Making Marc Rich Squirm

Four officials of the United Steelworkers got a nasty reception on Oct. 8, when they crashed the annual shindig for traders on the London Metal Exchange (LME). As the unionists handed out "Wanted: Marc Rich" posters to black-tie guests at London's fashionable Grosvenor House Hotel, four men emerged from a black BMW and threatened to "hurt" the leafleters if they didn't withdraw, claims Joseph B. Uehlein, one of the USW four. The next day, two of the Americans say, their hotel rooms were entered and searched.

What beef does a U. S. union have with Rich, a commodities whiz who controls a $30 billion-a-year trading operation in 40 countries? The USW claims Rich is an influential absentee owner of Ravenswood Aluminum Corp., a private West Virginia company that's locked in a violent labor dispute with 1,700 USW members. The union has picketed his six-story headquarters in Zug, Switzerland, enlisted the aid of European unions, and called for a congressional investigation of Rich's U. S. government contracts.

These are standard tactics in labor disputes -- and ordinarily about as bothersome as a gnat to someone of Rich's estimated $3 billion net worth. Except for this: Rich has wanted to return home ever since he fled the U. S. eight years ago, just ahead of a 65-count federal indictment for criminal tax evasion and racketeering. Because his ailing mother lives in Manhattan, as does his estranged wife, Denise, who recently returned with the youngest of their three daughters, he has recently stepped up these efforts.

Indeed, Rich's lawyers, including Washington's Leonard Garment, make regular overtures to the Justice Dept. "to negotiate terms of his surrender," says a Justice official. That's a matter of some urgency, because the U. S. government is offering a $750,000 reward for Rich. And because the USW dispute is dragging Rich back into the limelight -- and providing an unusual look at his secretive U. S. empire, which has rarely been scrutinized before.

Born in Belgium, Rich moved to the U. S. with his family in 1941 at the age of eight. In 1954, he joined Philipp Brothers Inc., a leading commodity trader. Credited with developing the independent spot market for oil in the early 1970s, Rich later started his own company, which grew to $10 billion in sales.

Then, in 1983, his troubles began. The U. S. Attorney's office in Manhattan indicted Rich, his partner Pincus "Pinky" Green, and Marc Rich & Co. on charges of rigging a huge, illegal oil-pricing scheme, evading $48 million in taxes, and illegally buying oil from Iran during the 1979 hostage crisis. Shortly before the indictments, Rich claimed to have sold his U. S. operating arm, Marc Rich & Co. International Ltd., to Alex Hackel, an unindicted partner in Switzerland. The company was renamed Clarendon Ltd., and another unindicted Rich employee, a top aluminum trader named Willy R. Strothotte, was made chief operating officer and later, president.

The new entity seems to have existed in name only. The judge hearing the indictments called the maneuvers a "ploy" to avoid the $50,000-a-day fine he had slapped on Rich's U. S. company. He noted that Clarendon employed the same people as before and was still headquartered in Rich's offices in Zug -- as it is today. Ultimately, Rich paid the fine as part of a $171 million settlement of civil charges against Clarendon.

CLEAN FACE. Ever since, Clarendon officials have insisted that Rich no longer controls the company. They have good reason to do so: Rich's indictment drove away customers, say federal prosecutors in the case. By distancing himself from the company -- he still owns 49% -- Rich gave Clarendon a clean face. Then, he used it to expand vigorously in the U. S., first in commodity trading and subsequently, in aluminum production.

The first major step came in 1986, when Clarendon signed a 10-year agreement to buy all 800,000 tons of alumina produced annually by a Jamaican company. Clarendon sells most of the semirefined white powder, which is used in smelting aluminum, to major U. S. producers. Then, Clarendon got into smelting. It took a part ownership in at least four smelters, then signed agreements for each to process alumina that Clarendon supplies. These were often sweet deals. For instance, Clarendon paid a reported $40 million to buy 27% of an Alumax of South Carolina Inc. plant in Mt. Holly, S. C. Clarendon's share of output is 45,000 tons of aluminum a year. Analysts say a smelter to produce that much would cost about $220 million to build.

