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. State control in particular focused on the following areas: licensing and record keeping requirements, procedures on dealing with precious metals, control system over the quality of sorting, classification and valuation of natural rough diamonds (further detailed in
Russia Federation KP Review Report –27 July - 03 August 2013 Page 8 Government Resolution No. 371), special procedure of customs control over imports and exports of precious metals and precious stones and articles made thereof.
b) Import/export in accordance with the KPCS Therefore, at the inception of the KPCS, the Russian Federation’s internal control system was already well regulated, and required few modifications. In 2003, Government Resolution No. 527 introduced the obligation that, as part of the existing state control over imports of rough diamonds into the territory of the Russian Federation, the presence of a KP Certificate is checked as a mandatory document for customs purposes. A mirror provision is to be found for exports in Government Resolution No 67, which sets out that all rough diamonds shipments exported from the territory of the Russian Federation must be accompanied with a Certificate which confirms that the shipments are of Russian origin and do not contain conflict diamonds.
The review team inquired why this legislation only foresaw the possibility of exporting diamond of Russian origin, and whether this requirement also applied to re-export of diamonds that are not of Russian origin. In a follow-up communication, the Russian KP focal point explained that this resolution was issued at the initial stage of implementing the KPCS and the wording ... “rough diamonds are of Russian origin and do not contain conflict diamonds” was introduced in order to allow for open data collection on Russian rough diamond production, which was classified information in pre-KP times. At the same time, the Russian KP focal point forwarded to the Team the Russian Finance Ministry’s Order No 60n, which was introduced on the legal basis of Government Resolution No. 67. This order gave empowerments to the Administrative Department (Vyazalov S.Yu.) and the Gokhran of Russia (Rybkin V.B.) to ensure compliance with the import/export requirements of the KPCS including the export of diamonds that were imported into the territory of the Russian Federation rather than mined in Russia.
c) Future economic integration
Russia Federation KP Review Report –27 July - 03 August 2013 Page 9 The Russian Federation informed the Review Team of possible future integration between the Republic of Belarus, Republic of Kazakhstan and the Russian Federation which may result in the three countries joining the KPCS as one body. This is not unprecedented as the European Union already participates in the KPCS as one participant, representing 28 countries. Belarus, Kazakhstan and the Russian Federation already form a customs union under the Eurasian Economic Community (EEC) and since Kazakhstan joined the KPCS in 2012, all three countries are KPCS participants. Pursuant to Decision No. 19 the EEC Interstate Council (the Superior Body of the Customs Union) of 2009 “until the Customs Union between the Republic of Belarus, Republic of Kazakhstan and Russian Federation as a regional economic integration organization joins the international Certification Scheme for rough diamonds, diamonds *…+ are moved across the state *…+ with due consideration for the requirements of the international Certification Scheme for rough diamonds.”
At the review team’s inquiry Ministry of Finance Officials confirmed that for the time being, in spite of the customs union, KPCS checks continue to be performed at the borders of these countries. The ordinary mailing of precious stones across state borders in the Customs Union is prohibited. At the same time, the legislative framework governing the movement of precious stones in/out of the Customs Union in accordance with KPCS minimum requirements is already in place and is regulated in detail (Decision of the EEC Body No. 134).
d) Penalties in accordance with Section IV In accordance with point (d) of Sections IV of the KP core document, Participants should “*…+ maintain dissuasive and proportional penalties for transgressions.
Penalties for shipments without KP certificate In case a shipment without a certificate is being imported into the customs territory, or it is being imported with any violations of the requirements of the KPCS, “the state control report notes on the necessity of returning the shipment to the state of import,” pursuant to Decision of the EEC Body No. 134. The report of the last KP review visit in 2005 contained a recommendation for the Russian Federation to
Russia Federation KP Review Report –27 July - 03 August 2013 Page 10 amend its legislation to enact more stringent penalties, for instance by providing for the seizure of the shipment.
When this issue was raised, Ministry of Finance representatives admitted that no such amendment was made. In their interpretation of the international obligations under the KPCS, since the state control checking the existence of a certificate happens before the customs checks, in the absence of a certificate they cannot let the shipment enter the customs territory of the Russian Federation; hence the shipment must be returned. The costs of the return are imposed on the importer.
