Metal Men by Craig A. Copetas
Marc Rich had and promoted a rumour-cloud that enveloped and obscured him. This book is a peek into that cloud.
In a nutshell, Rich provided concierge services to people who controlled natural resources in return for preferential deals on those resources. No matter what the services were -- swapping tin for guns, embargoed oil for gold, etc. -- Rich could get it done.
Say you were asked to run Marc Rich + Co.'s cash management; how would you do it? From a ten-thousand meter perspective, the pace and global scope of deals would make treasury operations less concerned with yield management and more oriented towards inventory and delivery. Complicating matters is that these financial flows would reveal information about the deals, thereby necessitating another requirement: obfuscation and secrecy.
Managing any dual-mandate treasury (ic. speed and secrecy) is bound to be problematic, which makes this a good what-would-you-do thought exercise that quickly illuminates lacunae.
Jesselson painstakingly endowed Rich with the ken to use the letters of credit as a magic carpet to soar above the differences between the govern-ments of nations. South Africa, Russia, China, the geopolitics mattered little to Marc Rich because he had been trained to cope deftly with wars and rev-olutions. Rich was always the buyer and the seller and, in the process, became a kind of insurance man for droughts, floods, and coups detat. At the office, he was haunting and brooding, but there was no one more incomparably sweet than Marc Rich when it came to dealing with a customer. The alfresco lunches he threw for European clients were bigger and better than the com-petitions, the Christmas gifts he sent to his Italian clients were only outdone by the treasure chests of hard-to-get Western goods he wooed Soviet mag-nesium producers with at the New Year. Jesselson insisted that Philipp Brothers never offer a bribe to secure supply, but traders who knew Rich dur-ing his days abroad state privately that it was Rich, more than any other Philipp Brothers trader, who stretched the fine line between graft and gift.
We heard stories, always stories, a Philipp Brothers trader said, not wanting to believe rumors decorated with wisps of truth. There was no way to really know, this business moves too fast to operate under total scrutiny. If he did go beyond the limits, Im sure Jes never knew. Philipp Brothers extending bribes would have killed him. Richs grand handling of Malaysian tin magnates and Iranian chrome kings, however, kept Jesselson happy because his cardinal rule of dealing was to always treat the customer right.
Rich, however, had little taste for his partners public romance with Hollywood and went so far as to refuse a seat on the captains-of-indus-try-and-politics-studded board of directors.
But the moment word spread throughout the trading community that Marc Rich owned Twentieth CenturyFox, his customers started calling from all over the world. Rich couldnt believe what was taking placecalls from the Nigerian Oil Ministry asking for a dozen cassettes of Star Wars and an advance cassette of The Empire Strikes Back; a telex from a Brazilian metal sup-plier asking if his son could meet C3P0. Rich thought he had purchased a real estate company but soon found out that he owned a piece of George Lucas, the most popular moviemaker of the day, and M*A*S*H, the most popular television series in history. Marc realized that buying Fox was the best thing he ever did for the trading department, one of the oil traders laughed.
Everybody loves the movies.
Rich had moved from the Bankers Trust Building and now observed his world from the penthouse of the Piaget Building, a ritzy Fifth Avenue sky-scraper financed in part by his friend the Shah of Iran. Over a million dollars was spent to decorate the reception roomthe place had more mirrors than a New Orleans whorehouse, said a trader. Internal stairways linked floors together, and Rich filled his office with electronic gadgets that made the place look like the bridge of the starship Enterprise. The Piaget offices were run like a supersecret military installation. Nothing was allowed in a traders office unless approved by Rich personally. He didnt like anyone eating in their office or putting their own pictures on the wall, said one of his former employees. I once saw him explode because a trader put his feet on the desk. He said, Would you do that to your own furniture? He went nearly berserk.
Documents, scraps of paper, and personal belongings were to be swept off desktops whenever an outside visitor or client entered a traders office. Rich made spot checks during office hours and haunted the corridors like a ban-shee after work, making sure that everything was either locked up or destroyed. There was a constant fear of being caught at something, mut-tered a trader, commenting on the paranoia level in the New York headquar-ters.
But the traders knew that Rich rewarded dedication with cash, and home loans were easier and cheaper here than at the bank. Whenever a trader con-cluded an impressive deal, he received a congratulatory telex from Zug (where the final contracts were signed) that was read by both Rich and Green.
It was the star on our foreheads, said one of Richs young traders. But like everything in the Rich empire, the Zug telex portended a dark side. You never knew whether or not Rich was happy with you. He never said anything until the annual review. You could warp your brain waiting for that.
