The King of Oil: The Secret Lives of Marc Rich

by Daniel Ammann

The American authorities were aware of the importance of a provisional arrest. “Usually, the key to a successful extradition is the provisional arrest of the fugitive,” Alvin D. Lodish later explained in this matter. Lodish served as a senior trial attorney with the Office of International Affairs at the U.S. Department of Justice. “Many cases are quickly resolved after the provisional arrest has been perfected. The requirements for provisional arrest are significantly less burdensome than the requirements for the full extradition.”8

  Giuliani’s tough-guy bearing got in the way of all this. It was one of the early cases of American legal (and political) isolationism—the tendency of the American government to ignore other jurisdictions. It was a strategy that led the United States into a blind alley. In retrospect, it is striking how the most powerful nation on earth proceeded: without forging alliances, without having a comprehensive strategy, without taking into account the political realities—at the risk of alienating friends and allies.

  Giuliani’s “shoot first, ask questions later mentality” led to a “fruitless stalemate,” according to a diplomat in the Swiss capital who was assigned to the case. Thus the window of opportunity that had been wide open in the summer of 1983 was bolted and barred a year later. According to Leutert, Assistant U.S. Attorney Weinberg “was very aggressive with me personally and very impolite. He treated me as if I were a representative of a banana republic or a criminal government.” That is hardly the best way to treat someone you are asking for cooperation and information. It is therefore not surprising that Leutert soon came to the conclusion that prosecutors were “not at all interested in finding a solution.” The commentary in the British Economist magazine was brief and to the point: “[The Americans] have antagonized the understandably furious Swiss at the wrong moment.”9

  The Swiss, whose stubbornness toward larger countries helped them to win and helps them to retain their independence, were not about to bow to pressure. They felt U.S. actions were a particularly grave affront because Switzerland has represented U.S. interests in Havana and Tehran since the severing of diplomatic ties with Cuba in January 1961 and Iran after the 1979 Iranian hostage crisis.

  Independent observers have also been critical of U.S. legal actions in the case of Marc Rich. “The Marc Rich litigation . . . has been a case study in how not to achieve successful intergovernmental cooperation,” criticized J. Ross MacDonald, one of the leading tax experts in the United States.10 The American authorities “ignored interest balancing entirely” in this case, admonished Harold G. Maier, who served as counselor on international law to the U.S. State Department at the time. “The sharpest confrontations and the ones with the greatest potential for disrupting amicable political and economic relations . . . occur when the United States seeks to use its power over persons or entities before its courts or agencies to enforce its policies by requiring or prohibiting acts or omissions abroad that are contrary to the laws or policies of the foreign territorial sovereign.”11

  Maier’s opinion, which asserts that such actions only serve to harm the United States, leaves no room for doubt. “Protection of sovereign rights is not solely, or even primarily, for the benefit of individual nations. It is in the interest of the general community as well . . . In those instances where a direct clash of sovereign policies and assertion of United States enforcement jurisdiction will inevitably lead to requiring acts contrary to the legitimate wishes of a foreign sovereign in its own territory, United States courts should indulge the strong presumption that international law and, thus, the law of the United States does not permit such interference.”12

  The damage caused by American legal isolationism in the case of Marc Rich was also highlighted by the British economist Alan Neale, a world authority on international law. “It is hard to avoid the conclusion that . . . claims to U.S. jurisdiction which have encroached on the sovereign rights of other countries have largely been a disaster for the United States. . . . In the Marc Rich case, the insistence of the U.S. Department of Justice on enforcing U.S. court subpoenas against the Swiss-incorporated company (combined with a curiously negligent approach to obtaining the documents held by the associated U.S. company) was wholly ineffective.”13

  Why were Giuliani and Weinberg so uncooperative in their dealings with Swiss authorities? Why did they fail to take advantage of so many opportunities? Why did they choose to allow the case to escalate? Giuliani refused several times to be interviewed or answer written questions even though I took great pains to schedule an interview that would fit in with his schedule. Weinberg was visibly annoyed when I brought up the inconsistencies surrounding the matter of Rich’s extradition during our interview in his office. “We don’t do the extraditions,” he finally said. “The extradition is handled through the Department of Justice, through the Office of International Affairs in Washington.” When I provoked him by suggesting that he must have been pleased with the case’s escalation, Weinberg answered after a brief pause, “The Swiss actions helped me.”

