DeBeers pleads guilty to price-fixing charges

COLUMBUS, Ohio -- De Beers pleaded guilty Tuesday in a 10-year- old price-fixing case and agreed to pay a maximum $10 million fine, clearing the way for the diamond giant to resume selling diamonds directly in the lucrative U.S. market.

The company admitted conspiring to fix prices in the $500 million industrial diamond market in 1991 and 1992. Industrial diamonds are used to make cutting and polishing tools for a variety of manufacturing and construction equipment.

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 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 artificially high.

The case was filed in Columbus because GE's industrial diamond business was based in suburban Worthington.

Smith did not order any restitution, saying a separate settlement of a civil case totaling $26 million resolved that issue. 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 said.

Smith said the company must operate under the regulations of the European Union and will be subject to the jurisdiction of courts in the United States 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. He declined to make a statement in court but said afterward that De Beers was happy to have the case resolved.

Turner said resolution of the case makes De Beers legally compliant in all parts of the world where it operates. He said, however, that the company has no plans to directly enter the U.S. retail market.

De Beers has stores in Tokyo and London.

"It doesn't make a big difference in the way we do our business," Lynette Hori, spokesman for De Beers in London, said before the hearing. "We operate a selling system to our clients from London and Johannesburg, and we have no plans to change that."

"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 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 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," said R. Hewitt Pate, assistant attorney general for the Department of Justice in Washington.

"It's good resolution in that De Beers paid damages to victims, pleaded guilty and paid the maximum fine," said Jared Stamell, the attorney who handled the civil case against De Beers. 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, 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.

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