For decades, traders from all over Europe have flocked to this lakeside Alpine town, attracted by stringent privacy laws, low tax rates and guarantees of corporate anonymity. But none has achieved the dominance of Marc Rich, the billionaire metals dealer and indicted tax fugitive pardoned by Bill Clinton in one of the last acts of his presidency.
At the age of 66, after a lifetime of deal-making and sanctions-breaking, Rich is the uncrowned king of Zug, a place that boasts 10,000 international companies, or roughly one corporation for every two residents. He is rarely seen but constantly talked about, his exploits buying and selling the world's natural resources becoming the stuff of legend -- and scandal.
During the quarter-century that he has been operating from Zug, including 17 years hiding from U.S. marshals, Rich has mastered the art of clinching a deal with everyone from Communist bureaucrats to Third World dictators to Iranian ayatollahs. Many of the business practices cited in his 1983 indictment for racketeering by the Southern District of New York -- trading with pariah states, manipulating the market for huge personal gain, hiding profits in a thicket of offshore companies -- are techniques that he perfected here both before and after he got into trouble in the United States.
The list of countries that Rich has traded with reads like a compendium of rogue states: Iran during the hostage crisis, apartheid-era South Africa, Slobodan Milosevic's Yugoslavia, North Korea, Moammar Gaddafi's Libya, the Soviet Union under Leonid Brezhnev.
"He sees himself as a citizen of the world, unencumbered by the laws of sovereign nations," said Howard Safir, a former U.S. marshal, who lay in wait outside Rich's Swiss residence in 1985 in one of several futile attempts to enforce an arrest warrant against Rich on charges of swindling U.S. taxpayers of nearly $50 million. "His view is that everything and everyone can be bought and sold, and government is irrelevant."
In keeping with his usual practice, Rich declined to be interviewed for this article, although he released a statement last month saying he did not think he could receive a fair trial in the United States. For the past few weeks, he has kept out of sight, holed up at his luxurious estate in the village of Meggen, 15 miles away, with his collection of Van Goghs, Picassos and Miros, and a breathtaking view of the mountains rising above the shimmering waters of Lake Lucerne.
According to his supporters, Rich is waiting for the controversy generated by Clinton's pardon to blow over before speaking out. "There is nothing mysterious about him," said Georg Stucky, a former finance minister from the canton of Zug who now runs Rich's charitable foundation in Switzerland. "He is just a normal businessman who does not like publicity. He is a very shy person."
Here in Switzerland's wealthiest canton, in one of the world's wealthiest countries, there is a saying that "money doesn't smell," according to local Green party leader Josef Lang, who has waged a 20-year campaign to expose alleged wrongdoing by Rich and other international traders, and their cozy links with local politicians. In Zug, Lang said in a tone of disgust, "you don't ask where the money comes from, you just ask how much."
He was born Marc Reich on Dec. 18, 1934, in the Belgian city of Antwerp, the only child of a prosperous Jewish family. When the Nazis took over Belgium in 1942, the family fled to the United States, settling first in Kansas City, Mo., and then in New York, where Rich's father David went into the burlap bag business.
The Korean War created huge demand for burlap bags, pushing prices sky-high and turning David Rich into a millionaire. For Marc, it was an early lesson in the economics of scarcity. Dropping out of New York University at age 19, he set his sights on becoming a commodities trader.
The company that Rich joined, Philipp Brothers, was the largest raw materials trading company in the world. He started in the mailroom but soon came to the attention of Ludwig Jesselson, a legendary trader skilled in the art of concluding long-term contracts with Third World countries. Cool, calculating and exceptionally aggressive in his deal-making, Rich quickly became a Jesselson favorite. By the late 1960s, he was his heir apparent.
Then, in 1975, in an act of betrayal that is still the talk of commodities traders, Rich broke with his mentor in a dispute over bonuses. He and his partner, Pincus "Pinky" Green, quit Philipp Brothers, taking the company's most closely held secrets and a half-dozen of its leading traders with them. Marc Rich and Co. set up shop in a glass tower in Zug, down the street from Philipp Brothers' European headquarters.
