facing those seeking to put a control system in place. It takes account of the commercial realities of needing to encourage as many dealers as possible to use a system that is very new, and where there is a well established culture of smuggling. However it does set a dangerous precedent. Global Witness would recommend that all such suspect stones should be confiscated and sold by auction. Funds generated should be used to develop infrastructure. In addition the data being collected by the GGDO on suspect goods should be developed into a formal information system to highlight problem traders and the GOSL needs to develop a policy to address this issue. There have been two cases of high value suspect diamonds being discovered by the GGDO and use was made of an informal network of experts to help identify the origin of the stones.

Recommendations to the GGDO:

• Clarify the existing policy regarding the inclusion of low value conflict diamonds in export parcels and develop guidelines to address this complex problem.
• Create and implement a clearly defined structure so that information can be retrieved speedily and upon request.
• Confiscate and auction all conflict diamonds discovered. Create an expert panel to assist with identification of suspect diamonds.
• Incorporate an automatic message alert for diamond exports to check they have arrived at their intended destination.
• Develop the existing information system to build data on traders submitting suspect goods for inspection.

4. Importing Governments

Global Witness has not yet carried out this part of the research, and will do so after its planned visit to Angola. Since October 2000 all Sierra Leone diamond exports must be accompanied by a Certificate of Origin. To date the following countries have received exports of diamonds from Sierra Leone under the certification system – Belgium, the UK, the USA and Israel. As highlighted by the recent OTI report a strict interpretation of UNSC Resolution 1306 means that, at present, only Belgium is appropriately equipped to handle the imports of these diamonds. Neither the US, the UK, India, or Israel (although they have requested information on it) have implemented an electronic link with the GGDO in Freetown in order to manage the electronic tracking system, digital photographs and integrated database. Hence as the USAID- OTI report notes "A strict interpretation of UN Resolution 1306 and the exemption granted for GOSL exports would provide that only importing authorities of countries that are willing to adopt the certification system, and be linked into an integrated database, can receive exports from Sierra Leone without violating UN Resolution 1306. That would imply that diamonds can only be consigned at the present time to an importer in Belgium as only Antwerp is linked to Freetown." Global Witness understands that a number of these countries are looking into ways to ensure that their imports systems will comply with UNSC Resolution 1306.

This does present a serious problem, however it should not be interpreted as a deliberate attempt to circumvent the embargo. It is important that importing governments play as active a role in combating conflict diamonds as that being played by producing countries.

Importing authorities could be far more proactive in monitoring and verifying the companies that are importing diamonds from countries that don't actually produce diamonds nor traditionally trade in them. A number of such countries have been identified by various UN expert panels. This would send an important message to those still involved in trading conflict and illicit diamonds that the importing side of the equation is being taken just as seriously as the exporting side of the equation.

The USAID-OTI report has noted ‘if the electronic tracking system is to be meaningful in collecting statistics, no transactions should be done outside of a linked system. This would mean that new countries that wish to join the system would have to agree to become part of an electronic loop, agree to acknowledge and exchange the information required by the system, and agree to return the confirmation slips to GGDO in Freetown.'

If the proposed international certification system is to rely upon electronic systems then it is recommended that major diamond importing countries begin this process as effectively as possible.

Recommendations to importing governments:

• Immediate linking by all countries importing Sierra Leone diamonds to the electronic system. Automatic confirmation of receipt of goods by importing countries.
• Increase number of diamond experts to inspect parcels.
• All parcels from countries subject to partial embargoes or with current certification systems should be closely inspected by the importing authorities.
• Importing authorities need to be more proactive in verification of parcels from sensitive countries, particularly those highlighted for concern by UN expert panel reports.

Conclusion

The purpose of the research was to try and understand how the system is working on a day to day basis, and to look at the strengths and weaknesses that any developing system will be subject to. This briefing document has sought to make recommendations to help the system develop and to strengthen it against conflict/illicit diamonds. It is hoped that this document will be of help in developing an effective international certification system.

It is clear that the Government of Sierra Leone, with considerable support from the governments of Belgium, the United Kingdom and the United States, is making serious efforts to implement UNSC resolution 1306 and to ensure that conflict diamonds are not being traded through the GOSL export channels.

