The King of Oil: The Secret Lives of Marc Rich

by Daniel Ammann

  “Not One Day in Jail”

  Garment tried to cheer Rich up after the meeting even though he was deeply disappointed by the prosecution’s refusal to negotiate. His client only had two options. Rich could either take his chance on a trial or plead guilty to some charge, which might involve a short prison term. “It’s a few months,” Garment told Rich. “You’ll lose weight. It’ll be easy. No manacles. You’ll come back.”3 Rich shot back immediately, “Not one day. I will not spend one day in jail, because I did not commit a crime.” As a child, Rich had been held in an internment camp in Morocco with his parents. Close friends say that was one of his most traumatic experiences, and he never wanted to face imprisonment again. “It goes against my nature,” he says when asked why he did not agree to go back. “I’m innocent. I like to be free.”

  Rich nevertheless refused to quit. After all, he had become one of the most successful traders of all time because he never gave up. For him, a no was never final. Rich always thought long term in business, and his approach to his case was no different: “Let it sit for a while and try it again.” Every time a new U.S. attorney or assistant U.S. attorney was appointed, his lawyers tried to make contact. Their names read like a who’s who of the American justice system.

  When Obermaier left office in 1993, Mary Jo White became the first woman to be appointed U.S. attorney in the Southern District of New York. Later in the same year, she was to preside over the successful prosecutions in the World Trade Center bombing cases. She was also ultimately to become the prosecutor in charge of the investigation surrounding President Clinton’s decision to pardon Rich. “We are hopeful you will agree that the time for a constructive dialogue with the Government is now,” Jack Quinn wrote in a letter requesting a meeting.4 The hope was dashed.

  When Gerard E. Lynch, who played an important role in the Iran-Contra investigation, was named head of the Criminal Division of the Southern District of New York, he received a letter from Professor Bernard Wolfman, one of the coauthors of the tax analysis. “Professor Ginsburg and I would be happy to discuss our views with you at your convenience and hope you will afford us the opportunity to do so,” Wolf-man wrote.5 Lynch didn’t afford the opportunity.

  Patrick Fitzgerald also received a letter when he was assistant U.S. attorney; he would later become famous for his role as special counsel in charge of the Department of Justice’s investigation into the Valerie Plame Wilson affair. “The discussions we seek,” Rich’s lawyer Laurence A. Urgenson wrote to Fitzgerald, “concern clear and important issues which we assure you can be determined with a modest investment of time and without running afoul of your office policies.”6 Fitzgerald turned down the request.

  No Negotiations with Fugitives

  Just as Rich’s lawyers trotted out the same arguments over and over again, the prosecutors rejected them with the same arguments. “There is every reason to believe that if a full discussion of the evidence took place and convinced you that the Government could prove your clients’ guilt, little would change,” Fitzgerald wrote to Urgenson.7 “Your clients would continue their life on the lam—with, perhaps, another change of lawyers. It is for that reason that the Government views discussions as to the merits of the case as inappropriate and pointless.”

  “It is our firm policy not to negotiate dispositions of criminal charges with fugitives,” Mary Jo White told Jack Quinn.8 “Such negotiations would give defendants an incentive to flee, and from the Government’s perspective, would provide defendants with the inappropriate leverage and luxury of remaining absent unless and until the Government agrees to their terms.” André Wicki, a thoughtful, humorous man, is annoyed by White’s response to this day. “There is no such policy. On the contrary. Federal prosecutors in the Southern District and elsewhere have entered into negotiation and settlement of criminal cases against indicted individuals who did not return to face trial,” he says.

  It is surprising the amount of time and the enormous quantity of money that Rich was prepared to invest trying his luck with the Southern District of New York only to be disappointed time and time again. He spent millions in lawyers’ fees. It was not unusual for one of his lawyers to receive a retainer of 55,000—per month.

  “Personal interests and feelings on their side got into the way of a fair solution. I kept trying and nothing succeeded,” Rich says matter-of factly, as if he were talking about the lottery. So why on earth did he make the effort? “It’s normal,” he says. “I’m innocent.” “You could have said to yourself,” I interject, “ ‘I’m safe in Switzerland, business is going well, let’s forget about this case in the United States and move on.’ ” “I did pretty much that, but I was always interested to settle it if possible,” Rich answers. I ask him what the advantage of a settlement would have been. “To be completely free,” he says, “which is what I am now.” Why were the prosecutors of the Southern District of New York so dogged? “I guess they had nothing to gain by settling,” Rich says quietly, not betraying any sign of how angry he was at the behavior of the prosecutors back then. “Marc was genuinely completely confounded as to why he was so vilified and unable to present, you know, his side of the story and put it into context,” Laurence Urgenson revealed.

