Marc Rich's Road to Riches

By Stephen Koepp

A wily oil trader is charged with America's biggest tax fraud

Only a year ago, hardly anyone outside the close-knit world of commodities trading would have recognized the name Marc Rich. Obsessively reclusive, Rich kept his billion-dollar business behind frosted glass. But now Rich is on his way to becoming infamous as a white-collar fugitive. After 18 months of investigation, a grand jury in Manhattan last week accused Rich and some of his associates of evading at least $48 million in U.S. income taxes. U.S. attorneys called the case "the largest tax-evasion scheme ever prosecuted."

Government investigators filed 51 separate criminal charges against Rich and his partner, Pincus ("Pinky") Green, both 49. The men face long prison terms if found guilty on all counts. But the two may first have to be extradited in order to stand trial. Rich and Green fled New York City about three months ago and are believed to be living near the Alpine town of Zug, Switzerland, the headquarters of their commodities firm, Marc Rich & Co. AG.

Justice Department attorneys say Rich and Green created a racket in which their company earned at least $71 million by selling crude oil at several times the Government-regulated price during 1980 and '81. Then they allegedly shipped the money out of the U.S. to escape income taxes. The 1981 tax return for their U.S. subsidiary, for example, declares profits of only $2.4 million, but the Government estimates its earnings were at least $50 million more. While sifting through hundreds of thousands of Rich's business records, federal agents also uncovered evidence to accuse Rich and Green of violating a presidential embargo by purchasing oil from the Khomeini regime during the 1980 hostage crisis.

The formal charges of racketeering, conspiracy, tax evasion, mail fraud, wire fraud and trading with the enemy could earn Rich and Green prison sentences totaling 325 years each, fines of more than $500,000 and confiscation of millions of dollars in assets. One of Rich's holdings is a co-ownership in 20th Century-Fox, which his company controls jointly with Denver Oilman Marvin Davis.

Marc Rich is one of the shrewdest and most successful commodity traders in the world. Acquaintances estimate his personal fortune at up to $1 billion. After starting his own firm in 1974 with about $5 million in seed money, Rich built a group of companies that last year traded some $10 billion worth of such commodities as oil, gold, aluminum, sulfur and sugar.

Rich, who is married and has three daughters, came to the U.S. as a child, fleeing Nazi persecution of Jews in Belgium. His father David worked in a Manhattan burlap-bag factory to put Rich through the private Rhodes School, where he earned a B-minus average and presided over the French club. An indifferent student at New York University, Rich quit to pursue commodities trading for the Philipp Bros. firm.

Rich proved himself a prodigy at buying and selling grains and metals. One of his biggest market coups came during the Arab oil embargo of 1973-74, when he used his Middle Eastern contacts to circumvent the embargo and buy crude oil from Iran and Iraq. After purchasing the crude for roughly $12 per bbl. Rich doubled the price and sold it to supply-starved U.S. oil companies. Successes like that inflated Rich's already ample ego, and in 1974 he and Co-Worker Green set up their own company.

While the two men are close business partners, they have widely differing styles. Rich, the more urbane, until recently maintained a Park Avenue apartment and a house on Long Island, while Green lived in a white stucco house in the Flatbush section of Brooklyn.

Rich and Green built their company into a trading empire with an estimated 1,000 employees in 40 offices around the world, and their market exploits continued apace. In 1981, for example, Rich reportedly helped the Malaysian national tin company mastermind a scheme to boost the price of the metal by buying up much of the world's supply and stockpiling it. The ploy proved to be a roller coaster. Initially it reaped huge profits for Rich, then it brought him losses when the U.S. Government sold tin from its stockpiles and forced down the price.

From the time Rich went on his own, commodity-trading insiders were suspicious. For one thing, he broke an industry taboo by wantonly raiding his former employer for dozens of traders. For another, he put his headquarters in discreet Switzerland while actually operating mainly out of his New York City subsidiary. Says one trader: "In the business, we felt there was some hanky-panky under way."

