The King of Oil: The Secret Lives of Marc Rich Page 6

  Meanwhile, the demand for the commodity soared. The United States government, with Republican President Dwight D. Eisenhower at the helm, commenced a rearmament program that saw the air force and army increasing their stocks of mercury by over 50 percent. The United States bought commodities in huge amounts. Mercury had only been used for batteries since the mid-1940s, but now the market was booming. Due to their longer life spans, mercury batteries were mainly used in military equipment such as walkie-talkies, metal detectors, and other electronic devices.

  Sensitive Assignments

  Rich was now the man to see when it came to mercury. It was his first business coup, and it earned significant profits for Philipp Brothers. The young dealer had not been at Philipp Brothers very long, yet this success strengthened his position enormously within the company. It was proof to his superiors that he had the talent to spot opportunities, the courage to grasp them, the patience to successfully conclude a deal, and enough common sense to avoid excessive risks.

  When the manager of the Bolivian office of Philipp Brothers had to travel back to England because his mother was having an operation, it was immediately clear who would replace him. Henry Rothschild sent Rich for six months to the same South American country where David Rich had also done business. Bolivia was a dangerous place known for its political and economic instability. A nationalistic movement had brought about a revolution in 1952, and the country’s large mines had subsequently been nationalized. The South American country has been an important source of silver, tin, and tungsten since the sixteenth century. Rich not only learned perfect Spanish in La Paz, Bolivia, he also picked up the essentials of doing business in politically volatile countries. He was evidently very adept in his dealings. A partner at the time relates how he always kept the risks under control und managed to establish good contacts thanks to his quiet, modest style.

  Following his success in Bolivia, Philipp Brothers sent its rising star to South Africa for the first time in 1958. At that point the country was still in the Commonwealth, and the trade boycott against the apartheid regime had not yet begun. It was a journey to his first defeat. Rich thrashed out the details of the sale of a manganese ore mine for months on end, and he remembers the negotiations as being “very tedious, very long.” In the end, after six months of negotiating, “I couldn’t conclude the purchase. I had to come home with empty hands.” He did not hear a single word of criticism from his mentors Rothschild and Jesselson. They both knew that Rich would profit from the experience.

  Despite this single setback, he had clearly demonstrated his capacity for sensitive assignments. He had proved that he could stay calm in chaotic situations. He was persistent and innovative without ever becoming foolhardy. More than anything else, he was enterprising and resourceful. Those were exactly the qualities that Philipp Brothers was counting on in early 1959. A bearded revolutionary was in the process of rewriting history in Cuba. Philipp Brothers, which had enjoyed close business ties with the Batista regime, was not amused. It needed a troubleshooter.

  Fidel Castro’s Cuban Revolution

  Ernesto “Che” Guevara and his fellow rebels marched into Santa Clara on New Year’s Eve 1958. The loss of the last government-held town before Havana sent a signal to the Cuban dictator Fulgencio Batista, who fled to the Dominican Republic that night with a handful of his henchmen. Fidel Castro’s revolutionary forces entered Havana on January 8, 1959, after more than two years of guerrilla fighting.

  The reaction from the country was overwhelmingly positive, especially among the campesinos, the subsistence-level farmers. The army and police went over to the rebels within hours. Calm returned to Havana twenty-four hours after the takeover. Castro and his comrades in arms were welcomed by jubilant crowds. While the people had become ever poorer, the Batista clique had become wealthy by exploiting the country and its natural resources. Estimates put the dictator’s fortune at dozens of millions of dollars. Batista had come to power in 1933 aided by the United States, which had supported his military dictatorship with a mutual assistance pact. The U.S. government only withdrew its backing when the Batista regime was in its death throes, unable to guarantee the economic stability of the country any longer.

  Fidel Castro and Che Guevara, who would later become Cuba’s minister of industry, embarked upon a program of nationalization of mines and industries—a development that came as a serious shock to Philipp Brothers. Although the company saw itself essentially as a trading corporation with no industrial infrastructure or investments, it had begun to prefinance production in several countries. In return it was rewarded with exclusive, long-term contracts. It was a policy that Marc Rich would later hone to perfection. (See Chapter 14.)

