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RAPAPORT... The U.S. Customs and Border Protection (CBP) proposed amended regulations regarding U.S. rough diamonds imports pursuant to the Clean Diamond Act of 2003, and the Rough Diamonds Control Regulations (RDCR) issued by the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury. CBP believes that it is appropriate to restate certain entry, export, and record-keeping requirements for clarity and to ensure rough diamond imports are properly controlled by the Kimberley Process Certification Scheme. Public comment on these proposed changes, all of which follow in the paragraphs ahead, must be received on or before October 15, 2012, either through the Federal eRulemaking Portal (www.regulations.gov) or by regular mail to: Trade and Commercial Regulations Branch, Regulations and Rulings, Office of International Trade, Customs and Border Protection, 799 9th Street NW., 5th Floor, Washington, DC 20229-1179. The RDCR requires anyone importing a shipment of rough diamonds to have the original Kimberley Process certificate at the time of importation and to present upon demand from the CBP. The RDCR also requires the consignee to retain the original certificate for at least five years from the date of importation and to present upon demand. CBP restates these requirements in a new SEC 12.152 of the regulations and to explicitly incorporate the record-keeping requirements that are only implicitly included in the RDCR, according to its filing. CBP proposes amending the regulations to clarify that the Kimberley Process certificate is an entry record that must be maintained for a period of at least five years from the date of importation. Accordingly, the importer must make a copy of the Kimberley Process certificate available for examination upon CBP request during that time period. CBP also proposes to specifically add the Kimberley Process certificate in its interim (a)(1)(A) list in section IV of the appendix to part 163 of title 19 of the Code of Federal Regulations (19 CFR), and to require any U.S. resident exporting from the U.S. to retain a copy of the Kimberley Process certificate accompanying each shipment for a period of at least five years for examination upon request. The following supplementary information was provided by the CBP: Interested persons are invited to participate in this rulemaking by submitting written data, views, or arguments on all aspects of the proposed rule. CBP also invites comments that relate to the economic, environmental, or federalism effects that might result from this proposed rulemaking. Comments that will provide the most assistance to CBP will reference a specific portion of the proposed rulemaking, explain the reason for any recommended change, and include data, information, or authority that support such recommended change. Background I. Purpose In response to the role played by the illicit trade in diamonds in fueling conflict and human rights violations in certain areas of the world, and to differentiate between the trade in conflict diamonds and the trade in legitimate diamonds, the United States and numerous other countries announced in the Interlaken Declaration of November 5, 2002, the launch of the Kimberley Process Certification Scheme (KPCS) for rough diamonds. Under the KPCS, participating countries prohibit the importation of rough diamonds from, or the exportation of rough diamonds to, a non-participant and require that shipments of rough diamonds from or to a participating country be controlled through the KPCS. The U.S. Secretary of State is responsible for providing an up-to-date listing of all participants in the KPCS. The most recent listing of participants was published in the Federal Register (73 FR 80506) on December 31, 2008. II. Clean Diamond Act and Executive Order The Clean Diamond Trade Act (the Act), Public Law 108-19, 117 Stat. 631 (19 U.S.C. 3901 et seq.), was enacted on April 25, 2003. Section 4 of the Act requires the President, subject to certain waiver authorities, to prohibit the importation into, or exportation from, the United States of any rough diamond, from whatever source, that has not been controlled through the KPCS. Section 5(a) of the Act authorizes the President to issue such proclamations, regulations, licenses, and orders, and conduct such investigations, as may be necessary to carry out the Act. Section 5(b) of the Act sets forth the general recordkeeping requirements that apply to persons seeking to export from or import into the United States any rough diamonds. Section 5(b) specifically provides that any United States person seeking to export from or import into the United States any rough diamonds shall keep a full record of, in the form of reports or otherwise, complete information relating to any act or transaction to which any prohibition imposed under section 4(a) of the Act applies. Section 5(b) further provides that such person may be required to furnish such information under oath, including the production of books of account, records, contracts, letters, memoranda, or