A Kinder, Gentler De Beers?

De Beers LogoOn April 3, the Supreme Court declined to hear an appeal of the De Beers antitrust settlement and although there is a possibility that a second appeal might be filed, the case actually appears to be closed or close to closed.

I don’t want to re-litigate a tangled six decades of claims and counter-claims. But I do want to point out that at least to this observer, the effort by De Beers to finally settle U.S. anti-trust claims is a business decision, not an ethical one. De Beers wants to enter the U.S. market as a major diamond player and it is busy cleaning up its image with the Justice Department, the jewelry trade and consumers. Settling the class action suit is part of this strategy.

This might be obvious. But it’s worth pointing out.

The U.S. government first brought anti-trust charges against De Beers in 1945 just after World War II. (Hostility toward the company by the Justice Department was no doubt exacerbated by its refusal to provide industrial diamonds to the U.S. in the war effort.)

With the anti-trust charges looming, De Beers simply closed U.S. operations and marketed its diamonds indirectly in the U.S. through its Central Selling Organization.

It took a similar position in 1994 when the U.S. indicted De Beers and General Electric of criminal collusion to control the price of industrial diamonds.

For the company, this worked fine for many decades. De Beers executives couldn’t step foot on U.S. soil for fear of arrest, but why should they? From South Africa, London and Switzerland, the company controlled up to 90% of the world diamond supply by controlling or owning diamond mines and channeling goods through a single source. The U.S. market, like other markets, received goods  through mysterious and often criticized sightholder sales where diamond manufacturers were forced to diamond parcels provided by De Beers or go without.

In the 1990s, three events occurred which spelled the end of De Beers’ iron grip on diamond producers. The Soviet Union had been the second largest producer of diamonds in the world. When it collapsed, it became increasingly difficult to maintain single channel distribution and most Russian diamonds began selling outside the cartel.

The second major event eroding the De Beers cartel was the refusal by the Argyle Mine in Australia to renew its contract. Although the Argyle Mine is best known for its pink diamonds, it is also the largest producer of low quality diamonds in the world. Despite De Beers retaliation, cutting prices on low quality diamonds, for example, Argyle held firm.

Finally, rich new diamond deposits were discovered in the Northwest Territories of Canada. Although De Beers secured a portion of that production, most Canadian diamonds remained outside its control.

By 2000, De Beers market control had slipped to 65 percent and the handwriting was on the wall.

So, it turned hungry eyes on the U.S. diamond retail market from which it had dealt itself out so many years ago.

In 2004, it pleaded guilty to the GE collusion charge and paid the U.S. a $10 million fine. Still outstanding, however, was the class action suit which De Beers agreed to settle for $295 million. This is the suit the Supreme Court declined to review on April 3. As one industry observer pointed out, when the checks go out, there will be enough for claimants to go to lunch.

This is all a part of its new business strategy which is to focus on retail sales. Following anti-trust agreements with the EU, it opened outlets in France and Great Britain and is actively developing retail arrangements in China. It is also active in a number of other countries.

De Beers already has a presence in the U.S. retail diamond market through its Forevermark Diamonds and various franchise-type arrangements with large diamond retailers. When this class action suit is closed, we can expect a greater presence.

Is De Beers a more ethical company, a kinder, gentler company, than in the days when it reneged on an agreement with the  U.S. during World War II or later, when it colluded with General Electric to fix prices for industrial diamonds?

We’ll see.







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