While Marc Rich Was Fugitive, Firm Dealt With Pariah Nations
By AARON LUCCHETTI, PETER A. MCKAY, ANITA RAGHAVAN, MATTHEW
KARNITSCHNIG and ALAN CULLISON
Staff Reporters of THE WALL STREET JOURNAL
For 17 years, Marc Rich worked hard to clear his name of criminal allegations. For the
same 17 years, the fugitive billionaire's trading empire also worked hard -- landing
some of the same sorts of deals that helped get him into trouble in the first place.
Though the main charges pending against Mr. Rich when Bill Clinton pardoned him
involved a complex tax-evasion scheme, Mr. Rich faced another serious allegation:
He illegally traded with the enemy, prosecutors charged, by buying about $200
million worth of oil from Iran while revolutionaries allied with the Ayatollah
Khomeini held 53 Americans hostage there in 1979-81.
Mr. Rich was never tried because he fled to Switzerland and renounced his American
citizenship before being indicted in 1983. An examination of Mr. Rich's trading
activities from Switzerland reveals that his multibillion-dollar commodities operation
continued doing business with countries that the U.S. deemed unworthy trading
partners for supporting terrorism or abusing human rights.
Considering itself unfettered by American restrictions,
Mr. Rich's business not only conducted additional deals
in Iran, it also traded with Libya, Cuba and South Africa,
all at times when U.S. citizens and companies were barred
from doing so. The Wall Street Journal confirmed the
deals -- involving oil, aluminum and other commodities --
in interviews with more than a dozen former Rich traders
and executives as well as with competitors, industry
analysts and government officials.
The pardon of Mr. Rich and his business partner, Pincus
Green, has touched off a bipartisan firestorm, House and
Senate inquiries and a criminal investigation by federal
prosecutors in New York. The probes focus on whether
Mr. Clinton was improperly influenced, either by Mr.
Rich's lawyer, former White House counsel Jack Quinn,
or by $1.5 million in donations to the Democrats and the Clinton library from Mr.
Rich's former wife, Denise Rich. Investigators also will check whether Ms. Rich was
illegally reimbursed for any political donations.
But there has been little focus on Mr. Rich's business activities since his indictment.
Since he says he is no longer an American citizen, deals involving U.S.-embargoed
countries aren't likely to cause him any new trouble with federal prosecutors. His
business practices, however, do raise new questions about the wisdom of pardoning
him. Under Justice Department guidelines, pardon applicants are supposed to have
"demonstrated good conduct for a substantial period of time" to show "strong
evidence of rehabilitation and worthiness of pardon." In a column in the New York
Times last weekend, Mr. Clinton contended that Mr. Quinn made a compelling case
that the criminal tax charges were unjustified, but the ex-president said nothing
about the charge of trading with Iran during the hostage crisis.
The pardon application said little about the Iranian
transactions beyond Mr. Rich's initial legal defense.
Prosecutors considered Messrs. Rich and Green
criminally culpable because they were U.S. citizens
working on the deals out of their New York offices,
but Mr. Rich contended the transactions were legal
because they went through his Swiss company. "I
did not trade with [the] Ayatollah personally," Mr.
Rich said in a 1992 television interview with NBC.
"With Iran, yes. But as a Swiss company." Besides,
he added, "In our business, we're not political, never
have been. It's the philosophy of our company."
Indeed, former Marc Rich traders say the boss imposed few if any restrictions on
where business could be conducted, and they suggest his operation had a cavalier
attitude toward embargoes imposed by countries other than Switzerland. "In an
embargo, only the small people suffer," says Eddie Egloff, a former founding partner
in a Rich trading company. "We did business according to our own laws and not
those of others." He estimates that the trades with embargoed countries represented
less than 1% of the firm's business during his tenure with Mr. Rich, 1974 to 1988.
Mr. Rich certainly wasn't alone in trading with pariah nations. Offshore subsidiaries
of some U.S. companies do business in embargoed countries, insulating employees
who are U.S. citizens from the deals. "In any conflict situation," says a former Rich
trader, "there is going to be someone who is going to take advantage of the
situation. If it hadn't been him, it would have been someone else. At the time, it
wasn't illegal."
Marc Rich Investment, a 350-employee firm that is based in the Alpine enclave of
Zug, Switzerland, isn't required to follow U.S. trading laws. Its CEO, Thomas Frutig,
who is also a spokesman for Mr. Rich, declined to respond directly to written
questions for this article. He asserted without elaboration that some references in
the queries were "not true" or "taken out of context." "I don't think it makes a lot of
sense to talk about individual transactions over 20 years," he said. "We have never
violated Swiss embargoes or international embargoes." Later, after a news
conference this week to announce the planned sale of Mr. Rich's trading operation,
Mr. Frutig confirmed some of the dealings discussed in this article.
