“Imagine,” Weinberg chuckled, “the United States government might end up owning Twentieth Century–Fox.”
Rich’s lawyers, now numbering over twenty, counterattacked on August 5. They promised to produce more documents and to make a $1.2 million down payment on the fines. They also said Rich would turn over the records of three of Rich’s Panamanian companies — Liquin Resources, Highams Consultants, and Rescor. The three Panamanian shells, Weinberg believed, contained meaty kernels of information pertaining to crude oil schemes from 1979 through 1981. Rich’s posture of cooperation, however, was yet another stall. This time Weinberg was prepared.
On Tuesday night, August 9, 1983, Morty Dick’s special agents, acting on a tip, radioed the Kennedy Airport tower and ordered controllers to stop Swissair flight #111 from taking off for Geneva and Zurich. They boarded the 747 and detained a female paralegal working for Rich’s defense team who was attempting to leave the country with two steamer trunks full of the documents that Rich had promised to deliver to Weinberg.
The next day Sandy Weinberg requested that the court allow him to find out whom all the new lawyers in the courtroom were representing: He really wasn’t sure. Whoever they were, they stood in front of Judge Sand and told him that the papers were being flown to Zug so that Marc Rich and Pinky Green, who had left Manhattan for Zug a few days earlier, could “review them in an attempt to speed up compliance with Your Honor’s orders.” Morty Dick left the courtroom to put stakeout teams on the Piaget Building.
Though Leonard Sand had the look of a Tombstone Territory judge ready to stretch the necks of Rich’s lawyers from the nearest oak, there was a whole new series of legal complications that needed to be handled with extreme delicacy. Switzerland’s ambassador to the United States, Anton Hegner, had personally delivered an official note of protest to the State Department over what Switzerland considered to be heavy-handed American prosecution methods. Zug’s public prosecutor said that his friends were “being held as hostages” and that the American courts were involved in “economic intelligence gathering.” Zug’s finance director, Georg Stucky, complained that Marc Rich and Pinky Green were being “blackmailed” by the United States. Officials in Berne responded by sending Joseph Guttentag and Juerg Leutert to represent the Swiss government in the New York City courtroom as observers, often contributing to the proceedings.
“The central issue here,” hectored Matthias Krafft, a Swiss government official in charge of international legal questions, “is that Marc Rich is a Swiss entity. You have a tendency to consider firms that are controlled by Americans but domiciled in Switzerland to be under United States jurisdiction.”
“We have six large tax contributors who influence our financial budget,” Zug Mayor Othmar Kamer reminded his citizens. “Marc Rich is one of them.”
“The future of the Swiss system is on trial here,” one of the lawyers representing Switzerland explained privately. “We do not want to lose Marc Rich and others like him. It would ruin Switzerland.”
Not only had the Swiss government helped to defend Marc Rich and Pinky Green through the management of public opinion and by allowing government-paid lawyers to become de facto members of Rich’s defense team, but now the Soviet Union was becoming involved in an official capacity. Rich was a big Soviet customer, greasing the state-controlled economy with millions in hard Western currencies in return for being allowed quietly to market the oil and mineral products of Almazuvelireksport (precious metals), Raznoimport (nonferrous metals), and Techsnabeksport (rare metals). Senior Kremlin officials, according to sources in the Moscow foreign trade community, were concerned that their profitable relationship with the man who “never asked any questions” might be compromised if any criminal charges against him were to be aired in court. On August 15, 1983, the Moscow daily newspaper Izvestia printed a front-page, above-the-fold story blaringly headlined “OPEN BLACKMAIL.” The placement of the story held significance, since Izvestia and Pravda, as a rule, reserve the front page for domestic news.
“The United States thinks that all countries, big and small, must subvert their national interests to American measures,” wrote Izvestia’s Zurich correspondent, Vladimir Kuznetsov. “Under the pretext of nonpayment of taxes by the Swiss branch of the Marc Rich firm, American authorities have given an ultimatum: either Switzerland changes its internal legislation or its companies will be deprived of admission to American markets. This action by the Reagan Administration is an open threat, an attempt to interfere into the internal affairs of Western European countries through the threat of economic sanctions. The Americans are living under the illusion of a Pax Americana.”
