NS business profile: Marc Rich, Glencore's fugitive founder

Glencore's worst kept secret.

Glencore’s worst kept secret – the company’s former name was that of America’s once wealthiest fugitive. When Marc Rich & Co AG was renamed Glencore after a management buyout in 1993, its founder and namesake was already on the FBI’s Ten Most Wanted List.

Ironically, Marc Rich was not born in the US. He immigrated there in 1941 when his parents fled the war in Belgium. Instead of studying – he enrolled at New York University but dropped out – Rich started his commodities career early at Philipp Brothers (now Phibro LLC).

At Philipp Brothers, Rich pulled off his first Middle Eastern corporate coup. It was 1973, the spring before OAPEC countries imposed the oil export embargo that would wreck havoc on the world’s economies. How he predicted the embargo, and the threefold price increase that accompanied it, is uncertain, but that spring, Rich more or less pioneered a new form of commodities trading. Future trading was the norm in the crude oil market, but realising a price hike was imminent, Rich started buying and selling on the spot (immediate) market. This allowed him to sell on demand as the embargo took effect and, of course, demand and price rose catastrophically.  

Philipp Brothers were appalled, and sold most of the oil before the embargo took effect. Rich resigned and, together with partners Pincus Green and Alec Hackel, founded Marc Rich & Co AG in the laid back rural town of Zug, Switzerland. It was 1974, 20 years before Marc Rich + Co AG would be renamed Glencore, and 37 before its giant IPO.

Trading from his own company, Rich quietly ignored international sanctions. From 1979 to 1993, his company imported 50,000 tons of oil to the heavily sanctioned South African apartheid government according to the Shipping Research Bureau. Then there was Iran.

In the midst of the 1979 hostage crises, the United States banned all oil trading with Iran. Rich, however, ignored these and purchased crude through a maze of front and shell companies.

It was a crime that was only picked up in 1983 by Rudoph Giuliani, then a US Federal Prosecutor. Amid more than 51 counts of tax fraud, $48 m in tax evasion and a 300 year prison sentence, Rich fled to the hills of Zug, not to return to his Fifth Avenue apartment for many years.

Glencore, or Marc Rich + Co AG as it was then, was to remain in Rich’s hands for another 10 years. In 1990, Marc Rich & Co AG became a majority shareholder of another Swiss commodities company called Xstrata.

It was only after nearly bankrupting the company in 1993 through zinc trades that Rich was forced to sell his entire stake of the company to its management. Only then did the company drop the founder’s name, along with his notoriety, to rename itself Glencore.

Bitter at being forced out of his company, where there were already rumours of a Glencore-Xstrata merger, Rich founded another trading company called MRI Trading AG. In 2003, with a $7.5 billion turnover and 240 employees, MRI was sold to Russian Crown Resources.

Rich’s controversy reached its pinnacle when he was pardoned by the US President in 2001. President Clinton made a total of 396 pardons, but the one made to Marc Rich during his last day in office was his most notorious. It emerged only afterwards that Rich’s ex-wife, Denise, was a close friend of the Clintons. The pair had made sizable donations to the Clinton Presidential Library and the Clinton Foundation. 

Although a free man, Rich lives in Switzerland where he enjoys dabbling in the commodities market from time to time. His family office, The Marc Rich Group, guards his estimated $2.5 bn fortune, according to the global wealth consultancy, WealthInsight. This figure includes the superyacht, Lady Joy; a notorious art collection and property in St Moritz, Lucerne, Marbella, Lisbon and Moscow. Through his ‘The Rich Foundation’, he has donated large amounts to Israeli causes and, as a result, been bestowed with honorary doctorates from Bar-Ilan and Ben-Gurion Universities.

No longer a thorn in Glencore’s side, Rich still maintains opinions in the deal that set last week’s headlines: "It is not necessary, because Glencore dominates Xstrata anyway thanks to a large minority stake....The larger a company is, the more market power, it has controlled and thus easier to pricing. In the end, this means higher profits." Rich told the Swiss magazine, Bilanz.

Not that Rich’s opinion counts anymore. No longer a shareholder in either Glencore or Xstrata, he is rarely credited with paving the way for what could be the largest corporate merger in history. As each company comes under scrutiny ahead of the deal, they probably want to forget their match made in lawlessness.

House Hearing on President Clinton's Pardon of Marc Rich. Photograph: Getty Images

Oliver Williams is an analyst at WealthInsight and writes for VRL Financial News

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The problems with ending encryption to fight terrorism

Forcing tech firms to create a "backdoor" to access messages would be a gift to cyber-hackers.

The UK has endured its worst terrorist atrocity since 7 July 2005 and the threat level has been raised to "critical" for the first time in a decade. Though election campaigning has been suspended, the debate over potential new powers has already begun.

Today's Sun reports that the Conservatives will seek to force technology companies to hand over encrypted messages to the police and security services. The new Technical Capability Notices were proposed by Amber Rudd following the Westminster terrorist attack and a month-long consultation closed last week. A Tory minister told the Sun: "We will do this as soon as we can after the election, as long as we get back in. The level of threat clearly proves there is no more time to waste now. The social media companies have been laughing in our faces for too long."

Put that way, the plan sounds reasonable (orders would be approved by the home secretary and a senior judge). But there are irrefutable problems. Encryption means tech firms such as WhatsApp and Apple can't simply "hand over" suspect messages - they can't access them at all. The technology is designed precisely so that conversations are genuinely private (unless a suspect's device is obtained or hacked into). Were companies to create an encryption "backdoor", as the government proposes, they would also create new opportunities for criminals and cyberhackers (as in the case of the recent NHS attack).

Ian Levy, the technical director of the National Cyber Security, told the New Statesman's Will Dunn earlier this year: "Nobody in this organisation or our parent organisation will ever ask for a 'back door' in a large-scale encryption system, because it's dumb."

But there is a more profound problem: once created, a technology cannot be uninvented. Should large tech firms end encryption, terrorists will merely turn to other, lesser-known platforms. The only means of barring UK citizens from using the service would be a Chinese-style "great firewall", cutting Britain off from the rest of the internet. In 2015, before entering the cabinet, Brexit Secretary David Davis warned of ending encryption: "Such a move would have had devastating consequences for all financial transactions and online commerce, not to mention the security of all personal data. Its consequences for the City do not bear thinking about."

Labour's manifesto pledged to "provide our security agencies with the resources and the powers they need to protect our country and keep us all safe." But added: "We will also ensure that such powers do not weaken our individual rights or civil liberties". The Liberal Democrats have vowed to "oppose Conservative attempts to undermine encryption."

But with a large Conservative majority inevitable, according to polls, ministers will be confident of winning parliamentary support for the plan. Only a rebellion led by Davis-esque liberals is likely to stop them.

George Eaton is political editor of the New Statesman.

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