  Too Many Mistakes

  The prosecution’s lapses in the case certainly played no small role in Rich remaining at large. Even Wicki, Rich’s Swiss lawyer, was surprised—and relieved—by the prosecution’s behavior. “The U.S. government never challenged the decision of the Swiss government not to extradite Marc Rich. Neither did it renew its extradition request.” Both of these steps could have been taken without difficulty. The second extradition request would have only needed to list the charges that were punishable in both countries, such as fraud or forgery, as Leutert had suggested to Giuliani.

  Years later, in 1992, the high-powered House Committee on Government Operations set up an investigation to determine why Marc Rich and Pinky Green had never been apprehended. The committee came to the same conclusions—and raised serious allegations concerning the authorities’ actions. “It appears that no effort was made to charge additional crimes that might be extraditable or to extradite on fewer offenses. There is also a possibility that the U.S. Government may have missed opportunities to investigate potential additional violations of the law which would be more easily extraditable.”14 U.S. authorities also never sent an extradition request to Spain and Israel, where Rich traveled frequently. He often spent summer holidays in the south of Spain with his family in his villa in Marbella, and while he may initially have pursued only business interests in Israel, he more and more often visited for the purpose of furthering his philanthropic activities there.

  As evidence of the investigators’ halfhearted, almost naive approach to Rich’s extradition, the Department of Justice in the early 1990s was not even sure whether Rich actually held Israeli citizenship. It had simply neglected to address the issue.15 Back in 1984, the department had asked Israel to arrest Rich the next time he visited the country, but it was ten years before the answer came: No. The demand, Michael Ben-Yair, then Israel’s attorney general, explained, “was not followed by an extradition request or a copy of the charges and affidavits. We considered the issue and found it had no legal validity. The charges against Mr. Rich were fiscal and not fraud-related, and, therefore, the extradition treaty between the two countries did not cover his case.”16

  U.S. authorities did not even attempt to have Rich extradited from Spain, as they simply assumed that the country did not allow the extradition of its own citizens. The fact that U.S. authorities were satisfied with this assumption was harshly criticized by the House committee: “These citizenships were acquired after the date in which the crimes were alleged to have been committed, thus, their nationality should not be a bar to extradition.”17 Furthermore, the U.S. National Central Bureau of Interpol did not issue an International Red Notice (File No. 5031/87, Control No. A–147/4/1987) until three years after the indictment. An Interpol Red Notice requests the provisional arrest of a subject with a view toward extradition. Red Notices have traditionally played a very important role in apprehending international fugitives, and all law enforcement experts know that the sooner a Red Notice is issued, t
he greater the chance that the suspect will be detained. The sheer number of mistakes and delayed actions on the behalf of the prosecution would appear to indicate that Giuliani, Weinberg, and their successors were in no way inconvenienced by the fact that Rich and Green were never apprehended. The situation was quite clear to the House committee: “The United States lacked the political will to effect the return of these fugitives.”18

  Not Presumed Innocent

  Marc Rich was never convicted. The case never had the opportunity to go to trial, as Rich never returned to the United States. No court ever issued a ruling on the validity of the government’s charges against him. If we are to follow the time-honored American tradition of “innocent until proven guilty,” then Rich must be considered innocent.19

  The reality is something entirely different. Rich was judged both before the media and in the court of public opinion, and many journalists and politicians have made statements that violated Rich’s right to be presumed innocent. Over the course of time, Rich has been transformed from a suspect and defendant into a fraudster and an enemy of the state—and none of these accusations has ever been proven in court. Even prosecutor Sandy Weinberg found that Rich “had been tarnished and tainted and represented basically as one of the world’s greatest criminals.”20

