Lessons from a fugitive: What the tangled tale of Marc Rich tells us about Carlos Ghosn

Marc-Rich-Carlos Ghosn
The lives of Rich (left) and Ghosn (right) seem ripped from a spy novel. Rich: Blick RDB/ullstein bild/Getty Images Ghosn: JOSEPH —AFP/Getty Images

By Shawn Tully

The Carlos Ghosn saga of a storied mogul who fled prosecution in Japan to surface in Beirut as the world’s most famous white-collar fugitive strongly recalls the tale of another tycoon on the lam who also held multiple passports and won vast riches operating a global business empire. Thirty-seven years ago, Marc Rich—then the world’s leading commodities trader—bolted the U.S. for Switzerland to escape being jailed for allegedly orchestrating what Justice Department officials termed the biggest tax fraud scheme in U.S. history. For the better part of the next two decades, Rich proved the ultimate artful dodger, running his trading empire in exile, basking in a Saint Moritz ski chalet and Moorish mansion in Marbella, and traveling extensively, both to countries where he couldn’t be extradited and clandestinely to cities where he risked being nabbed. Guided by a former high-ranking agent in the Israeli Mossad and traveling under assumed names, Rich proved a genius at outfoxing his pursuers and was never caught.

If you know the reclusive Rich’s name at all, it’s probably because on Jan. 19, 2001, two days before he left office, President Clinton pardoned the fugitive trader, unleashing a torrent of outrage in the press and Congress. Clinton later confessed that the pardon “was terrible politics. It wasn’t worth the damage it did to my reputation.” In the surreal story of Marc Rich, who died in 2013 at 78, the cast of characters encompasses a sundry list of big names prominent in today’s news, among them former New York City mayor and presidential attorney Rudy Giuliani, who led the Rich prosecution and mined PR gold from case; ex-FBI director James Comey, who as a Justice Department official helped mastermind the plots to snare Rich, only to see the manhunt foiled at every turn; and President Obama’s Attorney General Eric Holder, who as a Justice Department official famously lent crucial support to Rich’s request for a pardon.

As tensions with Iran flare once again, it’s worth remembering that Rich was a powerful, though hidden, player when Iran’s Revolutionary regime first clashed with the U.S. During the 1979 hostage crisis, it was Rich who bolstered the Ayatollah Khomeini’s economy by secretly purchasing Iranian oil in defiance of a widespread boycott. It’s testament to Rich’s extraordinary business acumen that he successfully ran the world’s largest commodities trading business as a fugitive wanted on charges punishable by over 300 years in jail, and that the company he pioneered, renamed Glencore upon his retirement, still holds that top position and boasts a $50 billion market cap.

Is Ghosn the new Rich?

The Japanese government likely dreads that Ghosn will become the new Rich. Ghosn, former CEO of auto alliance partners Nissan of Japan and Renault of France, stands accused of hiding $80 million in pay, shifting $17 million in personal losses on his personal securities trades to Nissan, and channeling funds that Nissan paid to a dealership in Oman to benefit his family. The last spectacle the Japanese want the world to witness is Ghosn hopping from mansion to hotel particulier to villa in Lebanon, France, and Brazil, all nations where he’s a citizen and hence doesn’t risk extradition (while publicly accusing Japan of political conspiracy to block him from undermining the nation’s sovereignty by merging Nissan and Renault). While Rich generally remained quiet, Ghosn is already proving a nonstop insult machine, fulminating in a marathon press conference from Beirut on Jan. 8 that he’s been victimized by the “corrupt” and “inhumane” Japanese justice system that promises “zero chance of a fair trial.”

The morning after Ghosn’s press conference, Justice Minister Masako Mori fired back in a rare briefing: “He has been propagating both within Japan and internationally false information on Japan’s legal system and its practice. That is absolutely intolerable.”

By going public, Carlos Ghosn is daring Japan to capture him. But it’s not at all certain that Japan will mount Mission: Impossible–style schemes to nail Ghosn that the U.S. deployed in its pursuit of Rich. Ruses such as persuading old friends to betray him by promising a lucrative deal if he’ll take their helicopter, or meeting them on a yacht or city where he can be nabbed, are contrary to the Japanese law enforcement tradition, according to Don Ferrarone, the legendary retired DEA agent who investigated the French Connection case and brought down Harlem drug lord Nicky Barnes. “He’s been very outspoken. In some ways he’s asking for it,” Ferrarone told Fortune. “But I don’t see the Japanese taking taking [U.S.-style] actions to lure him. It’s not in their culture. When I was working in Southeast Asia, I didn’t find the Japanese that aggressive.” Ferrarone believes that Japan will follow “a very formal diplomatic route to get him,” meaning that its authorities will rely on its intelligence networks to learn when he’s traveling to a friendly country, then work with that nation to seek his arrest and extradition.

