Ayn Rand
If you ask traders about their business, you will hear the same expression over and over again, “The concept of trading is giving a service.” “Trading is a service business. We bring sellers and buyers together and earn a service charge,” as Rich himself describes the trade. It is the realization of the trader principle that the libertarian philosopher Ayn Rand defined as follows: “In any proper deal, you act on the trader principle: you give a value and you receive a value.”6
Ayn Rand’s philosophy has had a major influence on Rich’s life. She advocates the virtue of “rational egoism,” which holds that one’s own life is one’s most important value and achieving happiness is one’s most important purpose: “Selfishness means to live by the judgment of one’s own mind and to live by one’s own productive effort, without forcing anything on others.”7 In her roman à clef Atlas Shrugged, first published in 1957, businesspeople are represented as courageous “capitalist heroes” who are driven by their own will to create and are capable of bringing about prosperity.8 One of the book’s protagonists, Hank Rearden, is an industrialist who begins his career as a simple worker and becomes the director of the largest steel factory in the fictional United States described in the book. He is later taken to court for failure to follow state-mandated sales regulations, and the media denounces him as “a greedy enemy of society.” The similarities between Rich’s fate and Rearden’s are striking.
You give a value and you receive a value. Rich and his traders took this theory to the point of perfection, and with it they obtained the long-term contracts they desired. “Marc Rich’s people were always prepared to make a counteroffer such as prefinancing, a contact, or a bank account,” an industrialist from Ghana told me. Marc Rich + Co. took this concept to the point where the company soon began to serve as a kind of investment bank for several developing countries. These were countries that would have had difficulties obtaining credit on the regular financial markets, usually as a result of their poor credit ratings. Even if they could find someone who was willing to offer them credit, the interest rates were exorbitant. Rich’s company financed the construction of mines, smelters, and refineries or the production of oil in Jamaica, Zaire, South Africa, Namibia, and Angola. In return Rich asked for exclusive rights to sell all commodities produced in the country for a period of one year or more.
“You need us and we need you. This is the way we have to establish our relationship.” These were the words used by one of Rich’s most successful traders to explain the position he adopted when approaching a prospective client. This strategy of offering valuable services in order to obtain long-term contracts is clearly illustrated in Rich’s dealings with four countries in particular: Marxist Angola; Jamaica, which alternated between socialist and economically liberal governments; South Africa under apartheid; and the East African nation of Burundi, one of the world’s poorest. Rich made offers to these four countries, representing nearly all political forms of government, that they simply could not refuse.
The Mysterious Monsieur Ndolo
Monsieur Ndolo was a well-known acquaintance of the National Iranian Oil Company in the early 1980s. The black man was from Burundi, a poor country in East Africa and a former German colony that remained under Belgian administration until its independence in 1962. Monsieur Ndolo was the director of Cobuco (Compagnie Burundaise de Commerce), a state-owned company that purchased commodities for Burundi. Cobuco’s offices were located at rue Marie Depage 7 in the center of the embassy quarter of Brussels, the Belgian capital and the seat of NATO headquarters.
Iranian officials only knew the sound of Monsieur Ndolo’s voice. He regularly called NIOC headquarters in Tehran from Brussels. If Iranian officials had ever had the opportunity to meet Monsieur Ndolo, they would have been rather surprised: Monsieur Ndolo did not actually come from Burundi, nor was he black. He was a white trader who worked for Marc Rich and only pretended to be from the African country. Nor was Cobuco a Burundian state-owned company, as everyone believed. In reality Cobuco was a joint venture between Rich’s company and the Burundian government, each of which owned a 50 percent stake.