  “Vindictive Time”

  Marc Rich’s lawyers do not try to conceal their dissatisfaction with U.S. justice, as it was practiced in the Southern District of New York. “The fact that this truth mattered not one whit to the U.S. Attorney’s office, and the fact that the political system as a whole allowed the prosecutors to behave with such willfulness, was one of the chief examples of the dangerous state into which our politics had fallen after Watergate,” wrote Leonard Garment, referring to a “vindictive time.” “[Marc Rich] had the bad luck to be pulled into the vortex of post-Vietnam, post-Watergate American politics, in which every policy problem was labeled a scandal and each dispute with the government was considered a criminal matter.”9 The U.S. attorneys, Bob Fink said, “were much more interested in maintaining the credibility of the U.S. Attorney’s Office than in reviewing if mistakes had been made. If they were wrong in such an important case it would damage their reputation and influence.”

  Marc Rich spent almost two decades on the FBI’s Most Wanted list. His name was only removed from it on January 21, 2001—the day after Bill Clinton pardoned him. This fact made Rich’s business transactions rather more difficult, but it did not put a stop to them. “Contrary to the myth, I was able to travel to a number of other countries, so I did not feel too restricted,” he told me. He seemed to take great satisfaction from that.

  The SECRETS of SUCCESS

  From Angola to South Africa

  I

  t came as a surprise to all, and for some it was nothing less than “one of the wonders of the business world.”1 Even though he was pursued by the most powerful nation on earth, which did everything possible to thwart his business dealings, Marc Rich was able to continually expand his company, until it became the world’s largest and most successful independent oil and metals trading company. In 1990, seven years after he was indicted in New York, he was active in 128 countries, had forty-eight offices around the globe, and employed twelve hundred people. He bought and sold 1.5 million barrels of oil each day—more than the daily average output of Kuwait. He ruled over a trading empire with an annual turnover of 30 billion. The company earned anywhere from 200 million to 400 million in profits each year. Rich’s personal fortune was an estimated 1 billion. As the Financial Times stated in almost reverential terms, Rich was “one of the wealthiest and most powerful commodities traders ever to have lived.”2

  Not even the wildest optimists at Marc Rich + Co. had expected that the company would enjoy such success. Five years previously, Rich’s legal difficulties and the fact that he was living in exile had led commentators and businesspeople alike to practically write Rich off. One of his partners from the very beginning, Jacques Hachuel, was convinced that the end was nigh and decided to leave the company. The two
traders have not spoken a word since. All told, Rich’s unlikely comeback made a huge impact on the world of commodities trading.

  How did he do it? How was he able to beat the competition? What did he do differently? Why was he better? These are the most important questions when it comes to unveiling the secrets of Rich’s success. To get to the bottom of this untold story of success, I interviewed dozens of commodities traders from five continents over the past three years. In these three years (2006–2008) the world—and particularly the United States—experienced the kind of dramatic changes that have not been seen in decades. The financial crisis that began in 2008 led to developments that only the gloomiest of pessimists previously believed possible. Lehman Brothers, a traditional banking powerhouse founded in 1850, collapsed, making for the largest bankruptcy in the history of the United States. Goldman Sachs and Morgan Stanley gave up their status as investment banks. It was the end of an era.

  It’s the Long Term, Stupid

  When we look back at these crazy times in search of the deep-rooted causes of the worst financial crisis in generations, one answer will most certainly stand out: the short-term thinking that has held sway among the managers of listed companies since the 1980s. Nothing seemed more important than quarterly profits. The economic common sense that had developed over the course of decades was no longer viewed as important. Equity returns of 20 to 30 percent? Double-digit profit growth? Quick profits from risky leveraged investments? Extravagant salaries? All that was once considered extraordinary seemed routine. It was, as history has shown time and again, too good to be true. What does this have to do with Marc Rich? More than one might believe at first glance. As we have seen, his company is in many ways the antithesis of the fallen business elite that does not seem capable of looking past the next quarter. An era in which oil prices reached new records saw the reemergence of the myth of the commodities trader as a man who could make millions of dollars in seconds with a single telephone call. The reality is something entirely different. The commodities trade is a hard, capital-intensive business with tight margins. Profits of 2 to 3 percent are considered quite satisfactory in normal times. It is only during unsteady times, such as the oil crises of 1973–74 and 1979–80, that profits are significantly higher.

  In the cyclical business of the commodities trade, successful traders always have to look far ahead into the future. “The key to success—and to real wealth—is long-term thinking,” Rich says. Six months in South Africa in order to negotiate the purchase of a mine? Six months in Cuba in order to ensure a loan is paid back? Advance financing of a smelter that will not be completed for years to come? Such actions are nearly unthinkable for listed companies obsessed with quarterly returns. In some businesses, long-term thinking has been virtually forgotten. On the other hand, it is the traditional virtue of family businesses in which one generation always has its children in mind. It is my belief that this long-term way of thinking is the most important secret of Rich’s success and can explain many of the strategies and courses of action he has followed over the years.

  Rich was always interested in obtaining long-term contracts with his clients. In economic terms, the development of new markets, making business contacts, and negotiating contracts cost a lot of money. Once a business relationship has been established, many of the so-called transaction costs no longer apply. The longer the relationship, the lower the marginal costs and the higher the potential profits. “We didn’t get into a new country to make a million dollars and then go home. We went to stay there,” said a trader who had opened African markets while working for Rich in the 1970s. “We wanted to convince them we were there to stay. This was a very important basis for our success.”

