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To a large degree, the traders had the changing global political landscape to thank for their fortune. Jamaica’s financial distress was far from unique. The spike in oil prices in the 1970s had plunged many importing countries into chaos. Across Latin America, nations were on their knees due to a debt crisis that wiped out the continent’s middle class and sent millions into poverty. Meanwhile, Moscow and Washington were waging proxy wars around the globe, from Nicaragua to Angola. Trade embargoes proliferated. It wasn’t just the bauxite industry that the governments of the developing world were nationalising. Everywhere, control of commodity markets was being wrested from the hands of large American corporates. Four of the world’s largest copper exporters – Chile, Peru, the Democratic Republic of Congo and Zambia – nationalised some or all of their mining industries in the 1960s and 1970s.36 The Eastern Bloc of Communist states became an ever more important source of supplies of lead, zinc and oil for those willing to trade with them. Everywhere, commodity markets were opening up. Supply chains were becoming more fragmented, and the power of the large oil and mining companies dissipated. Prices were being set by the market rather than dictated by a few dominant companies – and into the vacuum stepped the commodity traders.
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As the commodity traders got involved with what others saw as difficult nations, they found a world short of money, where the risks were numerous but the rewards were enormous. In 1981, an economist at the World Bank coined the term ‘emerging markets’ to describe a set of fast-developing Third World nations rapidly being incorporated into the global economy – and the traders were discovering these nations before anyone else.37 Countries such as Brazil, Indonesia or India that today are must-go destinations for even mainstream investors were the frontiers of the capitalist world. In emerging markets, the commodity traders didn’t just buy and sell raw materials. Instead, they expanded into merchant banking and private equity, one day lending money to the government of Nigeria, the next investing in Peruvian anchovy factories. The commodity traders were, effectively, engaging in capital arbitrage: raising funds in the industrialised world, and investing them in emerging markets, where they enjoyed fatter returns. It was a risky world, however, besieged by political crisis, encumbered by foreign exchange controls, and handicapped by red tape. But if they got the timing right, the traders could hit the jackpot. In Brazil and Argentina, for example, investments paid for themselves in as little as two or three years, compared with ten years or longer in developed nations.38 The trading houses were confident they would get paid: without them, countries couldn’t export their goods and earn precious hard currencies. For commodity traders like Rich, with an appetite for taking risks and a willingness to do business with anyone and everyone, it was an ideal environment. A left-wing government nationalises its resources industry? The traders were on hand to help them sell the commodities. A right-wing government seizes power in a military coup? Well, they would need help selling commodities too.
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In the 1980s, the list of countries that ‘most companies’ wouldn’t dream of dealing with grew longer and longer. Exactly where to draw the line was a question of personal taste. Some traders were happy to do business in tricky countries such as India or the Philippines, but drew the line at war zones and pariah states. For others, any corner of the world was fair game. Marc Rich was among those who didn’t have any qualms about dealing with anyone, including those under economic sanctions. ‘In an embargo, only the small people suffer,’ said Eddie Egloff, a senior partner at Marc Rich + Co. ‘We did business according to our own laws and not those of others.’40 So Rich traded just as happily with the right-wing Chilean government of Augusto Pinochet as with Nicaragua’s left-wing Daniel Ortega. His lodestar was money, not politics.
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Without the traders, the economy of apartheid South Africa would almost certainly have collapsed many years earlier than it did. Chris Heunis, a South African minister, admitted that Pretoria had more difficulties buying oil than arms, and that the oil embargo ‘could have destroyed’ the apartheid regime.50 For the traders, it was a hugely profitable business. P. W. Botha, the leader of South Africa from 1978 to 1989, said that buying crude oil from the traders had cost the country an additional 22 billion rand (more than $10 billion) over a decade.51 In one single contract in 1979, Rich was able to sell South Africa millions of barrels of crude at $33 a barrel that he had bought at the official price of $14.55 a barrel, charging a 126% premium.52 ‘We had to spend it because we couldn’t bring our motor cars and our diesel locomotives to a standstill as our economic life would have collapsed,’ Botha, who was known as ‘the big crocodile’, told a local newspaper. ‘We paid a price, which we are still suffering from today.’53
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The young trader who had organised the venture took over the running of Cobuco, and began to go by the pseudonym of Monsieur Ndolo. He chose Iran as the potential source of the oil for Burundi. Through the contacts that Marc Rich + Co already had in Tehran, he organised a trip for Burundi’s president to the Iranian capital. Monsieur Ndolo gave his African partners precise instructions. The trader wanted to buy crude at official OPEC prices (about $27–$28 a barrel), significantly below the spot market at the time ($30–$35 a barrel). Payment conditions were unusually advantageous: as Burundi was a non-aligned nation, it wouldn’t need to pay for the oil for two years. Effectively, that amounted to a two-year interest-free loan. Cobuco told the Iranians that Marc Rich + Co would handle all the details of the shipments, and that the crude would be processed in a refinery at the Kenyan port of Mombasa and from there trucked up to the highlands of Burundi. The revolutionary Islamic government of Iran agreed. Over the next few months, Marc Rich + Co sent tankers to the Persian Gulf to pick up the crude. Officially, all the barrels made it to Mombasa. And actually? Of course not, says Monsieur Ndolo. ‘But we had all the paperwork saying that the barrels have been discharged in Mombasa,’ he added. Instead, Marc Rich + Co diverted the oil into the global market, re-selling the barrels at large mark-ups. A portion of the crude went into South Africa, whose apartheid regime was ready to pay a premium above even the spot price.
