27 July – 03 August 2013 Kimberley Process Review Visit Report to the Russian
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KIMBERLEY PROCESS REVIEW VISIT REPORT TO THE RUSSIAN FEDERATION 27TH JULY – 03RD AUGUST 2013 Russia Federation KP Review Report –27 July - 03 August 2013 Page 1 Members of the Review Visit Team Team Leader: 1. South Africa represented by Mr. Levy Rapoo Mr. Michael Muirhead Ms. Jacobeth Moloisane South African Diamond and Precious Metals Regulator Members: 2. Angola represented by Mr. Estanislau Buio Mr. Jose C Malanga Ministry of Geology and Mine 3. Botswana represented by Ms. Tebogo Selaelo, Ministry of Minerals, Energy and Water Resources 4. European Union represented by Ms. Marianna Kondas European Commission 5. World Diamond Council represented by Mr. Mark Van Bockstael Antwerp World Diamond Centre (AWDC) Russia Federation KP Review Report –27 July - 03 August 2013 Page 2 Table of contents 1. Introduction 2. Context of the visit 3. Main findings 3.1. Key role players involved in the implementation of the KPCS in the Russian Federation 3.2. Institutional Framework 3.3. Legal Framework / Laws and Regulations in place 3.4. Production 3.5. Controls 3.5.1. Procedures in place at industry level 3.5.1.1. Verification of the movement of goods from the Source to Export (Processing Plants, Diamond Sorting Centre, United Selling Organisation) 3.5.2. Import and Export procedures and regime - 3.5.2.1. Outgoing Rough diamond shipments (Control of KP Certificates, Point of export) - 3.5.2.2.Incoming Rough diamond shipments (Controls on non- Compliant Imports) 3.5.3. Concerns raised by the Russian Federation 3.6. System on Internal Controls and Industry Self-Regulation 3.7. Statistics 4. Best Practices 5. Conclusion 6. Annexures 6.1. Review Visit Programme 6.2. List of documents provided Russia Federation KP Review Report –27 July - 03 August 2013 Page 3 1. Introduction The Russian Federation (RF) is the largest diamond producing country in the world by carats with production estimated to be over 33 million carats in 2013. Joint Stock Company ALROSA accounts for approximately 99% of all Russian production. Russia mined 16.08 million carats of rough diamonds worth $1360 million in the first half of 2012 with annual production reaching some 34.92 million carats worth over $2 billion. The Russian Federation accounts for approximately 21% of the world’s global diamond production. The majority of all mining activities are done in the Sakha Republic (Yakutia) in Siberia, just below the Arctic Circle. These mines are located in some the most inaccessible and inhospitable places on planet earth. Sub-freezing temperatures and near-total darkness during winter months are common. 2 Context of the visit The review visit was conducted during the period of 27th July 2013 to 03rd August 2013 and the purpose was to witness, test and veriFy that the RF is still in compliance with the minimum standards of the KPCS. This review visit was based on the standard terms of reference for review visits contained in Annex II of the Administrative Decision on KPCS Peer Review System, taking also into consideration the provisions of section VI, paragraph 14 of the KPCS. At the start of the review visit in Moscow, the team was met by representatives from Ministry of Finance, Gokhran of Russia and ALROSA who accompanied the team on a visit to Mirny, a mining town in the Sakha Republic (Yakutia). This was an opportunity for the team to visit the Internatsionalny underground mine and the Nyurba mine in the Nakyn field (open cast mining). The team also viewed the Diamond Sorting Centre (DSC) in Mirny which is the central gathering point of all diamonds for ALROSA and subsidiary companies. A presentation Russia Federation KP Review Report –27 July - 03 August 2013 Page 4 from one of the state controllers from Gokhran allowed the team to follow the diamond handling route through from mining, sorting and preliminary valuation stages to export to Moscow. ALROSA and Gokhran are the only two organisations certified to sort diamonds in the RF. The state control is exercised by Gokhran whose role is to control the movement of diamonds by certifying the diamonds received for acceptance. This includes the physical veriFication and checking of parcels and a certificate is issued at the stage of acceptance and upon export. Visitation to two processing Facilities was arranged (Plant 16 at Nakyn field and Plant 3 in Mirny) which is fully automated and has been in operation since the year 2003. The visit gave insight from the starting point of ore processing through to final extraction of diamonds for transportation to Mirny DSC. The team also visited the ALROSA United Selling Organisation (USO) and had a detailed walk through of all diamond handling, sorting and sales departments. The USO is the key role player in the receiving of goods from the DSC in Mirny after they have undergone the process of preliminary sorting by size, classifications into assortment and getting the insurance value through and packaging