European Commission closes its Investigation of De Beers

The European Commission said it has closed its investigation into De Beers‘ Supplier of Choice distribution arrangements. (View decision)

At the Commission’s request, De Beers, the world’s largest rough diamond producer, has revised the mandate for the Supplier of Choice ombudsman, who safeguards the objectivity of the SOC distribution system, the Commission said in a statement. The revised mandate of the ombudsman will allow enhanced transparency in the selection of De Beers’ sightholders and in the allocation of diamonds and will therefore enhance competition on the worldwide rough diamond market.

“The combination of more diamonds coming onto the open market from alternative sources of supply, together with the improvements to the way De Beers’ Supplier of Choice scheme works, means that there is now more competition on the rough diamonds market as a result of the Commission’s intervention,” said Competition Commissioner Neelie Kroes.

De Beers, in a statement said it is “delighted” by the Commission’s decision.

“The DTC (Diamond Trading Company) voluntarily agreed that the scope of the SoC Ombudsman’s investigatory powers will be expanded,” the De Beer’s statement said. “The mechanism by which the ombudsman reports to the Commission will also be more formally operated. The DTC believes that the ombudsman is an effective forum for the resolution of disputes relating to SoC and therefore welcomes the enhancements to this role.”

Varda Shine, DTC managing director, added, “It demonstrates, once again, that Supplier of Choice has withstood scrutiny from one of the world’s most rigorous competition authorities and the recent complaints about Supplier of Choice are without merit.”

The SoC rough diamond distribution system formalized the legal relationships between De Beers and its clients. The SoC Ombudsman, an independent and Commission-approved supervisor, is an integral part of the SoC system. The SoC system received Commission approval in 2003. However, a number of complaints were lodged with the Commission alleging in particular that the SoC would allow De Beers to gather excessive sensitive commercial information from its clients, which could ultimately lead to arbitrary supply decisions and indirectly aggravate non-clients’ access to raw materials.

The Commission said the revised ombudsman mandate enhances the level playing field for supplies of De Beers’ rough diamonds. “Moreover, with his wider powers of investigation, the ombudsman, who will closely cooperate with the Commission, is well equipped to safeguard the correct implementation of the SOC scheme,” the Commission said in a statement.

The Commission also said it considers the existence of alternative sources of rough diamond supply outside the SoC scheme, which were, in addition, the subject of a separate complaint against De Beers. The Commission relied considerably on its earlier decision, adopted in February 2006, making De Beers’ commitments to phase out its purchases from ALROSA by the end of 2008 legally binding.

“These commitments effectively bar De Beers from controlling a considerable part of its largest rival’s output and enable ALROSA,” the Commission said.