The CASE

The former assistant U.S. attorney—today partner in a successful law firm—looks a lot younger than his fifty-seven years of age. He is wearing a blue shirt and a yellow tie and is sipping at a bottle of Perrier. We are sitting at a huge oval table in soft office chairs of artificial leather. On this cool spring morning the visitor can see all the way to St. Petersburg from Weinberg’s office on the twelfth floor of the Bank of America Building in downtown Tampa. A pelican flies past the window.¹

We break the ice by chatting a bit about Roger Federer, the Swiss tennis player who is undisputedly the world’s number one player at the time. Weinberg, a fervid wrestler in his youth who once won the Mid-South Championships, considers Federer to be the best tennis player the world has ever seen.

Weinberg speaks with the singing drawl of a Tennessean born in Chattanooga. He is a classic southern liberal who was heavily influenced by the civil rights movement. His mother was a Southern Baptist, his father a Jew from Brooklyn who knew about discrimination from personal experience. Speaking of himself, Weinberg claims he had a “very progressive upbringing.” Like both his brothers, he studied at Princeton, where he graduated magna cum laude. He then attended Vanderbilt University Law School. Weinberg became a federal prosecutor at the age of twenty-nine. At the age of thirty he got the phone call from the Justice Department and was assigned to the Marc Rich case.

Marc Who?

In the late fall of 1981, Rich was almost completely unknown to the public at large, although he was already the world’s largest independent oil trader and one of the richest men in America. Outside the close-knit community of commodity traders, almost no one knew his name. Up until 1981 not a single article on either Rich or his company had ever been published outside of the trade journals. He had never given an interview, and Rich was quite happy with the fact that the press did not have a single photograph of him. “We are happiest when nothing is written about us,” a Jewish trader in Zurich once told me. “If I was Catholic I would say commodity traders fear publicity like the devil fears holy water.”

After the call from the Justice Department, it would not be long until the whole world knew the name Marc Rich. The FBI had already begun looking into deals made by Marc Rich International, a subsidiary of Marc Rich + Co. AG that had a New York office.² The Feds had received tips from two Texas oil traders who accused Rich of hiding profits from the Internal Revenue Service by funneling the money to offshore companies and foreign bank accounts. In December 1981, just a few weeks after the call from the Justice Department, Weinberg and an FBI agent flew to Texas to meet with these oil traders.

The tip came from David Ratliff and John Troland, who together had directed West Texas Marketing (WTM) in Abilene. They were serving fourteen months in a federal penitentiary in Big Spring, Texas, at the time, having been convicted in an unrelated case concerning illegal oil transactions, and were hoping to cut a deal with the government in order to avoid serving their entire sentence.³ Weinberg immediately got them out of prison on furlough, whereupon the two took Weinberg to their office in Abilene. “So there I was in Abilene on a weekend in a godforsaken place,” Weinberg told me, “and they pulled out what they called the ‘pot file’ and explained the scheme. They showed me that over seventy million dollars were in this ‘pot.’ Marc Rich had in 1980 and 1981 earned more than seventy million in illegal reseller profits and funneled those funds offshore to his Swiss company in order to evade federal income tax and federal energy oil control regulations.”

Weinberg realized immediately that he was dealing with a very big case. “It was a big deal. I was very fortunate. It defined me as a young lawyer.” What is more, it was the case that put Weinberg’s name in the headlines and lent him the national stardom that ultimately launched him on his lucrative career as a lawyer in Tampa. Upon reviewing Troland and Ratliff’s dealings with Marc Rich, Weinberg came to the personal conclusion that he had uncovered “the biggest tax fraud of all times,” as he proudly tells me. “The case was simple,” he says while sizing me up with his glacial blue eyes. “The man made a whole bunch of money that was illegal. He couldn’t recognize it. He didn’t want to give it up, so he had to get it out of the country some way. He devised a scheme to launder the money outside of the United States by creating these phony oil transactions.”

On the flight back to New York, Weinberg began putting his prosecution team together in his mind—the FBI had to be a part of it, the Treasury Department, the Internal Revenue Service, the Customs Service, the State Department. Weinberg was thrilled. “I felt passionately about the case,” he says. This was no run-of-the-mill case. This case would set a precedent.