these goods into sales boxes for export to respective clients. The sorting and the preliminary classification and valuation used is in line with the valuation of the Ministry of Finance. The team engaged with representatives from all ministries involved in the implementation of the KPCS regarding the legislation pertaining to the governing and administration of diamond movement within the RF. There were also consultations with customs authorities. All key players involved in the KPCS were met with and physical inspection and veriFication was conducted at all parts of the process. The team requested electronic Russia Federation KP Review Report –27 July - 03 August 2013 Page 5 and hard copies of relevant documents or other forms of records where deemed necessary. 3 Main Findings: The Team has been able to conclude the following main findings as to the compliance of the Russian Federation with the minimum requirements of the Kimberley Process Certification Scheme. 3.1. Key role players involved in the implementation of the KPCS in the RussIan Federation • Designated implementing authority 3.2. Institutional Framework ! Status and functIon of the designated implementing authority Russia Federation KP Review Report –27 July - 03 August 2013 Page 6 In accordance with the Russian Federation Government Regulation No.329 approving the Statute on the Ministry of Finance of the Russian Federation, the Ministry of Finance of the Russian Federation is the mandated authority for the implementation of the Kimberley Process Certification Scheme. The KPCS requirements are fulfilled in coordination with the Ministry of Foreign AFFairs of the Russian Federation, the Ministry of Industry and Trade of the Russian Federation and the Federal Customs Service of the Russian Federation. The Administrative Department of the Ministry of Finance and Gokhran of Russia are the executive, organisational and technical structures. ! Implementation of the CertIficatIon Scheme and KP certIficate Gokhran, the State Precious Metals and Gems Repository, is a state institution under the Ministry of Finance. It is responsible for the purchase, storage, sale, and use of precious metals, precious stones, jewellery, rocks and minerals by the State Fund. It is also responsible for all issues which concern preparation of statistical data of the Russian Federation for the Kimberley Process and ensuring that the requirements of the KPCS at rough diamonds exports and imports are met. The KP certificates of the RF are safely kept at Gokhran and are only released in small batches to the issuing office at the centralised import and export point. The Gokhran of Russia is also responsible for the checking of compliance of all imports and exports in the process of conducting a state quality control on all sorting, valuation and sale of diamonds. The review team received detailed documentation outlying how state control is executed and enForced in the form of hard and soft copies. These documents explain the stages of state control from mining through to sales. All information received was aligned and corresponded to the oral presentations and communication. Russia Federation KP Review Report –27 July - 03 August 2013 Page 7 3.3. Legal Framework / Laws and Regulations in place The review team met with representatives from the Ministry of Finance, the Ministry of Industry and Trade of the Russian Federation (Minpromtorg of Russia), the Ministry of Foreign AfFairs, and the State Depository for Precious Metals and gems (Gokhran). A review of the legislation of the Russian federation was presented by means of presentations by representatives of each department regarding the implementation of the KPCS and procedures for the approval and certification of rough diamond exports. The team was informed that hard copies of the detailed data on rough diamond imports and exports are kept for a period of five years. Electronic data has been stored since the inception of the KPCS. The team was presented with hard copies of the regulations which all correspond with the presentations given. The Russian legislation applicable to rough diamond production and trade is a complex body of legal texts, most of which existed prior to the inception of the KPCS; the Russian Federation being a major diamond producer already in pre-KP times, it enacted various pieces of legislation to ensure that precious metal extraction, production and circulation is carried out under strict state control. This chapter only focuses on the provisions and issues that are relevant from the KPCS point of view. a) Basic legislation The core legal text, Federal Law No.41-ФЗ established in 1998 the legal basis for regulating the relations in the field of geological exploration and prospecting of deposits of precious metals and precious stones, their extraction, production, utilization and circulation, etc. It set up the scope of state monopoly, established the Framework of state regulation and the role of governmental authorities, and regulated the precious metals and precious stones market.