Indeed, the Ghosn case presents a cultural challenge for Japan. If Japan sticks to its customary by-the-book approach, it will be shunning the skulduggery that often works in nailing fugitives. Hence, Japan will be tempted to abandon its usual caution in chasing white-collar criminals and hatch the kind of spy-novel plots that dogged Rich. After all, it was such a bold escape scheme, orchestrated by a former Green Beret, that smuggled Ghosn out of Japan.

For 17 years, the U.S. authorities hatched a series of plots to capture Rich that would supply the scenarios for a Hollywood thriller and a few sequels. Indeed it was Rich who set the template for what the Japanese fear Ghosn will become: the untouchable tycoon on the run.

Becoming Marc Rich

Born Marcell Reich in Antwerp to parents raised in Germany, Rich escaped the Holocaust to the U.S. in 1940, settling at age 6 in Kansas City. The family later moved to New York City, where his father ran a successful trade purchasing jute for burlap bags. At 19, Rich dropped out of New York University to work in the mail room of legendary commodities house Philipp Brothers. The firm had advanced a large loan to the Fulgencio Batista government in Cuba for mining pyrite, a mineral used in jewelry. But when Fidel Castro swept to power in 1959, Philipp Brothers risked not getting repaid, and it dispatched its rising star to Havana to find a solution. Rich recognized that the Castro regime desperately needed foreign currency, and he proposed advancing more money to get the mine working so that Cuba could generate the cash it needed to buy oil and other essentials from abroad—with Philipp Brothers trading the pyrite. Rich hammered out a deal with Castro’s top lieutenant Che Guevara, whom he described to Daniel Ammann in his biography of the trader, The King of Oil, as “energetic and lively.” Overnight, the Cuba deal made the 25-year-old Rich one of the venerable firm’s top dealmakers.

In 1963, the firm sent Rich to Madrid, where he would head the office for the next 11 years. In mid-1967, Egypt closed the Suez Canal to punish the West for supporting Israel in the Six-Day War. At the time, Israel’s Prime Minister Golda Meir and Iran’s Shah Mohammad Reza Pahlavi were deep in secret negotiations for an oil pipeline to connect the two nations, a link that would bring Tel Aviv a steady supply of Iranian crude. The shah had been waffling, but the closure of the Suez Canal suddenly made the pipeline look highly appealing. Iranian oil could reach European customers only by circling South Africa’s Cape of Good Hope at great expense. The pipeline would not only supply Israel but also provide a short cut by moving crude from Israeli ports to Western Europe. Iran concealed its 50% ownership in the pipeline, and although it denied supplying oil to Israel, the arrangement was an open secret in the industry.

Rich sensed a historic opportunity. He offered Iran a long-term contract to purchase a large portion of its production each year. Rich was able to guarantee Iran such giant volumes because he had secured contracts to supply Spain, then hungry for oil to fuel its industrialization campaign, at far lower cost than Spain was paying for supplies that circled the Horn of Africa.

In early 1974, Rich quit Philipp Brothers after the firm refused to pay him the $500,000 bonus he demanded for delivering giant profits from the pipeline deals. He quickly opened his own shop, Marc Rich & Co., with just $2 million in capital in a four-room apartment in Zug, Switzerland, a foggy tax haven south of Zurich. His chief partner was his closest collaborator at Philipp Brothers, Pincus “Pinky” Green, a shipping and logistics genius who would cohead the firm for many years to come.

Rich’s timing was quicksilver. The Arab oil boycott in the wake of the Yom Kippur War left the West starved for oil. But Iran shifted its business from Philipp Brothers to Marc Rich & Co. and kept the number of daily barrels allotted to Rich at the ongoing gigantic levels despite the overall cutbacks mandated by OPEC. Suddenly, the oil majors, known as the “seven sisters” that had long dominated the business, were severely short of oil, while Rich had plenty. His customers, notably Spain, Israel, and South Africa, paid premium prices for his reliable supplies.