Since before they established their own company in Zug, Rich and Green have had an "odd couple" relationship that has proved highly beneficial to both men. Elegant and debonair, Rich made his reputation as a deal-maker. Green, by contrast, is the shabbily dressed logistics wizard whose skill at making the ships run on time earned him the nickname "the admiral." Rich has long been surrounded by glamorous women, including his songwriter wife Denise, whom he divorced in 1997. Green is an Orthodox Jew with an enduring marriage.
The split with Philipp Brothers coincided with a seismic shift in the world's oil markets that Rich, perhaps more than any other trader, was quick to exploit. In the early 1970s, oil-producing nations rebelled against the dominance of international oil companies. Instead of selling their oil to the majors, they began marketing it through independent traders such as Rich, who is credited with virtually inventing the spot market, where oil was freely traded to the highest bidder.
The oil crisis was a fabulous boon for Rich: As prices spiraled, he was able to pocket the difference between the purchase price and the sale price. But it also proved his undoing. When successive U.S. administrations introduced a series of energy price controls in the 1970s, he devised a scheme for making money out of the bureaucratic confusion that prosecutors say was illegal.
Under the Carter-era regulations, oil pumped under pre-1972 production agreements, called "old oil," was sold for around $6 a barrel. "New oil," by contrast, went for up to $40 a barrel. If a trader could somehow relabel old oil as new oil, he could make a fortune. Evidence collected by U.S. prosecutors shows that Rich or his representatives did just that by funneling the oil through a "daisy chain," allegedly using sham invoices and Panamanian front companies, with profits deposited in offshore accounts.
Morris Weinberg, the prosecutor in the case, estimates that Rich and Green concealed more than $100 million in ill-gotten profits in 1980 and 1981. While the pair denied wrongdoing and refused to produce documents relating to the case, they ended up paying about $200 million in back taxes and penalties in a partial settlement that allowed their companies to continue operating in the United States.
According to the September 1983 indictment, Rich and Green were also buying large amounts of Iranian oil at a time when American diplomats were being held hostage in Tehran and U.S. citizens were prohibited from dealing with Iran. The indictment lists five such trades between July and September 1980 for more than 5 million barrels of oil valued at $186 million. In a rare 1992 interview with NBC, Rich acknowledged trading with Iran, "but as a Swiss company," not an American one.
The government's charges were never tested in court. In the summer of 1983, at the height of the U.S. attorney's investigation, Rich left his $10 million Park Avenue apartment and fled to Zug, renouncing his U.S. citizenship in favor of Spanish and Israeli passports. (The State Department still considers him a U.S. citizen, subject to U.S. tax law.) Rich and Green remained on the Justice Department's "most wanted" fugitive list until their pardon in January. Clinton said he granted the pardon because he agreed with the arguments of Rich's lawyers that the case should have been handled in civil court rather than as a criminal case.
Weinberg, now a defense attorney in Florida, says the alleged daisy-chain caper was very typical of the way Rich did business throughout the world. "There is a lawless quality about the way he operates," Weinberg said. "He will do whatever he needs to do to close a deal."
The daisy-chain oil deals set a precedent for dozens of similar plays, from South America to the Middle East to Asia; the greater the bureaucratic controls over the price of oil or raw materials, the greater the potential profit. According to former traders, Rich and Green specialized in Third World countries whose leaders could be easily bribed.
"Whenever cracks appear in the market, there are people like Marc Rich who are willing to go where nobody else will, either because of embargoes, legal restrictions or political problems," said an executive for a leading oil company. "Rich has always been willing to do the kind of things that bigger, more respectable companies refuse to do."
One Rich specialty was breaking embargoes -- trading with international pariahs was a sure way of generating extra profits. The best documented example is apartheid-era South Africa, which relied on traders like Rich to get around a U.N. oil embargo designed to deprive the country of the one raw material it did not possess.
A leading anti-apartheid watchdog organization, the Amsterdam-based Shipping Research Bureau, recorded 149 deliveries of oil to South Africa by companies linked to Rich between 1979 and 1993.
The group reported that Rich was the leading supplier of oil to South Africa before the collapse of apartheid, responsible for at least 15 percent of identifiable deliveries. Some of the oil came from countries such as the Soviet Union, which were leading opponents of apartheid. Typically, Rich companies would file false shipping reports for the destination of the oil, and redirect tankers to South African ports once they were safely at sea.
