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DeBeers Pleads Guilty to Price Fixing


#1

“De Beers pleaded guilty Tuesday to charges in a 10-year-old
price-fixing case under an agreement that would clear the way for
the diamond giant to resume selling diamonds directly in the
lucrative U.S. market.” Here’s the rest of the story:

What are the implications of this for the jewelry industry? Is this
a good development?

Linda

http://www.forbes.com/feeds/ap/2004/07/13/ap1453957.html

De Beers pleaded guilty Tuesday to charges in a 10-year-old
price-fixing case under an agreement that would clear the way
for the diamond giant to resume selling diamonds directly in
the lucrative U.S. market.

The company agreed to pay a $10 million fine after pleading
guilty to conspiring to fix prices in the $500 million
industrial diamond market.

De Beers has sold diamonds in the United States only through
intermediaries since shortly after World War II, when it was
first charged with price fixing.

The company was charged along with General Electric Co. in
1994. A judge later dismissed the charges against GE, saying
the government had failed to prove its case.

U.S. District Judge George Smith accepted the plea in the
case, in which the Department of Justice charged De Beers with
keeping prices in the worldwide industrial diamond market
artificially high.

The case was filed in Columbus because GE’s industrial diamond
business was headquartered in suburban Worthington. Industrial
diamonds are used to make cutting and polishing tools for a
variety of manufacturing and construction applications.

De Beers has no specific plans yet for the U.S. market, said
Lynette Hori, spokesman for De Beers in London.

“It doesn’t make a big difference in the way we do our
business,” she said before the hearing. “We operate a selling
system to our clients from London and Johannesburg, and we
have no plans to change that.”

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 half of the worldwide diamond
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, said antitrust lawyer John Majoras, a
partner with the law firm Jones Day in Washington.

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

“That’s a pretty big market to give up and not be actively
involved in,” he said.

On the down side, Majoras said the deal could expose De Beers
to more lawsuits from plaintiffs who now think it is easier
and less costly to sue the company.


#2

The Evil Empire is at it again.

De Beers final settlement of this decades long suit is part of its
new business strategy which involves, among other things, the
double crossing of its traditional partners in the diamond
distribution business.

For decades De Beers has overseen a system of distribution that was
arguably good for everyone especially the cartel. By ruthlessly
controlling supplies the company was able to control pricing. Big
wholesalers bought directly from the cartel and they in turn
supplied the jeweler. What happened to change this cozy
relationship? In a word, oversupply! Total diamond production has
increased three fold since the 1950’s and De Beers has, to some
extent, lost its control of the market. In fact, the cartel claims
(somewhat disingenuously) that it no longer even wants to control
the market.

The diamond distribution system is imploding. Aided to some extent
by the internet, diamond margins at the retail level have fallen
dramatically. Today, a consumer can buy a diamond on line for a few
percent above wholesale. In response, De Beers has decided to
vertically integrate. That is, it will now mine, cut and distribute
diamonds down to the retail level cutting out its traditional
partners. In order to do that in the U.S., the world’s largest
diamond market, it had first to settle the outstanding anti-trust
suit, which it has done. This opens the way for De Beers to set up
its own chain of retail stores in the U. S. As part of that
effort, the cartel has patented a group of proprietary cut designs
that only it will be able to sell. In this respect they have
joined the new rush to diamond branding. It should be noted that
for the most part, the diamond cut rennaissance has little to do
with aesthetics and a whole lot to do with retaining market share.

As to the cartel’s claim to be out of the business of monopolizing
the market, I call the reader’s attention to the situation in
Canada. The three major mines that will soon be on the market are
controlled by De Beers. For more may I humbly
recommend chapter 5 of my book: Secrets Of The Gem Trade, The
Connoisseur’s Guide To Precious Gemstones.

Richard

Kindly check out our online gallery: http://www.rwwise.com

For Information and sample chapters from my new book:


#3
 By ruthlessly  controlling supplies the company was able to
control pricing. 

I quite honestly do not understand how anyone who knows the history
of diamond mining, to present day, could ever want to wear one, as
pretty and sparkly as they are. Every time I look at a diamond I see
a reminder of death, hellish working conditions, broken families,
greed, corruption, smuggling, arms dealing… quite a history with
a “sticky” face that croons “diamonds are forever” and associates
them with love. I don’t want the symbol of my love to include the
cost of someone’s life, or of them never seeing their loved ones, or
of somewhere in its history, the dollars spent to purchase my love
symbol having been used to buy weapons. Ruthless is a good word to
use for every part of their operation, I think.

My inherited diamonds have long since been given to African aid
organizations.