Mr. Rich himself declined to comment through Andre Wicki, his Swiss lawyer.
"Business is business," Mr. Wicki says. "You shouldn't use your own ethics to
judge someone else as long as they haven't violated the law."
American authorities have never suggested that Mr. Rich could be prosecuted for
dealing with countries blacklisted by the U.S., even though he may still be an
American citizen. A federal appeals court once ruled that Mr. Rich nullified his 1982
renunciation because he later traveled on his U.S. passport and claimed in Swiss
court, through his lawyer, to be a U.S. citizen. The State Department says it doesn't
dispute this finding. But even if he still is technically an American, it would be hard
to sustain criminal embargo-busting charges, experts say, because prosecutors
would have to prove that Mr. Rich actively participated in trades knowing he was a
U.S. citizen barred from doing so.
Red Flags
Still, critics of the pardon say Mr. Rich's post-indictment business practices should
have been scrutinized and considered before any past sins were forgiven. "Mr. Rich
and Mr. Green have apparently made vast sums of money over the past 20 years by
trading with virtually every enemy of the U.S.," says Morris Weinberg, a prosecutor
on the Rich case in the 1980s.
It wouldn't have taken much investigation to raise red flags, for a few Rich deals with
embargoed nations were mentioned in trade journals and contemporaneous news
accounts, all accessible in electronic news archives. Rep. Dan Burton of Indiana,
chairman of the House Government Reform Committee, says U.S. intelligence
officials recently briefed him on relevant information about Mr. Rich's activities -- a
briefing he says the Clinton White House never requested.
Had he asked, Mr. Clinton might have learned that the man who bought oil from Iran
during the hostage crisis did later Iranian deals that Mr. Clinton's own executive
orders barred Americans from doing. Seven former Rich traders confirm that Mr.
Rich's companies had regular dealings in Iran. "Iran needs people like Marc Rich
because they can't sell their product directly in many countries," says Vladimir
Kvint, a professor at Fordham University in New York who has studied Mr. Rich's
trading in the Middle East.
Iran for many years has been the subject of U.S. trade restrictions in one form or
another for allegedly supporting terrorism and trying to acquire weapons of mass
destruction. The American sanctions weren't very tough in the early 1990s, and
some of Mr. Rich's trades wouldn't have violated them. For example, the publication
Oil Market Trends and a former Rich trader say Mr. Rich's firm concluded a $400
million trade for Iranian crude in February 1990. At the time, American companies
were permitted to trade in Iranian oil, though not to import it to the U.S.
In the mid-1990s, as evidence of Iran's terrorist sympathies and nuclear ambitions
mounted, the U.S. cracked down. President Clinton told Congress in a 1997 letter
that his latest executive order "prohibits all trade and investment activities with Iran
by United States persons, wherever located." But in 1999 and 2000, Mr. Rich's metal
traders shipped alumina (unprocessed aluminum) to Iran's Iralco smelter at Arak and
resold the finished aluminum product on world markets, three people familiar with
the transactions say. The firm shipped in unprocessed metal from India and
elsewhere and exported tens of thousands of tons of finished metal, often to the Far
East, say two former Rich metal traders. Two officials at Iralco confirm that Mr. Rich
did business with the smelter in recent years.
The deals were risky, given Iran's political uncertainties, but profitable: Iran was
willing to pay more for alumina than the world market price, one former Rich metal
trader says.
Approaching Iraq
Mr. Rich had strong personal ties to Israel -- becoming a citizen, donating tens of
millions of dollars and eventually drawing national leaders to his pardon campaign.
Yet in August 1991, some six months after the Gulf War, Mr. Rich's Madrid office
expressed interest in buying up to 150,000 barrels of oil a day from Iraq, says
Ambrose Carey, a former investigator for New York-based Kroll Associates Inc. Iraq
was then under an international embargo stemming from its 1990 invasion of Kuwait.
"I find it amazing that he was prepared to consider transactions with Iraq just after
they sent Scud missiles raining down on Tel Aviv" during the Gulf War, says Mr.
Carey, who received Rich documents related to the matter during a Kuwait-financed
probe of Iraq's trading. Mr. Carey is now a director at ArmorGroup, a London
investigations firm. At the time, Mr. Rich's lawyer said that the expression of interest
was conditioned on the sanctions on Iraq being lifted.
After Mr. Egloff left Mr. Rich's operation, he says, he approached Mr. Rich in the
mid-1990s about doing an Iraqi deal but was rebuffed. "We offered him a deal that
involved swapping medicine for fertilizer and oil products," Mr. Egloff says. He says
Mr. Rich told him he didn't want to break the U.N. embargo.
More recently, says Mr. Frutig, the Rich operation's CEO, the firm did some "very
small" Iraqi oil deals, including "a couple of liftings of Iraqi crude oil since last year."