other papers, in the custody or control of such person. In addition to CBP having the authority to apply the customs laws to import violations of the Act, section 8 authorizes CBP and U.S. Immigration and Customs Enforcement (ICE), as appropriate, to assess penalties and enforce the export laws and regulations. See also 15 CFR 30.70. Therefore, pursuant to section 8, CBP may assess penalties for export recordkeeping violations. However, CBP notes that the penalties under 19 U.S.C. 1509(a)(1)(A) do not apply to recordkeeping requirements for export documents. On July 29, 2003, the President issued Executive Order 13312 (published in the Federal Register (68 FR 45151) on July 31, 2003) to implement the Act, effective for rough diamonds imported into, or exported from, the United States on or after July 30, 2003. III. Existing Regulations and Requirements CBP notes that persons importing into or exporting from the United States a shipment of rough diamonds must comply with the requirements of CBP, the Office of Foreign Assets Control (OFAC) of the Department of the Treasury (part 592 of title 31 of the Code of Federal Regulations (31 CFR part 592)), and the U.S. Census Bureau (15 CFR part 30). Such persons should also be aware of any relevant Internet postings, guidance documents, or Federal Register notices issued by the U.S. Department of State. Also, it should be noted that ICE can take enforcement action on illegally imported and exported rough diamonds. See 19 U.S.C. 3907. Examples of the other government requirements are provided below. OFAC, acting pursuant to Executive Order 13312 and delegated authority, published in the Federal Register (69 FR 56936) the RDCR (31 CFR part 592) as a final rule on September 23, 2004. Among the requirements set forth in the RDCR is that all shipments of rough diamonds imported into, or exported from, the United States must be accompanied by an original Kimberley Process certificate. See 31 CFR 592.301(a)(1).The RDCR also requires, pursuant to 31 CFR 592.502, that all importers and exporters of rough diamonds file an annual report with the U.S. Department of State regarding their import and/or export activity and stockpile information. The U.S. Census Bureau issued notices on December 12, 2005, and April 3, 2007, respectively entitled "Notice of Request for Faxed Submission of Kimberley Process Certificates" and "Revised Notice of Request for Faxed Submission of Kimberley Process Certificates," requiring importers, brokers, and parties involved in the export of rough diamonds to immediately fax their Kimberley Process Certificates (including voided certificates) to the U.S. Census Bureau upon clearance of their shipments into the commerce of the United States by CBP or upon export of their shipments from the United States, as applicable. Explanation of Amendments CBP is proposing to amend the CBP regulations to set forth the prohibitions and conditions that are applicable to the importation into, and the exportation from, the United States of rough diamonds pursuant to the Act, Executive Order 13312, and the RDCR. This document proposes to add a new SEC 12.152 to 19 CFR part 12 to set forth these prohibitions and conditions. Because CBP (along with ICE, OFAC, and the U.S. Department of State) is involved in the administration and enforcement of the import and export requirements relating to rough diamonds, CBP believes that it is appropriate and in the interests of the trading community to restate in the CBP regulations certain of the entry, export, and recordkeeping requirements currently set forth in the RDCR. The RDCR, at 31 CFR 592.301, requires any person importing a shipment of rough diamonds to have the original Kimberley Process Certificate at the time of importation and to present it if demanded by CBP. The RDCR further requires the ultimate consignee to retain the original Certificate for at least five years from the date of importation and to present it to CBP upon demand. See 31 CFR 592.301. CBP is proposing to restate these requirements in new SEC 12.152 and to explicitly incorporate recordkeeping requirements that are implicitly included in the RDCR. Because any person importing a shipment of rough diamonds is required to have the original Certificate at the time of importation (per 31 CFR 592.301), CBP is proposing to amend the regulations to clarify that the Kimberley Process Certificate, which accompanies each shipment, is an entry record that must be maintained for a period of at least five years from the date of importation. Accordingly, the importer must make a copy of the Kimberley Process Certificate available for examination at the request of CBP during that time period. CBP also proposes to specifically add the Kimberley Process Certificate in its Interim (a)(1)(A) list in section IV of the Appendix to part 163 of title 19 of the Code of Federal Regulations (19 CFR). See 19 CFR 163.1(f), 163.3 and 163.4. In accordance with section 5(b) of the Act, CBP is also proposing to require any U.S. persons exporting from the