According to the indictment, crimes indeed took place. In 1980 and '81, Rich's domestic company and two Texas firms, West Texas Marketing of Abilene and Listo Petroleum of Houston, carried out an oil-laundering and profit-hiding scheme. In the first step of the process, Rich allegedly went to domestic producers and bought crude oil that had Government-controlled prices as low as $5 per bbl. Rich then supplied the oil to the Texas firms at the legal price. The Texas companies, according to federal officials, laundered the crude through a series of purchases so that it was difficult for Government regulators to trace the oil's origin. Then the Texans sold it back to Marc Rich's New York subsidiary at a profit as high as $20 per bbl. Marc Rich then sold the laundered crude to American oil companies at the higher price. Finally, according to the indictment, a secret arrangement required the two Texas companies, after taking their cut, to return more than $70 million in illegal profits to Marc Rich's headquarters in Switzerland.

One of the most serious charges against Rich and Green in last week's indictment is that during the hostage crisis in Iran they bought 6.2 million bbl. of crude worth $200 million from the National Iranian Oil Co.

Apparently tipped off to the oil-shuffling scheme by Texas traders, the FBI began looking into Marc Rich's dealings in late 1981. As the case progressed, two key officials emerged: Federal Judge Leonard Sand, an imposing, white-bearded figure who has repeatedly been outraged at Rich's maneuvers, and Assistant U.S. Attorney Morris Weinberg Jr., who leads a prosecuting team comprising agents of the FBI, Treasury Department, Internal Revenue Service and Customs Service.

In April 1982, Rich refused to comply with a grand jury's request for documents from his headquarters, arguing that as a Swiss company, the firm was immune to the order. After more than a year of endless motions and appeals, Judge Sand retaliated in late June by ordering Rich to pay a $50,000-a-day contempt fine. Before payments were suspended two weeks ago, Rich's company had paid $3.8 million in fines. In an apparent ploy to escape further fines, Rich and Green in early August secretly sold their U.S. subsidiary to other officers in the firm and changed its name to Clarendon Ltd.

When the sale became known, a furious Judge Sand threatened to freeze $55 million worth of the company's assets in the U.S. Rich then promised to deliver the contested documents. But only three days later, U.S. Customs officers, apparently acting on a tip from a mole inside the Marc Rich subsidiary, stopped a Swissair jet just as it was taxiing to take off from New York's John F. Kennedy Airport for Zurich. Aboard the plane were two steamer trunks full of Rich's documents.

The Rich case has been complicated by an ongoing struggle between U.S. courts and Switzerland. Judge Sand has insisted that the courts had the right to Rich's documents, but Swiss officials said that they were protected by that country's famed business-secrecy laws. After the U.S. attempted to get the Rich documents, Swiss officials seized many papers at Rich's headquarters in Zug to keep them from the Americans. Justice Department attorneys claim that the documents contain "golden nuggets" that would enable them to prove twice as much tax evasion as is currently charged. The Swiss have yet to decide whether they will extradite Rich and Green.

Even if they cannot get Rich and Green, U.S. attorneys plan to prosecute Rich's Swiss and U.S. companies and one of Rich's associates in the Listo scheme, Clyde Meltzer, 38, of New York City. Meltzer is expected to appear in court for arraignment this week.

For the time being, Rich and Green apparently remain in the corporate-tax-haven canton of Zug. Rich's company is well known there for its blue-tinted, steel-and-glass structure, which has been nicknamed "the Dallas building" after the American TV show. Zug's business community, which resents U.S. meddling, has shown some sympathy for Rich.

U.S. commodities traders, on the other hand, are less understanding. Some believe the Rich episode may arouse popular support for more Government scrutiny of their industry. Says Stefan Eliel, vice president of Associated Metals & Minerals: "Most of the commodities merchants in the U.S. were traditionally looked upon as something close to shysters. Marc Rich has already been a serious setback to us all, particularly as that image had improved."

Rich, though, has more things to consider than just his image. Hoping to return to the U.S., he reportedly tried without success recently to plea bargain with federal officials for a prison term of four to five years in exchange for a halt to the probe. The Justice Department turned down the deal. Now U.S. officials believe Rich may be preparing to abandon the U.S. forever. The globetrotting trader, who once lived in Madrid, is believed to have sought Spanish citizenship. But Spain might provide only temporary refuge. Eventually Rich may have to decide whether to face U.S. authorities or to spend his life on the run. -- By Stephen Koepp. Reported by Bruce van Voorst/New York

With reporting by BRUCE VAN VOORST This file is automatically generated by a robot program, so viewer discretion is required.