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Rich had made Iran the linchpin of his empire – but it was also, in some ways, his undoing. The country had been the source of his lucrative deals on the Eilat–Ashkelon pipeline in the 1970s. It had underpinned the fantastic profitability of the Cobuco arrangement. And it was the source of much of the oil he shipped to South Africa. The revolution of 1979 hadn’t deterred him: Pinky Green flew in to Tehran the very day that Ayatollah Khomeini returned to persuade the Iranians to continue selling oil to Marc Rich + Co.62 A few months later a mob stormed the US embassy in Tehran and kidnapped dozens of American diplomats, holding them captive for more than a year. In response to the kidnapping, President Jimmy Carter issued several executive orders freezing Iranian assets in the US, imposing a general trade embargo and specifically banning oil trading with the country.63 Many Americans may have put an end to their dealings with Tehran at this point – for legal or for ethical reasons. Rich, however, wasn’t deterred. He had, after all, built an enormously successful business in part through his willingness to circumvent embargoes. The international nature of the commodity trading business meant that no one government could effectively regulate it. If the US government banned oil trading with Iran, that didn’t stop a Swiss company, such as the Zug branch of Marc Rich + Co, from doing it. ‘I feel comfortable,’ he replied, when asked if he felt any guilt about buying Iranian oil during the hostage crisis.64
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And so, it was nothing unusual for Rich when, in spring 1980, John Deuss stepped into his Manhattan office with an offer to buy some Iranian oil.65 Deuss and Rich were the two oil-trading titans of the era – they handled the biggest volumes, took the biggest risks, and paid no heed to political scruples. It didn’t matter that at that very moment fifty-two Americans were being held hostage in Tehran; there was a deal to be done. And Deuss had come to Rich seeking a massive deal: the sale of more than $200 million of Iranian oil. From July to September, Rich’s trading house would deliver eight cargoes of crude oil and fuel oil to Deuss’s Transworld Oil, culminating in a cargo of 1,607,887 barrels of Iranian crude worth $56,463,649, delivered on 30 September. The money flowed from Transworld’s account at Société Générale in Paris to Rich’s account in New York, and from there back again to Paris to an account that the Iranian central bank kept at the Banque Nationale de Paris.66 The deal would change the course of Marc Rich’s life, and probably the history of the trading industry. It would mark the beginning of a twenty-year legal battle that put Rich’s photograph on the FBI ‘Ten Most Wanted’ list. Around the same time as he was trading Iranian oil with Deuss, US prosecutors were building a case against Rich for tax fraud. When they discovered the deals with Iran, the prosecutors knew they’d hit the jackpot. What had started as a complex tax case became a tale of the amorality of the commodity traders that would stir the fury of the American establishment and condemn Rich in the eyes of the public.
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The American people, suffering from high gasoline prices, cared little for his protestations. Thanks to the acres of newspaper copy written about Marc Rich and his band of traders, they had discovered the vast profits that the commodity traders had been making. To add to the aura of Hollywood drama, Rich emerged as the mysterious owner of a 50% stake in the film studio 20th Century Fox. The popular image of a commodity trader was born. Within the trading industry, the case of Marc Rich would be internalised as a cautionary tale of why commodity traders should stay out of the public eye.
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Of all the prosecutors’ charges, the one that condemned Rich in the court of public opinion was his deals with Iran at the very moment when the revolutionary government was holding American citizens hostage. But the heart of the case involved deals that had nothing to do with Iran. It focused on the byzantine regulations of the US oil sector, under which oil from new fields could be sold at higher prices than oil from older fields. Through a complex series of transactions, Rich and his companies avoided paying tax on more than $100 million of income, the indictment alleged. The federal prosecutors – first Sandy Weinberg and later Rudy Giuliani, who would later become mayor of New York and then the personal attorney to President Donald Trump – called the indictment the largest tax fraud case in US history. Rich faced up to 300 years in jail if he was convicted on all counts.
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