The company was founded to trade with postrevolutionary Iran. Rich’s trader, who would later take on the role of Monsieur Ndolo, contacted the Burundian government through an intermediary and suggested what one might call a very original deal. Burundi should request a long-term contract for oil deliveries from Iran’s revolutionary government. Monsieur Ndolo, who today does not wish to see his real name appear in print, explained with enthusiasm the advantages the company had reaped from this deal. “A Burundian delegation actually did travel to Tehran in order to negotiate an oil contract. I instructed the delegation from the background. I thought it would be possible for a poor country such as Burundi to ask the Islamic government in Iran for favorable terms of payment. I told the delegation they should offer to pay Iran the official OPEC price, but they would only be able to pay one year after delivery—and with no interest payments.” Monsieur Ndolo knew that the Iranians advanced an Islamic economy based on the rules set forth in the Koran, which forbade the charging of interest. After a long series of negotiations, Iran finally agreed to the deal proposed by the Burundian delegation, and the two parties signed a long-term contract for the delivery of crude.
Rich chartered ships to collect the oil from the Iranian harbor of Bandar Abbas in the Persian Gulf. NIOC believed the ships would transport the oil to a refinery in Kenya. There it would be refined and transported by tanker truck to inland Burundi, where it would help to get the Burundian economy running and aid in the development of the country. The reality, however, was completely different. “We made a fortune,” Monsieur Ndolo told me in his office located in a European capital. He leaned back and drew deeply on his cigarette. “You usually have to pay for the oil within thirty days,” he explained. “In this case we had a year before we had to meet the payments, all without having to pay interest.”
For Rich’s company, it was two good deals in one. It only had to pay the official OPEC price for the oil—a price that was generally lower than the spot market price—and it earned money on the deferred payment because its customers abided by the usual payment terms. In the early 1980s the prime rate was a horrendous 18 percent (it was 3.25 percent in February 2009). That was 18 percent that Rich could add to the price, as only a small portion of the oil actually made it to Burundi. Most of the oil was sold by Marc Rich + Co. for good prices on the spot market. Both parties had a good laugh at the negotiating table as they closed the fantastic deal—just the way Rich liked it. “We wanted oil from Burundi; Burundi wanted money. We both profited enormously,” Monsieur Ndolo confided. He switched from French to English. “The Africans know how to do business successfully.”
Angolan Absurdities
Angola, an oil-rich nation in southwestern Africa, was the setting for one of the cold war’s greatest paradoxes. In 1975, shortly after the nation gained independence from Portugal, Angola descended into a brutal civil war that would last for twenty-seven years. The country was the backdrop for a proxy war between the capitalist West and the Communist East. The Marxist government under the MPLA (the Popular Movement for the Liberation of Angola), which had seized the reins of control after independence, was financed by the Soviet Union and Cuba. Their opponents, the rebel movement UNITA (National Union for the Total Independence of Angola), were supported both financially and ideologically by the United States and South Africa.
The American company Gulf Oil (now Chevron) had been producing oil since 1968 in the South Atlantic off the coast of the small Angolan exclave of Cabinda. After the Marxists seized power, most foreign oil companies left the country, together with their experts, and their production facilities were nationalized. However, Gulf Oil remained, accepted the MPLA government, and continued to cooperate with the Marxists. The American company was thus responsible for a considerable part of the MPLA’s public revenue, and this made Gulf Oil’s production facilitie
s in Cabinda a prime target for the UNITA rebels. UNITA wanted to wipe out the government’s prime source of revenue and thus carried out regular attacks in the exclave.
So it came to be that Cuban troops sent to Angola by Fidel Castro to support the MPLA were stationed in Cabinda. Cuban Communist forces were now responsible for protecting the production facilities of capitalist Gulf Oil, based in Pittsburgh, Pennsylvania, from UNITA attacks that were financed by the United States.
