Metal Men: Marc Rich and the 10-Billion-Dollar Scam Page 2
Then things got really interesting. On Tuesday night, Aug. 9, 1983, agents from the Internal Revenue Service, acting on a tip, radioed the air-traffic controllers at John F. Kennedy Airport and ordered them to keep Zurich-bound SwissAir flight No. 11 from taking off. The agents boarded the Boeing 747 and detained a female paralegal attempting to leave the country with two steamer trunks full of the documents that Mr. Rich had promised to deliver to prosecutors. The following morning, U.S. marshals staked out Mr. Rich’s offices in the Piaget Building to keep track of the movements of all Marc Rich executives and secretaries.
Throughout these developments, Messrs. Rich and Green maintained their innocence of all charges. They also found an ally in Swiss government authorities, who viewed the legal actions as an economic threat to their country. That same morning, Switzerland’s ambassador to the U.S., Anton Hegner, personally delivered an official note of protest to the U.S. State Department over what his country considered to be heavy-handed methods the prosecution was using against Mr. Rich. Although Mr. Rich was not a Swiss citizen, the chief prosecutor of Zug canton said Mr. Rich was “being held hostage” and accused the U.S. court of conducting “economic intelligence gathering.” Zug canton’s finance director, Georg Stucky, complained that the U.S. government was “blackmailing” Mr. Rich, and the Swiss government sent two of its lawyers, Joseph Gittentag and Juerg Leutert, to represent the country’s interests in the case.
“The future of the Swiss system is on trial here,” Mr. Leutert said at the time. “We do not want to lose Marc Rich and others like him. It would ruin Switzerland.” Added Zug Mayor Othmar Kamer, “we have six large tax contributors who influence our budget and Marc Rich is one of them.”
Then the Soviet Union, Mr. Rich’s single biggest client, weighed in. “Open Blackmail,” read a page-one headline in state-controlled Izvestia on Aug. 15, 1983. “This action by the Reagan Administration against Rich,” said the article, “is an open threat, an attempt to interfere into the internal affairs of Western European countries through the threat of economic sanctions.” What had begun as an investigation into daisy-chaining had turned into a full-blown international incident.
In September 1983, shortly after getting an angry call from the State Department, Mr. Weinberg filed a 51-count indictment (14 additional counts were later added) charging Messrs. Rich and Green with racketeering, mail and wire fraud and tax evasion.
There was more: The indictments also accused the two men of using the U.S. Post Office Express Mail service to send false profit statements — and of devising secret telex codes to transmit the details of deals with the Ayatollah Ruhollah Khomeini during the Iranian hostage crisis. Warrants were issued for their arrest on Sept. 19, 1983, but by then Messrs. Rich and Green had slipped out of the U.S. and were back in Switzerland, where none of the charges are deemed extraditable offenses. Mr. Rich applied for — and was quickly granted — Spanish citizenship. Mr. Green became a Bolivian.
On Oct. 10, 1984, Marc Rich AG, Marc Rich International and Clarendon Ltd. pleaded guilty to 38 counts of tax evasion, $50 million in illegal oil profits in 1980 and 1981, and making false statements to the U.S. government. Together, the three entities were required to pay more than $133 million in fines.
The payment was delivered in Mr. Weinberg’s office the next day in one of the more surreal moments of American finance. “Twenty lawyers in a room,” recalled former federal prosecutor Martin Auerbach. “Marvin Davis’s lawyer hands Rich’s lawyer a $116 million check for the purchase of 20th Century Fox. Rich’s lawyer hands Chase Manhattan’s lawyer a $130 million check for the money he owed the banks. And Chase Manhattan’s lawyer hands Sandy Weinberg a check for $133,081,306.76 in fines and penalties. All anyone could do was gawk.”
There was one catch: Messrs. Rich and Green were still fugitives. Although the court case was over for the corporate entities, the two individuals still faced charges of racketeering, fraud, tax evasion and trading with the enemy. “I wanted those boys in jail,” Mr. Weinberg said immediately after the settlement. “But they can never come back to the U.S. as free men — never. Those indictments are outstanding — no statute of limitations. But Marc and Pinky will try to come back. You can bet on it.”