The review team noted that returning the shipment as a punishment might not be sufficiently dissuasive, even though this act does ensure the absence of conflict diamonds in the Russian Federation, so the KPCS minimum requirements are met. At the same time, the penalty might not be effectively dissuasive since the shipment is returned to the sender without any additional penalty (apart from having to cover the costs of return), which in fact does not prevent the criminals from trying to import again to another Participant. In addition, there appears to be a discrepancy when incomplete certificates are penalised more stringently that the complete absence of certificates (see below).
e) Penalties on shipments with expired KP certificate Russian customs representatives confirmed that a certificate with an expiry date that has passed qualifies as no certificate, thus the shipment will be returned in this case as well.
f) Penalties for illegal shipments In terms of dealing with shipments from suspended KP participants, such as Cote d’Ivoire, Venezuela, and the Central African Republic, the Russian representatives noted certain issues with giving legal effect to KP Administrative Decisions that do not have a legal basis in United Nations Resolutions (such as CAR, Venezuela), as opposed to those that do have a UN basis (Cote d’Ivoire). In any event, any potential shipments from all of these countries are equally detained.
Russia Federation KP Review Report –27 July - 03 August 2013 Page 11 g) Penalties on shipments with incomplete KP certificate When diamond shipments arrive with a certificate that is incomplete, customs will examine the irregularities and apply the appropriate customs procedures and penalties; these can be fines, or even imprisonment. Following the review visit, the Russian Federation provided the Review Team excerpts from their administrative offence code and criminal code where examples of such penalties are specified. Under administrative rules, for “non-observance of the measures established by the international treaties of the member states of the Customs union”, non-declaration or misleading declaration of goods, presentation of invalid documents during the performance of customs operations, forging documents, stamps, seals or forms, varying administrative fines are imposed (ranging from 1500 to 300 000 RUB = 50 – 10 000 USD) together with the confiscation of the goods and the documents. The penalties are more stringent for officials than for citizens. Under criminal rules, forgery of documents can lead to up to two years’ prison sentence, while knowingly using a forged document may lead to up to two years’ corrective labour.
3.4. Production
Russia Federation KP Review Report –27 July - 03 August 2013 Page 12 Almost all of the Russian Federation diamond production is by ALROSA and mined predominantly in the Sakha Republic (Yakutia). The review team visited diamond mining and processing facilities in Mirny and Nakyn field. Production is from kimberlite pipes and smaller alluvial deposits. The mine site visits were to Internatsionalny mine in Mirny (open cast mining has stopped and is now underground mining) and Nyurba mine in Nakyn field (open cast mining). At the underground Internatsionalny mine the team met with relevant mine management and was briefed on the mining operation and methods of ore extraction. After a short safety briefing, the review team descended 1000 m deep to witness the underground mining activities, from technical equipment, maintenance areas to mining excavation areas. The team was informed that the capacity of the mine is 500,000 tons per annum and the life span is estimated to be up until the year 2020.
The team visited both of these mines ore processing plants. Plant 16 in Nakyn field was undergoing maintenance and as such the team was unable to witness the plant in operation and see the final stage of diamond extraction. The team however did witness the process in action at Plant 3 in Mirny. Access to the plant is monitored by strict access points and CCTV surveillance. Operations occur in shifts and security
Russia Federation KP Review Report –27 July - 03 August 2013 Page 13 searches are mandatory for all employees. Extraction of diamonds takes place in sorting glove boxes. These glove boxes are controlled by unique seals and each has a seal number. At the end of each shift the diamonds are removed from the glove box that is contained in sealed containers.
The container is weighed and the weight recorded. The sealed container is then placed in a secure safe. At the point of movement from the processing plant to DSC the containers are removed from the safe and placed into carrier cases that are sealed. These cases are then moved to the DSC (by a contracted security firm) for sorting and preliminary valuation accompanied by extensive paper work to maintain an audit trail of the diamonds extracted. As a result of these controls, protection of these diamonds is ensured.
3.5. Controls
3.5.1. Procedures in place at industry level
The integrity and compliance to the KP requirements was verified through visual inspection by means of field visits to Mirny and Nakyn field mining and recovery facilities, a visit and presentation at the Diamond Sorting Centre in Mirny, as well as during meetings held with Gokhran, the Ministry of Finance and Spicialized Customs Post in Moscow. A visual inspection of the United Selling Organisation allowed the
Russia Federation KP Review Report –27 July - 03 August 2013 Page 14 review team to witness and pose questions on the control and monitoring systems in use in the Russian federation. A brief review of each is highlighted below.