In 1976, the Marxist government founded the state-owned oil company Sonangol, the Sociedade Nacional de Combustíveis de Angola. Sonangol had total and exclusive rights for the production and marketing of Angolan oil, but the company was lacking in trained personnel. Other than those experts working for Gulf Oil, most had already left the country. If the Angolan government were to market the oil on its own, it would need an independent and experienced intermediary. It found just the right one in Zug, Switzerland. “We became the exclusive agent for Angola for quite some time,” Rich explains over a coffee in his office in Zug. The fact that Sonangol was actually a joint venture between Angola and Marc Rich has remained a secret to this day. It was once more a win-win situation. “The Angolans wanted to gain experience in the international oil market,” Rich says. He wanted nothing more than to earn money—Rich’s favorite activity. You give a value and you receive a value.
The joint venture led to a rather strange state of affairs. The American oil company Exxon (now ExxonMobil) noted Gulf Oil’s successes in Angola and sought to get a foot in the door of the African oil trade. Exxon managers arranged a meeting with Sonangol representatives. They knew nothing of Marc Rich + Co.’s share in the Angolan state-owned company. The representatives sat waiting in a conference room expecting to meet a black Marxist functionary. One can only imagine how they felt when Pinky Green walked into the room and greeted them with a friendly “How ya doin.”9
Rich also organized something for the Marxist country that it never could have obtained on its own and without which it could never have gotten into the oil trade: access to international banks. Rich’s company excelled at solving financial problems, which provided it with a competitive advantage. One of the best Africa experts in the commodities trade told me, “When you go to Africa, your success in the business is not only dependent on the price you’re paying, but also on the financial solution you can find for your customer. If you find a financial solution, you can beat all of the competition. You will be the king.”
Marc Rich + Co.’s involvement in Sonangol lasted until 1983. By then the Angolans had learned enough to found their own trading company, which was able to take over the task that Marc Rich + Co. had fulfilled. The joint venture with Rich allowed Angola to become Africa’s second-largest oil-producing nation. “They knew nothing about the market. We taught them from the first step, no question. Afterward they were able to copy what we had done,” one of Rich’s directors told me. “We were the ones who gave them the key of knowledge.”
Jamaica Me Crazy
There was a great sense of nervousness in the Jamaican department of Marc Rich + Co. in Zug on February 10, 1989. The charismatic politician Michael Manley had just been elected prime minister in Kingston. His socialist People’s National Party had won in a landslide, and Rich’s people were prepared for the worst. “We were waiting for Manley’s people to call and tell us to stay in Switzerland and not to come back to Jamaica,” said one of the traders who had feared for his future then. In those days Michael Manley was a hero of the European Left. The former union functionary cultivated an anti-imperialist rhetoric directed against the United States, and he openly admired Communist Cuba as a role model for his nation. One of the main themes of the election was the question of how Jamaica should handle its natural resources. The Ca rib be an island is one of the world’s largest producers of bauxite, the ore from which aluminum is won. Manley was highly critical of Jamaica’s cooperation with Marc Rich.
Rich owed his reputation to the oil trade, but as we have seen, his company traded commodities from aluminum to zinc. Bauxite, aluminum oxide, and aluminum made up about a fourth of its income. Rich had been represented there for some years by his company Clarendon, which dealt directly with the Jamaican government. Manley’s People’s National Party had promised to stop all business with Rich and to closely reevaluate all existing government contracts with his company. Placards with photomontages were displayed at the party’s rallies depicting Marc Rich with blood on his hands. He was denounced as an archetypical exploiter and “foreign parasite.”
Manley’s first appearance in the Jamaican parliament turned out to be a huge disappointment for Rich’s critics. He had made a mistake concerning “the Marc Rich matter,” Manley admitted during the budget debate of March 1989. His government would “of course” honor Jamaica’s contracts.10 Rich’s critics around the world—particularly activists in the antiapartheid movement, a movement with which Manley was closely associated—were crestfallen. They had hoped that Manley would promptly turn his back on Rich. Why, they asked themselves, did Manley make such a staggering 180-degree turn?