“With Our Shotguns Blazing”

Edward Bennett Williams had seen it all. Nothing could shake the legendary Washington trial lawyer, who had defended high-profile clients such as the singer Frank Sinatra, U.S. Senator Joseph McCarthy, Playboy owner Hugh Hefner, financier Robert Vesco, Soviet spy Igor Melekh, and reputed Mafioso Frank Costello. He was a “superlawyer,” considered “the ultimate insider,” the man to see if you had really big legal trouble. He had a stellar reputation as a “miracle worker who could make the guilty go free.”⁴

Marc Rich knew Williams. The lawyer sat on the board of the film studio 20th Century Fox, half of which Rich secretly owned. When it soon became apparent that the Southern District of New York meant business, Rich hired Williams to represent him. Williams had comforting words for Rich. The matter at hand appeared to be an ordinary energy case parading as a tax case—the type of proceedings the government routinely settled without pressing criminal charges. He assured Rich that he could settle the case without an indictment if Rich agreed to pay a fine and a portion of the taxes he allegedly owed. He gave the same advice to Rich that he gave to all of his clients: Keep quiet and stonewall. “The worst you can do is talk to the prosecutors. I can get rid of it for thirty million,” he told Rich and then offered him the following words of encouragement: “We shall go to the U.S. Attorney with our shotguns blazing.”⁵

Williams adopted this attitude when he visited Assistant U.S. Attorney Sandy Weinberg in his office in New York in May 1983. He threw himself onto a chair, leaned back, put his feet on the table, and asked Weinberg how much money the government wanted to settle the case. “You don’t have to worry,” Williams added patronizingly, “my clients don’t flee.”⁶ He proposed to dispose of the case by having Rich pay the taxes owed plus a substantial fine.

Was Williams putting too much stock in his reputation? Did he think he could easily put one over on the young assistant U.S. attorney? Whatever the case, this tactic did not work on Sandy Weinberg.

Weinberg looked the celebrity superlawyer straight in the eye, shook his head, and said with no more respect than necessary that he was not interested in a plea deal. Puzzled, Williams asked Weinberg what he had in mind. Weinberg spelled it out for him: “J-A-I-L.”⁷ The government, he continued, would not accept a plea agreement unless it included both “a huge fine and substantial jail time.” Weinberg would not change his mind, even after Williams raised his offer to 100 million (see chapter 13). According to Rich’s Swiss lawyer André A. Wicki, Weinberg was seeking a twenty-five-year prison sentence. He threatened to indict Rich, his partner Pinky Green, and the Rich companies on racketeering charges if no such settlement could be reached.

Weinberg clearly looks back on his former brazenness with delight. “I took Ed Williams’s breath away a bit,” he says. The attorney, who—ironically—now defends white-collar criminals, believes his refusal to deal with Williams was a matter of principle. “If we allowed people to buy their way out of it, if you don’t go to jail for [what in his mind was] the biggest tax fraud, we could never bring another tax case.”

Rich’s Flight to Switzerland

The Rich family was then staying at their weekend house on Long Island’s Lido Beach, as was usually the case at that time of year. “We were at the beach for the weekend, and Marc said we may have to leave the country,” Denise Rich remembers with a shudder. We are sitting in her penthouse at 785 Fifth Avenue. Above the photographs of her daughters’ weddings hangs a still life of flowers by Marc Chagall.

Denise Rich knows how to give a convincing performance. She shakes her head in wide-eyed disbelief as if Rich himself had just given her the devastating news. “I had no clue, believe me. I didn’t know anything about what was going on. ‘Why?’ I asked Marc. ‘There may be a few problems,’ he answered. ‘Why?’ ‘The lawyer will talk to you.’ The lawyer, Bob Thomajan, walked me around the block three times in New York and I still didn’t know why. If we were going to have to leave, what was I going to do? As a wife, you know, I love my husband. I love my children. I consulted my father, who was a very smart man; he was my rock. What should I do? Papa said, ‘You go with your husband, of course.’ ”

Denise did just as her father, Emil Eisenberg, advised. In the first week of June 1983, the Rich family hastily relocated to Switzerland, where Rich had based his company nine years earlier. Rich was rattled by the fact that Williams had lost control of the case—and with that lost the opportunity to settle the case out of court. Rich, who stresses his innocence to this day, was alarmed by the prosecutor’s aggressive posture. The threat of racketeering charges was a dramatic escalation. A RICO indictment, Williams explained, would mean all of Rich’s assets could be frozen before the case even came to trial. The statute, about which I will write more later in the chapter, also provided for draconian jail sentences.

