Charles Wyndham calls him Bonaparte, or, in a more friendly manner when in a good mood, just “Boney”. To me it has always been Martin Rapaport or “Mike” – I refrain from referring to him as “Rap” as this creates confusion as to whether it refers to a person or a written table. But today – and I beg Charles’ indulgence – I want to borrow the “Bonaparte” label.  Like a shrewd general, Boney has used a quite fascinating tactic filing his opposition against the De Beers and Alrosa trade agreement with the European Commission.

Boney is not just attacking De Beers and Alrosa for all kinds of infringements of Competition Law. No, he is attacking the European Commission for a series of far greater offenses: they have failed to investigate the various allegations, they are biased, they are not transparent, they are aiding and abetting potentially illegal activity - and they have ignored Rapaport!

He questions the integrity of the process followed by the EC (or actually “not followed” by the EC) of the approvals – or pending approvals – of both Supplier of Choice and of the Trade Agreement between De Beers and Alrosa.

When viewing the submission by the Rapaport Group, I couldn’t help but think that Rapaport was either brilliantly devious or deviously brilliant: by attacking the Commission itself, by questioning the integrity of the process, by implying that the Commission is eliciting responses from the general public without any real intention to act upon the documentation submitted to it, Rapaport has created a “new situation”. Rapaport accuses the European Commission of being biased, saying that “the commission's approach to consultation has prejudged the outcome of its investigation and has had a chilling effect on the willingness of those adversely affected to make their views known.” Rapaport doesn’t leave the EC much leeway: whatever the Commission will decide will seem faulty and assailable.

Anyone familiar with the Brussels bureaucracy can attest that “the integrity of the bureaucratic process” and the “final decision” are two concepts which are not necessarily related. Any outcome (whether to approve or kill Supplier of Choice or the Trade Agreement) will be acceptable – and is defendable – provided the decision making process was robust, fair, transparent, etc. By questioning the “process”, a positive decision by the EC of the Alrosa-De Beers agreement might become a nightmare for the officials involved in the decision-making process. This threat may cause them “to play it safe” – and the safest ways to play it is by simply reconfirming their Statement of Objections and “kill” the deal.

So far, to the best of my personal knowledge, parties which have filed complaints have argued their case without attacking the Commission as such. A Belgian diamond dealer has aired his unhappiness with the very long time it has taken for the EC to reach a final decision on Supplier of Choice, after it re-opened the investigation, but no one has so publicly and unequivocally, frontally and even brutally attacked the EC officials and the process itself.

Apparently, the EC hadn’t learned yet that you don’t fool around with Boney. 

Why is Chaim Even-Zohar writing about Rapaport? I’ll tell you why. I have always stated that the original invention of the Rapaport Price List, at the time, dramatically changed the industry. For better or worse, I should add. Now I think Rapaport is changing the diamond world again: I cannot see how the European Commission will be able to continue to approve either Supplier of Choice or the Alrosa-De Beers trade agreement. No self-respecting public official at the EC can read – and then ignore – Rapaport’s most recent [July] submission to the Commission.

I have been told in Brussels on several occasions that the European Commission is not overly concerned with diamonds -- the consumer market in Europe is small and diamonds don’t present safety or other consumer concerns – these issues present mainly “dossiers that need to be closed.” EC Competition officials are good people - overworked, with heavy workloads. They like files to be closed. Gareth Penny has created an excellent working relationship with the EC – and, indeed, I have always believed that the EC may request modifications of SoC or the Alrosa-De Beers trade agreements. I didn’t think they would kill these arrangements.

Now I tend to think that Rapaport has once again changed the industry map. He may have de facto created a situation in which the Commission might find it impossible to give De Beers and Alrosa the green light. This is far beyond the issue of legality or illegality. The DTC has no contingency plans for what to do if the European Commission would reverse itself and conclude that Supplier of Choice is illegal.

Unleashing Boney’s Fury

What irked the price list guru? On 12 December 2002, in response to the Commission’s Article 19(3) notice asking for comments on Supplier of Choice, the Rapaport Group submitted a report with detailed observations, concerns, oppositions and recommendations. The same date Martin Rapaport met with the Commission (Yves Devellennes, Angel Tradacete Cocera, Claudia Menis and Isabelle Kraus) to discuss the concerns of the Rapaport Group in relation to SoC. Says Rapaport: A month later “the Commission announced that it had decided to close the proceedings with regard to SoC and "not to oppose" that system. The Commission completely ignored the Rapaport submission and concerns expressed on 12 December 2002.”