United States a shipment of rough diamonds to retain a copy of the Kimberley Process certificate accompanying each shipment for a period of at least five years from the date of exportation and make the copy available for examination at the request of CBP. See 19 U.S.C. 3904(b). CBP believes that these recordkeeping requirements will assist it in verifying whether importations of rough diamonds are properly controlled by the KPCS. The legal authority for these proposed requirements are discussed in further detail in the following discussion of each of the paragraphs in proposed new SEC 12.152, and new SEC 163.2(b), and the amendments to the Interim (a)(1)(A) list in section IV of the Appendix to part 163. Paragraph (a) Paragraph (a) provides a brief summary of the KPCS, the Act, Executive Order 13312, and the RDCR. Paragraph (a) also indicates that persons importing into, or exporting from, the United States a shipment of rough diamonds must comply with the requirements of CBP, OFAC, and the U.S. Census Bureau. Paragraph (b) Paragraph (b) sets forth certain definitions of terms derived from 19 U.S.C. 3902, section 3 of the Act, Annex I of the Kimberley Process Certification Scheme, and subpart C of the RDCR (subpart C of 31 CFR part 592). Paragraph (c) Paragraph (c) reflects the requirement in SEC 592.301 of the RDCR (31 CFR 592.301) that a shipment of rough diamonds imported into, or exported from, the United States, must be accompanied by an original Kimberley Process Certificate. Paragraph (d) Pursuant to the authority provided in 19 U.S.C. 1484 and 1498(a)(1)(B), paragraph (d) requires formal entry when importing a shipment of rough diamonds. Paragraph (e) Pursuant to the authority provided in 19 U.S.C. 1484(a)(1)(A), paragraph (e) requires brokers, importers, and filers making entry of a shipment of rough diamonds into the United States to either submit through CBP's Automated Broker Interface (ABI) system the unique identifying number of the Kimberley Process Certificate accompanying the shipment or, for non-ABI entries, indicate the certificate number on the CBP Form 7501, Entry Summary, on each applicable line item. Paragraph (f) Paragraph (f)(1) reflects the requirement in 31 CFR 592.301 that the ultimate consignee of a shipment of rough diamonds imported into the United States must retain the original Kimberley Process certificate for a period of at least five years from the date of importation and must present the certificate to CBP upon request. Paragraph (f)(2) reflects the requirement that the U.S. person importing into the United States a shipment of rough diamonds must retain a copy of the Kimberley Process certificate for a period of at least five years from the date of importation and present the copy to CBP upon request, pursuant to section 5(b) of the Act as well as SEC 163.4, CBP regulations (19 CFR 163.4), which provides that (with certain exceptions not applicable here) any record required to be made, kept, and rendered for examination and inspection by CBP under SEC 163.2 or any other provision of this chapter must be kept for five years from the date of entry, if the record relates to an entry, or five years from the date of the activity which required creation of the record. Section 163.2 identifies importers as persons who must maintain records and render those records for examination by CBP. The Kimberley Process Certificate is a record required for the entry of merchandise, within the meaning of 19 U.S.C. 1509(a)(1)(A) and 19 CFR 163.1(a). Similarly, paragraph (f)(3) requires any U.S. person exporting a shipment of rough diamonds from the United States to retain a copy of the Kimberley Process certificate for a period of at least five years from the date of exportation and to present the copy to CBP upon request. This provision is being proposed in accordance with section 5(b) of the Act. The requirements set forth in paragraphs (f)(2) and (3) are further supported by SUBSEC 501.601 and 592.501 of the OFAC regulations (31 CFR 501.601 and 592.501), which provide, in pertinent part, that every person engaging in any transaction subject to the RDCR and other provisions of 31 CFR chapter V shall keep a full and accurate record of each such transaction engaged in, and such record shall be available for examination for at least five years after the date of such transaction. In addition, CBP is proposing to amend part 163 by adding to SEC 163.2(c) a paragraph stating that any U.S. person exporting from the United States any rough diamonds must retain a copy of the Kimberley Process certificate accompanying each shipment for a period of at least five years from the date of exportation. Section 163.2(c) would also state that failure to retain such records for at least five years may subject the exporter to penalties under 19 U.S.C. 3907. CBP is also proposing to amend the interim (a)(1)(A) list in Section IV of the Appendix to part 163 of 19 CFR to add the Kimberley Process certificate to the list of documents that are required for the entry of special categories of merchandise. Finally, this