But those deals were part of a U.N. program allowing Iraq to export oil if the
proceeds were used for food and humanitarian supplies, he says.
The Libya Trade
Mr. Rich has also been active in Libya. In 1986, President Reagan barred Americans
from trading commodities with that country after accusing it of orchestrating attacks
on airports in Vienna and Rome.
At the time, Libya and other Arab nations were balking at dealing directly with Mr.
Rich because he supported Israel and sold it oil, says a former Rich executive. But
by the late 1980s, the executive adds, Mr. Rich's operation was buying Libyan crude
oil through European third parties. Mr. Frutig says Mr. Rich's Libyan oil business at
the time was "very small."
After selling Marc Rich & Co. (now renamed Glencore International AG) in 1994, Mr.
Rich opened a new firm, Marc Rich Investment. It bought "several shipments" of
Libyan oil between 1997 and 2000, says a former Marc Rich Investment oil trader.
Mr. Frutig says the new Rich firm's Libyan oil business today is "very small, if at
all."
Two traders who worked at the firm in the late 1990s say it also shipped barley and
soybeans to Libya while such commodities were still under U.S. embargo. "Rich has
been trading with the Libyans for many years, but so have a lot of Europeans," one
of them says.
Such trades were handled through Marc Rich Investment's European offices, not its
U.S. subsidiary, Novarco Ltd. of White Plains, N.Y. More recently, there has been a
twist: The U.S., while still trying to bring Mr. Rich to justice for trading with one
allegedly terrorist state, gave his U.S. subsidiary permission to trade with three such
nations.
In 1999, the U.S. relaxed its sanctions against Libya, Iran and Sudan to let companies
apply to the Treasury for permission to sell food and medical supplies to them.
Novarco obtained licenses for agricultural sales to all three countries, a Treasury
official says. On one shipment last April, Mr. Rich's operation moved 27,500 tons of
corn from Argentina to Libya, according to shipping records, the ship's booking
agent and its owner. The Treasury official says Mr. Rich's ownership in Novarco
and prior trading with Libya and Iran weren't factors because any legitimate
business could get a license. More than 20 U.S. companies have obtained licenses
for bulk food sales to Libya under the new policy.
Marc Rich's operation also helped South Africa during its years as an international
pariah, say five former Rich traders.
At the time, the U.S. and many other nations were pressuring its white minority
rulers to abandon the racist apartheid regime. From October 1986 to 1991, the U.S.
barred companies from shipping oil, computers or weapons into South Africa. A
nonbinding U.N. embargo also discouraged trading with the country. Switzerland
never joined the U.N. embargo but agreed to monitor Swiss companies doing
business in South Africa, with an eye toward discouraging such trades.
Marc Rich & Co. shipped about 11 million tons of oil to South Africa between 1979
and 1990, roughly 8% of the country's supply, according to the Shipping Research
Bureau, a U.N.-financed group that researched violations of the nonbinding
embargo. The group says the shipments were intermittent, but many came during the
U.S. embargo. At the time, the Rich firm refused to comment on whether it was
trading with South Africa. But several former traders now confirm it was. Mr. Egloff,
the former Rich partner, says the firm sold oil to South Africa throughout the 1980s
and also exported South African minerals. "We had quite a large office" in South
Africa, he says.
Oil for Sugar
Mr. Rich also has helped Cuba avoid the sting of U.S. sanctions aimed at isolating
Fidel Castro. American firms and citizens were first barred from trading with the
Communist nation in 1963, amid fears the nearby island would become a Russian
military outpost. The Cuba embargo remains among the strictest the U.S. maintains,
carrying criminal penalties of up to 10 years in prison and huge fines.
Mr. Rich's operation for years facilitated sugar-for-oil barter deals between Cuba and
Russia, say two former Rich company executives, including one who was involved
in the trades.
During the Soviet era, Mr. Rich was involved only on the oil end. His Moscow office
negotiated the transactions with Cuba Metales, the Havana-based trading arm of the
Cuban government. To avoid shipping Russian oil all the way to Cuba, the Cubans
sold their share of it to Mr. Rich's firm, which then sold it on the open market and
transported a like amount of oil from South America to Cuba, says the former
executive who worked on the deals.
Mr. Rich started dealing in Cuban sugar around the time of the Soviet Union's
disintegration in 1991, both former executives say. His firm bought raw sugar from
Cuba, shipping it to refineries in Ukraine and elsewhere and then selling it on the
open market in Russia, says the former Rich executive.
The firm also dabbled in metals in Cuba. In 1989 and 1990, it sent a few of its
European officials to western Cuba to examine possible investments in lead and zinc
mines, says Jose Oro, Cuba's onetime director of mining exploration, who defected to
the U.S. A Rich spokesman at the time confirmed the interest. Around the same time,
Mr. Rich's firm also was buying Cuban nickel, Mr. Oro says.