Two years later the EC re-opened its investigation of Supplier of Choice and on 27 January 2005, Martin Rapaport met with the European Commission (Lorena Boix Alonso, Isabelle Kraus, Ewoud Sackers and Edward Anderson). Says the Rapaport submission: “Mr. Rapaport expressed his deep concerns that SoC was destroying competitive diamond markets, that De Beers should not be allowed to buy any diamonds from Russia or other outside suppliers as this eliminated vital supplies to the competitive markets. Rapaport expressed opposition to the proposed De Beers Alrosa agreement. Furthermore, he presented written evidence of illegal price collusion between De Beers and Alrosa. At this meeting Isabelle Kraus expressly stated that the Commission had not investigated price fixing between De Beers and Alrosa or even read the Alrosa bond prospectus that provides evidence of price collusion.”

A few months thereafter the EC published a notice pursuant to Article 27(4) of Regulation 1/2003 (the "De Beers-Alrosa Notice") in which it announced its intention to market test the Alrosa and De Beers commitments. Says Rapaport: “The Commission stated that "Subject to the outcome of present market test, the Commission intends to adopt a decision pursuant to Article 9(1) of Council Regulation (EC) No 1/2003". As it did previously, the Commission completely ignored the information presented by Rapaport at the 27 January [2005] meeting and written evidence of price collusion between De Beers and Alrosa.”

In all fairness to Martin Rapaport, the submission contains some 21 pages and many annexes detailing why De Beers and Alrosa are abusing their dominant power to the detriment of the market and this is not the place to discuss this submission, except to say that everyone is entitled to his own views and, basically, Rapaport didn’t say anything that hasn’t been said by many others on numerous occasions.

What is unique is the inclusion of an entire section in the Rapaport submission to the EC that deals with the “Commission’s Failure to Investigate Thoroughly, Transparently and with an Open Mind.” These are very serious allegations. Allow me to quote from the Submission: “Failure to Investigate Allegations - The Commission has failed to investigate specific allegations made in relation to De Beers and Alrosa and investigate facts that should have been evident had it carried out a diligent enquiry: On 27 January 2005 Rapaport presented the Commission with the Alrosa preliminary offering circular dated 25 October 2004 (Annex 13) which clearly admits a form of price fixing between De Beers and Alrosa. Despite an investigation over many years, the Commission was not aware of the document and did not read the document before agreeing to the commitments proposed by De Beers and Alrosa and issuing the Press Release dated 20 December 2004,” writes Rapaport.

“Shockingly,” notes the submission, “even after the Commission was given the document and informed of the price collusion between De Beers and Alrosa the Commission on 3 June 2005 issued the Article 27(4) notice which is identical to the press release of 20 December 2004. Not only did the Commission ignore clear evidence of price collusion and refuse to investigate it. The Commission continues to fail to investigate the price collusion.” [Emphasis added.]

“Furthermore, not only does the Commission continue to fail to investigate price fixing between De Beers and Alrosa, the Commission intends to legalize it by adopting a decision under Article 9(1). Alrosa is selling diamonds to De Beers at prices at 8 percent to 20 percent below the prices it charges in the local Russian market. Alrosa also pays an additional 6 percent export duty.”

“Alrosa in collusion with De Beers sets the internal Russian price for rough diamonds higher than the prices it sells to De Beers so as to eliminate price competition in the international polished diamond markets from Russian diamond cutters. Alrosa and De Beers do not want Russian diamond cutters selling diamonds to European and other international customers at prices below what Sightholders have to charge for their diamonds. By coordinating rough prices De Beers and Alrosa minimize price competition in the downstream polished diamond markets and protect artificially high prices for their diamonds,” says Rapaport.

“Furthermore the Commission has not investigated why Alrosa gives De Beers a price discount of up to 25 percent in spite of the fact that local Russian diamond cutting firms are willing to pay the significantly higher internal Russian price for rough diamonds. Why are the Russians lobbying the EC so hard to sell diamonds to De Beers at subsidized prices? Could it be that such subsidized pricing is part of a price fixing scheme?

The Commission ignores and fails to investigate charges that Alrosa is involved in fraud. The Commission ignores and fails to investigate findings by Russia’s Federal Anti-Monopoly Service (FAS) that conclude that Alrosa has violated Russian competition law. The Commission ignores the fact that Alrosa stockpiles diamonds to obtain higher prices.