document proposes to amend the list of control numbers assigned to information collections by the Office of Management and Budget (OMB) (pursuant to the Paperwork Reduction Act), which are set forth in 19 CFR 178.2, to add the information collections used by CBP to determine whether importations of rough diamonds are properly controlled by the KPCS. Executive Orders 12866 and 13563 Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule is not a "significant regulatory action," under section 3(f) of Executive Order 12866. Accordingly, OMB has not reviewed this regulation. The proposed rule seeks to increase CBP's ability to verify whether importations or exportations of rough diamonds are in compliance with the KPCS. OFAC published the RDCR (31 CFR part 592) requiring the ultimate consignee to retain the original of the Kimberley Process certificate. The proposed amendments clarify that any U.S. person exporting from or importing into the United States a shipment of rough diamonds must retain a copy of the Kimberley Process Certificate for a period of five years and make this copy available for inspection at the request of CBP or face penalties pursuant to 19 U.S.C. 1509 or 3907. CBP believes the costs of retaining a copy of the Kimberley Process certificate for five years and producing the copy to CBP upon request to be negligible. Regulatory Flexibility Act This section examines the impact of the rule on small entities as required by the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), as amended by the Small Business Regulatory Enforcement and Fairness Act of 1996. A small entity may be a small business (defined as any independently owned and operated business not dominant in its field that qualifies as a small business per the Small Business Act); a small not-for-profit organization; or a small governmental jurisdiction (locality with fewer than 50,000 people). The proposed rule seeks to increase CBP's ability to verify whether importations or exportations of rough diamonds are in compliance with the KPCS. OFAC published the RDCR (31 CFR part 592) requiring the ultimate consignee to retain the original of the Kimberley Process certificate, but not requiring this of the importer or the exporter. The proposed amendments clarify that any U.S. person exporting from or importing into the United States a shipment of rough diamonds must retain a copy of the Kimberley Process Certificate for a period of five years and make this copy available for inspection at the request of CBP or face penalties pursuant to 19 U.S.C. 1509 or 3907. Given that this rule will impose a penalty only for noncompliance, it is not feasible to estimate the number of small entities which could be affected by this rule. CBP does not believe any additional professional expertise will be required to adhere to this requirement, as the Kimberley Process Certificate will only need to be stored and presented for examination upon request of CBP. CBP believes the costs of retaining a copy of the Kimberley Process Certificate for five years and providing the copy to CBP upon request to be negligible. Due to these low compliance costs, CBP subject matter experts believe this regulation will neither increase non-compliance nor result in a substantial number of small entities receiving penalties. CBP did not consider alternatives to the proposed rule for small entities because it does not impose any significant additional operational or labor costs on small entities for compliance. CBP is unaware of any other federal rules which conflict with the requirements of the proposed rule. Because the penalty for noncompliance may be greater than $500 (in 1980 dollars), constituting a significant impact for a small entity, the economic impact of noncompliance with this would be considered significant. However, as discussed above CBP subject matter experts do not believe this rule will increase noncompliance with the KPCS for small entities. Thus, CBP does not believe this rule will have a significant impact on a substantial number of small entities. CBP welcomes any comments regarding this assessment. If CBP does not receive any comments contradicting this finding, CBP will certify that this rule will not have a significant economic impact on a substantial number of small entities at the final rule stage.
Proposed Amendments to the CBP Regulations
For the reasons set forth above, parts 12, 163, and 178 of title 19 of the Code of Federal Regulations (19 CFR parts 12, 163, and 178) are proposed to be amended as set forth below. PART 12--SPECIAL CLASSES OF MERCHANDISE 1. The general authority citation for part 12, CBP regulations, continues to read, and a new specific authority citation for SEC 12.152 is added to read, as follows: Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 3(i), Harmonized Tariff Schedule of the United States (HTSUS)), 1624.
Section 12.152 also issued under 19 U.S.C. 1484, 1498; the Clean Diamond Trade Act (Pub. L. 108-19, 117 Stat. 631 (19 U.S.C. 3901 et seq.)); Executive Order 13312 dated July 29, 2003.