Rich was deeply shocked. The man who was used to settling so much with money had simply not expected events to turn against him. He took it as a sign that he should flee the country, but the few weeks of absence that Denise Rich had initially expected soon became an eternity. In Rich’s mind, his flight to Switzerland represented a second escape (the first being from Antwerp) and a journey of no return. Rich had renounced his U.S. citizenship and became a naturalized Spaniard in September 1982. “I was naturalized under the laws of Spain, swore an oath of allegiance to the King of Spain, and formally stated that I thereby renounced U.S. nationality,” he claims.⁸ However, the State Department takes the view that it never approved Rich’s Certificate of Loss of Nationality and thus he had failed to renounce his U.S. citizenship.⁹ Rich also took on Israeli citizenship in July 1983.

Ed Williams’s biographer describes how the lawyer was standing in Marvin Davis’s office in Los Angeles when he heard the news that his client was on the lam. Williams screamed into the telephone, “You know something, Marc? You spit on the American flag. You spit on the jury system. Whatever you get, you deserve. We could have gotten the minimum. Now you’re going to sink.”¹⁰ Rich claims there is not a shred of truth in this version of events. On the contrary, Rich maintains that neither Williams nor any of his other lawyers had ever asked him to return to the United States.

Regardless, Williams’s overconfident performance caused quite a bit of damage. His misinterpretation of the situation led his client down a dead-end street—and into the headlines. “It was a scorched earth policy,” said Michael Green, who joined Rich’s legal team in 1985. “Ed was known as a tough litigator. Sometimes it works. In Rich’s case it did not.”

Rudolph W. Giuliani Takes Over

The case was exactly the type the media loves. It was a case of “historic” significance, as the prosecuting attorneys never tired of stating: a virtually unknown millionaire with a beautiful wife who lived in a Park Avenue penthouse. Journalists soon discovered that Rich owned half of 20th Century Fox, as a silent partner. His name had not surfaced publicly when Denver oilman Marvin Davis negotiated the 722 million purchase in June 1981.¹¹ The film studio was riding on a wave of success at the time. George Lucas’s Return of the Jedi, the third part of the Star Wars saga, had just opened; at the time it was the greatest box-office success in cinematic history. Several prominent Americans sat on 20th Century Fox’s board of directors, including former president Gerald R. Ford and former secretary of state Henry A. Kissinger.

When Rudolph W. Giuliani was appointed U.S. attorney for the Southern District of New York in the spring of 1983, the case, which had been slowly simmering over a relatively small flame for a year, suddenly became a raging wildfire. Giuliani pressed his subordinates to prosecute cases more quickly; happy to see himself in the role of an anti-Mafia crusader willing to take on Wall Street and white-collar criminals, he did not doubt in the least that he was born for a greater purpose. “Aggressive” was the label that was most often used to describe Giuliani. His tactics, as the former mayor of New York David Dinkins once said, were “dangerously close” to a “philosophy that the ends justify the means.”¹² Ed Williams’s biographer described the prosecutor and later mayor of New York City as “zealous and politically ambitious.”¹³ According to Leonard Garment, the former special counsel to President Richard Nixon and former U.S. delegate to the United Nations who began to represent Marc Rich in 1985, Giuliani quickly realized that he had a “blockbuster case” on his hands.¹⁴

The result was a calamitous breakdown in communications between the government and Rich’s lawyers. The situation was worsened by the fact that Rich’s then legal team had attempted all sorts of dubious maneuvers in order to have the case deferred. Sandy Weinberg still has trouble understanding Rich’s behavior. “It was just stupid,” he tells me, shaking his head. “It was self-destructive. He underestimated us. He played games with the documents. He made the case ten times bigger than it ever would have been. If he had stayed here and addressed it, it would have been manageable. He would have done some jail time, you know, but it would have been manageable.”

