Metal Men: Marc Rich and the 10-Billion-Dollar Scam

by A. Craig Copetas

  Weinberg also caught Rich liquidating $750 million of his American assets between March and August while trying to avoid the grand jury probe. Marc Rich International stripped its total worth from over $1 billion to $261 million over the first six months of the grand jury investigation. Another $45 million was moved to bank accounts in the Bahamas and the Cayman Islands during the summer of 1983. Peter Ryan, a former middle manager for Chase Manhattan Bank who became chief financial officer of Clarendon and president of Richco Sugar, asserted boldly that “only because of the jeopardy assessment was Clarendon in any peril of insolvency.”

  By the end of October, over forty people had received their “Pinky” slips, and the remaining 130 employees knew that their days were numbered. On October 27 Richco Bullion, Rich’s London-based bullion and foreign exchange operation, withdrew from the game for good. A few days before that, Richco Capital, Richco Bullion’s affiliated dealer in America, shut down because the legal developments destroyed the reputation on which gold deals had to be based. “Everyone who worked for Marc in New York concluded that we were lunch meat by the beginning of the second quarter of 1983,” one of the firm’s former traders explained. “Marc and Pinky got to go to Switzerland. We went to unemployment.”

  “The company did try to help find us new jobs,” another Rich trader in New York explained, “but all that anyone in the business wanted to talk about was Marc and Pinky. I went in for an interview at Exxon, and the guy who was supposed to interview me had three other people in his office wanting to know if I was involved in the scandal. They didn’t care if I was a crook — they wanted to know what Marc was getting away with and who was involved.”

  Added another Rich trader: “I just stopped going to interviews all together. It was too embarrassing.”

  Rich and Green, meanwhile, were hiding out in Zug. Fuzzy mug shots and their passport numbers were distributed to every point of entry into the United States. The two men, however, had no intention of returning to America and made provisions to ensure that Weinberg would have a sticky time getting them back through the courts. Although Rich had aligned himself securely with the Swiss, he decided to leave nothing to chance if Weinberg were successful in pressing Berne for extradition. Rich applied for and was quickly granted Spanish citizenship, telling associates that if things got too hot in Zug he could move to Madrid because Spain’s extradition deal with the United States said “neither state shall be bound to deliver up one of its nationals.”

  Pinky Green became a Bolivian.

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  Chapter 17

  “The race is not always to the swift, nor the battle to the strong — but that’s the way to bet.”

  — Damon Runyon

  THE TRADERS who traveled to the London Metal Exchange dinner to toast their prodigious wealth on October 11, 1983, radiated the tawny hues of fear. It was not Rich’s staggering back-tax bill for a handful of questionable oil deals conducted over a few years that frightened the dinner-jacketed gentlemen. It was that one of their own had allowed spears of light to be cast on the penultimate secrets of their lives, to be put on public parade in the circuslike confines of a Manhattan courtroom.

  “Everyone in this business has dealt with Marc Rich,” said a cuticle-chewing broker who had bought and sold millions of dollars of Rich’s wares in the United States and Europe. “The last thing we want is the United States poring over records that might outline our activities. We do not want people to understand how we operate.”

  “It’s a numbers game,” quipped an American trader who buries much of his profit in Zug. “Marc would be paying 47 percent in taxes and have the federal government looking up his ass if he kept his money in America. In Zug he’s paying maybe 10 percent, and the Swiss love him. So which is the better business deal? That’s all it was … a better business deal. So what if he daisy-chained oil and traded with Iran? We’re here to make money, not give communion.”

  Marc Rich’s world had been penetrated and his colleagues were greatly concerned that the ripple effect of the indictment might also drown them. Even Metal Bulletin, usually the unabashed cheerleader for the trading profession, presented an editorial slugged: “RICH — A DAMAGING CASE.” It said that although Rich had not suffered materially, the company had “severely reduced [i.e., decimated] its directly transacted business in America. As a result, some of the coolest brows in the metal business are now looking distinctly ruffled. The glare of publicity which has shone on Rich has been about as welcome as a set of car headlamps to a road-crossing mole.”

  Mr. Josephson understood the conclave’s fears and to calm them placed a large advertisement on the business news page of the International Herald Tribune. The advertisement read: “TAX HAVEN BANK … Priced for quick sale at $60,000.”

  Mr. Josephson, a freelance banker who empathized with the varying fortunes of greed, held court in the bar of Knightsbridge’s Basil Street Hotel, a sleepy place usually frequented by wealthy American tourists. But the characters who streamed into the lobby during London Metal Exchange Week were not Americans in search of the autumn sales at Harrods. They were metal men afraid of being baked in the peculiar afterglow of the indictment against Marc Rich and Pinky Green.

  “Privacy is the primary purpose of owning a bank,” Mr. Josephson explained while nursing a tall scotch and water. “The United States does not afford privacy to its citizens. Whose damn business is it how much money Marc Rich had? Whose damn business is it how much money anybody in any business has!”