It was a good bet. For the next 17 years, Messrs. Rich and Green bided their time in Switzerland, beyond the reach of a special team of U.S. marshals and international executives who operated under the code name Otford Project and had been given the task of bringing them back to the U.S. But Mr. Rich has always taken pride in his ability to trade for anything, even the right to return to the U.S. The negotiations began in 1987, when Mr. Rich first expressed a desire to return, providing he had written assurance from the Justice Department that he wouldn’t have to spend any time in jail. Mr. Weinberg and his successors laughed at the proposal. “We met with Rich privately in Zurich in 1992,” says one former Justice Department official. “Rich didn’t look the part of the all powerful Oz. He was sweating and he was scared of spending even one minute behind bars. And that’s where we were going to put him, for at least three years.”
So why, one might ask, did U.S. government departments continue to do business with Messrs. Rich and Green? In 1985, for example, U.S. Congressional investigators discovered that Mr. Rich’s Swiss-based grain operation, Richco, had racked up nearly $100 million in sales through a Department of Agriculture subsidy program designed to help foreign nations purchase American wheat and barley. Then in 1988 and 1989, investigators learned that Clarendon sold nearly $30 million worth of nickel, copper and zinc to the U.S. Mint. Shortly after that, the Interior Department approved a request from the government of the U.S. Virgin Islands that allowed Rich to finance its purchase of a $45 million alumina plant in St. Croix.
Former congressman Dan Glickman, who later served as Secretary of Agriculture in the Clinton Administration, at the time called for hearings into the U.S. doing business with its most-wanted white-collar fugitive. “What I say is for the U.S. to be on the side of the angels,” Mr. Glickman said in 1989. “The government currently isn’t on that side. Rich is using a corporate identity to shield himself from his corruption. America ought not to do business with him. Absolute negligence and incompetence caused this to happen.”
A few years ago, Mr. Rich moved from his palatial residence atop a Zug street called the Kingdom of Heaven to the Villa Rosa in Meggan. From there, he continues to pull the levers of a global trading machine in investment, finance and real-estate companies. At least six of these companies bear his name.
Despite his presidential pardon, Mr. Rich so far has remained in seclusion. Efforts to reach him at his home and his office were unsuccessful. “He’s on vacation,” says the housekeeper of Villa Rosa.
But stay tuned.
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Prologue
“White knights shine too brightly on the battlefield. They get knocked off too easily.”
— Lee Marvin
IT WOULD HAVE been impossible to write from the outside about fugitive American trader Marc Rich and the men who absolutely control the market for the Earth’s natural resources. Beyond the unique experience of living and working among metal traders, the secretive nature of their lives necessitated my physically becoming a trader. I went inside and spent a year observing their profession as a working trader with international bankers, ship owners, oil dealers, commodity traders, exchange brokers, and mining executives.
I bargained for tungsten and cadmium in China; negotiated the establishment of shadowy offshore companies in Switzerland, the Cayman Islands, Panama, and the Netherlands’ Antilles. When the war between Iran and Iraq reached fever pitch in 1984, I assisted in brokering oil cargoes on the Red Sea and fielded daily reports from the Kharg Island petroleum terminals off the Iranian coast. On occasion I found myself being directed to trade Midwestern corn for African cobalt or haggling for the rights to a British fish farm in return for a piece of action on a $1 million deal for a metal called ferro vanadiu
m. Anything … any deal was possible.
The pace of a trader is nonstop. As a junior trader at one of the London trading houses where I worked, I had to arise daily at five A.M. to review the overnight telex traffic from Hong Kong and Singapore to see whether or not there was any Far Eastern market action to be taken advantage of before dawn rose on the Western world. To ensure that I got out of bed on time, a telex machine was installed next to my bedroom and the incoming bell was turned up to its highest volume.
On a trip to the Dutch port of Rotterdam, I was ferried by skiff through twelve miles of choppy North Sea swells to a cargo ship hauling iron ore that apparently belonged to Marc Rich. Once in port I helped offload the loose ore buried in the ship’s hold. Days were spent exploring and working in Rotterdam’s vast complex of metal warehouses and oil terminals. At one point I was flown by helicopter to meet with sources on an oil tanker speeding into port, lowered onto the moving supership through English Channel crosswinds by harness.