The spark in the powder keg was a dispute over business documents belonging to Rich’s companies. After the Southern District had begun its examination of the case, it convened a grand jury that soon began subpoenaing millions of documents from Marc Rich International, Marc Rich + Co. AG, and oil companies and resellers in the United States that had done business with Rich. Marc Rich International—a Swiss subsidiary with a branch office in New York that paid taxes in the United States—complied with the subpoenas. However, Marc Rich + Co. AG, as a Swiss company operating in Switzerland under Swiss law, refused to obey the order. The company argued that Swiss secrecy law prohibited the company from producing documents without the express permission of the Swiss government.¹⁵

Draconian Fine

Nevertheless, District Judge Leonard Sand denied Rich’s lawyers’ motion to dismiss the subpoenas and ordered Marc Rich + Co. AG to produce the documents located at the company’s headquarters in Zug. When the company continued to refuse, Judge Sand ordered a draconian contempt fine of 50,000 per day until the documents were delivered. The fine was applied beginning in late June 1983, even though the Swiss government protested the decision with unusual vigor as an unacceptable violation of Swiss sovereignty.

Rich refused to pay the fine. He secretly sold Marc Rich International to Alec Hackel, his close friend and one of the founders of the company, who then ran the company under the name Clarendon Ltd. in Zug. Judge Sand labeled the sale a “ploy to frustrate the implementation of the court’s order” and threatened to freeze up to 55 million of Marc Rich + Co. AG’s assets in twenty American and European banks and other companies that owed Rich’s company money.¹⁶

Rich’s business was soon suffering under Judge Sand’s record contempt fine and the drastic threat to freeze the company’s accounts. Several business partners and banks pressured Rich to find a solution to the problem. Faced with increasing difficulties in obtaining credit, Rich’s lawyers began to negotiate a resolution. On August 5, 1983, lawyers for both sides met in Judge Sand’s Manhattan apartment and discussed the case until late into the night. They finally reached a deal just before midnight: Rich agreed to pay the New York court 1.35 million toward the accumulated fine, to produce the court-ordered documents in Switzerland, and to pay off the remaining fines at a future date. The agreement appeared to smooth all the ruffled feathers, and it seemed as if the case would finally take on a semblance of normality.

Four days later, however, on August 9, 1983, Weinberg received a telephone call. “A guy said, ‘This is Deep Throat,’ no kidding,” Weinberg recounts. “He called out of Milgrim, Thomajan & Lee, Marc Rich’s law firm, and warned us that subpoenaed documents were being shipped out of the United States on a Swissair flight. He even called back to give us the correct flight number, SR 111 to Geneva and Zurich.” Weinberg could not believe his ears. He cursed so loudly that his colleagues came into his office to see what was wrong. After he cooled down, he immediately sent a few agents to John F. Kennedy International Airport.

At 7:00 P.M. the Swissair Boeing 747 was already on the runway and ready for takeoff; the police were able to stop the plane only minutes before its departure. Thanks to the tip-off from Rich’s own law firm, agents recovered two steamer trunks full of business documents. Shortly afterward, the media-savvy Giuliani had the trunks brought to Judge Sand’s courtroom as physical evidence of Rich’s brazen behavior and immediately held a press conference to publicize the seizure. The episode was soon referred to as the “steamer trunk affair.” “By this time Marc Rich had lost all credibility; he was down the toilet. After that affair he was viewed as a scoundrel,” says Weinberg, who felt that Rich’s actions strengthened the prosecution’s hand. “It prejudiced him in court and in the public opinion. When people obstruct justice and try to interfere with your investigation, that indicates that you’re right.” Rich’s lawyers maintained they were only shipping the papers to Switzerland to let them be viewed by an attorney in order to make sure they contained no confidential information. As a result of the incident, a furious Judge Sand ordered that all of Rich’s companies produce the subpoenaed documents by the following Friday. “By Friday?” Rich’s flabbergasted attorney asked. “We have forty-eight offices worldwide.” “By Friday!” Judge Sand ordered.

Caught in the Crossfire

August of 1983 was one of the hottest that Switzerland had ever seen. It seemed even hotter in Rich’s headquarters in Zug. A dozen people sorted through the documents they needed to send to the United States in a jet that Rich had chartered especially for the purpose. “We worked day and night,” one of them told me, “fourteen, fifteen hours per day.” Four of the five founding partners were present—Marc Rich, Pinky Green, Alec Hackel, and John Trafford—as well as two lawyers and a handful of young employees. Within three days the group handed over two hundred thousand documents to officials in the United States, and that was just the beginning.