  Mr. Josephson had never had the “good fortune” of meeting Marc Rich but was in London to feed off his wounds. His business was disposing of banks, void of any currency or ownership controls, that he had established in the Cayman Islands. Mr. Josephson’s banks were like any other bank, with the ability to issue checks, letters of credit, or cash from a street-corner money machine. The Cayman Islands, he enthusiastically told the traders who visited him, allowed anyone to open a bank if they could produce initial deposits of $250,000. Once the structure was established, owners like Mr. Josephson could pull out their $250,000 and auction the shell operation to the highest bidder. And bidders from the trading community were gathering in the Basil Street Hotel to listen to Mr. Josephson the way cardinals pour into the Sistine Chapel to elect a new pope.

  “It takes too much time to clear checks of hundreds of millions of dollars,” Mr. Josephson lectured his customers. “The money is traceable, too. With your own bank you can keep the money working for you and you alone. Buy a Cayman bank and you can create your own impenetrable world.”

  But there were traders, of course, glad to see Rich’s operation being ripped into. Some were jealous of the success that met the company; others, indignant, felt it was due justice for the selfish manner in which Rich often handled commodities that affected their own pockets. Everyone, however, was hungry for the leftovers. As Metal Bulletin said shrewdly, “traders have broad smiles on their faces in anticipation of new business opportunities arising as Rich’s troubles take their toll.”

  Marc Rich and Pinky Green still had a lot of life — and money — left in their veins, despite the bloodsuckers lining up to exsanguinate their corporations. Adverse publicity had made Clarendon’s future impracticable, so contingency plans were drawn up to establish a clean American base to take the company’s place once the legal mess could be cleared up. According to Rich’s traders, if a Rich deal-in-progress stood to add to the legal rubble, consumers were asked to make their checks payable to a number, not a name. His offshore bankers comfortably obliged.

  Managing affairs from the Zug headquarters or the mansion atop Himmelreich (Heaven’s Empire) in Baar, Rich placed some of International/Clarendon’s $300,000-a-year traders inside other American trading firms. These already existing operations were now Rich client states. One such firm, Trans-World Metals in New York, hired ten former International/Clarendon traders and was nicknamed “Trans-Rich Metals.” Rich traders Alter Goldstein and Dick Schwartz cro
ssed the street to Amalgamet. Although the move was costly because higher commissions had to be paid to move the material through Trans-World and other companies, Marc Rich AG ended 1983 with $15 billion in worldwide sales, of which the American market accounted for $3 billion. Money, of course, was no object. “Scary stuff Rich is doing,” said one of the company’s changelings in New York. “You keep looking over your shoulder for someone to hand you a subpoena.”

  A few of Rich’s oil traders on the street looking for jobs were upset. They knew that nobody else would pay the kind of money that Rich did and they had become accustomed to the high life. “We also lost the Ariano edge,” an out-of-work Rich oil trader complained. “Arco’s people used to filter us information on how much other traders were bidding for their domestic crude. That’s one of the reasons we did so well. Now we’re just like everybody else in the business.”

  Money due to Rich traders for bonuses and outstanding stock was put on hold, and a carefully couched verbal warning issued from Heaven’s Empire: If former employees wanted their money, it would be best not to collaborate with government or journalistic investigations into the company. To press his point Rich asked the federal court to put a gag order on public discussion of the case. The judge refused the motion but added that the Justice Department had come “perilously close” to exceeding its jurisdiction in public statements it had already made.

  The court’s warning was moot. Rich’s attorneys had already bought the American justice system. The speedy trial act — a law requiring that a trial commence between thirty and seventy days after indictment — had been bought by the highest bidder. “When you’ve got a client who can pay and pay and pay for every argument,” said Weinberg, “you just make every argument, no matter how absurd.”

  Arguments to set a trial date and to drop the charges against Rich, Green, and their American business operation continued until March 1984, when the government removed its allegation that Marc Rich International traded with Iran during the hostage crisis. Marc Rich AG responded to the event by closing the world’s biggest single export shipment of steel scrap metal. It cost Rich $1 million to move a cargo of 45,000 tons of scrap worth around $5 million from Liverpool, England, to Japan and South Korea. He also closed a deal to have the supertanker Cougar carry 280,000 tons of Iranian oil from Kharg Island to the Red Sea.

  In late March, the Justice Department allowed Rich to sell off items from his American metal inventory, with the revenues placed in a court escrow account. A fire sale it wasn’t — Rich sold nearly 1 million pounds of material at full market price through “Trans-Rich Metals.” The broker was John Erickson, who had previously spent eight years with Rich in New York. Clarendon’s opulent offices in the Piaget Building were nearly deserted. “The Marc Rich name has become somewhat of a liability,” said Inner Circle member Willi Strohotte, commenting on Clarendon. “It’s become a commercial necessity to make a dissociation.” Some two hundred people had separated from Clarendon. The only ones left were owner Willi Strohotte, managing director Alexander Hackel, financial manager Peter Ryan, former Listo Petroleum daisy chainer Clyde Meltzer, and a few secretaries. Three blocks away at Philipp Brothers, the mood toward Marc Rich wavered between heartfelt pity and deep scorn. “His name was mentioned only once at a board meeting. Of course Jesselson wasn’t in the room,” said a director of Phibro-Salomon. “We really didn’t say much about him. A couple of guys honestly felt sorry for what happened to him. It must’ve been dreadful on his family. Everyone shook their heads, you know, because it didn’t come as a real surprise … what a dumb bastard he was to create such a mess.”