  It is the purpose of this book not to prove Rich’s guilt or innocence but to pose questions and to point out the mistakes made throughout the entire affair by all sides. The legal situation is not as clear as the prosecution’s case described in the previous chapter of this book. In fact, some of the United States’ top legal experts have come to the conclusion that the investigation and the indictment were flawed. These experts include the former White House counsels Leonard Garment and Jack Quinn; I. Lewis “Scooter” Libby, former assistant to the president and chief of staff to the vice president; Professor Martin Ginsburg of Georgetown University Law Center; Bernard Wolfman from the Harvard School of Law; and Laurence Urgenson, former deputy assistant attorney general and chief of the Fraud Section of the Department of Justice. All are convinced that Marc Rich is innocent of the charges brought against him.

  Over the years, Rich has hired all of these lawyers to scrutinize his case and, in some cases, to defend him in court. Nonetheless, their arguments must be taken seriously.

  Five Flaws

  Their conclusion is based on the following five points, which do indeed raise serious doubts about the charges presented in the indictment. Years later, Jack Quinn would list some of these arguments in the petition made to President Clinton for Rich’s pardon (see chapter 18).

  1. RICO. Rich’s was the first case in which RICO—the Racketeer Influenced and Corrupt Organizations Act—and RICO forfeiture statutes were employed in a case of white-collar crime that had nothing to do with the Mafia, the drug trade, kidnapping, or murder. Rich’s lawyers were critical of the fact that Rudy Giuliani and Sandy Weinberg had transformed a relatively straightforward tax evasion case into a draconian RICO prosecution. “RICO was misused as a sledgehammer to attack Rich,” Jack Quinn told me during a long telephone interview. He was chief of staff for Vice President Al Gore before becoming White House counsel for President Bill Clinton. Quinn was keen to point out that after Rich’s indictment, the Justice Department determined that Congress had not intended RICO statutes or mail and wire fraud charges to be applied in cases of tax evasion.21 Even more important, the Justice Department recognized the coercive effect of overdrawn RICO forfeitures and in 1989 consequently prohibited prosecutors from seeking forfeitures or pretrial restraints that are disproportionate or disrupt normal and legitimate activities.22

  2. Civil, not criminal. Rich’s lawyers stress that this case was unique in that the charges against Rich’s companies were criminal rather than civil in nature. In all other comparable actions, they say, the cases were tried by civil courts. According to Rich’s legal team, the case was in essence a regulatory dispute concerning price control and taxes. None of the U.S. oil producers, who were the ones who insisted on linking their domestic oil sales with offshore foreign oil transactions, was ever criminally prosecuted.

  3. Department of Energy. In a related 1985 case, Rich’s lawyers argue, the U.S. Department of Energy had recognized that Rich’s companies had properly linked the domestic and foreign transactions for accounting purposes. Prosecutors took the exact opposite position and attacked some of the same transactions in their indictment.

  4. The tax professors’ analysis. Leonard Garment commissioned the eminent tax professors Martin Ginsburg of Georgetown Law and Bernard Wolfman of Harvard Law School to provide an independent analysis of the transactions upon which the indictment was based. Furthermore, they expressed their opinions regarding consequences of these transactions as they relate to federal income taxes. For their efforts, Ginsburg—the husband of Supreme Court Justice Ruth Bader Ginsburg—and Wolfman received 66,199 and 30,745, respectively. The analysis came to a remarkable conclusion: “MRI and AG [Marc Rich + Co. AG] were correct in their U.S. income tax treatment of all the items in question, and there was no unreported federal income or additional tax liability attributable to any of the transactions described in the superseding indictment.”23 The report also stated that the income from the two Swiss companies was accurately treated as “foreign source income” and was thus “exempt from U.S. tax under the U.S.-Swiss tax treaty.” What the prosecutors saw as “false deductions” were actually the “costs of goods sold.” According to the two tax professors’ findings, Rich’s companies did not owe any taxes whatsoever.