Then, on August 13, officers from the Office of the Attorney General of Switzerland knocked on the door of Marc Rich + Co. AG in Zug. They had come to seize any remaining documents that had been subpoenaed by the U.S. government. They cited article 273 of the Swiss Penal Code, which deals with the disclosure of information to foreign countries and economic espionage. The Swiss government wrote a letter to the State Department and the district court stating that it was “legally and physically impossible for Marc Rich + Co AG to provide the U.S. Attorney with any single document located in Switzerland.”¹⁷ Now Rich not only had the government of the United States to worry about; the Swiss government was after him as well. “He was caught in the crossfire,” remembers one of the participants, who is still in the commodities business.

The Swiss government’s actions did nothing to dampen Judge Sand’s resolve. He continued to demand all of the subpoenaed documents and ruled that the contempt fine of 50,000 per day should continue. For the next year one of Marc Rich’s messengers would deliver a check for 200,000 to the federal courthouse each Friday and a check for 150,000 each Monday—all in all, more than 21 million. The Swiss repeated their protest in an official note describing the “violation of generally recognized principles of international law. The imposition by a foreign authority of acts aimed at having effects on Swiss territory violates the sovereignty of Switzerland and is therefore unacceptable.”¹⁸

Rich, who one year earlier had been one of the great unknowns of the international oil trade, was now recognized by over half of the entire world—a fact that certainly seemed to boost the reputations of Rudy Giuliani and Sandy Weinberg. The American and international media reported regularly on the Rich affair and its international implications, and thus made the two prosecutors national celebrities.

Giuliani, who pushed his attorneys to produce indictments, had a few more aces up his sleeve. In mid-September 1983 he invited journalists to a press conference the likes of which they had never before seen. In Giuliani’s view, this press conference was a historic event.

“The Largest Tax Evasion Indictment Ever”

Journalists called to the law library on the eighth floor of the U.S. attorney’s office, where Rudolph W. Giuliani was waiting on Monday, September 19, 1983, witnessed a rarity: a prosecutor reading aloud from a bill of indictment. When Giuliani began performing United States of America v. Marc Rich, Pincus Green, et. al., he evoked an atmosphere of Chicago in the old days. Fifty-one counts of fraud, racketeering, tax evasion, and other charges were contained in the indictment.¹⁹

It was “the largest tax evasion indictment ever,” Giuliani said.²⁰ He continued to read from the indictment. “The defendants engaged in this scheme as a part of a pattern of racketeering activity in which they concealed in excess of 100 million in taxable income of the defendant Marc Rich International, most of which income was illegally generated through the defendants’ violations of federal energy laws and regulations. This scheme, and pattern of racketeering activity, enabled the defendant Marc Rich International to evade in excess of 48 million in United States taxes for the 1980 and 1981 tax years.”²¹

Giuliani, however, held back the most serious charge until the end of the press conference. It was a charge that would follow Rich for the rest of his life. “On November 4, 1979, Iranian nationals invaded the U.S. Embassy in Teheran, Iran. Thereafter, 53 American citizens were held hostage for over 14 months until their release on January 19, 1981.” Despite the trade embargo and further regulations that President Jimmy Carter imposed after the hostage-taking incident, the indictment stated, Marc Rich + Co. AG “entered into contracts with the National Iranian Oil Company (NIOC) to purchase Iranian crude and fuel oil.” Marc Rich and Pincus Green had personally “negotiated from the offices of Marc Rich International in New York . . . the sale of approximately 6,250,000 barrels of Iranian crude oil for approximately 202,806,291.00.”²²

Trading with the enemy—the gravest of accusations. Congressman Chris Shays (R–Connecticut) summarized the public mood toward Marc Rich and Pincus Green, “saying they were two traitors to their country and our country.”²³ Sandy Weinberg told me it was an accidental discovery, as they had only come across the dealings with Iran in the course of the investigation. “These Iranian transactions were outrageous,” he told me.