3.5.1.1. Verification of the movement of goods from the Source to Export
a) Processing plants:
Processing methods used at ALROSA plants include autogenous milling, dense media separation (DMS), spiral concentration, pneumatic flotation and X-ray luminescence separation. Diamonds are extracted in the final stage of recovery in a secure processing plant. Strict accounting rules are followed on all movement of ore, concentrates and rough diamonds. Strict security control access and monitoring ensures equipment and sorting glove boxes are not tampered with. Machines are cleaned and glove boxes are checked before the start of a new shift. Diamonds extracted are contained in sealed containers which are weighed and all information is recorded in a log book and placed in a safe until transfer. Upon transfer from the plant to Mirny these diamonds are then placed into carrier cases which are also sealed in order to be transported to the Diamond Sorting centre (DSC) in Mirny. A contracted company is used for the transportation of these goods. This process is the same at all processing plant.
b) The Diamond Sorting Centre (hereafter referred to as DSC):
Rough diamonds, after processing, at ore treatment plants are sent to Mirny. At the DSC the diamonds undergo preliminary sorting and valuation prior to delivery to Moscow’s United Selling Organisation (USO) or to Yakutsk to the Yakutsk Diamond
Russia Federation KP Review Report –27 July - 03 August 2013 Page 15
Trading Enterprise (YaPTA). The movement and tracking of diamond production is computerised. Acceptance of these diamonds and all technological operations are logged and tracked in a computer database. The review team was given a presentation on the flow of goods and was able to verify the preliminary sorting and valuation in process as well as witness a State Controller verifying the various classified goods. Implementation of State control is administered by Gokhran. There are two State controllers permanently working in Mirny to administer and implement control at any time.
c) United Selling Organisation (hereafter referred to as USO):
The visit to witness the process of receiving of goods from Mirny, all diamond handling, sorting and finally the box preparation for sale, gave the review team an in- depth understanding of the complex system of diamond classification and control. USO prepares for sales mainly under long term agreements, to a lesser extent for sales by tender or spot sales. The USO is equipped with the most advance technology and equipment to facilitate the maximum benefit of determining a value for their product. The valuation is based on the Ministry of Finance price book; in the practice, ALROSA, Gokhran and the State jointly agree on the price. Safety and control of the product was witnessed at the highest level. Employees were to be subjected to collective responsibility if a rough diamond went missing, although apparently it never happened. At all stages from the receipt of the bagged and sealed box in the receiving area through to the sorting and the eventual box preparation for sale, the
Russia Federation KP Review Report –27 July - 03 August 2013 Page 16 diamonds are tracked and strictly controlled. The activities are constantly checked by State Controllers; the containers are sealed jointly by a representative of USO and a representative of state. A fully automated accounting system is in place to record and track the movement of rough diamonds.
3.5.2. Import and export procedures and regime
In order to fulfil the mandate of the review visit, the processes of import and export of unpolished diamonds needed to be verified. In order to witness this procedure, the review team visited the secure premises of the Centre of Precious Metals and Precious Stones registration (a specialised customs station at Smolnaya Street, nr 12) in order to witness the operational work of customs authorities and state control on the process of clearing shipments for import and export. A detailed account of each activity was given by state control, customs representatives and members of staff as the team was walked through each stage.
3.5.2.1. Outgoing rough diamond shipments (Exports)
Russia Federation KP Review Report –27 July - 03 August 2013 Page 17 The premises are divided into two sections namely Administration and the Registration. During the registration the documents are prepared, the customs declaration of imports and exports and all the supporting documents are registered in the system. A check list is issued to verify that all the required documents are attached.
The State Controller also plays a role in the registration of the imports and exports. Licensees with intent to export are required to submit a KPC declaration attesting that the diamonds have been sourced through the legal sources and that they are conflict free. Documents that confirm the origin of the diamonds are also required.
a) Control of KP Certificates The Russian federation ensures that a KP Certificate accompanies each shipment of rough diamonds on export. The KP certificate contains eighteen (18) degrees of protection at the polygraphic level; it expires within 30 days. All rough diamond exporters need to hold licenses as well as registration certificates of the Russian State Assay Chamber.
The KP certificate is filled and issued from one centralised place only, at the specialised customs station in Moscow, in order to execute state control over the customs clearance of rough diamond shipments. Processes and records were verified to ensure this process is evident.
b) Point of Export
All documentation proving either that the diamonds were mined in the Russian Federation or imported with a valid KP certificate must accompany the intended shipment for export. The State Controller of the Ministry of Finance does the process control by conducting a physical inspection on every shipment and a state control report is generated by the State Controller. A KP certificate is then issued, which is presented at the Customs.
