During the first weeks of 2002, I believe it was January, Tony Carbonetti and I were out walking my dog one night. Tony had just started working at Giuliani Partners, the firm he, Rudy and Denny Young had formed to rake in big bucks following the end of Rudy's mayoralty. We had had similar walks during the prior weeks where Tony, for the first time in my experience, had expressed grave doubts about his ability to do the job - any job. The people at Ernst & Young and the whole office surrounding there spooked him. Unlike me, Tony had never worked in corporate America and he was feeling very insecure about his talents. I bucked him up and assured him that those Ernst & Young guys were more in awe of America's Mayor and his team then you were of them. I gave him some tips on how to handle them and offered some management advice going forward. I'd seen him vulnerable before, especially during HANAC, but not insecure.
Tony had confided in me on many occasions. When he was going to propose to Carol it was me that he called to meet him at the jeweler on 47th Street to help select the diamond he purchased for cash. I was the one he let select the setting and band. "Platinum, always platinum," I said. And sadly, I was, to my knowledge, the only one he told that shortly after his engagement he cheated on Carol in a one-night stand with a model. Tony had an obsession with models. His dream girl was supermodel Heidi Klum and he had managed to have a picture taken with her sitting on his lap that he displayed prominently in his City Hall office. That one-night stand, while conflicting, was a dream come true for him.
But on this night Tony was anything but insecure. He had news and he was practically giddy. He told me that Giuliani Partners (GP)- really Rudy - had been contacted by De Beers. He explained that De Beers had been under a long-standing U.S. federal indictment that had turned into a nightmare for them. Most of the executives would not or could not step foot in the United States without risk of arrest. The federal case had something to do with price-fixing and De Beers had tried for years to settle this with Justice to no avail. Tony said, like a good advocate, that after speaking to De Beers, he was convinced they were being treated unfairly by DOJ. He said that DOJ was "inflexible." He told me that they wanted Rudy to come to London to discuss intervening with DOJ on their behalf. Tony was confident that he would be going too. We had a laugh because he had avoided for years getting a passport and now he would have to.
Whenever he, Vinny LaPadula and I traveled to the Bahamas, Tony would carefully present the most tattered birth certificate I had ever seen to Bahamian Customs. Back then that was all you needed.
Tony said of De Beers, "they are willing to pay us a fortune to get this resolved. Between our contacts with Rove and Ashcroft we're sure we can fix this quickly." Tony explained that De Beers' need for a resolution was urgent as their long-term strategic goal for the U.S., namely the opening of retail stores, was stymied until this was resolved.
As he mentioned this it occurred to me that I had given it passing thought over the years, when seeing those De Beers ads, that they did not have any retail stores. I had assumed that like the motion picture industry that could not produce the content and own the exhibition space - for anti-trust reasons - De Beers could not produce the diamonds and sell them directly to consumers. Apparently that was not so. They only reason they weren't was because of this indictment. Clearly they would pay a fortune, since even I could see the profit potential in having De Beers branded stores across the U.S. Every year that went by without a retail presence must be costing them millions.
That was the first and last conversation that Tony and I had on this subject. I don't know why we never had a follow-up. I can only assume my legal troubles took precedence in most of our ensuing conversations. While in prison I saw a small item in the newspaper that De Beers had plead guilty to price fixing. It was heralded as a major win by DOJ. Recently I decided to look into this matter further. I read the press release on the DOJ website announcing the De Beers plea agreement in 2004. I was stunned. It is probably not an understatement to say that short of an acquittal at trial, no criminal defendant has ever received so favorable a resolution to a federal criminal indictment.
DOJ for over a decade had been completely unwilling to enter into negotiations with De Beers. They had been, as Tony said, "inflexible". So much so, as I have said, that their executives dare not step foot in the country. And what was the outcome of this plea? A $10 million dollar fine. DOJ says that under the Sherman Anti-Trust Act the maximum fine is $10 million dollars and they trumpeted this. BUT - it also says that the Government can impose a greater fine of twice the gain derived or twice the loss suffered by victims of the crime. Conspiring to raise the world price of industrial diamonds for a period of years did not net De Beers in excess of say, $6 million dollars? (two times six equaling twelve which would have been a larger number than ten). The U.S. Government would not even enter into negotiations with De Beers for over a decade for a matter that was not even a $6 million dollar criminal offense?
Because if the true loss were many millions of dollars one would naturally ask why Justice opted for the lesser more defendant friendly amount of $10 million dollars. And even more relevant, if that offer had been on the table for over a decade why would De Beers not have taken it? Let's be serious. To De Beers, $10 million dollars is chump change. They would have gladly payed that years and years ago to resolve this. Bear in mind the DOJ plea names no De Beers executive culpable and does not limit their business practice in the U.S or anywhere else. According to the press release all DOJ got in addition to the $10 million dollars was De Beers acknowledgment that DOJ had jurisdiction in the first place. This took thirteen years to achieve? A major victory in industrial price fixing as the release suggests? Hardly.
What changed between that conversation in early 2002 and the plea in 2004? Based on Tony's description of the DOJ position as "inflexible", something moved this agreement along. The question I am asking is what. What moved this agreement along?
Is it possible that Giuliani Partners declined De Beers as a client after their initial meeting in 2002 and nothing further transpired? Certainly. I have no knowledge that they eventually signed them as a client. But I found it shocking during the campaign that the press corps let Rudy and Peter Powers get away with refusing to release the client list of Giuliani Partners. It is unimaginable to me that the press would let a major, serious presidential candidate refuse to divulge by whom he was being paid. But Rudy's still lingering 9/11 aura changed the normal rules. Try and conceive of another serious presidential candidate saying, "I am not going to tell you who pays my salary." It is unthinkable. It could never happen. Yet the press let Rudy and Peter get away with it.
If Giuliani Partners accepted De Beers as a client and lobbied DOJ or the White House, didn't the public have a right to know that during the campaign? There was a reason people believed his client list was an important campaign issue. This De Beers matter, or others like it, could have been examined. But without knowing their clients, it could never happen. If the press does its job now and at least asks the basic questions as to what role if any Giuliani Partners played in the settlement of this De Beers matter I hope they will do so with a keen eye towards a parsed answer. Giuliani Partners is a hydra with many heads. It is possible that the actual entity 'Giuliani Partners' didn't do the work but another related entity did. I am hoping the press will get Shermanesque statements from Giuliani Partners if it turns out that they did indeed refuse De Beers' offer of assistance in exchange for a "fortune". Because what I do know is that immediately after that settlement De Beers started opening retail stores all over the country. They now exist in many cities, including on Rodeo Drive, Caesar's Palace in Las Vegas, and on Fifth Avenue; exactly what Tony Carbonetti said was the point all along of any settlement that they hoped Rudy Giuliani could bring about.
And if it turns out that where I am alleging smoke turns out to produce no fire, I make no apologies. Whether a law or lobbying firm, somebody out there turned in a virtuoso performance on behalf of De Beers in settlement negotiations with DOJ. It's about time they stood up and took a bow. For achieving one of the greatest settlement deals in the history of the U.S. Department of Justice they deserve recognition and should get a round of applause. We deserve to know for whom to clap.
Comments