The Rich Boys | Business Week

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

......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.......

Rich is notorious for trading with Iran during the hostage crisis, South Africa during apartheid, and Cuba and Libya during U.S. trade embargoes.......

......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 USD60 a barrel.

......Trader Clyde Meltzer, one of Rich's business partners in the 1970s who remains close to him, says: "Marc is the most upstanding guy you'll ever meet. It's untrue he ever did anything dishonest.".......

Like Marc Rich + Co. holding, most of the Rich Boys have offices in the tiny Swiss canton of Zug, with its quaint stores, Gothic architecture, and low tax rates. These maverick middlemen typically don't own or operate oil refineries or wells. Instead, they buy oil from producers, line up buyers to refine it, and charter tankers to ship it. Oil trading is often nebulous and opaque. Title to a tanker's oil, for example, may change a dozen times before the ship reaches port.

Some of the Rich Boys, like Pollner and Chalmers, have never worked for Rich. They've merely done business with him or have connections to him through other traders. Typically, Rich has bankrolled or owned stakes in the traders' companies, or sold them to close associates. Among the mightiest is commodities giant Glencore International, based in a suburb of Zug, which boasts annual turnover of $72 billion, according to its financial disclosures, making it one of the world's largest private companies.......

Many of the Rich Boys' tactics may be hyperaggressive, but they're perfectly legal. One way they do business: exploiting opportunity in Eastern European or Third World countries in dire need of funding. Rich taught his disciples -- called Lehrlings, German for apprentices -- to lend cash-strapped companies money and get the right to buy their commodities, industry experts say. Last year, for example, Glencore loaned USD40 million to Peru's second-largest zinc miner, Volcan Compañia Minera. Volcan agreed to sell zinc and other minerals to Glencore from 2004 to 2010.

At times, some Rich boys apparently use front companies -- opaque holding entities -- to disguise deals......Based in tax havens with strong banking secrecy such as Panama, Liechtenstein, and Gibraltar, they come and go like flickering harbor lights once a deal is done.......

One reason the rich boys are so busy these days is because they thrive in a world of high oil prices and scarce reserves. Big U.S. oil companies are desperate for crude yet don't want to dirty their hands getting it from global trouble spots. Says a former partner of Rich's, who requested anonymity because he routinely trades with Big Oil: "Majors don't want to touch the oil, yet they want to buy it. If you think Pablo Escobar [the Colombian drug king] was guilty, weren't people who used cocaine, too?".......

.....Oil majors are also under pressure to shun pariah states. For instance, there are tight limits on deals with war-torn Sudan because it backs terrorism and engages in genocide. But companies set up by the Rich Boys, including Trafigura and Glencore, are among those buying crude there, trade reports say. China is a big customer for the Rich Boys there and elsewhere........

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