The SECRETS of SUCCESS

From Angola to South Africa

I

t came as a surprise to all, and for some it was nothing less than “one of the wonders of the business world.”¹ Even though he was pursued by the most powerful nation on earth, which did everything possible to thwart his business dealings, Marc Rich was able to continually expand his company, until it became the world’s largest and most successful independent oil and metals trading company. In 1990, seven years after he was indicted in New York, he was active in 128 countries, had forty-eight offices around the globe, and employed twelve hundred people. He bought and sold 1.5 million barrels of oil each day—more than the daily average output of Kuwait. He ruled over a trading empire with an annual turnover of 30 billion. The company earned anywhere from 200 million to 400 million in profits each year. Rich’s personal fortune was an estimated 1 billion. As the Financial Times stated in almost reverential terms, Rich was “one of the wealthiest and most powerful commodities traders ever to have lived.”²

Not even the wildest optimists at Marc Rich + Co. had expected that the company would enjoy such success. Five years previously, Rich’s legal difficulties and the fact that he was living in exile had led commentators and businesspeople alike to practically write Rich off. One of his partners from the very beginning, Jacques Hachuel, was convinced that the end was nigh and decided to leave the company. The two traders have not spoken a word since. All told, Rich’s unlikely comeback made a huge impact on the world of commodities trading.

How did he do it? How was he able to beat the competition? What did he do differently? Why was he better? These are the most important questions when it comes to unveiling the secrets of Rich’s success. To get to the bottom of this untold story of success, I interviewed dozens of commodities traders from five continents over the past three years. In these three years (2006–2008) the world—and particularly the United States—experienced the kind of dramatic changes that have not been seen in decades. The financial crisis that began in 2008 led to developments that only the gloomiest of pessimists previously believed possible. Lehman Brothers, a traditional banking powerhouse founded in 1850, collapsed, making for the largest bankruptcy in the history of the United States. Goldman Sachs and Morgan Stanley gave up their status as investment banks. It was the end of an era.

It’s the Long Term, Stupid

When we look back at these crazy times in search of the deep-rooted causes of the worst financial crisis in generations, one answer will most certainly stand out: the short-term thinking that has held sway among the managers of listed companies since the 1980s. Nothing seemed more important than quarterly profits. The economic common sense that had developed over the course of decades was no longer viewed as important. Equity returns of 20 to 30 percent? Double-digit profit growth? Quick profits from risky leveraged investments? Extravagant salaries? All that was once considered extraordinary seemed routine. It was, as history has shown time and again, too good to be true. What does this have to do with Marc Rich? More than one might believe at first glance. As we have seen, his company is in many ways the antithesis of the fallen business elite that does not seem capable of looking past the next quarter. An era in which oil prices reached new records saw the reemergence of the myth of the commodities trader as a man who could make millions of dollars in seconds with a single telephone call. The reality is something entirely different. The commodities trade is a hard, capital-intensive business with tight margins. Profits of 2 to 3 percent are considered quite satisfactory in normal times. It is only during unsteady times, such as the oil crises of 1973–74 and 1979–80, that profits are significantly higher.

In the cyclical business of the commodities trade, successful traders always have to look far ahead into the future. “The key to success—and to real wealth—is long-term thinking,” Rich says. Six months in South Africa in order to negotiate the purchase of a mine? Six months in Cuba in order to ensure a loan is paid back? Advance financing of a smelter that will not be completed for years to come? Such actions are nearly unthinkable for listed companies obsessed with quarterly returns. In some businesses, long-term thinking has been virtually forgotten. On the other hand, it is the traditional virtue of family businesses in which one generation always has its children in mind. It is my belief that this long-term way of thinking is the most important secret of Rich’s success and can explain many of the strategies and courses of action he has followed over the years.

Rich was always interested in obtaining long-term contracts with his clients. In economic terms, the development of new markets, making business contacts, and negotiating contracts cost a lot of money. Once a business relationship has been established, many of the so-called transaction costs no longer apply. The longer the relationship, the lower the marginal costs and the higher the potential profits. “We didn’t get into a new country to make a million dollars and then go home. We went to stay there,” said a trader who had opened African markets while working for Rich in the 1970s. “We wanted to convince them we were there to stay. This was a very important basis for our success.”

The Bribes

The House Committee on Government Reform has a completely different opinion of Rich’s success. The committee accused Rich, as described in chapter 2, of developing a trading empire that “was based largely on systematic bribes and kickbacks to corrupt local officials.” The committee also claimed Rich made his fortune “doing business without legal, ethical, or even moral constraints.”³ “He is only interested in making money, and for that he is prepared to stop at nothing,” a Swiss trader who had worked for Rich once told me. “Rich is without scruples,” a competitor in the aluminum industry said. “He does not owe his fortune to brilliance alone. People in the trade knew that I, on the other hand, was not for sale.”

