How Marc Rich Made A Fortune Getting Around Sanctions And Trading With Shadiest Characters In The World

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It is well know that Marc Rich, the late billionaire commodities fugitive and American exile, managed to trade with some of the most unsavory leaders in the world despite U.S. sanctions.

He died this morning, but in the 1970s (his heyday) he circumvented a ban on trading with Iran and managed to supply oil to Apartheid South Africa. He also found a way around Ronald Reagan’s directive to stop trading with Muammar al-Qaddafi’s Libya. The question is how?

The answer is complicated — think shell companies on paper and fixers on the ground. Think bribes.

Foreign Policy Magazine did an awesome profile of Glencore (as Rich’s company, Marc Rich $ Co. AG, was renamed after he left) last year. It touches on how Rich did business in the bad old days before the company went public.

From FP:

An inveterate sanctions-buster, Rich used offshore front companies and corporate cutouts to try to stay below the radar. He also pioneered the practice of commodity swaps, like the uranium-for-oil deals he brokered in the 1980s between apartheid South Africa and Islamic Iran and Soviet Russia…

This is the heart of the Marc Rich formula: Access is money, and contacts on the ground mean access. The new Glencore, like the old one, relies on a network of fixers, middlemen, and business partners who might make other companies squeamish, among them the Uzbek-born oligarch Michael Cherney, now living in Israel and wanted by Interpol on a Spanish warrant connected to organised crime charges and with whom Glencore traded oil (through an offshore vehicle affiliated with Cherney) in Romania in the mid-2000s… In Congo-Brazzaville, to take another example, Glencore bought oil from shell companies set up by the state oil company’s head, Denis Gokana (conveniently trained at its London office), according to a lawsuit by Kensington International, a Cayman Islands-based corporation.

When President Jimmy Carter put sanctions on Iran in 1979, for example, Rich was ready. A business associate immediate went to Iran to greet Ayatollah Khomeini, writer Daniel Amman said in his book detailing the deal, ‘The King of Oil.

Khomeini and his lesser ayatollahs decided to respect the agreements made by the deposed Shah and so Rich was able to continue his work in Iran.

In an ABC interview with Amman he said, “We performed a service for them…We bought the oil, we handled the transport, and we sold it. They couldn’t do it themselves, so we were able to do it.”

Naturally, someone must be on the other side of any trade. In this case Rich was selling Iranian oil to Apartheid South Africa (getting around an embargo) and Israel (getting around an ancient feud).

More from the Amman interview: “They didn’t care,” Rich told me. “The professionals in the oil business in Iran didn’t care. They just wanted to sell oil.”

And sell they did, in part, using the spot market, which Rich himself perfected in the Middle East during the early 1970s. Essentially, instead of having a long-term contract with a buyer or seller, Rich would execute one-off trades through a thick layer of shell companies.

So not necessarily the kind of thing you can trade from your basement.

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