The parcel intended for export is sealed jointly by state control and the owner’s representative and placed into a tamperproof container which is a special transparent plastic package. The original KP certificate and its copy are placed into the container. An
Russia Federation KP Review Report –27 July - 03 August 2013 Page 18 authenticated copy of the KP certificate forms part of the shipping documentation. The KP certificate number is indicated on each container and in the shipping documents.
The Gokhran of Russia transmits a detailed e-mail message to the relevant Importing Authority of the country of destination. This notification will only include the KP certificate number and date of issuance to ensure confidentiality. All export of shipments is electronically captured. Copies of the original KPC issued are scanned and archived electronically for future references.
The process of rough diamond exports is completed upon the receipt of the import confirmation coupon. These coupons are registered electronically and filed into the set of documents pertaining to the specific export. The review team requested to see the return coupons of some exports and these were gladly provided.
All details of unpolished diamond shipments are recorded in a computerised database.
Verification as well as visual inspection by the review team of the KP certificate was found to meet all the requirements as set out in Section II (c) and Annex 1 of the KPCS document.
Details of current signatories and stamps have been circulated to all participants through the KP Chair and an updated specimen certificate is present.
The Russian Federation complies with the relevant recommendations of Annex II of the KP Core Document.
3.5.2.2. Incoming rough diamond shipments (Imports)
The Russian Federation’s specialized customs checkpoint in Moscow is the only point of entry for all incoming rough diamond shipments.
It is at this facility where state controllers of the Ministry of Finance check the KP certificates. They check for authenticity and carry out procedures of state control.
A visual comparison is done between the certificates accompanying the shipment with the specimen available. If required, further comparison is be done by means of
Russia Federation KP Review Report –27 July - 03 August 2013 Page 19 instrumentation, and also by verifying that the data declared on the certificate matches the information received via e-mail.
Only shipments of rough diamonds arriving from KP participant countries in tamperproof containers are allowed for customs clearance. All shipping documents and KP certificate must be present. The Importing Authority inspects the shipment of rough diamonds to verify that the seals and the container have not been tampered with.
Once all procedures as well as state control have been completed, an advance e-mail is sent to the relevant Authority of the exporting country stating that the rough import has been registered in compliance with the KPCS requirements.
The Gokhran of Russia opens and sorts all incoming rough diamond shipments in compliance with the grading system accepted in the Russian Federation. After all sorting and valuation is done, a detachable import confirmation coupon is filled in by an official of Gokhran, certified with appropriate signatures and stamps and returned to the relevant Export Authority.
All certificate originals are safely kept in the vault of Gokhran of Russia and all data pertaining to the import certificate is recorded on a computerised database. Access to the certificates has to be authorized by the head of state control service or an authorized person of the Kimberley Process in the Russian federation.
While polished diamonds are outside of the mandate of the KPCS, it is worth mentioning that Gokhran is also informed of the volume of rough diamonds sold to be manufactured. On the basis of this information a precalculation would be made which helps to keep track of the amount of diamonds polished from diamonds mined in the Russian Federation.
a) Controls on non-compliant Imports
In terms of Resolution 2005 No. 335 section 15 subsection (c) of the government regulations of the administrative department, if a certificate is not fully completed, attached or non-compliant, the corresponding customs procedures and measures would be put in place. The corresponding sanctions are implemented on non-compliant
Russia Federation KP Review Report –27 July - 03 August 2013 Page 20 shipments which are then returned back to the exporter. For more information on sanctions see chapter 3.3. Legal Framework.
3.5.3. Concerns raised by the Russian Federation
The sending of a confirmation receipt to the relevant Exporting Authority is a requirement of import regime. The Russian Federation brought to the teams’ attention that not all countries to which the Russian Federation exports its goods fulfil this requirement. In addition, it was mentioned that they send advance notifications of exports as per Recommendation 19 of the KP Core Document and they would encourage more KP Participants to have the same practice.
3.6. System of Internal Controls and Industry Self-Regulation
Section IV of the KPCS states that: “Participants understand that a voluntary system of industry self-regulation will provide for a system of warranties underpinned through verification by independent auditors of individual companies and supported by internal penalties set by industry, which will help to facilitate the full traceability of rough diamond transactions by government authorities”.