Instead of scotching his most lucrative deal, the Islamic revolution that deposed the Shah of Iran in early 1979 made Rich richer than ever and showcased his mastery at courting rogue regimes. The hostage crisis prompted President Carter to ban U.S. purchases of Iranian crude. Rich and Green quickly persuaded the new Khomeini regime to keep sending them large quantities of crude because, unlike the U.S. majors, they weren’t legally prohibited from trading with America’s new enemy—a position the U.S would famously dispute in indicting Rich and Green.

Rich also secured long-term contracts that assured him ample quantities of crude from Ecuador, Nigeria, and Angola. Once again, the West was desperate for oil, and Rich was flush. Rich’s rise helped break the seven sisters’ cartel and create the “spot” oil market. His willingness to sell customers all the crude they needed at the daily spot price won market share from the majors, forcing them to move away from their reliance on fixed-price, multiyear contracts with buyers.

By the early 1980s, Marc Rich AG reigned as the biggest trader in the world. He was buying and selling more crude a year than Kuwait was producing, according to The King of Oil, which is based on extensive interviews with Rich, his partners, and his competitors.

Giuliani targets Rich

But in early 1983, Rudolph Giuliani, who had just taken charge as the U.S. Attorney in the Southern District of New York, began aggressively pursuing a case against Rich and Green for what he viewed as epic criminal misconduct. When Rich learned from his attorneys that the prosecutors were demanding that any settlement require jail time, the two partners, who had been working from Manhattan for years, fled to Zug, still the firm’s global headquarters. Months later, Giuliani with great fanfare announced that the U.S. was indicting Rich and Green “in the biggest tax evasion case in U.S. history,” and that the charges carried 352-year jail terms. Giuliani employed a weapon that he had previously used only to fight organized crime: RICO penalties that gave the prosecutors powerful leverage by enabling the U.S. to freeze the defendants’ assets. The RICO innovation, and the publicity generated by the case against Rich, would enhance Giuliani’s brand as a slayer of white-collar criminals and build a platform for launching his career in politics.

Giuliani charged Rich and Green with 65 criminal counts that fell into three major categories. First, he accused the pair of reaping $105 million in illegal profits by violating price controls on oil enacted by the Carter administration. The Carter administration had established two regulatory categories for oil: Newly discovered crude could be sold at market prices to encourage new production, while barrels already in stock were subject to caps that fixed what they could fetch at one-third of the free-to-trade price. Since every barrel of oil, new or old, looks the same, the policy was a disaster that invited abuse. The majors regularly broke the rules, generating huge profits by simply mislabeling oil in storage as newly discovered and hence tripling the price. Rich and Green also violated the jerry-rigged rules in a big way, swapping labels to pocket that $105 million. Second, Giuliani charged Rich and Green with “trading with the enemy” by purchasing hundreds of millions of dollars in Iranian oil during the hostage crisis. The third charge turned out to be the most lasting and damaging: that Rich and Green shipped the $105 million in profits from the U.S., where they were earned, to Switzerland, evading $45 million in taxes.

Giuliani used RICO to freeze the Marc Rich companies’ assets, hobbling the trading business. Just one year after the ax landed, Marc Rich & Co. and affiliates agreed to a plea bargain that enabled them to pay over $200 million in fines in return for lifting the restrictions and allowing them to once again operate freely. But Giuliani wouldn’t agree to a deal with Rich and Green, whom the U.S. Department of Justice branded as America’s most wanted white-collar fugitives, with a reward of $750,000 each on their heads.

For many years, a battery of lawyers for Rich and Green argued that they had done nothing wrong and requested that the Justice Department agree to a plea arrangement. One of Rich’s attorneys, Leonard Garment, who defended Richard Nixon in the Watergate case, did persuade Giuliani’s successor as U.S. attorney, Otto Obemaier, to meet with himself, Rich, and Green for lunch at a restaurant in the posh Grand Hotel Dolder in Zurich. Obermaier was accompanied by Assistant U.S. Attorney James Comey. The two officials gave Rich and Green the answer they had been hearing for years: They had to agree to serve time in jail in any plea agreement or return to the U.S. for trial.