  The revolution’s leaders froze one such loan that Philipp Brothers had made to Cuba—a substantial loan of 1.2 million for a pyrite mine. To put it in context, Philipp Brothers recorded 6 million in pretax profit in 1959. What was to be done? Rothschild immediately suggested sending his young assistant Marc Rich to Havana. The company had a tradition of placing significant trust in young employees and assigning them to extremely difficult tasks. Rich was familiar with the Latin American mentality and by now spoke fluent Spanish.

  So the twenty-four-year-old Rich flew to Havana shortly after the revolution in order to negotiate with the new regime. The ensuing talks were to drag on for six months. His negotiating style was determined yet civil. He used all the tricks in the wily trader’s book. He knew that he had to find a solution that was agreeable to both sides. “It’s only a good deal when the two signatories are laughing together at the table. That’s the only way a partnership can have any future. Otherwise it’s the only deal you’ll make,” he explained to me.

  Rich analyzed the situation. What did Castro and his government need most of all? They needed hard currency. They needed international contacts. They needed jobs. Castro must want to continue production at the pyrite mine, which would both ensure jobs and bring currency into the country. Rich thus devised a creative solution that initially appeared foolhardy. “I offered to inject fresh money,” he tells me on a ski lift between descents in St. Moritz. “The Cubans liked the idea. It allowed them to continue with the pyrite mine. I was able to recover the entire amount of our initial investment.”

  Castro aroused a great deal of sympathy at the start of the revolution, even in the United States. In contrast to Che Guevara, whom Rich remembers as “energetic and lively,” he did not behave like an orthodox Marxist or a friend of the Communist Soviet Union. Yet the regime soon revealed its ideological inflexibility. Rich grew increasingly skeptical as he witnessed political developments in Cuba with his own eyes. “I don’t understand why they became Communists,” he tells me on the ski lift. “OK, they wanted to change what the corrupt Batista regime had done, but I saw how the Communists took over everything with an iron fist. There was virtually no opposition; people just accepted it.” He shakes his head in disbelief and repeats, “I don’t understand how they got taken in by Communism. It was so bad for people.”

  “Cuba really put Marc Rich to the test,” an acquaintance told me. “What can he do, what can’t he do. Does he have ideas? Is he creative? Can he handle the pressure?” Rich’s critics place the emphasis elsewhere. Biographer A. Craig Copetas quotes an anonymous “former traffic manager” who was supposed to have said, “Marc cut his teeth in Havana, and the experience shaped his character because it taught him that being illegal was okay under certain conditions.”3

  Despite the embargo, Rich never stopped trading with the Cuban regime. The Cohiba cigars he smokes with such pleasure are not the only evidence of this. Rich flew regularly to Havana until the February 1962 trade embargo. Cuban business was subsequently conducted via the Madrid office. The most important raw materials Rich traded with Cuba up to the mid-1990s were initially pyrite and copper. These were followed by manganese ore—important for steel production—and nickel. His company later bought sugar from Cuba and delivered Venezuelan or Russian o
il. Rich once even chartered the Monviso, the same freighter on which he had escaped with his parents from France to Morocco, to transport pyrite from Cuba to Italy. In 1991 a Cuban defector claimed that Rich’s company had conducted negotiations with Fidel Castro’s son about mining uranium in Cuba.4 Rich denies this claim and maintains the talks revolved solely around lead and zinc deposits.

  After Cuba, Rich was the man to watch at Philipp Brothers; he was the company’s rising star. Over the next few years he moved around the globe, staying six months in India, six months in Amsterdam, always on the lookout for a deal as he traveled from Congo-Brazzaville to Senegal (“There wasn’t a lot of business in Africa,” he notes). It was the age before mass tourism, and flying was an exclusive and extremely expensive activity. Rich loved the travel, the independence, and the adventure. He loved sniffing out business opportunities. It was exactly the kind of lifestyle that Rich had yearned for as a young student. He needed a challenge. In 1964, Ludwig Jesselson, the head of Philipp Brothers, offered Rich, at the age of thirty, the position of Madrid office manager. Rich did not hesitate for a second.