In the Russian Federation when rough diamonds are presented for state control at export, the owner needs to produce a written guarantee that the diamonds being exported are not conflict diamonds.
The state control system also exercises control at mine sites, sorting and valuation, transportation, handling and storage and till the shipments leave the territory of the Russian Federation. All rough diamond movements are traced and recorded.
3.7. Statistics:
The statistics for 2011 and 2012 are all submitted to the Chair of the WGS and posted on the official KP web-site and the website of the Ministry of Finance of the RF within the set terms.
Russia Federation KP Review Report –27 July - 03 August 2013 Page 21 Annual Rough Diamonds Statistics Summary: 2011
Description Volume (cts) Value (USD) USD /ct
Production 35,139,800.00 $ 2,674,713,800.00 $ 76.12
Import 154,080.59 $ 69,852,398.36 $ 453.35
Export 32,346,947.52 $ 3,811,238,484.46 $ 177.82
Annual Rough Diamonds Statistics Summary: 2012
Description Volume (cts) Value (USD) USD /ct
Production 34,927,650.00 $ 2,873,728,990.00 $ 82.28
Import 141,430.72 $ 151,158,859.31 $ 1,068.78
Export 29,805,240.93 $ 29,805,240.93 $ 130.77
4. Best Practices:
The following Best Practices were identified by the Review Team:
a. The Russian Federation recognises that it is of paramount importance that, given the large production capacity of the Russian Federation, the mining, extraction, movement and trade of these rough diamonds is efficiently monitored. The Russian Federation has established internal systems of control designed to eliminate the presence of conflict diamonds.
Russia Federation KP Review Report –27 July - 03 August 2013 Page 22 b. This process is evident throughout their diamond pipeline of producing, exporting and importing rough diamonds within the Russian Federation. They ensure that clients and consumers can be confident that ethical, social and environmental standards have been met in the production of Russian Federation diamonds.
c. All employees that the Review Team met with are trained and supported to ensure that they work consistently in an ethical, honest and legal manner.
d. Openness and transparency was noticed in all spheres of the review. Further explanation and supporting documentation were readily made available upon request.
5. Conclusion:
A week of field visits, tours, presentations and walk through of all processes left the Review Team exhausted but inspired. The Diamond supply chain of the Russian Federation can serve as an example to all other KP participants. Based on excellent legislative guidelines, safe and secure mining, processing and sorting facilities coupled with a strong system of controls for regulation, the Review Team found the Russian Federation to be fully compliant and exceeds the minimum requirements of the Kimberley Process Certification Scheme.
In many respects the Russian legislation, based on a framework that was already well regulated before the inception of the KPCS, goes beyond KP minimum requirements. It is a good example of well-coordinated legislation covering all aspects of rough diamond trade, although the parts referring to obligations under the KPCS are scattered in many various documents which might make interpretation cumbersome. It was useful and interesting for the Team to receive update on the planned participation of the Russian Federation together with Belarus and Kazakstan as a regional economic integration, and the legal framework seems to be already in place to make this possible.
The Review team should note that the Russian Federation did not implement the recommendation of the previous review visit on imposing stronger penalties for
Russia Federation KP Review Report –27 July - 03 August 2013 Page 23 shipments without a certificate, although the current practice of returning the shipment complies with KPCS minimum requirements. Nevertheless, it would be more dissuasive for importers to face fine, confiscation, or other penalties when attempting an import without a certificate, and confiscation would prevent them from attempting re-import into another KP Participant. It would be more proportionate if the lack of certificate implied a penalty that is just as stringent as what would be imposed for incomplete and forged certificates; especially since these latter aspects are very well regulated and effectively harsh to be good examples of sufficiently dissuasive penalties.
Taking into full consideration that the trade in conflict diamonds is a matter of international concern, the Review Team is satisfied that the Russian Federation is playing its part and is doing due diligence through its high standards of business practices.
