Wednesday, 24 March 2010

The Rich Boys: An Ultra-Secretive Network Rules Independent Oil Trading

I had never heard of “The Rich Boys” nor even of Marc Rich until a month or so ago when I stumbled across an excellent Business Week Investigation report from 2005 written by Marcia Vickers.

Now I know.

Perhaps you’ll be interested too.

I’ve appended only an extract of the article but by the time you reach the end of the extract if you want to read more I’ve left a link to the original article.

“The Rich Boys 

An ultra-secretive network rules independent oil trading. Its mentor: Marc Rich

One brisk day last fall, globe-trotting oil executive Benjamin R. Pollner was leaving his luxury prewar apartment building on Manhattan's Park Avenue when detectives from Manhattan District Attorney Robert M. Morgenthau's office approached. They began asking him about his alleged involvement in the unfolding U.N. Oil-for-Food scandal. Pollner, a tall, lean sixtysomething who wears European-cut clothes and a world-weary visage, was taken aback, say investigators familiar with the incident.

He snapped that he was in a hurry to make an overseas flight and refused to answer questions. Before hopping into a car that whisked him off to John F. Kennedy International airport, Morgenthau's investigators say Pollner delivered a parting shot: "I did nothing in New York or the U.S. that would be considered illegal." To them, Pollner was admitting he had done something wrong -- just not in their jurisdiction. Pollner, who runs Taurus Petroleum mainly from offices in Geneva and London, hasn't set foot in the U.S. since, investigators believe. He didn't reply to several calls and e-mails.

On the morning of Apr. 14, David Bay Chalmers Jr., 51, who owns privately held oil-trading company Bayoil U.S.A. Inc., emerged handcuffed and bleary-eyed from his high-security mansion in Houston's ritzy River Oaks neighborhood. He had just been indicted by the U.S. Attorney for the Southern District of New York for conspiracy, wire fraud, and trading with a country that supports terrorism -- Iraq -- during the U.N. program. Chalmers has pleaded not guilty.

Another trader, Patrick Maugein, nonexecutive chairman of London's SOCO International PLC oil-trading company, has been under scrutiny by the U.N. for his alleged role in a complex oil-smuggling scheme during Oil-for-Food, the U.N. program that allowed Iraq to sell oil for humanitarian purposes during a period of strict sanctions. Although many deals were legitimate, Saddam Hussein at times demanded illegal surcharges for the right to buy oil at below-market prices. Friends of Saddam's regime allegedly received sweetheart oil allocations, investigators say. Maugein denies violating sanctions or paying illegal surcharges.

What do the three men have in common, aside from their dubious deals with Iraq? They all belong to the ultrasecretive informal network of traders who dominate global independent oil trading. They don't necessarily act in concert with each other, but they often chase the same opportunities. They are the Rich Boys. All operate in the world of onetime fugitive billionaire Marc Rich, the most-wanted white-collar criminal in U.S. history until his controversial pardon on President Bill Clinton's last day in office in 2001.

Rich came to prominence in the 1970s, when he worked at Phillips Bros. (later Phibro), then the biggest trader. With veteran partner Pincus "Pinky" Green, he pioneered "combat trading" -- getting trading rights from countries in turmoil. Rich, called El Matador for his killer instinct, did the deals. Pinky, "The Admiral," arranged shipping.

Traders soon learned the art of the Rich deal: Do whatever it takes. After Rich and Green left Phibro in 1973 to form their own company, they bought a house in the South of France and "stocked it with hookers from Paris and flew in oil guys who spent a week at their expense," says a former U.S. oil executive who knows Rich. "They got the oil contracts they wanted." A former Rich partner corroborates this. Green, who retired in 1992 after heart surgery, could not be reached for comment.