Weinberg recoiled in amazement. What began as a daisy chain had turned into a full-blown international incident. And though his mission was to convict Marc Rich and Pinky Green on a specific set of criminal charges, he couldn’t help but wonder just what these guys were really up to. They certainly ran with some powerful chums who didn’t want to see the case brought to trial.
Courtrooms, like Hilton hotels and 1957 Chevys, are all pretty much the same: dulled lighting, worn carpets, and the bloodshot eyes of court reporters staring listlessly into their machines. Sameness is supposed to be part of America’s legal fabric, necessary to keep the republic’s courts an impartial forum open to rich and poor alike. The Founding Fathers, however, never anticipated Marc Rich, who as long as he voluntarily paid America $50,000 a day would be allowed to turn an American court into a freak game of hide-and-seek. On August 15, for instance, Weinberg told Judge Sand that Rich had yet to turn over the critical documents he required to bring the Rich case to trial. “These documents would fill a briefcase, Your Honor.”
“You’d swap the steamer trunks for an attaché case!?!” said the judge.
“Exactly, Your Honor!”
The case was weird, its issues spiraling into fresh tendrils of confusion every day, desensitizing even those who were involved intimately. “I have no idea what Rich wants us to do,” one of Rich’s lawyers schriptzed. “What the hell you asking me for? I just come to the hearings.”
“There was no way we were going to turn over what Weinberg wanted,” a former Rich shareholder explained. “The information was worth much more than fifty grand a day … information on all our oil deals with Iran. That would have really damaged the company because we were selling Iranian and Soviet oil to South Africa in return for Namibian uranium we sold to the Soviets.”
The government claimed that the guilt or innocence of Marc Rich and Pinky Green rested in large part on what was contained in an eighty-three-page ledger that Marc Rich AG, and then the Swiss government, refused to relinquish. But Weinberg’s mind-scattering quest for the ledger and other documents had, as Rich planned, obfuscated whether or not he and his partner were guilty of crimes against the United States. The superlatives of money were meaningless to Rich. By the beginning of autumn 1983, Rich and Green had paid their lawyers an estimated $6 million to make it look as if Weinberg was guilty of persecuting them. As attorney Steven Brill, the editor of The American Lawyer, pointed out in a scathing editorial directed at the legal profession: “In Rich’s case, the lawyers invoked state terror campaigns in Bulgaria and Guatemala as examples of what was likely to happen in America if the government’s case against Rich went unchecked.”
Rich’s lawyers had also spent hours arguing over what legally constituted a secret document; how much time it would take for Marc Rich to “package and box” documents; and, if the Swiss decided to “permit” Rich to release them, who would be liable if the plane carrying them crashed en route from Zurich. During one such courtroom discussion between the defense and the prosecution, a fuming and frustrated Judge Sand barked at one of Rich’s lawyers: “We are not dealing with a mom-and-pop grocery store. We are dealing with a worldwide commodity trader, which engages in financial transactions involving literally billions of dollars, using telexes, telephones, and all the modern devices for communication. I really do not understand w
hy such an organization could not cause to be brought to the one central location every document called for by its subpoenas, whether these documents are now in Paris, Berlin, or Timbuktu.”
Weinberg had no intention of waiting to get his hands on documents still in Switzerland before lodging the indictment against Rich, Green, and their various doppelgängers. In September 1983 Weinberg let loose his indictment against Marc Rich, Pinky Green, Marc Rich International, Marc Rich AG, Clarendon Limited, and Listo Petroleum oil trader Clyde Meltzer. Arco buttressed the case against Rich and Green by supplying the grand jury with information on its 1980 deals for Rich’s Nigerian and Angolan crude. Other information was turned over by Exxon, Mobil, and Shell, as well as by many of the Rich traders who had had jail sentences dangled in front of them. It was an intimidating broadside.
The original fifty-six-page, fifty-one-count (fourteen further counts would be tacked on later) indictment charged Rich and Green with personally orchestrating racketeering, mail and wire fraud, tax evasion, conspiracy, and trading with the enemy. A separate list charged Marc Rich International and Marc Rich AG with forty-one counts of racketeering, racketeering conspiracy, and mail and wire fraud. Weinberg hit Rich with a close-quarter burst of legal buckshot, riddling him with charges of everything from using the United States Post Office’s Express Mail Service to mail false profit statements to devising secret telex codes to transmit the details of treasonous deals with the Ayatollah Ruhollah Khomeini.