The simplest answer to this question was given to me by a banker who worked for Rich. “Marc Rich had saved Jamaica. He had bailed it out.” At that time, in spring 1989, officials from the International Monetary Fund (IMF) were in Kingston to inspect the government’s bookkeeping, and further IMF credit was dependent on the results of the inspection. The Ca rib be an island was as reliant on foreign loans as an addict is on his drug of choice. Jamaica was deep in debt, its balance of payments was heavily in the red, and the Jamaican dollar was steadily losing value. In the spring of 1989 it looked as if Jamaica would flunk the inspectors’ test. Most significant, the country maintained lower currency reserves than the amounts stipulated by the IMF, which were intended to help Jamaica meet interest payments and obtain further loans. The new government was lacking 45 million in hard currency, and it needed to find it fast; otherwise the IMF would stop the flow of credit into the country. Jamaica would then find itself unable to meet its payments—a development that would have devastating effects for the Jamaican economy and people.
In the end, even socialist beggars can’t be choosers. Shortly after assuming office, Prime Minister Manley entered into talks with Clarendon’s managers.11 They explored the idea of Rich helping Jamaica with a loan—and discovered they were preaching to the converted. The IMF forbade countries from borrowing money to cover their currency reserves, so a normal loan was out of the question. Rich’s people, however, believed the problem could be solved with a bit of “creative accounting.” They offered to give Jamaica the desperately needed 45 million, but not as a loan. Instead, the money was intended as an advance payment on future aluminum oxide deliveries. Jamaica was saved; IMF officials accepted the government’s accounts and approved the new credit.
Critics maintain that Rich was thus essentially able to buy Manley and effectively take Jamaica hostage. However, the reality of the situation was that no bank, no international organization, and certainly no other company would have been prepared at that time to lend Jamaica a single cent. The country was over 4 billion in debt and was not even remotely creditworthy. “In any other company it would have been considered crazy to give Jamaica money under such circumstances,” a Rich employee who played an important role in the Jamaican negotiations told me, “but we never let down the people who do business with us. We sometimes even took on losses.” Of course, Rich’s people were not helping Jamaica out of a sense of charity: “For us every situation was an opportunity. We weren’t looking for fast money. We were looking for an ongoing relationship.”
Rich’s companies were willing to accept the smallest of profit margins—and ready to take an occasional temporary loss—in order to break into a market or enlarge their market share. The trade in commodities—and this is particularly true of aluminum—is a cyclical business. A one-or two-year period of high prices can be followed by longer periods of low prices. Those traders who
are prepared to operate against the cycle, hold out during dry spells, and even invest during hard times can reap good profits when the prices again begin to rise. There is no better example of this strategy than Rich’s Jamaican aluminum trades.
Rich had already helped Jamaica out of trouble four years prior to the island’s troubles with the IMF. In 1985 aluminum prices had hit a low of 1,080 per metric ton—the lowest price in years.12 At the same time, oil prices had skyrocketed, making the complicated and energy-intensive production of aluminum even more expensive. The American aluminum producer Alcoa, which mainly made money as a supplier of aluminum to the aircraft and automobile industry, wanted to shut down its Jamaican production facilities for converting bauxite into aluminum oxide due to increasing production costs. It had become cheaper for Alcoa to purchase aluminum oxide from a third party.
The closing of the Alcoa facility was a catastrophe for the country, which lived mainly from tourism and bauxite. It was a golden opportunity for Rich, and his people immediately approached the prime minister, Edward Seaga. “We knew exactly what we wanted. We had a plan that covered everything from A to Z,” Rich’s employee explained. “We told the minister of industry, Hugh Hart, he should suggest to Alcoa that they lease the facility to the government instead of shutting it down. We knew Alcoa would agree, as even a closed facility would have cost them a lot of money. We simultaneously guaranteed Jamaica that we would continue to purchase their yields at fixed prices for a period of ten years. We told the government that we would take care of everything; all they had to do was maintain production.” Clarendon, the Marc Rich company, even supplied Jamaica with cheap oil.
The King of Oil: The Secret Lives of Marc Rich Page 20