For Rich and Green, imprisonment was the red line they refused to cross. According to a U.S. State Department memo, a PR exec who had been representing Rich went to the U.S. consulate in Zurich and offered $100 million for each man if the U.S. would settle their case. Rich and Green never authorized the request, but the overture hardened the Justice Department’s oft-stated stance that “they can’t buy their way out of jail.”

Rich had been living in exile for just two years when I made my first request to interview him. In 1985, I met him briefly for an off-the-record lunch at Glashof, a restaurant the company owned in Zug, where Rich consumed two glasses of Johnnie Walker Black on the rocks, interesting because colleagues later told me that even in his prime, he sipped scotch in the office during working hours, and that the tippling did nothing to dull his super-sharp trading skills. A year later, Rich agreed to a full day of interviews at his headquarters in Zug.

As I described in the 1986 Fortune story from that encounter, Rich was extremely soft-spoken. “Sometimes when I fire people, they don’t seem to notice,” he told me. He exuded an air of dour refinement, his hair slicked back and his face framed by long sideburns. “I’ve been portrayed in a horrible way,” he said, “as a workaholic, a loner, a money machine. It’s not the true picture. I’m a quiet person who’s done nothing illegal.” During our talks, Rich chain-smoked Cohiba cigars imported from Cuba. For lunch, he invited me to his hilltop villa, adorned by museum-quality works by Georges Braque, Fernand Léger, and Alberto Giacometti, as well as a Rich favorite from Spain, 20th-century painter Antonio Quiros.

At the villa, I was introduced to his terrier, Macho, and learned that Rich spoke Spanish with his wife, Denise, and three daughters. Denise, daughter of a wealthy New England shoe manufacturer, was the antithesis of her husband, a sunny extrovert who gushed, “I’m surrounded by positive energy!” At the time Denise was making quite a splash as a songwriter: She penned the hit “Frankie” for Sister Sledge and performed her own tunes on her album Sweet Pain of Love, issued by MCA. Marc and Denise divorced in 1996; Denise won a $365 million settlement and is now a doyenne of New York society and big contributor to Democratic politicians.

Back at Rich’s office in mid-afternoon, I was amazed when the door between the two longtime partners’ suites swung open and in walked a tall, crew-cut Pinky Green, nicknamed “the admiral” for his expertise in shipping. I’m sure Green has never spoken to a reporter before or since. I’d been told Green’s extreme wealth hadn’t changed his frugal ways. Pinky tooled around Zurich and Zug in one of Switzerland’s rare Buicks, an import from his native Brooklyn. By this time Green had taken the precaution of becoming a Bolivian citizen. According to a former colleague, he would regularly wait in line to fly standby to get a cheaper ticket, explaining, “Why pay more, it’s the same airplane.”

That day in Zug, a magnetically likable quipster was suddenly peppering our solemn session with memorable lines. “You came to see Marc, so here I am!” announced the admiral. Flustered by his Groucho Marx–style repartee, I asked the blandest of questions: “So Pinky, how’s the oil business?” Green volleyed back, “Isn’t that the stuff you pack sardines in?” The dizzy atmosphere inspired my next inquiry: “What do you think of women’s liberation?” Green—who was lauded as a perfect gentleman and great to work with by colleagues both male and female—riposted in his best Brooklynese, “Never heard of it.”

Rich eludes every trap

During our interviews, Rich declined to disclose where he traveled, or how he weighed the risks of journeying to nations where he might be detained and extradited. But I learned from Ammann’s book that he was advised by a full-time security consultant who had served as a colonel in the Israeli Defense Forces, as well as an agent in the Mossad. He was untouchable in Switzerland, Spain, and Israel. Switzerland refused to extradite Rich because tax evasion is not a criminal offense in Switzerland, and hence is not included in its extradition treaty with the U.S. Nor did Switzerland accept that Rich and Green had “traded with the enemy” in buying Iranian oil, since their company was based in Switzerland and not subject to the U.S. ban. His citizenship status in Israel and Spain protected him from extradition when visiting those countries.

Still, it appears that Rich took a lot of calibrated risks to keep traveling widely. In The King of Oil, which benefits from the author’s extensive discussion with Rich, Rich tells Ammann that he journeyed to Portugal, Belgium, and Bolivia, as well as many nations in the Caribbean and South America, always on a private plane not registered to Rich or the company, and always booking at hotels under an assumed name. Virtually all countries, and nations in the Caribbean and South America, have extradition treaties with the U.S., so it appears that Rich could have been detained and extradited on many of his overseas trips—if the U.S. had learned where he was traveling. “Contrary to the myth, I was able to travel to a number of countries, so I did not feel too restricted,” Rich told Ammann, who notes that the trader appeared to take great satisfaction from his success globe-trotting as a kind of invisible man.