The Oil Price Control

To fully understand the criminal case against Rich, we must begin with a highly simplified explanation of the extraordinary complex federal price control regulations that governed the sale of crude oil in the United States after the first oil crisis in 1973. As we’ve seen, the Arab oil embargo of October 1973 that followed in the aftermath of the Yom Kippur War unleashed an oil shock throughout the United States. President Richard Nixon signed the Emergency Petroleum Allocation Act only a few weeks after the embargo had gone into effect.²⁴

From November 1973 to February 1981, the United States regulated the price of American crude oil to encourage domestic production. Different prices were allowed for three categories of oil. These three types of oil were chemically indistinguishable but were categorized on the basis of their source. Crude oil from a well operating at or below its 1972 production levels was known as “old oil,” the cheapest of the three. Then came “new oil,” which included oil discovered after 1973 or oil obtained from existing wells in excess of 1972 production levels. The most expensive category of oil was known as “stripper oil,” oil obtained by squeezing the last drops of oil from wells that were nearly exhausted and whose average daily production was less than ten barrels.

Only American stripper oil could be sold openly for whatever price the world market would bear—a price that far exceeded the regulated prices for old and new oil. In 1980 a barrel of stripper oil could generally be sold for over 20 more than a barrel of old oil and 15 more than a barrel of new oil.²⁵ These regulations had no effect on the price of oil in other parts of the world.

This Byzantine pricing system was in fact a regulatory nightmare that completely flouted free-market principles. Different regulations applied to different types of oil producers, oil refiners, and resellers, as well as to oil produced from different types of wells according to the amount of oil these wells had produced in the past. It was a political farce that distorted the international and domestic crude oil markets. President Ronald Reagan abolished the act by executive order on his first day in office in January 1981.

Although the regulations were complicated, the reality in the market was even more so. The system of price controls only applied to the first sale of regulated oil in the United States. Upon subsequent sales of the same oil, further regulations limited an increase in price by restricting the amount of profit that a reseller was allowed to make by trading in or speculating on crude oil. This “permissible average markup” (PAM) was calculated by the Department of Energy based on a given company’s past profit margins. Newer companies with little or no trading history, such as Marc Rich International, were not allocated a PAM until September 1980. Beginning on September 1, 1980—only months before Reagan abolished the act and paved the way for deregulation—these resellers were permitted a fixed maximum profit of twenty cents per barrel.

It was against this backdrop of regulation and price controls that Rich sought to run his business and turn a profit. Where others saw only obstacles and difficulties, Rich saw business opportunities. He attempted to use the regulations to his advantage and earn the maximum possible return. The oil markets adapted to the regulations very quickly, while dealers tried to avoid the price caps wherever possible. One way of doing this was by combining a deal involving price-controlled domestic oil with a deal involving nonregulated foreign oil. Companies began to swap oil from different categories in order to allow one party to obtain unregulated oil that could be sold at the full market price. Discounts and additional advantages were made available for this purpose. For these types of deals, U.S. companies needed an experienced international reseller with good contacts in the global market. Marc Rich was the perfect candidate. In 1979 and 1980 he was the international oil trader. No one else had better business relations with partners in the Middle East, Africa, and Europe. His two companies—Marc Rich International (MRI), with a branch office in New York, and Marc Rich + Co. AG in Switzerland—were perfectly positioned to profit from this trade.

John Troland, co-owner of West Texas Marketing, was aware of this fact, and in the fall of 1979 he suggested a deal to Rich. According to Troland, WTM could legally “tier trade” regulated oil obtained at the lower regulated prices for uncontrolled domestic oil that could then be sold at the unregulated free market price. However, WTM had difficulty obtaining regulated oil. Many producers were willing to sell their regulated oil at the controlled price only in combination with an additional transaction that they themselves would benefit from. These transactions involved unregulated foreign oil sold at a discounted price. WTM, Troland explained, did not have the necessary access to the foreign oil market to engage in this additional transaction. Troland knew that Rich had the knowledge, the connections, and the capacity to trade in the global oil market.

In a typical example of this process, Marc Rich + Co. made discounted offshore sales of unregulated foreign oil to Charter Crude Oil Company, an American oil producer from Texas. Charter then agreed to sell cheap price-controlled domestic oil to MRI that MRI would then resell to WTM. WTM swapped this cheap oil for higher-value unregulated oil and sold it back to MRI at a discount. MRI subsequently sold the oil at market prices on the global market. After the transaction was completed, MRI compensated Marc Rich + Co. for the discount it had given to Charter in order to obtain the regulated oil. Without this discount, Charter would never have been able to sell cheap domestic oil.

