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SOUTH AFRICA: DeBeers Pleads Guilty to Price-Fixing

by Margaret Webb PresslerWashington Post
July 14th, 2004

DeBeers SA, the huge diamond company, pleaded guilty yesterday to price fixing and agreed to pay $10 million to settle a 10-year-old indictment, which paves the way for the company to start doing business directly with the American market.

Based in London and South Africa, DeBeers controls 60 percent of all rough, uncut diamonds sold worldwide. It already reaches U.S. consumers through intermediaries, including diamond distributors and marketing firms. So yesterday's action in a federal court in Columbus, Ohio, may have little impact on diamond prices and market share here. But the settlement will give DeBeers a bigger marketing presence and greater legitimacy with U.S. consumers.

The Justice Department had charged DeBeers in 1994 with conspiring to fix the prices for industrial diamonds, rough stones used in a variety of cutting and polishing, in this country and elsewhere. General Electric Co., indicted as a co-conspirator in the case, was acquitted years ago. But the charges have been hanging over DeBeers for years, preventing its executives from traveling to the United States to do business even on precious gems without the risk of being arrested.

"Obviously, this means now that we can resume normal business relationships," said Lynette Hori, a spokeswoman for DeBeers in London. "Our sales directors can meet clients, and marketing teams can meet retailers. But we have no plans to change the way we do business."

Nevertheless, the diamond industry, in which $500 million in industrial gems are sold each year and diamond jewelry is a $60 billion business, is buzzing about what the settlement might mean.

"I think it's a big deal," said Terry M. Kane, executive director of the Industrial Diamond Association of America. "If you would liken it to an automotive dealer, does the chief executive of General Motors have to go to Japan to sell cars there? No. But it sure might make it easier if he showed up once and a while."

DeBeers is the biggest diamond mining operation in the world, but its dominance of the world's diamond market has been declining in recent years as new mines have opened in Russia, Canada and Australia, and as new varieties of synthetic diamonds -- both industrial and gem quality -- are being created.

Industry experts say the company may have settled because it was too risky to stay away from the U.S. market when so many new sources of diamonds are emerging.

"They haven't been able to set foot in a market that represents half the world's diamond market," said Kenneth M. Gassman, director of research for the Rapaport Diamond Report, an industry trade publication. "DeBeers could not call you in this country, they couldn't send you an e-mail, they couldn't mail you anything."

Hori said there is "absolutely no connection" between the settlement and the growing competition from mined and synthetic diamonds. She said it is part of DeBeers's strategy of "total legal compliance around the world" and "our drive to create a new, modern DeBeers."

DeBeers's competitors said they were expecting such a settlement, though.

"DeBeers may recognize that market dynamics are going to change with the introduction of cultured diamonds," said Robert C. Linares, chairman of Apollo Diamond Inc., one of the few makers of new, high-quality synthetic diamonds for both the jewelry and technology markets. Linares added, "It does . . . seem coincidental that their settlement comes at the same time that Apollo Diamond is entering the market with cultured diamonds."





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