  The Bribes

  The House Committee on Government Reform has a completely different opinion of Rich’s success. The committee accused Rich, as described in chapter 2, of developing a trading empire that “was based largely on systematic bribes and kickbacks to corrupt local officials.” The committee also claimed Rich made his fortune “doing business without legal, ethical, or even moral constraints.”3 “He is only interested in making money, and for that he is prepared to stop at nothing,” a Swiss trader who had worked for Rich once told me. “Rich is without scruples,” a competitor in the aluminum industry said. “He does not owe his fortune to brilliance alone. People in the trade knew that I, on the other hand, was not for sale.”

  “I don’t agree,” Rich says with little indignation when asked about these accusations. In truth, Marc Rich + Co. would never have been able to make the trades it actually completed if it had not paid bribes—really big bribes. Whoever has worked in the Middle East or Africa knows that it is impossible to do business without paying “un petit cadeau” (a little present), a “sweetener,” or baksheesh—regardless of the company code of conduct. According to anonymous traders quoted in A. Craig Copetas’s book Metal Men, Rich’s company paid a bribe of 125,000 to the director of the National Iranian Oil Company. The book also states that the Nigerian minister of transportation received a bribe of 1 million in order to ensure the Nigerian government continued to work with Rich.4 Although he does not go into the details of these (or any other) bribes, Rich does not deny that he had authorized them in the past. “The bribes were paid in order to be able to do the business at the same price as other people were willing to do the business,” Rich claims. “It’s not a price which is disadvantageous for the government involved in the selling or buying country.”

  Depending on a person’s ethical standards, the bribing of officials or politicians in order to do business in the third world could well be regarded as morally questionable, if not outright unethical and reprehensible. Still, bribery was certainly common practice, and by no means only for commodities traders. The bribing of foreign officials was legal in the United States until the passing of the Foreign Corrupt Practices Act of 1977. In Switzerland it remained legal until 2000. Companies in Switzerland and in many other countries could deduct bribes as “commercially justified expenses” from their taxes. When asked about corruption, Rich’s lawyers maintain that he never broke Swiss law. A trader who was active in African nations such as Nigeria and Zaire—two notoriously corrupt countries—told me, “The law is the benchmark, not your morality. As a trader you should abstract yourself from your personal morality. If you don’t agree, you can leave the company.”

  In some cases, Rich may have been able to close a deal more quickly than the competition thanks to corrupt officials. Bribery may have allowed him to trump his competitors, but it is not realistic to attribute Rich’s success to such activities alone. The fact that Rich was able to dominate the commodities trade for decades is not the result of mere corruption. “The successful traders are not the bribers. They don’t last too long,” said the director of one of the world’s largest trading companies, who did not wish to be quoted by name. “[Rich] has survived because he has the most talent,” according to Slimane Bouguerra, the director of the Algerian state oil company, Sonatrach.5

  The Talented Mr. Rich

  A few of Rich’s talents have already been described in this book. Rich was faster and more aggressive than his competitors. He was able to recognize trends before other traders, and he successfully created new markets. Rich himself describes this as his most important skill: the ability to see opportunity. His stroke of genius was the fact that in the middle and late 1970s he had been willing to enter into long-term contracts with Iran, Nigeria, Angola, and Ecuador based on his prediction that the price of oil would continue to rise.

  As countries recognized the value of the services he provided, Rich was able to save his existing contracts and business contacts in various countries even though there had been a change of regime. This is true of Cuba after Fidel Castro’s Communist revolution, Iran after Khomeini’s Islamic revolution, and even in South Africa after the end of apartheid. The ability to maintain contacts in Cuba and Iran was something that American foreign policy had not been able to dupl
icate.

  Rich went where others feared to tread—“the road less traveled,” as an employee told me. This was true not only in a geographical sense, as was the case in countries such as Angola or Zaire where markets had yet to be developed, but also in a moral and legal sense. Rich had no qualms about supplying countries such as Cuba, Iran, or apartheid South Africa—all countries that were subject to either American or international embargos. These contracts represented very lucrative deals for Rich, as these countries were willing to pay a premium for Rich’s risks in order to meet their own demands. Rich soon developed a reputation—he would do just about anything for money.

  Rich was a mediator who brought together business partners who officially wanted nothing to do with one another. Iran and Israel. Arab states and South Africa. Marxists and capitalists. A further example that has remained a secret to this day: Nicaragua under Daniel Ortega’s Sandinista government brought in Marc Rich to sell the cheap oil it received from “socialist brother nations” such as Libya or Algeria on the global market. “I wanted the oil, and they needed the money,” one of Rich’s employees who was involved in the deal in the 1980s told me. It is a paradoxical situation that helps illustrate the fact that many of the aspects of the commodities trade are not as they appear. While the Left decries Rich as an exploiter of the third world, it was actually his company that helped ensure the financial survival of the Sandinistas, who were idealized as “freedom fighters” by many of the same left-leaning people.