2. In part 12, a new SEC 12.152 is added to read as follows: SEC 12.152 Prohibitions and conditions on the importation and exportation of rough diamonds. (a) General. The Clean Diamond Trade Act (Pub. L. 108-19) requires the President, subject to certain waiver authorities, to prohibit the importation into, or exportation from, the United States, of any rough diamond, from whatever source, that has not been controlled through the Kimberley Process Certification Scheme. By Executive Order 13312 dated July 29, 2003, published in the Federal Register (68 FR 45151) on July 31, 2003, the President implemented the Clean Diamond Trade Act, effective for rough diamonds imported into, or exported from, the United States on or after July 30, 2003. Pursuant to Executive Order 13312, the Office of Foreign Assets Control (OFAC), Department of the Treasury, promulgated the Rough Diamonds Control Regulations (See 31 CFR part 592). Any persons importing into or exporting from the United States a shipment of rough diamonds must comply with the requirements of CBP, OFAC, and the U.S. Census Bureau (15 CFR part 30). (b) Definitions. For purposes of this section, the following definitions apply: (1) Controlled through the Kimberley Process Certification Scheme. "Controlled through the Kimberley Process Certification Scheme" means meeting the requirements set forth in 31 CFR 592.301; (2) Kimberley Process Certificate. "Kimberley Process Certificate" means a forgery resistant document that meets the minimum requirements listed in Annex I of the Kimberley Process Certification Scheme, as well as the requirements listed in 31 CFR 592.307; (3) Rough diamond. "Rough diamond" means any diamond that is unworked or simply sawn, cleaved, or bruted and classifiable under subheading 7102.10, 7102.21, or 7102.31 of the Harmonized Tariff Schedule of the United States; (4) United States. "United States", when used in the geographic sense, means the several states, the District of Columbia, and any commonwealth, territory, or possession of the United States; and (5) United States person. "United States person" means: (i) Any United States citizen or any alien admitted for permanent residence into the United States; (ii) Any entity organized under the laws of the United States or any jurisdiction within the United States (including its foreign branches); and (iii) Any person in the United States. (c) Original Kimberley Process Certificate. A shipment of rough diamonds imported into, or exported from, the United States must be accompanied by an original Kimberley Process Certificate. (d) Formal Entry Required. Formal entry is required when importing a shipment of rough diamonds. Formal entry procedures are prescribed in part 142 of this chapter. (e) Report of Kimberley Process Certificate Unique Identifying Number. Customs brokers, importers, and filers making entry of a shipment of rough diamonds must either submit through CBP's Automated Broker Interface (ABI) system the unique identifying number of the Kimberley Process Certificate accompanying the shipment or, for non-ABI entries, indicate the certificate number on the CBP Form 7501, Entry Summary, on each applicable line item. (f) Maintenance of Kimberley Process Certificate. (1) Ultimate consignee. The ultimate consignee identified on the CBP Form 7501, Entry Summary, or its electronic equivalent filed with CBP in connection with an importation of rough diamonds must retain the original Kimberley Process Certificate for a period of at least five years from the date of importation and must make the certificate available for examination at the request of CBP. (2) Importer. The U.S. person that importsinto the United States a shipment of rough diamonds must retain a copy of the Kimberley Process Certificate accompanying the shipment for a period of at least five years from the date of importation and must make the copy available for examination at the request of CBP. (3) Exporter. The U.S. person that exports from the United States a shipment of rough diamonds must retain a copy of the Kimberley Process Certificate accompanying the shipment for a period of at least five years from the date of exportation and must make the copy available for examination at the request of CBP. PART 163--RECORDKEEPING 3. The specific authority citation for part 163 is revised and the general authority citation continues to read as follows: Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1484, 1508, 1509, 1510, 1624.Section 163.2 also issued under 19 U.S.C. 3904, 3907.
4. Section 163.2(c) is revised to read as follows:
SEC 163.2 Persons required to maintain records.
(c) Recordkeeping required for certain exporters. (1) NAFTA. Any person who exports goods to Canada or Mexico for which a Certificate of Origin was completed and signed pursuant to the North American Free Trade Agreement must also maintain records in accordance with part 181 of this chapter.
(2) Kimberley Process Certification Scheme. Any U.S. person (see definition in SEC 12.152(b)(5)) who exports from the United States any rough diamonds must retain a copy of the Kimberley Process Certificate accompanying each shipment for a period of at least five years from the date of exportation. See 19 CFR 12.152(f)(3). Any U.S. person who exports from the United States any rough diamonds and does not keep records in this time frame may be subject to penalties under 19 U.S.C. 3907.
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