“I don’t agree,” Rich says with little indignation when asked about these accusations. In truth, Marc Rich + Co. would never have been able to make the trades it actually completed if it had not paid bribes—really big bribes. Whoever has worked in the Middle East or Africa knows that it is impossible to do business without paying “un petit cadeau” (a little present), a “sweetener,” or baksheesh—regardless of the company code of conduct. According to anonymous traders quoted in A. Craig Copetas’s book Metal Men, Rich’s company paid a bribe of 125,000 to the director of the National Iranian Oil Company. The book also states that the Nigerian minister of transportation received a bribe of 1 million in order to ensure the Nigerian government continued to work with Rich.⁴ Although he does not go into the details of these (or any other) bribes, Rich does not deny that he had authorized them in the past. “The bribes were paid in order to be able to do the business at the same price as other people were willing to do the business,” Rich claims. “It’s not a price which is disadvantageous for the government involved in the selling or buying country.”

Depending on a person’s ethical standards, the bribing of officials or politicians in order to do business in the third world could well be regarded as morally questionable, if not outright unethical and reprehensible. Still, bribery was certainly common practice, and by no means only for commodities traders. The bribing of foreign officials was legal in the United States until the passing of the Foreign Corrupt Practices Act of 1977. In Switzerland it remained legal until 2000. Companies in Switzerland and in many other countries could deduct bribes as “commercially justified expenses” from their taxes. When asked about corruption, Rich’s lawyers maintain that he never broke Swiss law. A trader who was active in African nations such as Nigeria and Zaire—two notoriously corrupt countries—told me, “The law is the benchmark, not your morality. As a trader you should abstract yourself from your personal morality. If you don’t agree, you can leave the company.”

In some cases, Rich may have been able to close a deal more quickly than the competition thanks to corrupt officials. Bribery may have allowed him to trump his competitors, but it is not realistic to attribute Rich’s success to such activities alone. The fact that Rich was able to dominate the commodities trade for decades is not the result of mere corruption. “The successful traders are not the bribers. They don’t last too long,” said the director of one of the world’s largest trading companies, who did not wish to be quoted by name. “[Rich] has survived because he has the most talent,” according to Slimane Bouguerra, the director of the Algerian state oil company, Sonatrach.⁵

The Talented Mr. Rich

A few of Rich’s talents have already been described in this book. Rich was faster and more aggressive than his competitors. He was able to recognize trends before other traders, and he successfully created new markets. Rich himself describes this as his most important skill: the ability to see opportunity. His stroke of genius was the fact that in the middle and late 1970s he had been willing to enter into long-term contracts with Iran, Nigeria, Angola, and Ecuador based on his prediction that the price of oil would continue to rise.

As countries recognized the value of the services he provided, Rich was able to save his existing contracts and business contacts in various countries even though there had been a change of regime. This is true of Cuba after Fidel Castro’s Communist revolution, Iran after Khomeini’s Islamic revolution, and even in South Africa after the end of apartheid. The ability to maintain contacts in Cuba and Iran was something that American foreign policy had not been able to duplicate.

Rich went where others feared to tread—“the road less traveled,” as an employee told me. This was true not only in a geographical sense, as was the case in countries such as Angola or Zaire where markets had yet to be developed, but also in a moral and legal sense. Rich had no qualms about supplying countries such as Cuba, Iran, or apartheid South Africa—all countries that were subject to either American or international embargos. These contracts represented very lucrative deals for Rich, as these countries were willing to pay a premium for Rich’s risks in order to meet their own demands. Rich soon developed a reputation—he would do just about anything for money.

Rich was a mediator who brought together business partners who officially wanted nothing to do with one another. Iran and Israel. Arab states and South Africa. Marxists and capitalists. A further example that has remained a secret to this day: Nicaragua under Daniel Ortega’s Sandinista government brought in Marc Rich to sell the cheap oil it received from “socialist brother nations” such as Libya or Algeria on the global market. “I wanted the oil, and they needed the money,” one of Rich’s employees who was involved in the deal in the 1980s told me. It is a paradoxical situation that helps illustrate the fact that many of the aspects of the commodities trade are not as they appear. While the Left decries Rich as an exploiter of the third world, it was actually his company that helped ensure the financial survival of the Sandinistas, who were idealized as “freedom fighters” by many of the same left-leaning people.