Weinberg contended that all this, and more, was part of a spectacular fandango between Marc Rich AG and Marc Rich International to avoid paying taxes. The government alleged that in 1980 alone, Rich ladled at least $20 million in taxable cash into his offshore pots. Listo Petroleum and West Texas Marketing added to the magnitude of the deal by purchasing $300 million of crude oil directly from Marc Rich AG — a blatant contradiction of Marc Rich’s personal assurance that his Swiss company did no business in the United States.
The indictment alleged that over a nine-month period in 1980, Marc Rich International bought $345 million worth of crude oil from Marc Rich AG and sold it at a loss of $110 million. A list of twenty documented transactions was provided in the indictment. In one instance Rich’s American company bought Peruvian Loredo crude oil from his Swiss company for $40 a barrel and then — on the same day — resold it to West Texas Marketing for $33.10 a barrel. This was done to create a price gap in deals between New York and Zug in order to give the impression of a loss to avoid paying taxes.
Marc Rich, claimed the U.S. government, had a real talent to scope out deals designed to create tax losses. On December 2, 1979, for instance, Marc Rich International bought 327,063 barrels of Nigerian Bonny light crude from Marc Rich AG at $37 a barrel. Nine days later, the crude was resold to Ashland Oil for $22.50 a barrel — a loss of $14.50 a barrel.
The government also hamstrung Rich with a “crude reseller audit” through the Department of Energy’s Economic Regulatory Administration. The object of this separate investigation was to discover if Rich and Green closed domestic spot market oil deals through Zug in avoidance of regulations limiting the profit a middleman could make on the oil trades. Though these rules were spiked by the federal government in 1981, Weinberg wanted to nail Rich for the hundreds of millions of dollars he earned from selling Persian oil to the United States during the Iranian hostage crisis. Rich and Green spent upward of $200 million to purchase Iranian oil during the hostage crisis, giving the Khomeini regime money for oil in violation of the presidential order. The figure didn’t take into account the millions Rich spent to purchase arms and spare parts to trade with Khomeini for access to the tanks on Kharg Island.
Rich was liable for $34 million in illegal, hidden profits made through spurious crude oil transactions sculpted to create massive profits on Marc Rich International’s books, plus another $71 million in illegal, domestic profits spooned offshore. The millions came from deals hidden through daisy chains linking West Texas Marketing and Listo Petroleum. In one such daisy chain, Rich bought 18 million barrels of Alaskan North Slope oil from Arco. He then told Arco to switch the contract to Listo Petroleum. Listo destroyed documents identifying the oil as controlled oil and forged papers to identify it as uncontrolled oil. Listo then sold it back to Marc Rich at a fraction of the market price, but well above the controlled price.
All profits from the daisy chains were earned in violation of federal law, because labels were switched. Since tax returns needed to be filed on the illegal profits, Rich often directed West Texas Marketing and Listo Petroleum to bill Marc Rich International at higher, world market prices for the disguised crude. Rich agreed to kick back the difference between the controlled price and the invoice price. The result of this shuffle was that none of the profits ended up on Marc Rich’s American financial ledgers but accumulated in the offshore pot shared with the two Texas companies — $23 million for West Texas Marketing and $47 million for Listo Petroleum between October 1980 and May 1981.
The indictment further charged Rich’s Swiss company with selling discounted foreign oil to Charter Oil Company’s Bahamian subsidiary while Marc Rich International bought controlled American oil from Charter. The controlled American oil went directly into the West Texas Marketing daisy chain. Rich ordered his comptroller in New York to counterfeit invoices from these deals to make it appear that Marc Rich AG really made the profit on the Charter deals. Original invoices were destroyed and replaced with more authentic-looking AG invoices mailed or couriered from Zug. Yet another $31 million was transferred from New York to Zug by grace of forged and fabricated invoices.
The plunder was moved offshore through deception. Rich’s traders were directed to conduct nonexistent deals that sold foreign crude to West Texas Marketing and Listo Petroleum. Hours after these fake trades were put into motion, the two companies would resell the invisible oil to one of Rich’s Panamanian companies at a loss of $3 a barrel. There were at least eighteen such bogus transactions — some of which documented Rich’s traders placing their invisible oil aboard actual tankers in the middle of the ocean.