In the Soviet Union, Western traders allowed me to accompany them into Russian corporate suites to observe firsthand how politically sensitive deals were structured. A few hours before I was to step onto a plane to China with a London metal trader who had made me his apprentice, another multimillion-dollar deal transpired in Chicago, forcing him to fly west, as I sped east with directives to negotiate for millions of dollars’ worth of Chinese metal. “Just do everything I told you,” the trader advised as he put me in a car to London’s Gatwick Airport. “A solo experience will make you understand the edge we live on.”
Another key reason why I became a trader was that Marc Rich refused all requests to be interviewed, making it critical to enter his world so that I might get as close to the man as possible.
Marc Rich is known as a metal trader, but he deals, like all metal traders, in whatever products come out of the Earth — metal, oil, gas, grain. To watch the metal men trade is to view a particular business phenomenon: men, who by virtue of their wits, are able to operate as powerful and uncontested freelance salesmen of the Earth’s resources. Originally, metal men dealt solely in metal. But as times changed, so did the metal men, and their markets grew to include anything buried or sown in the Earth. Although a metal man might make more money from a particular oil or grain deal, he is still known as a metal man because trading metal is the foundation of his business. No matter the material traded, the conundrum is how to make money out of whatever the Earth has to offer.
Marc Rich is their greatest moneymaker. Right now he is in self-proclaimed exile in Switzerland, remaining there to avoid federal warrants for his arrest in the largest criminal scheme to evade taxes in American history. Under the open protection of the Swiss government, his various companies are still trading over $12 billion worth of metal, oil, and other commodities in America and around the world.
I first collided with Marc Rich in the summer of 1982 in his penthouse office in Manhattan’s Piaget Building. The occasion was entirely coincidental: I had friends in the trading business, and we had arranged to meet some people who worked at Marc Rich International, Rich’s American company. Marc Rich entered the office lobby as we were about to board an elevator. “That’s Marc Rich,” said one of the traders. “They say he’s worth $10 billion.”
The meeting would have remained forgettable, except that one year later Marc Rich was slapped with a fifty-one-count federal indictment on a host of criminal conspiracy charges, transforming the $10 billion man I had seen in a lobby into the most wanted white-collar criminal in America. I began asking questions and before too long discovered that the personal and corporate character of Marc Rich provided a unique opportunity to observe what happens when money — real money — goes berserk.
I became a metal trader on December 1, 1983. My friends and acquaintances in the trading profession provided the necessary introductions and, on occasion, cover stories to explain my presence within the metal world. Over two hundred people with knowledge of Marc Rich, his far-flung financial interests, and personal habits were interviewed. No one was quoted on Marc Rich without prior knowledge. Many of these men would not cooperate unless their anonymity was guaranteed. One of the reasons for their request was that Marc Rich still owed them money; others were frightened of what Rich might do to anyone who appeared disloyal to his empire in the wake of a massive federal investigation into his personal activities and business practices. Rich was obviously an incredibly powerful man.
I never spoke with Marc Rich, but I did collide with him again at high noon, March 12, 1984, in the tiny Swiss canton of Zug. He was on the lam.
I had followed the instructions of an inside source and waited in the lobby of his international corporate headquarters high-rise. He slid anonymously out of one of the elevators and down a snow-dusted street past a vacant lot into a Swiss pizza joint dolled up to resemble a classy Italian restaurant. I stalked him to the restaurant and waited until he had entered. He was greeted immediately by the owner and ushered quickly to a table in the back corner. But before Rich settled into the wooden chair to lunch with his business partner, Pinky Green, his dark eyes coolly scanned the dining area, like Butch Cassidy searching for the Pinkerton Boys. Finally satisfied he would be alone with Green, he sat down, his back against the wall and with a clear view of the comings and goings of the lunchtime crowd.