Rich is notorious for trading with Iran during the hostage crisis, South Africa during apartheid, and Cuba and Libya during U.S. trade embargoes. In 1983 he fled to Switzerland after being indicted by the Justice Dept. for racketeering, trading with the enemy (Iran), dodging a $48 million corporate tax bill, and other violations that could have resulted in 300 years of jail time. Rich's companies pleaded guilty to some charges and paid about $200 million in fines, penalties, and taxes, but the case remained open until the pardon. "Rich's philosophy is that no law applies to him," says Morris "Sandy" Weinberg Jr., the former U.S. prosecutor who pursued and indicted Rich in 1983.

Over the years, Rich has mentored scores of traders. Although the 70-year-old is past his peak in the business, according to industry experts, his protégés are thriving. "You could call it the University of Marc Rich," says a Senate investigator. As Alaskan and North Sea oil production declines, new supplies increasingly come from some of the most corrupt or politically unstable places on earth, such as Equatorial Guinea and Sudan. These are the new frontiers where major U.S. oil companies fear to tread because of sanctions, embargoes, and antibribery and anti-terrorism laws. But it's where these traders, many like characters out of the James Bond flick Goldfinger, make good money, especially when oil tops $60 a barrel.

Governments and law enforcers have long been suspicious of some Rich Boys. In a six-month investigation, BusinessWeek has pieced together the first comprehensive look at their sprawling and deliberately elusive operations.

Our findings:

-- Rich has spawned the most powerful informal network of independent commodities traders on earth. He did it primarily by funding spin-offs and startups around the globe for decades, and by training scores of traders who have set up their own shops. Although Rich no longer maintains stakes in most of these outfits, he has helped create a network that, in sum, is far more formidable than his own company in the 1970s and 1980s, when it was the world's premier commodities trader.

-- The Rich Boys' often controversial activities are on the rise. They buy oil from places where corruption is extensive: Some of the Rich Boys have been named in scandals in Nigeria and Venezuela. They also sell oil from pariah states to U.S. refiners.

-- Although Rich testified in writing in March, 2005, to a House committee investigating the U.N. program that he was not in any way active in the Oil-for-Food program, documents suggest that he bought Iraqi oil in 2001 from various front companies, which BusinessWeek has identified. This took place just one month after his pardon. If so, it seems that Rich may have misled Congress. The CIA, the Senate, and others have concluded that from September, 2000, until September, 2002, buyers in the Oil-for-Food oil program had to pay illegal surcharges that Saddam used in part to buy weapons, though no documents show Rich made such payments. Some investigators believe Iraqi insurgents are now using that money.

-- One company from which Rich bought crude during this period was a front for extremist Russian and Ukrainian organizations. All were pro-Saddam; one was a staunch supporter of North Korean dictator Kim Jong Il. Another company was tied to a major money launderer for Saddam.

To reach these conclusions, BusinessWeek traced crucial connections from a number of official inquiries and documents. Key among these documents: shipping tables from the Middle East Economic Survey (MEES), the preeminent authority on tanker activity in the Middle East. These detail the ports, tankers, destinations, and buyers of Iraqi crude. Other insights came from a 2004 CIA report on Iraq, data from Switzerland's Federal Commercial Registry Office, and the many inquiries launched into Oil-for-Food. The Justice Dept., six congressional committees, a U.N. commission, Morgenthau's office, and several countries, including Switzerland, are all investigating the program. Extensive interviews with dozens of oil traders, government investigators, and energy experts around the globe helped form a clearer picture of how the network operates.”

Makes one wonder, doesn’t it, about the murky business of international trade?

Trafigura is mentioned in the full article but I must point out that, subsequently, Trafigura wrote to Business Week clarifying their position.  I have linked to their letter and provided a link to a downloadable version of their short letter.


Link to original Business Week article
Downloadable pdf of original article

Link to Letter from Trafigura to Business Week clarifying Trafigura’s position.  5th letter on page
Downloadable version of letter

Link to Additional information from Marcia Vickers given to the US Senate Judiciary committee January 2009 [Note: this link appears to be broken]


  1. It's a dirty dirty world they inhabit.

    Money, money, money is ALL!