What ultimately convinced Rich to hire Zaidner as a senior executive in the corporation was his expertise in the Singapore-Thailand-Malaysia tin concentrate scam, a kind of shell game in which Thai and Malay tin concen-trates were smuggled into Singapore without the knowledge of the International Tin Council. Once the concentrate arrived in Singapore, a group of highly sophisticated tin dealers, many working out of crumbling shanties, purified the tin by running the concentrate through crushing machines. The dealers would then package the tin in steel drums and find a shipping company willing to supply false documentation, an easy task in Singapore, according to metal traders.
World trade in illicit tin concentrate is enormous, accounting for some ten thousand tons of material a year with an estimated market value of over $40 million. Although the trade is conducted frequently in Malaysia and Thailand, the end product is always shipped out of Singapore because the city-state does not consider tin concentrate a controlled or dutiable item.
Since the Lee Kuan Yew government collects no revenue on the material, dock inspectors always look the other way when it comes to tin concentrate. Though no law is being broken, the tin concentrate scam creates an artificial imbalance in world supplya perfect situation for Richs daredevilry.
Zaidner was close to the Malaysian finance minister Tengku Tan Sri Datuk Razaleigh Hamzah, and Dr. Mahathir bin Mohamad, the countrys prime min-ister. Without Richs knowledge at first, the trio embarked on a bold plan to purchase every pound of tin they could get their hands on, stockpile it in Singapore and elsewhere and hope to push up the world price. The Malaysians were extremely eager to go along with the scheme because the country was the worlds largest producer of tin and in serious financial trou-ble over low prices and unable to convince consuming nations or the International Tin Council to provide price supports.
The tin-hoarding operation began in July 1981, roiling world tin markets overnight. The cost of tin on the London Metal Exchange ballooned from a low of $4.33 a pound to nearly $7.50. Tin consumers were in shock. Between March 1980 and July 1981, the price of tin had tumbled from a high of $8.65 a pound to the $4.33 figure. Prices were expected to continue sagging because of a poor economic outlook in the housing industry, which, along with cans, was the major use for tin. But now a strange new force had entered the mar-ketplace, prompting consumers and producers of tin to hastily schedule a meeting in Geneva. The Malaysian government, now on a roller-coaster ride, refused to discuss their involvement in the spiraling prices.
The cost of tin continued to zoom upward until January 1982, when it was shot down by the United States governments selling tin from the federal stockpile for a lower price. Prices collapsed by March, falling 22 percent in the last two weeks of February. Rich took a $60 million bath because he had believed Zaidners tales of even higher tin prices. The Malaysians lost $150 million and were stuck with sixty thousand tons of unwanted tin.
Defending the Swiss courts action in the Rich case in another appeal a few months later, the chief prosecutor of Zug wrote:
The defendant trades largely (but not exclusively) in crude oil and crude oil products. It trades, as well as all trading firms, in and with countries which are from a political aspect extremely sensitive and which are partially involved with and against each other in polit-ical arguments and clashes (for instance, the Near East, South America, Africa, China, the states of the Eastern bloc). In addition, the trade goods, in particular crude oil and its products, but other raw materials in which the defendant trades, are of high political signifi-cance. It is not difficult to understand under these circumstances that especially governments or state-operated trading companies prefer to use intermediary trade (such as, for instance, through the petitioner) for trading with other countries. The reasons for this are many: espe-cially the wish to keep the purchase and sales strategies for certain trade goods secret, to cover up contradictions between economic and political actions, or also only to avoid difficulties resulting from the importexportor trade obstacles raised by individual states. A disclosure of such transactions and their details would have consid-erable and very disadvantageous consequences for all participants, and not only for the defendant but primarily also for those responsi-ble in the individual countries who may be jeopardized, not exclud-ing physical harm.
Sandy Weinberg, frustrated by his case against Richs corporations being successfully postponed by the defense for the fifth time, formally asked the Swiss to extradite Marc Rich and Pinky Green on July 27, 1984. He used the only ammo left: He compared the fraud and racketeering charges to forgery, the only extraditable item included in the treaty and the only charges con-tained in the fifty-one-count indictment that Rich and Green could now be tried for under international law. It was now up to the Swiss to react to the request. Swiss justice officials got in touch with Weinbergs office a few weeks later. It was unacceptable. The extradition request had been written in English. Please refile the request in German. There was no end to the madness.