WARNING: When truncated=true, diagnostic is already "[REDACTED]" (set by readBoundedOutputTail), so the ANSI-strip and control-char-strip on this line are always a no-op in that branch. The truncated guard on line 180 then immediately overwrites sanitized with REDACTED anyway.

Consider moving the truncated early-exit before line 178 to make the flow explicit and avoid dead work:

function sanitizeImportDiagnostic(diagnostic: string, truncated: boolean): string {
  if (truncated) return REDACTED;
  const secrets = collectImportDiagnosticSecrets();
  let sanitized = stripUnsafeControlCharacters(diagnostic.replace(ANSI_ESCAPE_SEQUENCE, ''));
  // ... rest of redaction chain
}

This is a clarity/correctness nit — the current code produces the correct output because retainSanitizedImportDiagnosticTail("[REDACTED]") returns "[REDACTED]" unchanged.

SUGGESTION: collectImportDiagnosticSecrets() is called once per non-empty stream in logImportDiagnostics — potentially twice (once for stdout, once for stderr). Each call iterates process.env and may read KILOCODE_TOKEN_FILE from disk.

The secrets list is constant for the lifetime of a single import, so a single call shared between both sanitizeImportDiagnostic invocations would be cleaner. Either collect secrets outside sanitizeImportDiagnostic and pass them in, or call sanitizeImportDiagnostic once and cache.

WARNING: The function name readBoundedOutputTail implies keeping the tail (last N bytes) of the stream, but the actual behaviour when totalBytes > maxBytes is fail-closed: all previously retained bytes are discarded and truncated=true/REDACTED is returned. The actual tail-retention logic lives in the separate post-sanitisation step (retainSanitizedImportDiagnosticTail).

This is intentionally conservative and the tests confirm the design, but the name creates a misleading contract. Consider renaming to drainBoundedOutputStream or readBoundedOutput to reflect that the function drains the stream while enforcing a byte budget, with truncation on overflow. At minimum a doc comment would help.