King of Zug' reigns over trading network - Controversial Marc Rich has long been a part of the buyi

'King of Zug' reigns over trading network - Controversial Marc Rich has long been a part of the buying and selling of the world's mineral wealth,

Gordon Pitts, Canada Globe and Mail

Tuesday, August 16, 2005

The peaceful Swiss canton of Zug, with its lovely old town and sailboat-dappled lake, seems an unlikely setting for a mysterious and controversial trading empire.

Yet this pastoral playground is the home base of Marc Rich, the former fugitive billionaire commodities trader, who was pardoned by Bill Clinton in his last day as U.S. president in early 2002.

It is also the headquarters of Xstrata PLC, the mining powerhouse which yesterday bought 19.9 per cent of Canadian nickel giant Falconbridge Ltd., putting it in position to launch a potential takeover bid for the company.

Xstrata often gets mentioned in the same breath as Mr. Rich. Both are part of the huge trading community drawn to Zug by extremely low taxes, privacy and comfortable surroundings. (Canadian auto parts tycoon Frank Stronach also has a vacation place there.)

Through this small canton, a large chunk of the world's mineral and energy wealth is traded, often by Marc Rich & Co. Mr. Rich, 70, has been called the "king of Zug," which boasts about 10,000 international companies.

Mr. Rich and Xstrata share another bond.

Thirty years ago, Mr., Rich founded Glencore International AG, a secretive trading Goliath also based in Zug. Glencore is now Xstrata's largest shareholder with a 40-per-cent interest in the company and three of its executives sit on the board.

Mr. Rich sold Glencore in the mid-1990s to its senior management group. Glencore, today a private company with annual revenue worth $72-billion (U.S.), says it now has nothing to do with Mr. Rich.

BusinessWeek, in an investigative article last month, described the vast international trading network Mr. Rich helped create in Zug as "The Rich Boys," and listed Glencore's key managers as "former Rich bigwigs."

It is understandable that Glencore would be eager to play down its Rich roots. The globe-trotting billionaire is as much a magnet for controversy as for personal wealth -- estimated by Forbes last year at $1.1-billion, the 514th largest fortune in the world.

His major brush with notoriety came in 1983 when he fled the United States, having been indicted in federal court of evading more than $48-million in taxes. He was also charged with 51 counts of tax fraud and with running illegal oil deals with Iran during the hostage crisis of the late 1970s.

It meant leaving the country that had sheltered him in 1942, as the child of a Belgian Jewish family that had fled Europe amid the Nazi onslaught.

At 19, Mr. Rich dropped out of New York University and joined Philipp Brothers, then the world's largest raw-materials trading company.

He started in the mailroom but soon came to the attention of legendary trader Ludwig Jesselson, becoming Mr. Jesselson's heir apparent. But in 1975, Mr. Rich and his partner, Pincus (Pinky) Green, quit Philipp Brothers, taking some of its leading traders with them.

The timing was splendid. In the 1970s' global energy shakeup, oil-producing countries rebelled against the international oil companies, and began selling their oil through traders such as Mr. Rich. He is credited as the father of the spot market, in which oil was freely traded to the highest bidder.

As the price of oil skyrocketed, he was able to grab the escalating margins between buying and selling prices. His new role also led him into relationships with pariah states, including Iran during the hostage crisis, apartheid-era South Africa, North Korea, and a then hard-line Libya.

"He sees himself as a citizen of the world, unencumbered by the laws of sovereign nations," Howard Safir, a former U.S. marshal told the Washington Post in 2001. Mr. Safir became familiar with Mr. Rich by waiting outside his Swiss residence in 1985, trying vainly to enforce an arrest warrant against the fugitive trader.

Mr. Rich's exile has been no material hardship. He still spends much of his time at his villa on Lake Lucerne, which is lavishly appointed with Picassos, Van Goghs and Miros. He owns places on Spain's Costa del Sol and in the ski resort town of St. Moritz.

In 1986, he was divorced by his wife Denise, who returned to the United States with their three daughters, including Gabrielle, who later died of leukemia in 1996. Mr. Rich was unable to attend her funeral.

He remarried in 1998 to Gisela Rossi, while Denise became a Grammy-nominated songwriter and a generous fundraiser to Democratic Party causes, including $70,000 to Hilary Clinton's Senate campaign and $450,000 to the Clinton presidential library fund.

She also lobbied heavily for her ex-husband's pardon, although Mr. Clinton has denied there was any connection between her efforts and his action. He says the Justice Department was in favour of the pardon.

Yet the former president says he now regrets the move. "It wasn't worth the damage to my reputation," he told Newsweek magazine.