This form of transaction continued after the twenty-cent permissible average markup was imposed on MRI in September 1980, but the transactions were restructured to greatly reduce MRI’s role. MRI no longer acquired the tier-traded domestic oil at a discount and no longer reimbursed Marc Rich + Co. for its losses on the offshore trades at the beginning of the transactions. Instead, WTM and another reseller, Listo Petroleum, sold the tier-traded domestic oil at the higher unregulated price and paid Marc Rich + Co. for its contribution to the entire transaction. The U.S. oil producers involved in these restructured transactions were Charter and Atlantic Richfield—the longtime trading partner of Marc Rich International.

The purpose of these complicated transactions was always the same. One of the traders in the chain gained access to unregulated oil that could later be sold for the highest price that could be obtained on the global market. In return the business partners involved in these linked transactions were compensated for their costs and troubles.

“Sham Transactions”

These tier trades were considered legal and were practiced by all of the established oil companies. However, the payments that had been transferred back and forth between Marc Rich International and Marc Rich + Co. were a point of contention. Rich’s lawyers emphasize the fact that these payments were “entirely proper” under the tax treaty between the United States and Switzerland. According to his Washington attorney Michael Green, the Swiss tax treaty “was the beginning and the end of the linkage.” Prosecutors Weinberg and Giuliani were of a completely different opinion. The Southern District alleged that Marc Rich International had evaded paying taxes by diverting income taxable in the United States to its Swiss parent company, Marc Rich + Co. AG, which did not pay taxes in the United States. They did not even address the issue of the Swiss tax treaty. The prosecutors viewed the various transactions that constituted these trades and exchanges with a high degree of suspicion. They did not believe that offshore foreign oil transactions, which initiated the later movements of oil, justified the amounts of money that were transferred offshore. The prosecutors referred to such moves as “sham transactions” and “fraudulent deductions” that were covered up by “false and fraudulent invoices.” They believed Rich channeled the illicit profits abroad by means of further such “sham transactions.”²⁶

According to the indictment, Rich and WTM had agreed that these huge profits, which they referred to as the “pot,” would be retained by WTM so that they would not be reflected in MRI’s books. “To further conceal the scheme [Rich and Green] did cause WTM to prepare and mail invoices . . . which falsely indicated that WTM had sold the stripper barrels to the defendant [Marc Rich] International at the high world market price, when in truth and in fact the defendant [Marc Rich] International was paying a far lower price upon WTM’s agreement secretly to kickback to the defendants the huge profits held by WTM for the defendant International in the ‘pot.’ ”²⁷

According to the prosecutors, Marc Rich had sold regulated oil at profits exceeding the permitted maximum level and had evaded reporting the excess profits by secretly funneling them offshore. They accused the Swiss company Marc Rich + Co. of covering up the profits by selling oil to its U.S. subsidiary Marc Rich International at an artificially high rate. When the subsidiary then resold the oil at lower market rates, it incurred a sizable loss in the United States, thus allowing the company to avoid income taxes.²⁸ “Instead of the allowed twenty cents per barrel, Marc Rich made five dollars per barrel,” Weinberg explained. “We found two sets of handwritten ledgers that showed both sides of the phony transactions—shipments that don’t exist. You tell me, that’s legal? Bunch of nonsense!” The prosecutors definitely did not view these transactions as a legal form of tax optimization. To them it was more, much more: organized crime.

Prosecutors Go Nuclear

The law designed to combat organized crime was intentionally named the Racketeer Influenced and Corrupt Organizations Act in order to obtain the acronym RICO, after the ambitious gangster played by Edward G. Robinson in the 1931 film Little Caesar. The act was intended to make it easier to prosecute organized crime figures and strike a devastating blow against their economic structures. Under RICO the defendant’s assets can be seized before the case comes to trial or even before an indictment. It is the heaviest piece of artillery in a federal prosecutor’s arsenal. John W. Dean, former counsel to President Richard Nixon, dubbed RICO “the prosecutor’s equivalent of nuclear weaponry.”²⁹ It is considered to be one of the most controversial statutes in the federal criminal code.³⁰