  5. Iran. To this day, Rich is haunted by the accusations that he personally traded with the enemy. It was, according to Time magazine, “one of the most serious charges.”24 What many often forget is the fact that MRI and Marc Rich + Co. were both Swiss companies. MRI was “duly organized” under the laws of Switzerland in 1978 as a wholly owned subsidiary of Marc Rich + Co., which was a Swiss company duly organized in 1974. At all times relevant to the case, MRI and Marc Rich + Co. both conducted their substantial business in Zug, Switzerland, where both companies were headquartered. Such companies, Rich’s lawyers argue, and even foreign subsidiaries owned and controlled by American companies, were expressly exempted from the embargo and thus were guilty of no crimes as a result of their dealings with the Iranians. As we’ve seen, this exemption is clearly stated in the executive order issued by President Carter.25 Several companies allowed their foreign subsidiaries to trade with Iran during the hostage crisis, and two defense contractors can even be found among the list of firms that legally ignored the embargo against Iran.26

  “I believe that the Southern District of New York misconstrued the facts and the law,” Scooter Libby testified before the House Committee on Government Reform. “I do not believe that these two gentlemen [Marc Rich and Pincus Green], based on all of the evidence available to me, were guilty of the charges for which they were indicted.” 27 Libby, later assistant to President George W. Bush and chief of staff to Vice President Dick Cheney, represented Rich in the middle and late 1980s (but did not work on the pardon). “I remain to this day absolutely and unshakably convinced that the prosecutors constructed a legal house of cards in this indictment,” Jack Quinn told the House committee. “The case was fundamentally flawed.” 28 Quinn still is convinced, as he wrote to President Clinton, “of both Marc’s innocence and the outrageously prejudicial and unfair treatment of him by the then-new U.S. Attorney in New York, Mr. Guiliani [sic].”29

  Of course, it is the lawyers’ task to present their client in the best possible manner, and whoever intends to weigh up such arguments must take this fact into consideration. It is striking, however, that these arguments have generally been ignored in the years since the indictment—by the press and even more so by the judiciary (see chapter 13). The reason for this lack of discussion is probably that opinions had already been formed. Rich was described as the greatest tax fraudster in the history of the United States, and any other description would have been se
en as politically incorrect. For whatever reason, journalists and commentators usually left out the adjective “alleged” or “accused.”

  Those who fought against white-collar criminals and organized crime were the heroes of the 1970s and 1980s. Rudy Giuliani was celebrated in the tabloids as the modern incarnation of Eliot Ness, the legendary Chicago crime fighter who went up against Al Capone. Rich, on the other hand, was the bad guy who made huge profits on oil at a time when drivers were stuck in long lines at the pump. Consumers were faced with record inflation as a result of soaring oil prices, and American citizens were being held hostage by Rich’s most important business partner, Iran. To put it mildly, Rich was not exactly going to win the hearts and minds of the American public. As a longtime oil trader prosaically put it, “When the markets turn sour, many people look for someone to blame.”

  An additional problem was the fact that Rich was a tangible individual who the public could easily comprehend. His companies carried his name, whereas most other oil companies were publicly traded companies with countless anonymous stockholders. Furthermore, the public was suspicious of commodities traders in general, if only because they were capable of moving billions of dollars’ worth of goods and earning millions of dollars for themselves armed with nothing but an address book, a telephone, and a plane ticket.

  Rich’s Obstruction

  At the time, no one in the media was interested in telling the story from Rich’s perspective. This is in part due to Rich’s catastrophic communication strategy, which was completely unable to gauge the media reality of the day. Rich’s relationship to the media could at times only be described as paranoid. For years Rich gave hardly any interviews, and he was not in the habit of returning journalists’ phone calls. This, of course, meant that Rich could neither dispute nor comment on anything that had been written about him. For the most part, Rich failed even to communicate his belief in his own innocence. This cemented Rich’s image in the eyes of the public—a secretive trader with something to hide, a man who will not defend himself because there must be something behind all the allegations. His PR advisers had not kept up with the times, and in the end they did him more harm than good.