According to Rich biographer Craig Copetas, Rich representatives sometimes bribed Third World leaders to turn a blind eye to the deliveries to South Africa. The payoffs were known as "chocolates."
"We told the Nigerians that their oil had been going to Spain," recalled a Rich trader cited by Copetas. "One day they followed our ship 25 miles out of port and saw it hang a left instead of a right." The Nigerians were very angry but allowed themselves to be placated for "a million chocolates."
Rich spokesmen declined to comment on the sanctions-busting allegations. His supporters point out that the U.N. embargo against South Africa was nonbinding, as it was never endorsed by the Security Council. Unlike the United States, Switzerland never joined the embargo.
Another Rich technique was to control the supply of strategic metals so the price would go up. At one point, in the early 1990s, he was believed to control about 40 percent of the international aluminum market, an accomplishment that earned him the nickname "aluminum finger." He had negotiated a highly advantageous 10-year contract for virtually the entire aluminum production of Jamaica. He also used intermediaries to acquire control of several aluminum smelters in West Virginia, according to documents unearthed by the United Steelworkers of America.
"His modus operandi is very interesting," said Tom Juravich, professor of labor relations at the University of Massachusetts at Amherst, who wrote a book about a labor dispute that pitted Rich representatives against the steelworkers union. "He always operates in the shadows, never directly in the light of day. He doesn't just buy companies. He is interested in controlling and manipulating the market."
Not all of Rich's ventures have turned to gold. In the early 1980s, according to press accounts, he made a disastrous foray into the international tin market, buying up most of Malaysia's tin production. Prices skyrocketed, but landed with a thud after the U.S. government began selling tin from a federal stockpile. Rich was reported to have lost more than $60 million.
Profiting in Russia
The collapse of communism offered Rich new opportunities, opening up vast new markets and a host of business partners with few scruples when it came to turning a profit. According to Yugoslav and U.S. officials, Rich was active in Yugoslavia during the first U.N. trade embargo in 1992-95, dealing in a wide variety of commodities, from copper to oil.
But it was in the former Soviet Union that he made his biggest mark. According to traders familiar with his operations, he had been active during the Soviet era, courting officials at Raznoimport, the state monopoly for commodity trading, and selling the Soviets zinc, a strategically important metal. After the Soviet Union fell apart in 1991, these relationships helped Rich become for a time the single most important Western trader in Russia.
"Marc Rich was way ahead of the big international corporations," said Vladimir Kvint, a leading expert on Soviet and Russian business practices at Fordham University in New York. "He was one of the initiators of barter trade with the former Soviet Union. He bought oil, aluminum, cobalt at domestic Russian prices, and then sold it at world prices, which were often 10 to 15 times higher."
Anders Aslund, a Swedish economist who served as an adviser to the reformist Russian government led by Prime Minister Yegor Gaidar, said Rich was responsible for setting up more than 100 front companies in Russia. He added that Gaidar attempted to close Rich's Moscow operation in April 1992. Although tax inspectors mounted a few raids on Rich firms, the attempt was unsuccessful. In December, Gaidar was replaced by Viktor Chernomyrdin, who took a more lenient attitude.
In recent years, opportunities for making huge profits in Russia have waned as domestic prices have come in line with international prices. But Rich continues to have a significant business presence in Russia. Court documents filed last year in New Jersey show that he was trading large amounts of aluminum with the Russian Chernoi brothers, who are accused in a lawsuit by their business rivals of using mafia-style techniques to consolidate their control over the Russian aluminum industry.
Last month, Rich announced the sale of the international investment arm of his company to Crown Resources, a subsidiary of the Alfa Group, a leading Russian conglomerate with extensive oil holdings. The terms of the sale envisaged a long-term partnership. "In order to penetrate Russia these days, you have to get in bed with a Russian company," said a London trader. "As for the Russians, they gain access to the global market under a big name."
Some analysts say they believe that, after a lifetime of chasing deals, Rich may simply be slowing down. "Margins are much tighter now than they used to be," said Jonathan Bearman, editor of Energy Compass, a leading oil industry newsletter. "The whole trading business has become much more competitive."
Others see his successful campaign for a pardon as the crowning play in a career packed with similar maneuvers. "This guy is the greatest trader in the 20th century," said Weinberg, the former prosecutor. "He orchestrated and manipulated the pardon, just like he did all his other deals."