What Marc Rich Did

James Higgins - NY Post - February 13, 2001

The remnants of the Clinton spin team are already setting up their lines to defend the Marc Rich pardon. The essence of their argument is that Rich was unfairly indicted under tax and regulatory laws that could not or should not have been used to bring criminal charges.

I am not a lawyer, and I don't pretend to give a professional opinion about whether skilled defense counsel could have defeated the Rich indictment by obscure technical arguments. But Bill Clinton did not try the Marc Rich case in court; he gave Rich a pardon. And a pardon decision should, as even Clinton seems to agree, consider the intrinsic justice of the case.

Rich's attorney, Jack Quinn, implies that Rich is the white-collar equivalent of a girl who got a 20-year prison sentence because she took a ride from a boyfriend who didn't tell her that she was joining him on his crack delivery route. (Clinton, in his address to Morgan Stanley investors last week, reportedly took the same line.) Quinn told a House committee last week that the government's case against Rich was a "house of cards." Far from it.

The substance of the Rich indictment dealt with two sets of actions: evading oil price regulations and evading taxes.

The Quinn/Clinton defense about the oil price regulation charge is that the government shouldn't have brought a criminal case against Rich because the regulations in question were repealed shortly after Rich was alleged to have violated them. (Ironically, it was Ronald Reagan who ended these regulations - over the apoplectic shrieks of Democrats.)

Whether a law is repealed after it is violated has nothing to do with whether the law was violated. On any given day, there are plenty of laws on the books that we may consider foolish, but we obey these laws anyway because they are the law.

To understand the affront to justice intrinsic in the Rich pardon, it helps to understand what Rich was doing and when he was doing it. To hear Quinn and Clinton tell it, one would think that Rich was a law-abiding citizen who was required to fill out 257 forms to trade oil and who was indicted by crazed prosecutors when he completed only 256. Wrong. Under the elaborate rules then in place, "old" oil could be sold only at low prices, while "new" oil could be sold at much higher prices. Through a series of companies called the "daisy chain," Rich was allegedly buying up "old" oil and slapping "new" labels on it - allowing himself to resell the oil at quadruple the legal price, or more.

And Rich was doing it at the height of late '70s/early '80s oil crisis, when gas lines dotted the land. When OPEC's enormous price hikes were sending U.S. inflation skyward, sinking the dollar and putting millions of Americans out of work, Marc Rich was illegally raising the price of oil even more. Nice guy.

What of the tax-fraud charges against Rich? These deal with an arcane tax area called "transfer pricing" - a subject that keeps many, many lawyers and accountants employed.

In essence, transfer pricing helps determine where a multinational firm makes its money. Consider a legitimate enterprise that operates worldwide - say, Coca-Cola.

When Coke makes a dollar of profit, its shareholders are better off if Coke can argue that the money was made in a country with low taxes - or no taxes - rather than in a country with high taxes.

Calculations of profit can be complicated and subjective. Suppose a company buys parts in country A, assembles them in country B and then sells the product in country C. Where was the profit made? Often, it's not obvious. So it's common for legitimate enterprises to have legitimate differences with tax authorities about transfer pricing. That's one reason why such tax cases are often civil rather than criminal matters.

But just because legitimate enterprises have transfer-pricing issues doesn't mean that every company that has a transfer-pricing issue is legitimate.

Marc Rich was accused of setting up companies in Panama (Remember Manuel Noriega?), whose policies on corporate disclosure foreshadowed Clinton's policies on homosexuals in the military: "Don't ask, don't tell." Rich, said prosecutors, would sell some oil from one of his U.S. companies to one of his Panama companies at a "loss." The Panama company would then sell the oil back to another Rich U.S. enterprise at a "profit." Presto-change-o . . . the profits moved to a jurisdiction that didn't charge Rich any taxes.

To add insult to injury, these profits were allegedly the ones Rich earned by violating U.S. oil-price regulations!

Could a sharp lawyer have beaten the rap on legal loopholes? We'll never know, but Rich sure did want to avoid ever going to court to chance it.

As a matter of justice rather than a matter of legal technicalities, the case is a lot clearer. Marc Rich has done business in a lot of places. But from the time he went out on his own to start an independent trading firm in the early '70s, his modus operandi was to focus on doing business with governments whose top decision-makers welcomed improper arrangements.

Thus Rich was very active in such Shangra-Las of corruption as Iran under the Shah, Nigeria under a series of crooked regimes and the Philippines under Ferdinand and Imelda Marcos. According to A. Craig Copetas in the 1985 book "Metal Men," Rich was a desirable counterparty for these governments because "he made meticulous provision" for bribes "to be placed secretly in foreign accounts."

Does this pattern prove anything about Clinton's pardon of Rich? No, but it should make us stop and think about why the apparently apolitical Denise Rich suddenly became a major supporter of the party in power in the United States when the man from Arkansas set up shop at 1600 Pennsylvania Avenue.

James Higgins is an adjunct fellow at the Claremont Institute and a partner in a New York-based private equity firm.


  • See Also: The Clemency Page