Ayn Rand

If you ask traders about their business, you will hear the same expression over and over again, “The concept of trading is giving a service.” “Trading is a service business. We bring sellers and buyers together and earn a service charge,” as Rich himself describes the trade. It is the realization of the trader principle that the libertarian philosopher Ayn Rand defined as follows: “In any proper deal, you act on the trader principle: you give a value and you receive a value.”⁶

Ayn Rand’s philosophy has had a major influence on Rich’s life. She advocates the virtue of “rational egoism,” which holds that one’s own life is one’s most important value and achieving happiness is one’s most important purpose: “Selfishness means to live by the judgment of one’s own mind and to live by one’s own productive effort, without forcing anything on others.”⁷ In her roman à clef Atlas Shrugged, first published in 1957, businesspeople are represented as courageous “capitalist heroes” who are driven by their own will to create and are capable of bringing about prosperity.⁸ One of the book’s protagonists, Hank Rearden, is an industrialist who begins his career as a simple worker and becomes the director of the largest steel factory in the fictional United States described in the book. He is later taken to court for failure to follow state-mandated sales regulations, and the media denounces him as “a greedy enemy of society.” The similarities between Rich’s fate and Rearden’s are striking.

You give a value and you receive a value. Rich and his traders took this theory to the point of perfection, and with it they obtained the long-term contracts they desired. “Marc Rich’s people were always prepared to make a counteroffer such as prefinancing, a contact, or a bank account,” an industrialist from Ghana told me. Marc Rich + Co. took this concept to the point where the company soon began to serve as a kind of investment bank for several developing countries. These were countries that would have had difficulties obtaining credit on the regular financial markets, usually as a result of their poor credit ratings. Even if they could find someone who was willing to offer them credit, the interest rates were exorbitant. Rich’s company financed the construction of mines, smelters, and refineries or the production of oil in Jamaica, Zaire, South Africa, Namibia, and Angola. In return Rich asked for exclusive rights to sell all commodities produced in the country for a period of one year or more.

“You need us and we need you. This is the way we have to establish our relationship.” These were the words used by one of Rich’s most successful traders to explain the position he adopted when approaching a prospective client. This strategy of offering valuable services in order to obtain long-term contracts is clearly illustrated in Rich’s dealings with four countries in particular: Marxist Angola; Jamaica, which alternated between socialist and economically liberal governments; South Africa under apartheid; and the East African nation of Burundi, one of the world’s poorest. Rich made offers to these four countries, representing nearly all political forms of government, that they simply could not refuse.

The Mysterious Monsieur Ndolo

Monsieur Ndolo was a well-known acquaintance of the National Iranian Oil Company in the early 1980s. The black man was from Burundi, a poor country in East Africa and a former German colony that remained under Belgian administration until its independence in 1962. Monsieur Ndolo was the director of Cobuco (Compagnie Burundaise de Commerce), a state-owned company that purchased commodities for Burundi. Cobuco’s offices were located at rue Marie Depage 7 in the center of the embassy quarter of Brussels, the Belgian capital and the seat of NATO headquarters.

Iranian officials only knew the sound of Monsieur Ndolo’s voice. He regularly called NIOC headquarters in Tehran from Brussels. If Iranian officials had ever had the opportunity to meet Monsieur Ndolo, they would have been rather surprised: Monsieur Ndolo did not actually come from Burundi, nor was he black. He was a white trader who worked for Marc Rich and only pretended to be from the African country. Nor was Cobuco a Burundian state-owned company, as everyone believed. In reality Cobuco was a joint venture between Rich’s company and the Burundian government, each of which owned a 50 percent stake.

The company was founded to trade with postrevolutionary Iran. Rich’s trader, who would later take on the role of Monsieur Ndolo, contacted the Burundian government through an intermediary and suggested what one might call a very original deal. Burundi should request a long-term contract for oil deliveries from Iran’s revolutionary government. Monsieur Ndolo, who today does not wish to see his real name appear in print, explained with enthusiasm the advantages the company had reaped from this deal. “A Burundian delegation actually did travel to Tehran in order to negotiate an oil contract. I instructed the delegation from the background. I thought it would be possible for a poor country such as Burundi to ask the Islamic government in Iran for favorable terms of payment. I told the delegation they should offer to pay Iran the official OPEC price, but they would only be able to pay one year after delivery—and with no interest payments.” Monsieur Ndolo knew that the Iranians advanced an Islamic economy based on the rules set forth in the Koran, which forbade the charging of interest. After a long series of negotiations, Iran finally agreed to the deal proposed by the Burundian delegation, and the two parties signed a long-term contract for the delivery of crude.

Rich chartered ships to collect the oil from the Iranian harbor of Bandar Abbas in the Persian Gulf. NIOC believed the ships would transport the oil to a refinery in Kenya. There it would be refined and transported by tanker truck to inland Burundi, where it would help to get the Burundian economy running and aid in the development of the country. The reality, however, was completely different. “We made a fortune,” Monsieur Ndolo told me in his office located in a European capital. He leaned back and drew deeply on his cigarette. “You usually have to pay for the oil within thirty days,” he explained. “In this case we had a year before we had to meet the payments, all without having to pay interest.”