I wouldn’t walk into a De Beers retail shop. In what ever way
possible, the slick advertising needs to be peeled back to show the
industry for what it is.

Just my opinion,
Silani


#4

I recently saw a note in the business or health section of the paper
saying that several companies are doing research on diamond joints
for hip replacements. The thought is that it would make the
replacements last longer. It did not give any detail about how this
would be accomplished. Perhaps some day we will all be walking
around with diamond hips

Marilyn Smith


#5

Richard,

I am surprised that you did not inject the GIA 's latest maneuver
into the De Beers ploy. According to National Jeweler, GIA is now
working on a new program of diamond cut grading over and above the
tradtional criteria for diamond valuing. Since cut quality has
always been in the equation it would seem to me that a concerted
effort is being made to enhance the perceived value of diamonds
using tricky cuts that do very little , if anything , to enhance the
optical properties of the stone. Implicit in this scenario is the
likelihood that GIA might be somewhat influenced by whatever
contributions de Beers makes or has made to that organization…

I find it regretable that diamond marketing is deteriorating into a
free for all dog and pony show. Must we always reduce selling to
deception and artificiality ?

Ron Mills at Mills Gem Company, Los Osos, Ca.


#6

I recently saw a note in the business or health section of the pa=
per
saying that several companies are doing research on diamond jo=
ints
for hip replacements.

It’s not quite the way it sounds. They’re talking about
vapor-deposited diamond-like carbon films. It’s already done on
plastics to provide scratch-resistant coatings on transparent
panels. Aw, shucks.

Tas


#7

I have to agree that diamonds have been long associated with pain
and suffering, but we in the industry are very much so to blame.
May I please bring back to your attention how many retail stores
failed to comply with the Kimberly Process which was put in to
place to reduce the number of diamonds being sold that were part of
this terrible history in Africa?

However, if you decide that you do not want to wear something that
is associated with pain, suffering, families being torn apart, or
parents being unable to support their families, then we must think
about the child labor that hand cuts our sapphires and rubies. Most
of the stone cutters in these countries only have the ability to
cut stones until they are in their early twenties because their
eyesight is terribly affected by the poor lighting conditions, and
the requirement to focus on more than one stone at a time, for long
periods of time. Then they are paid pennies a day, that they take
home to their family of twelve, that live in a one room shack.

Those that professionally mine metals, outside of this country,
endure hardships of their own.

To classify yourself as not funding these terrible acts, you would
need to adorn yourself in tin foil and plastic beads…and walk
around naked. Even some of our clothes, undoubtedly coming form
outside labor sources, are made in sweat shops where young children
do most of the work. It is a sad and terrible fact that our
industry, and many others, funds poor living conditions, pain, and
suffering, but it is up to us in the industry to change the
standards and practices that provides us with an income.

I mean no disrespect, just putting my two cents in.


#8

Silani,

You see death in this diamond issue, I see life. A number of years
ago a woman brought into my shop an exceptional piece of jewelry. It
was a simple pendant with some work around a large, very unusual 8-10
ct. extremely flat cut pear shaped diamond. Her parents were Jews
who had fled Nazi Germany. One of the few things they were able to
smuggle out was that pendant. Long story short, she had not had a
great life and was, by no means, making a lot of money, but she had a
daughter she desperately wanted to be able to attend college. She
brought the piece in to me for an evaluation about how much money she
might be able to raise for this purpose. I gave her a figure of
between 15 and 20 thousand and sent her off to the local auction
house. Sure enough she got slightly more than $20,000 for the piece
and she was able to pay for a number of years of her daughter’s
education (today it wouldn’t cover 3 months but that is a different
story). Because her parents had invested wisely, and because they
invested it in something extremely portable, and because they could
sneak it out with them they were able to help provide for their
granddaughter’s college education. And you think this is bad
because???

If you really think diamonds are bad for humanity then throw away
your computer (which uses rare materials that people overseas are
fighting over all the time to provide to Americans—oh, you didn’t
realize that?)—and get rid of your car because the desire for oil
has killed hundreds of thousands (not to mention the pollution it is
creating that is killing us all)—and turn off all your lights
because we need oil to produce electricity. There is good and bad in
all of what we do. Sometimes the bad can lead to the good.

Daniel R. Spirer, G.G.
Spirer Somes Jewelers
1794 Massachusetts Ave.
Cambridge, MA 02140
617-491-6000
@spirersomes
www.spirersomes.com


#9

Hmmmm, I have a bit of a problem with the way that De Beers are
instrumental in kicking the San people off their ancestral home in
Botswana, using the Botswana government as their proxy…

I have a slight problem in the fact that they were instrumental in
making laws that do not allow average people to own uncut diamonds
in South Africa.

