The King of Oil: The Secret Lives of Marc Rich

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 inthe 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 thesetransactions 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