De Beers Is Coming to America

De Beers has settled its decade-old American antitrust indictment, paving the way for it to do business in the United States for the first time in over half a century.

The company pled guilty to a 1994 indictment for fixing industrial diamond prices with competitor General Electric. In the settlement, De Beers agreed to recognize the court's jurisdiction—something it did not do when the charges were first brought in 1994—and pay a $10 million fine. GE was tried on the charges in 1996, but they were dismissed.

U.S. district judge George Smith rejected pleas from some in the industry to place the company on probation, saying, "The court does not want the mantle of responsibility to oversee the worldwide operations of De Beers." He said the penalty was lessened because De Beers had paid $20 million to resolve a lawsuit related to the case.

De Beers spokeswoman Lynette Hori said the settlement "will have no effect on how we do our business" and that the company has "no plans" to open a U.S. office. She did say De Beers executives will likely travel more frequently to the United States for events like November's World Diamond Congress. It will also put an end to such unusual practices as De Beers and its ad agency, J. Walter Thompson, meeting in non-U.S. jurisdictions like Canada. For a long time, De Beers and its U.S. agencies didn't even communicate by phone.

De Beers LV, its retail venture with LVMH, plans to open New York and Los Angeles stores within the next year. De Beers LV executives say the company is unaffected by De Beers' antitrust status, but the settlement undoubtedly will allow its lawyers to breathe easier.

Despite this settlement, it's unclear whether De Beers' antitrust headaches are over. Company executives began avoiding America long before the 1994 indictment because of an antitrust investigation dating back to the 1940s, and because the company felt it could not comply with American antitrust laws. Today, with its market share down and the European Commission clearing Supplier of Choice, De Beers feels it is on firmer ground legally.

"There has not been an explicit statement by the Department of Justice…but our legal interpretation is indeed that we are compliant in our gem business with American laws of competition," managing director Gary Ralfe told JCK in a press conference following publication of the company's financial results.

Still, a flurry of American antitrust suits could test that claim.

"Like Microsoft, they will probably have to go through a testing period in the courts before they are freed of their past," notes Bert Foer, president of the American Anti-Trust Institute and former chairman of Melart Jewelers. He added that "because of their history, they will be under a lot more scrutiny than a normal company."

In a statement, De Beers said it "is bringing a chapter of its history to a close.

The decision to resolve this matter is consistent with our continuing commitment to creating a new, modern De Beers that is fully prepared to assume its role as a responsible corporate global citizen."

In related news, De Beers announced gains in both sales and profits for the first half of 2004. Rough sales through its Diamond Trading Company reached $2.98 million, 2.16% higher than the equivalent period in 2003. The company raised prices twice in those six months, and rough prices were 14% higher overall than the year before.

Another statement noted solid gains in retail sales in the first half of the year. Headline earnings for the six months were $424 million, 12.8% higher than for the first half of 2003.