Those laws led to police entrapping people that were in a challenged
financial position to deal in diamonds-- with subsequent
complications.It caused much unnecessary hardship. All in all, having
lived in SA and in Botswana for all of my life , my opinion of De
Beers is that the are a mean, nasty, self serving cartel, and under
the veneer of honesty are trying to enter the American market, which
they have correctly been excluded from. They have large problems and
with a sense of schadenfreude I am happy to see that some major
diamond mining companies have told them to goangetsuffed

That said, a well cut diamond in a well designed setting is an
unbeatable combination!!

End of Rant
Hans Meevis http://www.meevis.com


#10

Tas

There is at least one company in Massachusetts that claims to be
making gem grade diamond in bulk using a form of CVD but they have
yet to market any of their product so it may all be smoke and
mirrors.

However the Gemesis folks are definitely marketing their synthetic
diamonds but they are all yellow and orange which is fine if you
want fancy colors. They are cheap compared to naturals but still not
cheap.

Jim Binnion

James Binnion Metal Arts
Phone (360) 756-6550
Toll Free (877) 408 7287
Fax (360) 756-2160


@James_Binnion
Member of the Better Business Bureau


#11

Have you read “Glitter and Greed” by Janine Roberts? I highly
suggest if you have not to get it. It is a very well written book, in
fact I did it as my book report for school.

Glitter & Greed : The Secret World of the Diamond Cartel
By Janine Roberts

http://www.ganoksin.com/jewelry-books/us/product/0971394296.htm
price: $16.00

Media: Hardcover
Manufacturer : The DisCompany
Release data : 01 September, 2003

Eva


#12

Dear Rant, I couldn’t agree more. But I have one question. I read
another post that said DeBeers actually has control of Canadian
diamond mines. In my gemsetting class, this was not mentioned. Is
this true? Can I no longer vouch for the integrity of Canadian
diamonds?


#13
There is at least one company in Massachusetts that claims to be
making gem grade diamond in bulk using a form of CVD but they have
yet to market any of their product so it may all be smoke and
mirrors. 

I know about these companies, but what I was talking about was
coatings. They’re done for transparent armor already, and the
business about hip joints is probably referring to vapor-deposition
onto ceramic or titanium-alloy parts. This would give the surface
hardness of diamond without either the prohibitive cost, or the
structural negative of cleavage planes. (Oh, no - my hip joint just
sheared off!)

Tas <-- mired in trying to finish a major project, and looking for
ANY excuse to escape statistics


#14

I saw a horrific documentary a few years back and the scenes of some
diggers being buried alive stay with me. They dug a big hole whilst
looking for diamonds, and one guy was in the hole, it was so deep
that he couldn’t get out too easy, and while he was trying, his work
colleagues shovelled spade after spade of clay in on top of him until
all you would see where his hands reaching out of the three quarters
full hole, and then he was gone. It was a documentary about DeBeers.

Tina
Dublin, Ireland


#15

Dear Tina,

Do you happen to have more details of the horrific documentary about
the De Beers diamond miners who buried their colleague alive? I
believe all Orchidians should know the facts about this matter.
Tracking down both the documentary makers who filmed this crime and
the criminals responsible should be feasible once all the details are
known.

Kind regards,
Rex Merten


#16

I’m not sure who was behind the documentary,Channel 4, or BBC2?? I’m
in Ireland, as you know, and we watch a lot of English TV stations
here, documentary shows usually go out on BBC2 or Channel Four. I saw
it a long, long time ago…but I will try to track it down for
you.

Tina


#17

Hi all,

Note the many weasel words. ----This article copy and paste from the
Sunday Times SA.

De Beers reported strong earnings on Friday, but Jonathan
Oppenheimer will have little time for reflection on what his father,
chairman Nicky Oppenheimer, described as a "very pleasing"
performance. For although the world’s biggest diamond producer
posted a 12.8% increase in headline earnings to R424-million for the
six months to June 30, the strong rand - which reached a five-year
high against the dollar this week - pushed all but two of its seven
South African mines into the red.

Jonathan Oppenheimer took over as head of De Beers’ local operations
at the beginning of the month.

He was not at the results presentation, which was hosted in London,
but group MD Gary Ralfe summed up his predicament: "Of course we are
concerned about our South African operations, whose cash flows -
apart from Venetia and Finsch - are negative at the moment. “But we
need to balance De Beers’ responsibility as a long-term employer and
being a good corporate citizen with our quest to keep our mines in
operation through increased efficiencies. I wish Jonathan luck in
squaring this difficult circle.”