I took a table nearby and watched. Rich was quite tall, with spidery legs, sinewy fingers, a St. Moritz tan, and absolutely no trace of a smile. On sight, it was strikingly clear that what I had been told about Marc Rich was true. His physical presence was commanding, and it was easy to understand why he was a force majeure in the multibillion-dollar commodity business. Many traders actually trembled when his name was mentioned; all of them assured me that Rich was a man who would gamble his life if the financial reward were high enough. Sitting there in a jet-black suit at a safe remove from the federal posse in New York City trying to extradite him back to the United States, he certainly dressed the part of an executive outlaw.
Soon after his arrival, a waiter sped up with a steaming plate of pasta and a glass of ruby-red wine, whereupon Rich began to roll his hands together like a child about to dive into his favorite food. After a few zestily devoured forkfuls, he stood up and started toward the bathroom. It seemed like the only shot I would have at meeting Rich mano a mano and without having to deal with Green and the other guys who hovered constantly around him like worker bees attending their queen. The dining area was reasonably empty, so when he walked by me I stood up and said calmly, “Mr. Rich …” but I never finished. He looked at me, frightened, his chilly brown eyes flashing the agony of ripped flesh. Hunching over, he bounded quickly through the kitchen and then backtracked slightly to reach the bathroom. Marc Rich, the man whom the United States Justice Department privately called the most corrupt corporate executive in America, never returned to finish his lunch. He was gone. Marc Rich, king of the commodity cowboys, had heaved himself through the washroom window of a Zug pizzeria to avoid comment, leaving his blue cashmere overcoat, a Florentine leather briefcase, and an unfinished lunch of capellini d’angelo and filetto al pomodoro on the table with Pinky Green. What you will read is the story of the man who escaped through that bathroom window and of the world he leapt into.
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Part I
Mineral Rites
Chapter 1
“See here, old bean,” the consul heard himself saying, “to have against you Franco, or Hitler, is one thing, but to have Actinium, Argon, Beryllium, Dysprosium, Niobium, Palladium, Praseodymium, Ruthenium, Samarium, Silicon, Tantalum, Tellurium, Terbium, Thorium, Thulium, Titanium, Uranium, Vanadium, Virginium, Xenon, Ytterbium, Yttrium, Zirconium, to say nothing of Europium and Germanium — ahip! — and Columbium! — against you, and all the others, is another.”
— Malcolm Lowry, UNDER THE VOLCANO
CITY OF LONDON, core of the industrial trading world, had fallen prey to a damp North Sea winter. Numbing Arctic winds, gather
ing the bitter damp as they blasted south across the Norfolk Broads, burrowed through the mist of schemes to buy and sell the Earth’s crust like mud worms, sending London’s metal traders in search of the nearest bottle of bonded bourbon. They all needed a drink. The big money these guys liked to roll for had surrendered to the weather and stayed frozen. The strength of the 1984 Ronald Wilson Reagan dollar was growing daily against all foreign currencies, causing fiscal headaches for traders acquiring dollars with devalued Eurocurrencies in order to buy metal contracted to be purchased in dollars. It was a preposterous situation.
Trader Robbins called it gout season — the time of year when industrial doges discussed the effects of ballooning cobalt prices with struggling African economic ministers over glass after glass of French Grand Cru poured by the waiters at Langan’s Brasserie in Mayfair. The expense accounts were working overtime, every senior trader in town putting at least one afternoon aside to court a fresh banker and crank up a bank line. Pubs in the City overflowed with junior varsity traders dispatched to slosh up commodity market floor brokers with enormous jars of Guinness and doughy pub sausages slathered in steak sauce. All the metal men were on the prowl, looking for the next swizzle, the next hot metal that could be bought, sold, or sacrificed to bring some life back into the torpid market.
“We metal traders are jugglers without arms,” Robbins declared, bored over his second pint of afternoon lager and the small $5,000 realized that morning selling Russian rhodium, the most expensive of the platinum-based metals, to an American who would probably sell it for use in the construction of an American cruise missile guidance system. “We make money out of disasters. Disruption compels people to run for cover. We provide that cover. But it is essential that you never believe everything you hear from a metal trader because he will only tell you what it suits his current inventory to tell you.”