For Rich’s company, it was two good deals in one. It only had to pay the official OPEC price for the oil—a price that was generally lower than the spot market price—and it earned money on the deferred payment because its customers abided by the usual payment terms. In the early 1980s the prime rate was a horrendous 18 percent (it was 3.25 percent in February 2009). That was 18 percent that Rich could add to the price, as only a small portion of the oil actually made it to Burundi. Most of the oil was sold by Marc Rich + Co. for good prices on the spot market. Both parties had a good laugh at the negotiating table as they closed the fantastic deal—just the way Rich liked it. “We wanted oil from Burundi; Burundi wanted money. We both profited enormously,” Monsieur Ndolo confided. He switched from French to English. “The Africans know how to do business successfully.”

Angolan Absurdities

Angola, an oil-rich nation in southwestern Africa, was the setting for one of the cold war’s greatest paradoxes. In 1975, shortly after the nation gained independence from Portugal, Angola descended into a brutal civil war that would last for twenty-seven years. The country was the backdrop for a proxy war between the capitalist West and the Communist East. The Marxist government under the MPLA (the Popular Movement for the Liberation of Angola), which had seized the reins of control after independence, was financed by the Soviet Union and Cuba. Their opponents, the rebel movement UNITA (National Union for the Total Independence of Angola), were supported both financially and ideologically by the United States and South Africa.

The American company Gulf Oil (now Chevron) had been producing oil since 1968 in the South Atlantic off the coast of the small Angolan exclave of Cabinda. After the Marxists seized power, most foreign oil companies left the country, together with their experts, and their production facilities were nationalized. However, Gulf Oil remained, accepted the MPLA government, and continued to cooperate with the Marxists. The American company was thus responsible for a considerable part of the MPLA’s public revenue, and this made Gulf Oil’s production facilities in Cabinda a prime target for the UNITA rebels. UNITA wanted to wipe out the government’s prime source of revenue and thus carried out regular attacks in the exclave.

So it came to be that Cuban troops sent to Angola by Fidel Castro to support the MPLA were stationed in Cabinda. Cuban Communist forces were now responsible for protecting the production facilities of capitalist Gulf Oil, based in Pittsburgh, Pennsylvania, from UNITA attacks that were financed by the United States.

In 1976, the Marxist government founded the state-owned oil company Sonangol, the Sociedade Nacional de Combustíveis de Angola. Sonangol had total and exclusive rights for the production and marketing of Angolan oil, but the company was lacking in trained personnel. Other than those experts working for Gulf Oil, most had already left the country. If the Angolan government were to market the oil on its own, it would need an independent and experienced intermediary. It found just the right one in Zug, Switzerland. “We became the exclusive agent for Angola for quite some time,” Rich explains over a coffee in his office in Zug. The fact that Sonangol was actually a joint venture between Angola and Marc Rich has remained a secret to this day. It was once more a win-win situation. “The Angolans wanted to gain experience in the international oil market,” Rich says. He wanted nothing more than to earn money—Rich’s favorite activity. You give a value and you receive a value.

The joint venture led to a rather strange state of affairs. The American oil company Exxon (now ExxonMobil) noted Gulf Oil’s successes in Angola and sought to get a foot in the door of the African oil trade. Exxon managers arranged a meeting with Sonangol representatives. They knew nothing of Marc Rich + Co.’s share in the Angolan state-owned company. The representatives sat waiting in a conference room expecting to meet a black Marxist functionary. One can only imagine how they felt when Pinky Green walked into the room and greeted them with a friendly “How ya doin.”⁹

Rich also organized something for the Marxist country that it never could have obtained on its own and without which it could never have gotten into the oil trade: access to international banks. Rich’s company excelled at solving financial problems, which provided it with a competitive advantage. One of the best Africa experts in the commodities trade told me, “When you go to Africa, your success in the business is not only dependent on the price you’re paying, but also on the financial solution you can find for your customer. If you find a financial solution, you can beat all of the competition. You will be the king.”

Marc Rich + Co.’s involvement in Sonangol lasted until 1983. By then the Angolans had learned enough to found their own trading company, which was able to take over the task that Marc Rich + Co. had fulfilled. The joint venture with Rich allowed Angola to become Africa’s second-largest oil-producing nation. “They knew nothing about the market. We taught them from the first step, no question. Afterward they were able to copy what we had done,” one of Rich’s directors told me. “We were the ones who gave them the key of knowledge.”