Mr. Rich had plenty of financial incentive to trade in such controversial lands. For
one thing, his fugitive status sometimes hurt his prospects in mainstream markets.
Larry Scott, who runs the global commodities group at Bank of Nova Scotia in
London, says he listened to sales pitches from Rich traders several times in recent
years but responded that their boss would "have to solve his personal problems
before we trade with him." That might be one reason Mr. Rich tried so hard to rid
himself of the legal albatross, hiring well-connected lawyers and telling associates
he was willing to pay huge financial penalties to settle the case.
There clearly were profit opportunities in countries shunned by other traders. With
fewer options and little access to sophisticated pricing information, such countries
were more apt to offer attractive deals on oil, metals and other commodities, in return
for cash up front. During the Cold War, for example, some traders regarded doing
business in the Soviet Bloc as politically objectionable, even if legal under U.S. law.
Not Mr. Rich: "We were Romania's second largest trading partner after the Soviet
Union," says Mr. Egloff, the former Rich executive.
Likewise, in the late 1990s, Mr. Rich's company bought about three million barrels of
crude oil a month from Nigeria while it was a military dictatorship subject to U.S.
travel and banking restrictions, says a former trader familiar with the deals. He says
the firm also was active in selling gasoline to Nigeria.
U.S. companies weren't barred from doing Nigerian oil deals and many continued
doing so, despite an outcry over alleged human-rights abuses that coincided with
the World Bank's backing out of a Nigerian liquefied-natural-gas project. Mr. Frutig,
the CEO of Marc Rich Investment, disputes the trader's estimate of the amount of oil
bought from Nigeria, but says the Rich firm had a small crude-oil business with
Nigeria before military dictator Gen. Sani Abacha died in mid-1998.
Selling the Firm
Now, Mr. Rich's days as a commodities powerhouse appear to be ending. This week,
his trading company confirmed it would be acquired by Crown Resources, a Swiss
subsidiary of Russia's Alfa Group. With an estimated price of at least $150 million,
the deal takes Mr. Rich out of the business on which he built his fame and fortune.
Mr. Rich is expected to continue managing private stock investments and real-estate
holdings.
Although age and health have been issues for the 66-year-old Mr. Rich, in some
ways his trading empire has fallen victim to the information age. The free flow of
information hurts traders who thrive in inefficient or controversial markets where
pricing data and competition are scarce. "The excessive profits don't exist anymore,"
says a former Rich executive. When Mr. Rich founded his current trading company
in 1996, he put up about $50 million of his own capital, but by 1998, banks were
threatening to cut credit lines because losses had eroded the company's capital
base. Mr. Rich was forced to put in another $50 million to keep the lines open, the
former Rich executive says.
It is unclear when if ever Mr. Rich will take advantage of his new freedom to travel to
the U.S., where two daughters live, or to nations that previously might have
extradited him. In recent years, he has rarely traveled outside of the two countries
where he maintains homes -- Spain, where he is also a citizen, and Switzerland, where
he lives with his second wife in a $20 million lakeside mansion outside Lucerne. "He
doesn't have any traveling plans," Mr. Frutig says.
This week, Mr. Rich's firm sponsored a bash at the London Aquarium as part of a
week-long oil conference sponsored by the Institute of Petroleum. Some thought it
might be a coming-out party for the newly pardoned trader. But on Tuesday night,
hundreds of oil traders and executives noshed on canapes and sipped champagne
without him as they admired the room's centerpiece attraction: a tank full of sharks.
-- Pamela Druckerman in Buenos Aires contributed to this article.
Trail of Riches
Countries where Marc Rich's companies have done business during times of U.S.
sanctions
Country
Rich company trade/
Time period
Embargo/Sanction*
Iran
Purchased and resold oil (1980).
U.S. embargo during hostage
crisis in Tehran
Imported alumina to
government-owned smelter in
Iran and sold finished aluminum
from the smelter (1999-2000).
U.S. trade embargo since 1995 for
terrorism and pursuit of weapons
of mass destruction
Cuba
Traded oil with Cuba. Purchased
and resold Cuban sugar. Bought
Cuban nickel.
U.S. trading embargo in place
since 1963 to isolate Communist
government
Libya
Bought Libyan oil in late 1980s
and 1990s. Shipped agricultural
products to Libya in (1999-2000)
U.S. trading embargo in place
since 1986 for support of terrorism
South
Africa
Sold oil to South Africa
(1979-1990). Marketed South
African minerals.
U.S. barred sales of crude oil,
weapons and computers to South
Africa, 1986-1991
*For Iran and Libya, licensed food and medical exports were permitted starting July
1999.
Sources: Office of Foreign Assets Control, U.S. Dept. of Commerce and WSJ
research
This is the scumball Slick pardoned? Where's the rope? |