Sandy Weinberg made a conservative estimate of the amount Rich owed in back taxes: $96 million. Others on the defense team said that if they could get their hands on the Swiss documents, the figure might double, triple, or maybe quadruple. It was the largest known criminal scheme to avoid paying taxes in history.
The United States government issued warrants for the arrest of Marc Rich and Pinky Green on September 19, 1983. Rich and Green were in Zug and had no intention of turning themselves in to the American consul thirty miles away in Zurich. Justice and State Department officials met in Washington to devise a strategy. Since they knew Rich and Green would never willingly come back to the United States, the outlook was bleak. Tax evasion was not an extraditable offense in Switzerland, and there were no solid legal nuances in the extradition treaty signed between Switzerland and the United States in May 1900. The treaty, in fact, was drawn up before America even had an income tax, making the only extraditable offenses arson, murder, armed robbery, embezzlement, forgery, rape, abduction, piracy, perjury, and destruction of railroad property. There was an outside chance of convincing the Swiss to return Rich and Green for allegedly forging oil labels, but to do that they would have to prove the charges true and they needed Rich and Green to accomplish that task. “The treaty doesn’t include modern crimes,” Swiss government attorney Robert Herzstein reminded American Justice Department officials smugly.
The Swiss cabinet drew up a series of measures to protect Swiss interests in any legal dispute with the United States, asserting that American legal proceedings extending onto Swiss territory violated laws of sovereignty. “It’s up to Swiss authorities to determine whether Swiss law is violated or not,” Swiss attorney Juerg Leutert reminded anyone who asked what Berne intended to do with its American fugitives in Zug. Weinberg didn’t care. If the Swiss wanted to protect Rich, Green, and the documents, then he would hold off filing for extradition an
d instead bring Rich’s companies to court and levy a “jeopardy assessment” (an action that freezes assets when tax collection may be jeopardized) against Clarendon for $90.4 million. “Rich was gone,” said Weinberg. “The case became a matter of money.”
The idea of a jeopardy assessment didn’t sit well with Rich’s attorneys. They still wanted to negotiate some kind of settlement. Ten of Rich’s attorneys led by Boris Kostelanetz got together with Weinberg and his team in early October in an attempt to decide what was going to be done about Marc Rich and Pinky Green. “The meetings were totally useless,” said one of the lawyers in attendance. “We sat around a table for a couple of days listening to Boris tell us these terrific stories of what it was like trying criminal cases back in the 1920s. I don’t think anyone wanted to mention Rich’s name. Boris is that good a storyteller.”
Rich was obviously ready to pay the price to stay a free man. Weinberg was more than glad to collect, hitting Clarendon with the jeopardy assessment of $90.4 million in back taxes, penalties, and interest from thirteen banks doing business with Clarendon. This time it was the bankers who recoiled and asked Federal Judge Richard Owen to grant an injunction to block the Internal Revenue Service from collecting the cash, arguing that they had first claim to Clarendon’s money. Bankers once glad to extend millions in short-term credit to help finance Marc Rich International’s deals were reeling in shock. Chemical Bank was the first to blackball International/Clarendon. Manufacturers Hanover and Chase Manhattan spiked Rich’s American loans as well, but Rich — audacious as ever — had Clarendon ask them to convert his credit lines into a revolving $250 million line. The banks nearly acquiesced, but Rich could not provide secure guarantees because Weinberg said that all assets belonged to Uncle Sam. Judge Owen upheld the assessment. Clarendon used what money it had left in the United States to reduce about $100 million of its short-term liabilities with the banks. The long-term figure, totaling $130 million, was guaranteed by Marc Rich AG but owed by Clarendon to Chase Manhattan Bank, Bankers Trust Company, Marine Midland Bank, Paris-Bas, Bank of Boston International, First National Bank of Boston, Banque Indosuez, French American Banking Corporation, Société Générale, Girard Bank, Swiss Banking Corporation, and the First National Bank of Chicago.
Metal Men: Marc Rich and the 10-Billion-Dollar Scam Page 20