Ralfe’s comments raise the spectre of job losses, but he was loath
to comment on the issue other than to say that De Beers would look
at voluntary redundancies first. The company employs around 25 000
people world-wide, about 10 000 of whom are in South Africa. He said
that higher prices for rough, or uncut, diamonds - which have risen
around 10% this year - provided some breathing space, but warned
that any mine closures were irreversible.

“Once a mine is closed that is the end of the road. We won’t see
them opening again, but we are doing all we can to ensure their
survival,” he added. Mines in the red are the older ones such as
Koffiefontein, Kimberley underground, The Oaks, Cullinan and the
Namaqualand operations.

On a brighter note, Ralfe pointed out that De Beers had recently
commissioned its Combined Treatment Plant in Kimberley to reprocess
old dumps. The plant was “going like a Boeing” and was on track to
produce two million carats this year, “the biggest volumes since the
early 20th century”.

Ralfe and Nicky Oppenheimer also drew attention to the settlement of
a long-standing price-fixing case against the company in the US. The
case related to a 1994 charge in connection with industrial diamonds
in 1991 and 1992.

In its settlement, announced earlier this month, De Beers agreed to
plead guilty and pay a fine of $10-million.

“This watershed decision by the Ohio court is very important to us
as our legal interpretation is that we are now compliant in all
jurisdictions where we conduct our business,” Ralfe said. “Our
supplier-of-choice strategy is recognized by the European Commission
and we believe behind this settlement is an implicit recognition by
the US Department of Justice of the way we are doing business.”

The strategy, officially implemented last year, led De Beers to
abandon its 60-year-old cartel policy of trying to stabilize supply
and demand of gemstones and concentrate on mining and marketing. On
the production front, group output was 19.3 million carats - below a
target of 22.3 million carats. This was due to a breakdown at the
Jwaneng mine plant in Botswana, but Ralfe said that production had
been restored to target levels since the beginning of July.

The lower Botswana output, which accounts for the lion’s share of De
Beers’ output, was largely offset by a 33% increase in Namibian
production and a 16% increase in South African diamonds, Ralfe said,
without providing specific numbers.

Ralfe was optimistic about the outlook for the rest of the year,
noting that jewellery sales in the US - the world’s biggest diamond
jewellery market - grew 7% year-on-year. This is the best figure
since 1999.

Sales in Japan were up a more modest “percent or two”, but Ralfe
said this was the first time in 10 years that the world’s
second-biggest diamond market had shown growth.

Double-digit diamond jewellery growth was recorded in China, while
sales were also good in the Middle East.

The group will pay $250-million in dividends on August 2. The chief
beneficiary is Anglo American, which owns 45% of De Beers. Anglo
said De Beers’ earnings would contribute $217-million to its
earnings, which are to be announced on August 5.

For a more sober assessment of De Beers read The Economist July
17 2004, Special Report, page 60 the Diamond Cartel

Hans Meevis
http://www.meevis.com


#18

A documentary titled “The Diamond Empire” was produced for Frontline
many years ago; don’t know if that’s the one that shows someone
being buried alive. (And unless the filmers were being held back at
gunpoint, they should have been thrown in, too, for not saving the
person.)

Anyway, a search on the word diamonds on the Frontline website
yields a long list of links:

http://tinyurl.com/4j7xz

Some programs you can watch online. It’s really depressing.

While Googling diamonds, I came across a story about a guy in Guinea
who recently found a bowling ball-sized diamond:

http://tinyurl.com/568wt

Christine in Littleton, Massachusetts
No one deserves lung cancer.


#19

It was done by Janine Roberts, who also published a book this year
called “Glitter and Greed.”

Glitter & Greed : The Secret World of the Diamond Cartel
~Janine Roberts
price: $16.00

Product Information
http://www.ganoksin.com/jewelry-books/us/product/0971394296.htm
Media: Hardcover
Manufacturer : The DisCompany
Release data : 01 September, 2003

Eva


#20

I can understand your comments, on the camera team looking on as one
of the diggers was buried alive, “But” I don’t think it was safe for
them to take action.

If they had, they too could have been killed in the same way, the
team risked their lives to bring attention to the horrible suffering
and death on these diamond digs.

From what I remember of the documentary, it was quite a common
acurance. So many journalists, camera men and women put their lives
on a knifes edge every day, to bring our attention to atrocities,
human rites violations, and “War”.

What we tend to forget is the fact that they stand alone in these
situation, sometimes with no protection what so ever.

I also read the story about the guy in New Guinea, it seems he would
have be killed unless he handed over the diamond. And when he did he
ran for his life, meanwhile the diamond was placed the safe volt of
the Capital cities bank.

Tina
Dublin, Ireland