List of people met in Sierra Leone

Government:

Freetown

- Minister Mohammed Dean Minister of Mines, Ministry of Mineral Resources
- Mr Foday Unkella Deputy Minister of Mines, Ministry of Mineral Resources
- Mr A R Bayo Permanent Secretary, Mines Division, Ministry of Mineral Resources
- Mr B. S. Koroma Deputy Secretary, Mines Division, Ministry of Mineral Resources
- Mr Alimamy R B Wurrie Director of Mines, Mines Division, Ministry of Mineral Resources
- Mr Usman Boie Kamara Deputy Director of Mines, Mines Division, Ministry of Mineral Resources
- Mr Lawrence Ndola -Myers General Manager, Government Gold and Diamond Office
- Mr Mohamed Bah Valuator, Government Gold and Diamond Office
- Mr Ernest Tucker Valuator, Government Gold and Diamond Office
- Mr Mohammed Issa Jallah Government Monitoring Official
- Mr Santos Kamera MMO, Hastings Airport
- Mr Hassan MMO, Hastings Airport

Bo

- Mr.Massaquoi Senior Mines Monitoring Officer, Bo district (moving to Kenema)
- Mr Dixon Rogers Chief Mines Monitoring Officer, Bo district (incoming)

Kenema

- Mr Steven M. Koroma Senior Mines Monitoring Officer, Eastern Region
- Mr Edward Sandy Assistant Director of Mines

Diplomatic and bilateral aid agencies:

Freetown

- Ambassador Joe Melrose United States Ambassador.
- Ms Terry Leary OTI Director, USAID
- Ms Julie Koenen-Grant Project Director, Management Systems International
- Mr Paul Slattery Senior Associate, Management Systems International

Non-governmental organisations:

Freetown

- Mr Abu Brima National Coordinator, Network Movement for Justice and Development.
- Mr Lansana Gberie Partnership Africa Canada
- Mr Hassan Barry President, United Mineworkers Union, and Chair of the Civil Society Movement
- Mr Ezekial Dyke Acting Secretary General of the United Mineworkers Union

Bo

- Mr Paul L.Koroma Network Movement for Justice and Development

Companies:

Freetown

- Mr Lempel Michel Independent Diamond Valuator, Zurel Bros. nv
- Mr Hussein Mackie President, H.Mackie, Inc. diamond exporter
- Mr Hassan Barrie Diamond Exporter
- Mr Hishan Mackie Diamond Exporter
- Mr Kassim M.Basma Diamond Exporter
- Mr Momodu Wurie Rapaport Corporation

Bo

- Mr Rodney Michael. Diamond dealer
- Mr Mohamed H.Shour Diamond dealer
- Mr Jihad Basma Diamond dealer
- Mr Willie Heilor Rapaport, diamond exporter
- Mr Isaad Talib Diamond dealer
- Mr M Kodami Diamond dealer
- Mr Wadhi Diamond dealer
- Various unofficial 'open eye' buyers

Kenema

- Alhaji Mohamed Kenda Sow Chairman, Diamond Dealers
- Alhaji Agibu Jabbie Regional Chairman - East African Diamond Dealers Association
- Alhaji Ahmed El Alie Diamond dealer
- Mr Jack Levy Diamond dealer and exporter, working for Valencia
- Mr.Sandembe/ Mr Amin Skaiky Exporter, working for Sima Stars

London

- Martyn Marriott Diamond consultant, Diamond Counsellor International

2 Sierra Leone: Conflict Diamonds Progress Report on Diamond Policy and Development Program. USAID-OTI. 30th March 2001. www.usaid.gov/hum_response/oti

3 The Cabinet Sub-committee on diamond exports is made up of the following Government Ministers: Minister of Finance – Chairman, Minister of Political and Parliamentary Affairs, Minister of Local Government and Rural Development, Minister of Information and Broadcasting and the Minister of Mineral Resources. Their terms of reference are to monitor all diamonds exports and to oversee the successful implementation of the UNSC Resolution 1306(2000) and report to Cabinet periodically