Jamaica Me Crazy

There was a great sense of nervousness in the Jamaican department of Marc Rich + Co. in Zug on February 10, 1989. The charismatic politician Michael Manley had just been elected prime minister in Kingston. His socialist People’s National Party had won in a landslide, and Rich’s people were prepared for the worst. “We were waiting for Manley’s people to call and tell us to stay in Switzerland and not to come back to Jamaica,” said one of the traders who had feared for his future then. In those days Michael Manley was a hero of the European Left. The former union functionary cultivated an anti-imperialist rhetoric directed against the United States, and he openly admired Communist Cuba as a role model for his nation. One of the main themes of the election was the question of how Jamaica should handle its natural resources. The Ca rib be an island is one of the world’s largest producers of bauxite, the ore from which aluminum is won. Manley was highly critical of Jamaica’s cooperation with Marc Rich.

Rich owed his reputation to the oil trade, but as we have seen, his company traded commodities from aluminum to zinc. Bauxite, aluminum oxide, and aluminum made up about a fourth of its income. Rich had been represented there for some years by his company Clarendon, which dealt directly with the Jamaican government. Manley’s People’s National Party had promised to stop all business with Rich and to closely reevaluate all existing government contracts with his company. Placards with photomontages were displayed at the party’s rallies depicting Marc Rich with blood on his hands. He was denounced as an archetypical exploiter and “foreign parasite.”

Manley’s first appearance in the Jamaican parliament turned out to be a huge disappointment for Rich’s critics. He had made a mistake concerning “the Marc Rich matter,” Manley admitted during the budget debate of March 1989. His government would “of course” honor Jamaica’s contracts.¹⁰ Rich’s critics around the world—particularly activists in the antiapartheid movement, a movement with which Manley was closely associated—were crestfallen. They had hoped that Manley would promptly turn his back on Rich. Why, they asked themselves, did Manley make such a staggering 180-degree turn?

The simplest answer to this question was given to me by a banker who worked for Rich. “Marc Rich had saved Jamaica. He had bailed it out.” At that time, in spring 1989, officials from the International Monetary Fund (IMF) were in Kingston to inspect the government’s bookkeeping, and further IMF credit was dependent on the results of the inspection. The Ca rib be an island was as reliant on foreign loans as an addict is on his drug of choice. Jamaica was deep in debt, its balance of payments was heavily in the red, and the Jamaican dollar was steadily losing value. In the spring of 1989 it looked as if Jamaica would flunk the inspectors’ test. Most significant, the country maintained lower currency reserves than the amounts stipulated by the IMF, which were intended to help Jamaica meet interest payments and obtain further loans. The new government was lacking 45 million in hard currency, and it needed to find it fast; otherwise the IMF would stop the flow of credit into the country. Jamaica would then find itself unable to meet its payments—a development that would have devastating effects for the Jamaican economy and people.

In the end, even socialist beggars can’t be choosers. Shortly after assuming office, Prime Minister Manley entered into talks with Clarendon’s managers.¹¹ They explored the idea of Rich helping Jamaica with a loan—and discovered they were preaching to the converted. The IMF forbade countries from borrowing money to cover their currency reserves, so a normal loan was out of the question. Rich’s people, however, believed the problem could be solved with a bit of “creative accounting.” They offered to give Jamaica the desperately needed 45 million, but not as a loan. Instead, the money was intended as an advance payment on future aluminum oxide deliveries. Jamaica was saved; IMF officials accepted the government’s accounts and approved the new credit.

Critics maintain that Rich was thus essentially able to buy Manley and effectively take Jamaica hostage. However, the reality of the situation was that no bank, no international organization, and certainly no other company would have been prepared at that time to lend Jamaica a single cent. The country was over 4 billion in debt and was not even remotely creditworthy. “In any other company it would have been considered crazy to give Jamaica money under such circumstances,” a Rich employee who played an important role in the Jamaican negotiations told me, “but we never let down the people who do business with us. We sometimes even took on losses.” Of course, Rich’s people were not helping Jamaica out of a sense of charity: “For us every situation was an opportunity. We weren’t looking for fast money. We were looking for an ongoing relationship.”

Rich’s companies were willing to accept the smallest of profit margins—and ready to take an occasional temporary loss—in order to break into a market or enlarge their market share. The trade in commodities—and this is particularly true of aluminum—is a cyclical business. A one-or two-year period of high prices can be followed by longer periods of low prices. Those traders who are prepared to operate against the cycle, hold out during dry spells, and even invest during hard times can reap good profits when the prices again begin to rise. There is no better example of this strategy than Rich’s Jamaican aluminum trades.