  Friends in Fascist Spain

  Marc Rich is a reserved, levelheaded man. Like every good trader, he has his emotions tightly under control. He keeps his feelings to himself and does not indulge in excessive enthusiasm. Yet when he speaks of Spain he sounds like a teenager recalling his first sweetheart. It was love at first sight, and Rich finally felt as if he were in his element. He felt an instant attraction to the Spanish way of life, which still influences his own lifestyle. He likes eating lunch in the afternoon and dinner late in the evening. “I liked Spain so much that I became Spanish,” he tells me in his chalet in St. Moritz. “It’s a wonderful country. You have the desert, mountains, green flatlands, the sea all around, music, arts, everything.”

  While he spends much of the winter on the pistes of St. Moritz, in summer he is frequently drawn to his sumptuous property in Marbella. The 9.5 million villa was built in Moorish style by a student of Frank Lloyd Wright. The Moroccan coast is visible on clear days. He fell in love with his future wife Denise in Spain, and two of his three daughters would be born there. Denise Rich told me that their happiest times were in Madrid. Spanish is still one of the family’s languages. “When we left Spain I didn’t want my daughters to lose Spanish, so we continued to speak the language,” he told me. He still employs Spanish-speaking domestic staff.

  A painting by the Spanish painter Antonio Quirós (1912–84) hangs in Rich’s Swiss office. He initially saw it in the first apartment he rented in Madrid in 1964, and he liked it so much that he bought it. The apartment was in the Torre de Madrid, at the time the tallest building in Europe. The Philipp Brothers offices were in the same building. Rich had chosen the location carefully. It meant that he lost no time traveling to work and could be in the office whenever necessary.

  “We worked very, very hard. Marc’s capacity for work is incredible,” recalls Ursula Santo Domingo. She first met him forty-five years ago, after he had advertised in the newspaper for a secretary. “He invited me to an interview on a Saturday. The whole company was empty. Not a soul was there except Marc Rich. I later found out that he worked every Saturday, and every Sunday, too. He thinks about business twenty-four hours a day.” Fifteen-hour days beginning at 7:00 A.M. and ending at 10:00 P.M. were the rule rather than the exception. As a joke, Rich would greet colleagues who arrived for work at 8.30 A.M. with a casual “Good afternoon.”

  Spain in 1964 was an exciting place to be. The country had been ruled with an iron fist by Generalissimo Francisco Franco’s fascist government since the end of the Spanish Civil War in 1939. Spain remained politically and economically isolated until 1955 and was even denied membership in the United Nations. The peninsula became strategically important during the cold war thanks to its proximity to the Strait of Gibraltar. The 1960s brought an unexpected economic boom that catapulted Spain from a predominantly rural country to an open, modern industrial society. The “Spanish miracle” was sparked by radical liberal economic reforms and aided by massive public investment in infrastructure, while technocrats supplanted the old fascist Falangists in the government.

  One of these technocrats was Alfredo Santos Blanco, a forty-year-old professor of economics employed at the Ministry of Industry. He became of one Rich’s most important contacts and an excellent opener of doors. “Through my friendship with Alfredo I was able to have many more connections,” Rich tells me. When Rich first met Santos Blanco he was the president of Minas de Almadén y Arrayanes, the state-run cinnabar, or mercury ore, mines Rich had done business with before. The largest cinnabar reserves in the world were situated near Almadén, and it had been mined since ancient times for its mercury content. The Fuggers, the famous German banking and trading dynasty, owned the concession for the mines in the sixteenth and seventeenth centuries. Today the mines are virtually exhausted. Santos Blanco was of enormous importance for Rich’s career, as the next chapter will show. Without him, Rich would not have been so successful at such an early stage.

