Diamond producer
Lawyers for De Beers’ Swiss subsidiary De Beers Centenary entered the plea in U.S. District Court in Columbus, Ohio, on July 13. De Beers Centenary had been charged in 1994 under the Sherman Act, which prohibits price-fixing. The conviction carries a US$10-million fine, the maximum penalty that could have been imposed under the law as it stood at the time the charges were laid. (Other provisions in the Sherman Act permit the court to impose a fine up to twice the gain made by the party convicted.)
A separate, out-of-court settlement in a civil suit over the price-fixing case will cost De Beers US$26 million.
The U.S. Department of Justice had alleged that De Beers and industrial conglomerate General Electric, a producer of synthetic industrial diamonds, had colluded to fix the price of industrial diamonds in the U.S. Although charges against General Electric were subsequently dropped, the court heard an admission from De Beers Centenary that its management had exchanged pricing information with General Electric. The price intelligence was frequently passed by an officer of an industrial diamond consumer, in contact with both companies. There were also face-to-face meetings between De Beers and General Electric executives.
Officers of De Beers, a subsidiary of
Previous anti-trust actions against De Beers — in 1945, 1957, and 1974 — have been abandoned. General Electric was indicted, but found not guilty, in the 1957 case.
Several diamond-market watchers suggested De Beers was making itself vulnerable to class-action lawsuits now that it had entered a guilty plea in a price-fixing case. Admissions of guilt in criminal court often weaken defences in civil cases.
The settlement also facilitates De Beers’ entry into the retail diamond market in the U.S., in a joint venture with consumer-goods company LVMH Moet Hennessy Louis Vuitton. The joint venture is opening a store in New York City’s retail district and also has plans for a store in Los Angeles. There is already a store open in London, and “boutique” counters are open in three high-end department stores in Tokyo.
The settlement comes as De Beers continues to dismantle the apparatus of the former Central Selling Organization. De Beers told the Bloomberg wire service that its diamond-trading unit, the Diamond Trading Co., had sold off the remainder of its rough-diamond stockpile, which had been valued at US$4.9 billion in 1999. De Beers reported the value of inventories and “other assets” at US$1.7 billion at the end of 2003, down from US$2.4 billion at the end of 2002.
De Beers’ transition from a cartel to a brand has not insulated it from criticism over trading practices. The most recent jab was a lawsuit filed in the U.S. District Court in New York by diamantaire W.B. David & Co., a former CSO and DTC sightholder that says it was dropped from De Beers’ sightholder list this year.
In a statement of claim, lawyers for David listed 30 civil counts alleging fraud, unfair competition, breach of contract and fiduciary duty, and other torts. The company argues it was targeted by De Beers as potential competition in the retail large-stone market, and its elimination from the sightholder list was meant to put potential competitors in that market out of business.
The suit claims US$100 million in damages and also seeks attachment of assets, including the right to the advertising slogan “A Diamond is Forever.”
De Beers, which had not received a copy of the complaint at the time, had not commented on the lawsuit up to presstime.
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