  Oil wildcatter Marvin Davis, who had bought Twentieth Century–Fox with Rich in 1981, was most likely calling his partner much worse than bastard. Davis wanted to buy out Rich’s shares in TCF Holdings and asked the Securities and Exchange Commission permission to do so, but the court wouldn’t let Rich sell as long as the case remained unsettled. “Twentieth Century–Fox is forbidden to make or suffer any sale, assignment, transfer, or interference with any property in which Marc Rich + Co. AG has an interest up to the amount of $27.5 million,” read the government’s order. Although Rich’s interest was worth more, Weinberg said that the order effectively prevented Rich from selling his Fox shares. Davis, according to a source close to both men, fumed over the court’s decision. Fox had lost $17 million on revenues of $152 million for the second quarter of 1983, but by 1984 CBS, ABC, and NEC had scheduled eight hours a week of Fox programming for prime time, more than any of the other nineteen independent production companies would have broadcast on network television. Then there was The Return of the Jedi — box-office receipts approaching $500 million.

  Fox director Henry Kissinger was snoozing fitfully. An article in the Spanish journal Five Days alleged that Rich and Kissinger had jointly purchased $200 million worth of the Ayatollah’s crude during the hostage crisis, falsified certificates of ownership, and had the funds to purchase the oil transferred to Tehran’s control from the Zurich offices of the Swiss Banking Corporation and the Chase Manhattan Bank. Kissinger was awakened by a reporter from Fortune magazine who saw him napping in the business-class section on a flight from Paris to London and asked the former secretary of state if he had ever met Rich. The fugitive trader’s friend “K” said that he had met Rich only once — at a movie premiere.

  A few months after that encounter, the State Department’s Bureau of European Affairs began investigating the actions of America’s Vatican ambassador, William A. Wilson, because of his personal intervention into the Rich case; state also launched a separate investigation into his contacts with the Most Reverend Paul C. Marcinkus, the Chicago-born prelate in charge of the Vatican’s finances, known as “God’s Banker.”

  Ambassador Wilson traveled under benefit of unique portfolio. He was the only ambassador in American history to be granted an exemption from the policy requiring ambassadors to step down from directorships in profit-making companies. Wilson claimed that he had been permitted to retain his corporate positions because they would not interfere with his ambassadorial duties and because he was not receiving payment for his services. Ambassador Wilson, a longtime friend of Ronald Reagan who served for many years as a trustee of Reagan’s finances, was a member of the boards of Penzoil, a company Marc Rich had done business with, and Earle M. Jorgensen Company, a California steelmaker that had need of Rich’s metallic additives. On December 12, 1983, then-Undersecretary of State Lawrence S. Eagleburger — Kissinger’s longtime political sidekick who is now president of the consulting firm Kissinger Associates — sent a telegram to Ambassador Wilson that is believed to have included a warning that his actions were a source of embarrassment to the Reagan Administration. Ambassador Wilson never revealed what he had spoken about with Rich. All he ever said about the meeting was that he had “reported in full to Larry Eagleburger.” The State Department seemed satisfied.

  “I think the boys got together to talk a deal,” said a Justice Department official, “and they got caught.”

  The first real authorized rumbles of settlement were in May 1984, when Edward Bennett Williams flew to New York to “get the ball rolling again.” Rich had successfully gambled that the Swiss would refuse to extradite him. It was almost a sure bet: Berne had sent a diplomatic note to the State Department pledging to give up the documents if Weinberg dropped his subpoena requesting them, hinting that Switzerland wouldn’t play ball with a government that was forcing them onto the field. Rich had assurances from his contacts in Berne that Weinberg would never go along with the deal, because dumping the subpoena would set a precedent that could strip the United States of the right to issue subpoenas in future cases.

  Although Switzerland’s efforts in support of Rich were not, strictly speaking, a matter of preserving the country’s famed banking secrecy laws, they did risk infecting the tissue that protects Swiss-based financial operations from scrutiny. Formally, the Swiss refused to assist with the extraterritorial application of
United States law. At the core of the issue was landlocked Switzerland’s real economic need to remain a haven for white-collar criminals. Weinberg and all the lawyers Rich had hired to sit across from him in the courtroom knew damned well that the Swiss would never adjust to the changing circumstances of the international marketplace. One of Weinberg’s long-term shots at snaring Rich and Green would be made possible by the Swiss Parliament’s passing a regulation requiring that Swiss banks have their American customers sign a special waiver to divulge certain information to United States authorities. But even that pending bill had a wonderful bit of small print on its bottom. It would be up to an ad hoc committee of Swiss attorneys to first see if the United States indeed had a case that needed to be answered. Since nearly every lawyer in Switzerland sits on the corporate board of some foreign company, the bill would become yet another layer of protection and, for Rich’s attorneys, another technique they could wave — like the $19 million worth of $50,000-a-day fines Rich had paid the government from June 1981 to August 1984 for withholding records from a federal grand jury — in front of the court to stall for time.