De Beers may enter U.S. diamond market

The resolution of a 10-year-old price-fixing case clears the way for diamond giant De Beers to directly enter the lucrative U.S. market, The Associated Press reports.

De Beers has had to operate through intermediaries since shortly after World War II, when it was first charged with price fixing.

The company pleaded guilty Tuesday in a Columbus, Ohio, courtroom to conspiring to fix prices in the $500 million industrial diamond market in 1991 and 1992 and agreed to pay the maximum $10 million fine. Industrial diamonds are used to make cutting and polishing tools for a variety of manufacturing and construction equipment.

“That’s a pretty big market to give up and not be actively involved in,” antitrust lawyer John Majoras, a partner with the law firm Jones Day in Washington, reportedly said of the U.S. diamond business.

The company was charged along with General Electric Co. in 1994. U.S. District Judge George Smith dismissed the charges against GE, saying the government had failed to prove its case.

The case was filed in Columbus because GE’s variety of manufacturing and construction applications industrial diamond business was headquartered in suburban Worthington, Ohio.

Smith did not order any restitution, saying a separate settlement of a civil case totaling $26 million resolved that issue, the AP reports. He also did not put the company on probation.

“The court, however, is not inclined to take upon itself the mantle of becoming a regulatory agency overseeing the worldwide distribution of diamonds,” he reportedly said.

Smith reportedly said the company must operate under the regulations of the European Union and will be subject to the jurisdiction of U.S. courts if it decides to do business directly in the United States.

De Beers general counsel Glenn Turner entered the plea on behalf of the company, the AP reports. He declined to make a statement in court but said afterward that De Beers was happy to have the case resolved.

Turner reportedly said, however, that the company has no plans to directly enter the U.S. retail market. Instead, the decision to enter the plea makes the company legally compliant in all parts of the world where it operates.

De Beers has stores in Tokyo and London.

“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 and to provide leadership at a critical time for the diamond industry,” the company said in a statement after the hearing.

De Beers had sales of $5.5 billion and earnings of $676 million in 2003. The company spends $180 million on advertising.

The United States represents about half of the worldwide diamond market. Experts value the U.S. market at $30 billion to $35 billion.

“The guilty plea reflects the department’s persistence in the fight against illegal price fixing,” R. Hewitt Pate, assistant attorney general for the Department of Justice in Washington, said in a statement.

“It’s good resolution in that De Beers paid damages to victims, pleaded guilty and paid the maximum fine,” Jared Stamell, the attorney who handled the civil case against De Beers, reportedly said. He has a separate class action lawsuit pending in New Jersey against the company by buyers of rough diamonds. The lawsuit claims De Beers is controlling that market.

Prosecution of De Beers has been difficult because U.S. officials have no jurisdiction over the company, which is based in South Africa.

But the case also has hindered De Beers from doing business in the United States, Majoras reportedly said.

Corporate officials trying to enter the United States run the risk of being stopped by authorities, he reportedly said.