Rich had already helped Jamaica out of trouble four years prior to the island’s troubles with the IMF. In 1985 aluminum prices had hit a low of 1,080 per metric ton—the lowest price in years.¹² At the same time, oil prices had skyrocketed, making the complicated and energy-intensive production of aluminum even more expensive. The American aluminum producer Alcoa, which mainly made money as a supplier of aluminum to the aircraft and automobile industry, wanted to shut down its Jamaican production facilities for converting bauxite into aluminum oxide due to increasing production costs. It had become cheaper for Alcoa to purchase aluminum oxide from a third party.

The closing of the Alcoa facility was a catastrophe for the country, which lived mainly from tourism and bauxite. It was a golden opportunity for Rich, and his people immediately approached the prime minister, Edward Seaga. “We knew exactly what we wanted. We had a plan that covered everything from A to Z,” Rich’s employee explained. “We told the minister of industry, Hugh Hart, he should suggest to Alcoa that they lease the facility to the government instead of shutting it down. We knew Alcoa would agree, as even a closed facility would have cost them a lot of money. We simultaneously guaranteed Jamaica that we would continue to purchase their yields at fixed prices for a period of ten years. We told the government that we would take care of everything; all they had to do was maintain production.” Clarendon, the Marc Rich company, even supplied Jamaica with cheap oil.

In early 1986 Seaga’s government signed a ten-year contract with Clarendon for the Alcoa facility’s entire annual yield of 750,000 metric tons of aluminum oxide.¹³ It was risky for the company to commit itself to a long-term contract while prefinancing the facility’s yield in the midst of a crisis. Metals experts assumed that prices would continue to fall. It was a risk that might pay off only to those who could wait. Marc Rich was someone who knew how to wait.

Two years after Clarendon had signed the ten-year contract at fixed prices, the demand for aluminum began to increase rapidly, and prices began to skyrocket. In 1988 the price for a metric ton of aluminum was at 2,430—more than twice the price at the time of the contract. Rich made a fortune as a result of the simple fact that he had had the patience and the money to wait out the slump in the aluminum market. Jamaica also profited from the rise in prices because the price agreed with Rich was a mix of fixed prices, London Metals Exchange–linked prices, and barter of oil for alumina. Between 1980 and 1990 Rich advanced Jamaica’s government almost 320 million in order to secure annual yields of aluminum oxide. Critics bemoaned the exploitation of the nation’s natural resources by “assorted private individuals.”¹⁴ Rich’s employee in Kingston in those days is of a wholly different opinion: “The Jamaicans are eternally grateful to us,” he told me. “We gave them back their pride, the Alcoa facility was once more able to turn a profit, jobs were saved, and we made a really good deal.” You give a value and you receive a value.

South African Stratagems

It seemed to be a normal transport like any other. The Dagli, a Norwegian tanker, docked in Odessa on September 21, 1988, where she took on a cargo of Soviet oil. The shipping documents listed the destination as the Italian harbor of Genoa. The Dagli sailed across the Black Sea and through the Bosporus Strait past Istanbul. The tanker had just reached the Mediterranean when her captain received a telex advising him of a change of plans. According to telexes in the author’s possession, the ship’s charterer ordered him to set course for Cape Town in South Africa. From that moment onward, the captain was only allowed to identify the Dagli on the radio as “MFI,” and all further communications were to be carried out using secret code. He was prohibited from disclosing the ship’s cargo or the destination. The telex’s wording was quite clear: “Any all communications are to refer only to bunkering operation with no reference whatsoever to cargo discharge, vessels [sic] name or loadport. Under no circumstances should vessel use usual call sign.” Three weeks later, on October 15, 1988, the Dagli sailed into harbor at Cape Town. She was virtually a ghost ship—her name was covered with a tarp, and her Norwegian flag had been taken down. She secretly discharged her cargo of oil in Cape Town before disappearing nearly as soon as she had arrived.

There was a reason, of course, for all of this secrecy. The oil’s true owner was Marc Rich, and the arranged purchaser was the government of South Africa. The oil itself came from the Soviet Union, which officially boycotted the racist apartheid regime and had broken off diplomatic relations with the country as of 1956. It was a typical state of affairs in which Rich again served as a sort of “crude middleman” who bought sensitive commodities from sensitive sellers and sold them to sensitive buyers. He was able to bring together countries that no longer maintained an official relationship with one another.

South Africa’s survival depended on middlemen such as Rich. The Iranian revolution was a catastrophe for the South Africans. In February, 1979, the mullahs in Tehran broke off all diplomatic and economic contacts with South Africa. The National Iranian Oil Company contractually forbade its customers from delivering a single drop of oil to the apartheid state. In the years before the revolution, South Africa had obtained 90 percent of its oil from Iran.¹⁵ The shah had continually refused to take part in the Arab nations’ sanctions against South Africa, such as the 1973 boycott. The shah had wanted to become a powerhouse of the oil trade and was happy to sign large (and independent) contracts with new customers. Furthermore, Mohammad Reza Pahlavi’s position could be explained by the special relationship he maintained with the government in Pretoria. His father, Reza Shah, was forced to step down by Great Britain and the Soviet Union in 1941 before being forced into exile. Reza Shah spent his final days in Johannesburg, where he died in 1944. As strange as it might sound, Iranians were granted special status as “honorary whites” under the racist laws of the apartheid regime.