In spite of the fact that there are a large number of complaints against De Beers charging that De Beers SoC is anti-competitive and that the Commission has itself re-opened the SoC investigation, the Commission intends to approve a scheme whereby even more diamonds are eliminated form the competitive supply chain and directed to SoC’s restrictive distribution network of privileged Sightholders.”

If all of this wasn’t bad enough, the Rapaport submission continues to find fault with the investigations of the EC. Says the submission: “The Commission has failed to investigate the impact of the De Beers-Alrosa agreement on non-Sightholder markets, rough diamond markets, polished diamond markets, jewelry markets, consumer markets, on prices in all of these markets, and the destruction of existing competitive rough and polished markets. The Commission severely limits the scope of its investigations and in so doing ignores vital relevant factors that would require the Commission to deny the special requests made by De Beers and Alrosa.”

Notes Rapaport: “Even though the Commission severely limits the scope of its investigation it would provide sweeping clearances to De Beers and Alrosa that enable them to claim that all of their activities are legitimate and have been fairly investigated when this is not true.”

Hitting Above and Below the Belt

The very raison d’?tre for the Competition Commission is to guarantee free, competitive markets. Nothing hurts the Commission more than claiming that it is doing the opposite. Writes Rapaport: “By failing to properly investigate relevant markets that are impacted by the Commission's decisions and providing clearances the Commission damages the free markets and aids in their destruction. The diamond industry would be better served if the Commission's investigation did not exist as the Commission’s provision of allowances to De Beers and Alrosa without proper investigation or attention, legitimizes activity that is illegal. We would be better off without the Commission's investigation because its outcome emboldens and legitimizes those that seek the destruction of our markets.”

There is much more. But as it is a public document, there is no need for us to present another half a dozen or charges by Rapaport against the Commission. It will suffice to note that the submission highlights under the heading “Failure to be Transparent” that “the Commission has refused to make public the documents and information that are essential for the presentation of views that are contrary to those of De Beers and/or Alrosa. The Commission has refused requests, including by Rapaport, to release full details of the notified De Beers/Alrosa Trade Agreement. Such information is vital to understand the proposed agreement and to enable third parties to properly comment.”

Charges Rapaport: “It is believed that the notified trade agreement which the EC and the parties refuse to release contains similar illegal terms and conditions that enable and encourage price fixing between the parties. How can the Commission claim to have meaningfully consulted the industry if it refuses to disclose sufficient detail on the agreements that would enable comments on these issues?”

Charges Rapaport: “Such a fundamental agreement between the largest and second largest diamond producers in the world cannot be a legitimate trade secret. Indeed, if the Commission had proceeded to an infringement decision in accordance with its Statement of Objection, it would in any event have published all aspects of the Agreement that it thought relevant. By not proceeding with an infringement decision and by also not investigating charges of price fixing the Commission is aiding and abetting potentially illegal activity.”[Emphasis added.]

It is Personal, is it?

Rapaport is not a Sightholder, he is not a potential Sightholder – actually, I find it hard to define what he really is beyond a price guru and a beloved editorial target of Charles Wyndham’s PolishedPrices. The submission states that the Rapaport “Group has played an advocacy role in a number of areas including fair disclosure for treated diamonds, eradication of conflict diamonds and the establishment of the Kimberley Process and the promotion of free, fair, honest, open and competitive diamond markets.” Some might argue with parts of the description, but that isn’t the issue here. It is clear that Rapaport is taking the EC’s ignorance of his submission very personally. Allow me to quote Rapaport on Rapaport:

“Rapaport is clearly unhappy with the workings of the Commission and questions the soundness of the Commission's De Beers SoC and De Beers Alrosa investigations,” says Rapaport. “We note that in spite of the great effort we invested in our SoC submission of 12 December and the fact that we were the only party to make a submission, and that we offered to answer any or all questions about our submission, and that we are one of the most noted experts on diamond prices and diamond markets – no one from the Commission ever contacted us for any additional information or indicated any desire to follow up with the points made in our submission. Not one telephone call. Not surprisingly our submission was entirely ignored. It is now obvious to us that the Commission was merely going through the procedures with no intention of taking our comments seriously,” concludes the submission.

The next step in “Boney versus Brussels” is up to the European Commission. Competition Commissioner Neelie Kroes will have learned this month something every diamantaire could have told her: you are allowed either to love or hate Rapaport – like most of us – but you ignore him only at your own peril. Let’s see what happens next.

Have a nice weekend – you too, Martin.