Contents - AL-Tax

5.1 Summary of Key Facts 69entire production and offers a guaranteed minimum price; both features are veryeffective inducements in down markets. Moreover, the DTC guarantees that purchaseprices will not be reduced during the contract term. 1The DTC has traditionally selected approximately 95–160 independent roughstone dealers and manufacturers to become “sightholders.” This status confers on theselected companies the right, and the obligation, to purchase rough stones from theDTC ten times per annum. The DTC sorts rough stones into approximately 14,000categories and combines its production and that of its partners (or such portionthereof as it decides to market in a given period) into “series” that contain an assortmentof stones, varying widely in quality, size, etc. While sightholders are permittedto view the series, they are, in effect, obligated to purchase the proffered boxes. TheDTC unilaterally determines the price of each series and requires payment in cashprior to delivery. Hence, the DTC has historically exercised enormous control overthe volume, value and mix of stones sold both up- and downstream.Until relatively recently, De Beers’ role as “custodian” of the rough diamondmarkets has come at the cost of access to the U.S. market, the world’s largest marketfor polished stones. Because of its dominance and anti-competitive conduct, DeBeers was prohibited from operating in the United States for many years. However,in July 2004, De Beers Centenary AG submitted to U.S. jurisdiction and pled guiltyto the Department of Justice’s charge that it conspired to fix the price of industrialdiamonds. Since then, it has operated directly in the United States on a limitedscale. De Beers has also been the subject of antitrust investigations initiated by theEuropean Commission (EC) at regular intervals, although the EC has generally ruledin the Company’s favor to this point.5.1.2 The Decline of De Beers’ Role and the Emergence of ParallelPrimary MarketsAlthough the DTC continues to operate as it has in the past in certain respects, andstill markets a substantial proportion of the total volume of rough stones produced ina given period through its sightholders, its control over the upstream diamond markethas waned considerably since the early to mid-1990s for a number of reasons: The discovery of several substantial deposits in Canada’s Northwest Territories.While the DTC secured a portion (approximately 35%) of the output of the Ekatimine, one of the three Canadian mines, at the outset, the balance was not funneledthrough the cartel. Moreover, Ekati no longer supplies its rough to the DTC. Thedecision to bypass the DTC was motivated in part by concerns that exclusivemarketing arrangements with the DTC would contravene U.S. antitrust laws.1 See Even-Zohar, Chaim, “Sierra Leone Diamond Sector Financial Policy Constraints,” ManagementSystems International (under USAID Cooperative Agreement No. 636-A-00-03-00003), June2003.