One of the specific issues facing the Group and the diamond sector is conflict diamonds. These are diamonds sold by rebel movements to fund military campaigns. The Group is a member of the WDC which, together with Jewelers of America and other industry members has worked with the United Nations, government bodies, commercial interests and civil society to introduce an effective system for the certification of the source of uncut diamonds. This system, known as the Kimberley Process Certification System was formally adopted in November 2002 and came into operation during 2003. Details regarding the KPCS are available at www.kimberleyprocess.com. The WDC also introduced a system of warranties for the trade in polished diamonds whereby the seller confirms that the diamonds comply with the KPCS. Details concerning the WDC are available at www.diamondfacts.org.
Following the adoption of the KPCS and the system of warranties, Signet wrote to all of its trade diamond and diamond jewellery suppliers requiring them to supply the Group only with merchandise that complies with the KPCS and the WDC system of warranties. Signet's systems, procedures and documentation have been developed so that only diamonds that are certified in accordance with the KPCS requirements or the WDC system of warranties on invoices, annual agreements, or both are accepted from trade suppliers. As the Group develops its rough diamond sourcing and manufacturing capabilities, it has enhanced its KPCS processes in accordance with the requirements relating to rough diamond sourcing.
The Group has also trained its buying staff with regard to the KPCS and the WDC system of warranties requirements and briefed its sales associates on its operation. The audit of these procedures as required by KPCS, described below, is undertaken, and the audit results have confirmed the Group's compliance.
An internal audit of the Group's rough diamond trading is undertaken annually. A programme is developed each year before the audit commences and additionally includes the verification of the WDC system of warranty statements. After the field work is completed a formal audit report is produced in a similar way to any other internal audit and any actions are logged in a management actions register for follow up and consideration by the Group's Risk Management Committee at its quarterly meetings. At the same time any points from the previous audit will automatically be followed up when the next annual audit is performed. Ultimately a summary report is submitted and reviewed by the Audit Committee.
As part of the programme internal audit teams visit every store at least once a year and through Signet's compliance programme ask questions related to conflict diamonds which are formulated in a very specific manner aimed at seeking verification, or otherwise, of designated aspects of compliance including training of store staff. These questions are updated periodically to reflect new processes adopted by stores in response to current events. A monthly report is also submitted to the divisional executive committees on compliance levels of stores and responses to customer questions on conflict diamonds, so that any corrective action that may be required can be taken in a timely manner.
The internal audit results confirmed the Group's compliance with KPCS and the system of warranties.
As a result of the rough diamond sourcing initiatives during 2006/07 the Group engaged a third party to review its systems for compliance with the requirements of the KPCS. Although Signet was not required to do so, the same third party was also engaged to review its compliance with the WDC system of warranties for polished stones and Signet's internal training procedures and practices at both its US divisional office and stores.
To date a third party review of systems for compliance with the requirements of the KPCS has only been undertaken in the US division as that is where rough diamond sourcing has been carried out. In the UK, in addition to the implementation of management's own processes, including internal audit assessments, an exercise to assist the UK division to evaluate its controls with regard to the WDC System of warranties applicable to polished diamonds in the UK, has been undertaken with a third party.
In February 2007, Amnesty International and Global Witness released the results of their International jewellery retail industry survey. The survey questioned 37 top retailers in the US and 42 in the UK. Signet was cited as an industry leader in terms of its processes for implementation of the WDC system of warranties due to its robust auditing processes.
The US division also keeps its systems for compliance with the US Patriot Act under regular review, updating its procedures where necessary.
As of November 2007, the Kimberley Process had 48 members, representing 74 countries, (with the European Community and its Member States counting as an individual participant) and accounted for approximately 99.8% of world diamond production. A further six countries affirmed their intention to join the Kimberley Process, while five more have all expressed their interest in future participation.
Since the formal adoption of the KPCS in November 2002, annual plenary meetings have been held to assess progress and consider additional steps to assist in enhanced implementation. At the fifth annual plenary in 2007 in Brussels, the Kimberley Process was further consolidated. The plenary noted that all 46 recommendations of the three year review that had been accepted in 2006 were either completed or well under way. These included the key issues of funding and resource requirements; further analysis; government oversight of industry; and the treatment of illegal shipments. Participants were asked to ensure stronger government oversight of rough diamond trading and manufacturing. The Brussels Declaration on internal controls of participants with rough diamond trading and manufacturing capabilities which gives guidance on controls for record keeping, spot checks of trading companies, physical inspections of imports and exports and maintenance of verifiable records of rough diamond inventories was endorsed. Greater transparency has also been brought to the KPCS through the publication of diamond production and trade statistics, the production of a compendium of KPCS rules and decisions and the upgrading of the KPCS website. During 2007, the KPCS Working Group on Monitoring, completed the first round of peer review visits. A second round of review visits has now been launched, with a visit to Zimbabwe. The KPCS publicly released global statistics for the first time in 2007 and posted them on the KPCS website. More detailed data will be released in 2008. The plenary also approved a field visit plan for artisanal/alluvial producers and to improve internal controls and enhance local community involvement.