Russia Federation KP Review Report –27 July - 03 August 2013 Page 24 6. Annexures
Annexure 1
Programme of the 2013 Kimberley Process Review Visit to the Russian Federation (28 July – 2 August 2013)
Date Event Time Expert group
26-27 July Arrival in Moscow South Africa 2013 (Chair RV)
Day 28 July Departure from Domodedovo airport for Mirny 21.20 1. Levy Rapoo 1 2013 2. Michael Muirhead
Day 29 July Arrival to Mirny, check in at Zarnitsa hotel 08.30 – 09.30 3. Jacobeth 2 2013 Moloisane Departure for “Internatsionalny” underground mine, arrival 9.30 – 10.00
Meeting with mine administration, change of clothes, briefing 10.00 – 11.00 Angola Descent to a horizon, review of underground technical 11.00 – 13.30 equipment and work of miners 1. Estanislau Buio Ascent, change of clothes, lunch 13.30 – 15.00 2. Jose Departure for the Diamond Sorting Centre (DSC), arrival 15.00 – 15.30 Chivangulula Malanga Visit to the DSC, review of a production area. Presentation by a 15.30 – 17.00 representative of the state control authority in Mirny
Review of Mir mine from the viewing point 17.30 – 18.00 Botswana
Departure for the hotel 18.00 1. Tebogo Selaelo Meeting with Igor Sobolev, ALROSA First Vice-President – 18.30 – 19.00 Executive Director European Lunch in the hotel 19.00 – 20.00 Union
1. Marianna Kondas Day 30 July Departure for airport, flight to the Nakyn field , Mi-8 helicopter 09.30 – 10.00
3 2013 Arrival at Nakyn, review of the Nyurba mine form the viewing 12.00 – 13.00 World Diamond point Council
Lunch 13.00 – 14.00 1. Mark Van Bockstael Visit to the Plant No.16 (processing facility), review of the 14.00 – 16.30 finishing department
Total: 8 Departure for Mirny, arrival 17.00 – 19.00
Russia Federation KP Review Report –27 July - 03 August 2013 Page 25
Visit to the Plant No.3 (processing facility), review of the 19.00-20.30 members finishing department
Arrival at the hotel, dinner 21.00 – 22.00
Day 31 July Departure for airport, check-in 08.00 4 2013 Flight to Moscow 09.40
Arrival at Domodedovo Airport 09.35 (Moscow time)
Check in at the hotel
Lunch
Visit to the ALROSA United Selling Organisation (USO) (sorting, 15:00 – 17:00 export operations, internal market operations)
Lunch 19:00 – 21:00
Day 1 August Meeting with the representatives from Ministry of Finance, 9:00 – 11:00 5 2013, AM Ministry of Industry and Trade of the Russian Federation half day (Minpromtorg of Russia), Ministry of Foreign Affairs, State Depository for Precious Metals and Gems (Gokhran), Assay Office (the Ministry of Finance building).
Review of the legislation of the Russian Federation with regard to the implementation of the KPCS, procedure for approval and certification of rough diamonds export.
Lunch 11:30 – 13:00
Presentation of the system of state control and control 14:00 – 15:00 operations with natural diamonds (State Depository for Precious
Metals and Gems(Gohkran), maintenance of statistical database
of export and import of rough diamonds (State Depository for 1 August Precious Metals and Gems(Gohkran); 2013, PM half day
Review of the procedures of state control over the quality of 15:00 – 16:00 sorting and evaluation of rough diamonds (State Depository for Precious Metals and Gems(Gohkran);
Russia Federation KP Review Report –27 July - 03 August 2013 Page 26
Dinner Personal programme
Day 2 August Visit to the centre of precious metals and precious stones 8:30 – 9:00 6 2013, AM registration (specialized customs station, Smolnaya St., 12) half day
Review of the work of customs authorities, the state control of 9:30 – 10:30 the Ministry of Finance on registration form of import / export of rough diamonds (Smolnaya St., 12)
Review of the production of diamonds (“BRILLIANTY ALROSA”) 11:00 – 12:00
Lunch 12:00 – 13:00
Visit to “The Diamond Treasury” exhibition in the Kremlin 14:00 – 16:00
Dinner 19:00 – 21:00
Day Departure from Moscow 7
Annexure 2
List of Documents provided to the Review Team
Type of Document Document Presentations ! Presentation on State Control System of Precious Stones Circulation by Gokhran of Russia
Legislation ! Russian Federation Administrative Offences and Criminal Codes ! Order of the Ministry of Finance of the Russian Delegation ! Legislation for rough Diamonds ! Resolution of the Government of the Russian Federation of June30, 2004 No. 329 “On the Ministry of Finance of Russian Federation”(as amended.
Reports ! Russian Federation Annual Report for the Year 2012 ! ALROSA Annual Report for the Year 2012
Additional ! ALROSA Guide to the Company Information
Russia Federation KP Review Report –27 July - 03 August 2013 Page 27