Few countries were willing to continue supplying South Africa with oil. In addition to the Arab boycott, the United Nations General Assembly also enacted an oil embargo against South Africa in a series of resolutions in 1977. In truth it remained a voluntary boycott, and the UN Security Council never made it a binding resolution.¹⁶ Nevertheless, most oil-producing nations enacted embargoes—at least officially—and the larger oil companies stopped dealing with South Africa. In 1986 the United States enacted the Comprehensive Anti-Apartheid Act, which prohibited U.S. companies from supplying South Africa with oil.¹⁷

South Africa’s salvation came in the form of Marc Rich—with a hefty surcharge, of course. Rich’s companies had very good contacts in South Africa, and a young Briton living in the former Commonwealth country was in charge of company affairs: Alan Fenton, who had changed his name from Felsenstein. Fenton took care of the company’s South African business, mainly in the manganese and chrome trade, in the late 1970s. Alec Hackel, one of the founders of Marc Rich + Co., was in charge of South African affairs back at company headquarters in Zug. Shortly after the Iranian revolution, the apartheid government secretly approached Fenton in order to discuss oil deliveries, and the two parties soon came to an agreement.

On April 12, 1979, South Africa signed a long-term contract with Rich for the delivery of large sums of oil. In order to keep their business relationship as discreet as possible, an unknown Swiss company was named in the contract. Minoil was located only a few hundred feet from Rich’s headquarters in Zug. No one knew that Minoil also just happened to be a part of Rich’s trading empire. Switzerland again proved to be a clever choice for the headquarters of Marc Rich + Co. In those days the neutral country was not a member of the United Nations and did not generally participate in economic or political sanctions.

Under the terms of the contract, Rich was obliged to deliver oil to South Africa for a period of at least one year. The contract stated that Minoil would deliver 2.4 million metric tons of oil in the first six months followed by 1.6 million metric tons in the second half of the year. Together these deliveries amounted to around one-third of South Africa’s yearly oil needs. South Africa paid Rich an average of 32.80 per barrel—8 higher than spot market prices.¹⁸ This contract for approximately 4 million metric tons—nearly 30 million barrels—was worth almost 1 billion. Rich was able to make an estimated profit of around 230 million.

South Africa was in a desperate situation and was forced to resort to “unconventional means” in order to secure its oil supply. These were the words that appeared in a report from June 27, 1984, by the advocate general of South Africa, Piet van der Walt, who was investigating rumors of massive corruption surrounding the oil deliveries. One of the most important of the “unconventional means” involved government risk premiums of 8 per barrel—the same 8 that Rich made above the spot market price. Van der Walt’s report stated, “As a further incentive to international oil companies to supply . . . South Africa with crude oil, 8 per barrel of crude oil was paid under a subsidy scheme during 1980. For each barrel of crude oil imported by a company 8 per barrel, adjusted in terms of oil quality, was repaid to the company.”¹⁹ South African president Pieter W. Botha later admitted that South Africa, to be able to get oil supplies, had paid between 1 billion and 2 billion each year above the normal price as a result of the boycott.²⁰

South Africa under apartheid is the best example of the double moral standards that are still prevalent in the discussions about ethics in the commodities trade. The list of countries from which the oil for the apartheid regime was obtained reads like a complete list of all oil-producing nations. The oil came mainly from Iran, Saudi Arabia, the United Arab Emirates, and Oman.²¹ Oil deliveries also came from Dubai, Angola, Nigeria, Ecuador, Brunei, and the Soviet Union. All of these countries were vocal opponents of the apartheid regime and had loudly proclaimed that they would maintain the boycott against South Africa.

In reality, however, profit triumphed over principles in these countries. Islamic Iran, the Communist Soviet Union, and capitalist Ecuador were all looking for hard currency. They all made, via Marc Rich, lucrative secret deals with the apartheid regime in South Africa. Rich was used in order to conceal the contradictions between these nations’ political rhetoric and economic deeds, and they were content to let him take the political heat. Today there is absolutely no doubt that Rich was the ostracized regime’s most important oil supplier from 1979 to 1994 (when Rich sold his company). His company was responsible for at least 15 percent of the identified oil deliveries, according to the Dutch Shipping Research Bureau’s conservative estimates. These deliveries consisted of 149 tanker loads—a total of 26.2 million metric tons, or around 200 million barrels, of oil.²² From information gathered during the extensive interviews that I conducted for this book, I have come to the conclusion that the true sum was actually more in the region of 400 million barrels.