In Marc Rich’s case, Giuliani used RICO for the first time ever in a case that did not explicitly deal with more archetypal examples of organized crime, such as the Mafia or drug trafficking. After Rich’s indictment, U.S. authorities blocked all of the bank accounts belonging either to Rich personally or to his companies on American soil. These included Rich’s stock interests in Marc Rich + Co. and 20th Century Fox. Shortly after the indictment, the IRS issued a jeopardy assessment of more than 91 million against Marc Rich International. The assets, “subject to forfeiture to the United States,” included everything from bank accounts, securities, and real estate to office equipment, furniture, and fixtures. The list of seized assets amounted to six pages of the indictment.³¹ Rich’s Fifth Avenue apartment was considered blocked, as were his weekend condominium on Long Island, his interest in Steinhardt Investments (the early hedge fund run by Michael Steinhardt), and the interest in his retirement account. Furthermore, the IRS served levy notices on banks and companies doing business with Rich. These companies were advised that money they received from Rich could be seized. They were also prohibited from paying back any money they might have owed Rich.

“It was phenomenal,” Sandy Weinberg told me with glee. “We tied up all U.S. assets, including 20th Century Fox. We shut ’em down completely. We shut the company down for a year. They couldn’t operate in the U.S. It cost them dearly. I assume it cost them probably a billion dollars.”

Unconditional Surrender

The company’s credit lifeline was practically severed. Many trading houses were trying to reduce their exposure to the company and were cutting their trading limit with Rich. “Our companies were collapsing,” Rich himself summed it up when we talked about the consequences of the freeze. The RICO strategy, with which Giuliani and Weinberg intended to force Rich into capitulation, worked. It pressured him into plea negotiations. “The alternatives were to plead guilty and pay—or to die,” Rich’s Swiss attorney André A. Wicki told me. “RICO was the death sentence against the companies,” said attorney Michael Green. “Giuliani wanted victory at all costs, another feather in his cap. He wanted to polish his image as a crime fighter.” The result was total and unconditional surrender.

On October 10, 1984, in a plea bargain Marc Rich + Co. AG and Marc Rich International pleaded guilty to making false statements as part of a scheme to circumvent profit controls and thus evade 48 million in taxes. The companies agreed to pay a settlement of 150 million and 813,000 in fines and court costs, to forfeit 21 million in contempt fines, and to forgo income tax deductions on the settlement worth up to an additional 40 million. Altogether the settlement was worth more than 200 million. In return the government lifted the yearlong freeze on Rich’s U.S. assets. In order to pay the settlement, Rich had to sell his 50 percent share in 20th Century Fox, for which he received 116 million from Marvin Davis. He also sold an oil refinery in Guam.

One day later, on October 11, 1984, a memorable meeting took place in the federal courthouse at Foley Square. Rich’s lawyer handed a check for 130 million to a lawyer from Chase Manhattan Bank for money owed to fourteen U.S. and European banks. Chase Manhattan’s lawyer simultaneously handed Sandy Weinberg a check for 113,018,306.71. The lawyer from Marc Rich International announced the company would abandon rights to the 36,981,693.29 that the IRS had seized a year earlier. Giuliani immediately held a press conference at which he proudly waved the check in his outstretched hand. Once again he stressed the historic importance of his success. The total settlement of roughly 200 million, Giuliani said, “represents the largest amount of money ever recovered by the United States in a criminal tax-evasion case.” ³²

While their companies were back in business, Rich and Green themselves were not included in the settlement. Prosecutor Giuliani repeated what Weinberg had said to Ed Williams more than a year earlier: He would accept no plea bargain from the traders unless it would “expose them to substantial prison terms.” ³³ “Rudy wasn’t very secure, you know,” remembers Sandy Weinberg, and it is easy to believe him when he says he would never vote for Giuliani in an election. “He’s so political. He was concerned that he’d be criticized by the New York Times if he did a deal with a fugitive.” All of the charges against Rich and Green remained outstanding for the next seventeen years. Under U.S. law the accused could not be tried in their absence.

What Giuliani failed to mention to reporters at the press conference was that he had had a first-class opportunity the previous year to have Marc Rich arrested, and didn’t.