  The fact that the Jewish businessman and the ultra-Catholic professor should become friends remains one of the paradoxes in Marc Rich’s life. It is certainly surprising that Rich had such a great love for fascist Spain. Francisco Franco owed his victory in the Spanish Civil War mainly to support from Nazi Germany. Although Spain remained officially neutral during World War II, it openly sympathized with Adolf Hitler’s National Socialists and permitted German submarines and war-planes to be resupplied in Spain. Franco claimed to be a friend of the Arab nations, and he neither recognized Israel nor strived for diplomatic relations. He permitted the Palestine Liberation Organization (PLO) to open an office in Madrid in 1974. Israel was not recognized by Spain until 1986.

  Even though he enjoyed very close connections to Israel, Rich was apparently not concerned about Franco’s policies. “Marc didn’t care about it,” one old friend in Spain who worked with Rich at the time told me. “He didn’t care about politics, only about business and making money. This is one of Marc’s strengths.” This type of neutrality has proved to be an advantage to Rich’s success in business, although some might label his attitude amoral.

  In the 1960s Rich was, as the Spanish friend told me, “extremely successful in Spain.” The Philipp Brothers office in Madrid at the time controlled what we would now call the emerging markets. South America, including a Cuba subject to the American embargo, was one such market. Africa, which was going through a wave of decolonization in the late 1950s and early 1960s, was another. Emerging markets in Africa included Congo, Algeria, and Nigeria, countries rich in natural resources that were to play a special role in Rich’s business dealings. Even the Middle East, not yet of great significance for Philipp Brothers, was over-seen from Madrid. “The difficult regions were handled by Madrid,” one participant told me. They included many areas of conflict, new countries without established structures, and inexperienced regions lacking mercantile know-how. Above all, they were all countries with deposits of every natural resource to be found under the earth. They were also countries with an increasing awareness of the value of their natural resources.

  American Hero

  The 1960s was one of the twentieth century’s greatest periods of expansion for commodities traders. Economies were booming in Europe, the United States, and Asia. The decade saw a rapid development of technologies that culminated in the first moon landing in 1969. There was a tremendous spirit of optimism all over the world.

  Rich knew the importance of seizing opportunity when it presented itself. He transformed Madrid into one of the most powerful offices in the company. That was not least thanks to the team of hungry young employees he had hired. “Marc didn’t care about your origins or your education,” I was told by a Spaniard who had been hired by Rich and stuck with him through thick and thin. “He was looking for people ready to work, ready to travel, ready to be loyal to the company, ready to earn money.” They traveled to up-and-comi
ng third world countries that were on the lookout to sell commodities in exchange for much-needed hard currency. “It was a very good experience because in Spain we traded everything from alumina to zinc,” Rich tells me. “I got experience with all the commodities, and I enjoyed it.”

  By the end of the 1960s, Marc Rich had made it. From his humble origins as a child refugee from the Nazis, he had risen through the ranks of society by hard work. He became one of the most influential office managers at one of the world’s largest commodities traders. Now he was taken seriously as a businessman by fascist ministers in Spain and Cuban revolutionaries alike.

  Only in the United States could such a career have ever been possible. Marc Rich was living the American dream. He embodied deeply held American values such as courage, persistence, risk-taking, team spirit, and, of course, hard work. The United States was proud of its successful son. There was great respect for the American who had snatched the commodities trade from the Europeans.

  European countries had dominated world trade in raw materials since the late Middle Ages. The northern Italian city-states of Venice and Genoa dominated trade before giving way to the Portuguese and Spanish from the fifteenth century onward. Beginning in the seventeenth century, it was the Dutch trading fleets that ruled the waves until the arrival of the British. Before World War I, over 60 percent of world trade was still in European hands.5 Trade became increasingly American, not least thanks to companies such as Philipp Brothers and traders such as Marc Rich. Rich was soon deemed a historically significant figure and labeled “a genius in the formerly European dominated metals market.”6