Rich made a lot of money in those years. “Believe me, we made huge business with South Africa. Huge business,” one of Rich’s close cadres with access to the company’s books admitted to me. At first he did not wish to tell me the exact sum, so I wooed him with numbers. “A billion?” I asked him. He shook his head and laughed. “One and a half billion?” I asked. Without uttering a noise he mouthed the word “more.” I shook my head in disbelief, whereupon he nodded and said: “Two billion dollars. We made a profit of over two billion dollars in South Africa.” Two billion dollars was an unbelievable sum in those days. Proof that this sum is no mere overestimation can be found in the debates that took place before the South African parliament in April 1984. During these debates it was discovered that the state Strategic Fuel Fund had paid Marc Rich 306 million above the spot market price for one large oil delivery alone.²³

“I don’t know,” Rich said when I asked him about the 2 billion. It seemed as if he were trying to avoid the question. I asked him if he no longer wanted to remember, whereupon he finally answered that he had never calculated how much money he had earned in South Africa over the course of those fifteen years. He did confirm, however, that the trade with South Africa had been his “most important and most profitable” business.

There are good reasons for viewing Rich as something of a Karl Marx figure, “who made all of the oil countries aware of their interests,” as Rich’s business partner and friend Isaac Querub commented. One can see him as someone who provided third world countries with their “first opportunity to play a role in the global market,” as the trader in Jamaica put it. One can view Rich’s traders as profit-oriented development workers “who gave the key of knowledge,” as the expert on Angola believes. Angola and Jamaica are good examples of this thesis, whereas apartheid South Africa is the exact opposite. Angola and Jamaica were able to assert themselves and develop, but the opposite was true in South Africa, for in the end Rich’s services helped to support a regime that oppressed its black citizens.

Dealing with Dictators

How does one do business with racist, dictatorial, and corrupt governments? Is it possible to do so without becoming an accessory to these governments’ crimes? I spoke with Rich about these questions in his office in Zug. The rain ran in streaks down the widowpanes and lent a fitting atmosphere to our discussion. Rich’s desk, which was usually quite orderly, was covered in open medicine packages. He sneezed continuously throughout our discussion.

Is it possible to remain neutral when doing business in such countries?

Yes, business is neutral. You can’t run a trading company based on sympathies.

Iran, Cuba, South Africa. You were always a crisis profiteer.

Whatever we did, we did legally. We were doing business with Iran, Cuba, and South Africa as a Swiss company. These businesses were completely legal according to Swiss law.

The law is the only criterion?

The law is the only objective standard.

In the case of South Africa you indirectly supported apartheid. Your critics maintain that, thanks to you, apartheid was able to survive longer.

I don’t know if this is true. I doubt it. I was fundamentally against apartheid. We were all against apartheid. I just was doing normal business with South Africa.

How do the two fit together?

I’m not a political person. We were not a political company. We just wanted to be an excellent trading company for our customers. The South Africans needed oil, and people were reluctant to sell it to them because of the embargo. We agreed to do it because we felt it was nothing illegal.

Many people—including some businesspeople—would cite ethical reasons for not making some of the deals that you have made. Is that naive?

I think so.

Why?

Because it was perfectly legal to do the business we did do.

Can you understand some of your critics’ arguments?

They like to pick on me. By making dramatic statements they have a better chance to sell their newspapers or to create publicity for themselves. The politicians always want to be in the media.

You feel absolutely no remorse whatsoever?

No, no.

It is not as if Rich does not see or does not wish to see the dictators’ crimes or the racism of apartheid. He does not ignore them. He was appalled by the fact that the Cuban people allowed the Communists into power. He was disgusted by the rampant corruption in Nigeria and was aware of the fact that the people have in no way benefited from the nation’s oil wealth. Although Rich believed the system of apartheid in South Africa was fundamentally wrong, he also believes that business had nothing to do with politics. He does not understand that his business strategy of making profits in crisis regions and his willingness to do business anywhere that such business is legal can cause offense among others.

In the United States, Marc Rich was branded a traitor primarily because of his dealings with Iran and Cuba. Other countries took a more pragmatic view. Remarkably, a striking example of this pragmatism was the new democratic government in South Africa. Rich continued to do business with South Africa after the end of apartheid despite all of the anti-Rich rhetoric from the African National Congress, which won the first democratic elections. The new government under Nelson Mandela relied on Rich’s services. “We continued to do oil business with the new government,” Rich told me. “It was completely normal for us to continue the business. We think in the long term.”