America’s most wanted white-collar fugitive ducked capture time and again while U.S. authorities were deploying every conceivable plot to nab him. The bring-Rich-home initiative was dubbed “The Oxford Project,” and one U.S. marshal, whom I had interviewed in the mid-1980s, worked valiantly on the case full-time for 17 years.

The other schemes usually took the form of clandestine nabbing outside of Rich’s safe haven in Switzerland. Ferrarone outlined to Fortune the basic strategy for capturing Rich. “I set up a number of operations to lure Rich to locations outside Switzerland,” he recalls. “We’d get information that he was going to a foreign country, and we’d send out teams to catch him.” He notes that some foreign governments turned hostile when informed of plots to target the fugitive on their soil. “We were en route to one such location,” says Ferrarone, “when we got word that we’d be arrested if we attempted to capture Rich.” It appears the nation wasn’t Switzerland, and Ferrarone declined to disclose which state’s policy threatened to arrest the marshals.

Rich didn’t fall for the “come visit my yacht” caper. According to an official to whom I spoke, a businessman of Middle Eastern extraction approached the U.S. marshals to say that he was willing to help them capture Rich. He had extended an invitation for the commodities mogul to meet him on his yacht, and Rich was pondering the offer. The marshals and the businessman plotted to pick Rich up in a private helicopter, then fly him to a ship in the Adriatic under command of the U.S. Coast Guard. In the end, the super-suspicious Rich declined the invitation.

In 1992, the FBI learned that Rich was planning to fly to Moscow and stay at the Interpol Hotel. The Russian authorities issued a provisional warrant for his arrest. But according to The King of Oil, Rich’s super-suspicious security adviser cautioned, “Who’s going to protect you in Russia? They don’t have any laws after the fall of the Soviet Union.” Rich heeded the warning and canceled the trip.

The FBI’s tip on Russia wasn’t Rich’s closest call. In 1987, the British police tipped the U.S. marshal on the case that on a certain date, Rich planned to fly to London for a meeting of the London Metal Exchange. The marshal waited in the lounge at Biggin Hill Airport, a former military base famous for its role in the Battle of Britain, which had been turned into a busy hub for private jets. As the day wore on the fog thickened, and Rich never arrived. As it turned out, Rich was sitting in a Gulfstream bound for London when the heavy fog forced the pilot to turn around and return to Switzerland. The turn in the weather was an incredible stroke of luck. Back in the U.S., James Comey was waiting to hear that Rich was finally in custody. The marshal called Comey to render the bad news. “Damn fog!” he lamented to Comey.

The next Christmas Eve, two visitors arrived at Biggin Hill with luggage tags for “Rich” and “Green.” The marshal got the page. Had the pair made that fatal misstep? It turned out that the travelers were two women disguised as men. Rich and Green had sent them as a Christmas prank to bedevil his pursuers. “So there was some humor involved,” notes the marshal.

What Ghosn’s future holds

When it comes to Ghosn, he has reason to be wary. Russia didn’t then have an extradition treaty with the U.S. and still doesn’t. That Russia was poised to arrest Rich shows that even though the nation that a fugitive is visiting—or planning to visit—lacks an extradition treaty with the state pursuing him, the pursuing country can secure an ad hoc agreement with the government where a Rich or Ghosn is visiting or living to detain and extradite him. In fact, Japan has extradition treaties with just two nations, the U.S. and South Korea. That won’t prevent the Japanese from trying to secure a negotiated arrangement with any nation to which Ghosn is journeying.

Marc Rich retired from Marc Rich & Co. in 1993 by selling his shares in the company he cofounded to his partners for $600 million. He outfoxed the U.S. authorities until the Clinton pardon lifted all restrictions. We’ll soon see if Ghosn can outfox the Japanese the way Rich foiled the Americans, or if Japan will use new and daring ruses to nab the fugitive they dread becoming the next Marc Rich.

source: https://fortune.com/2020/01/16/carlos-ghosn-marc-rich-fugitive-lessons/

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