With such deals, Clarendon bought major positions in the U. S. aluminum industry. Today, it controls more than a third of the world market for independent primary aluminum and alumina, according to major rivals. "You cannot do business in the aluminum industry without doing business with Marc Rich," says a senior Alcan Aluminum official.

As Clarendon expanded, it spawned a labyrinth of subsidiaries and partly owned companies aimed, prosecutors say, at insulating the fugitive executive from notice of his U. S. activities (table). Take Ormet Corp., Clarendon's next big investment after Mt. Holly. Ormet was an alumina and smelting operation jointly owned by Revere Copper Products Inc. and Alusuisse, a Swiss aluminum company. In 1986, an investment group including Strothotte bought the company for a cheap $98 million. Clarendon used a similar approach in early 1989, when Strothotte and others bought Ravenswood, then a unit of Kaiser Aluminum & Chemical Corp. The Ormet investors joined forces again, including R. Emmett Boyle, the former president of Ormet, who became Ravenswood's chairman; Stanwich Partners in Stamford, Conn.; and Rinoman Investment in Amsterdam. Rinoman, which owns 48% of Ravenswood, is 100% owned by Strothotte, Clarendon's president.

There are other links between Ravenswood and Rich. Clarendon supplies Ravenswood with most of its alumina. Clarendon also buys some aluminum produced by Ravenswood. The acquisition from Kaiser, for $170 million in cash and $180 million in assumed liabilities, was financed with a $205 million loan from Ridgeway Commercial, a Swiss affiliate of Clarendon. The investors also lined up a $140 million line of revolving credit led by Amsterdam's NMB Postbank, which regularly does business with Rich. "It's understood that Rich is behind the ownership of Ravenswood and Ormet, although I never knew him to get involved in the management," says Thomas J. McGinty, who sold his 29% Ormet stake to Strothotte in 1989.

'NOBODY'S PUPPET.' Boyle adamantly denies that Rich is connected to Ravenswood. He argues that Rinoman is simply Strothotte investing as an individual. "I resent anybody saying I'm a puppet" of Marc Rich, Boyle snorts. "I'm nobody's puppet. I run this company." Rich himself declined to discuss the issue. A letter BUSINESS WEEK sent to him in Zug elicited a response from Robert Thomajan, a New York lawyer on leave from his firm to work for Rich in Zug. Thomajan says Rich's company "has not and does not comment publicly on its business activities."

Strothotte sent BUSINESS WEEK a letter, faxed from Rich's Zug headquarters, denying any "ownership link" between Ravenswood and Clarendon or Rich. Strothotte also says that "efforts by the USW to involve Clarendon and its shareholders in a resolution of the Ravenswood dispute, their conduct at the LME dinner, and the rather absurd reference to threats are all misdirected and serve no useful purpose." In response to a second query, he issued further general denials but did not reply in detail before this issue went to press.

The USW concedes that Boyle is the primary architect of Ravenswood's labor policies. The friction began when the company's labor contract expired a year ago. After Boyle demanded pay cuts, talks over a new pact deadlocked. Boyle then locked out union members and hired 1,100 replacements.

Since then, there have been hundreds of acts of vandalism and clashes between Ravenswood security guards and USW members. Boyle has spent more than $ 1.5 million to fortify the plant, ringing it with tractor-trailers, railcars, and a 10-foot-high barbed-wire fence. The union has spent an estimated $11 million on its campaign, largely strike benefits.

Insiders say the USW wants to send a message to other aluminum and steel producers not to try the same thing. Indeed, they may now think twice. "The two sides are in a death grip," says Peter W. Merner, an aluminum analyst at Merner Research. USW President Lynn Williams says he recently persuaded Ravenswood's biggest customer for aluminum-can sheet, American National Can, to cancel future orders that represent 23% of Ravenswood's sales. Boyle denies this. American National won't comment.

LONG ROPE. The USW also hired a private investigator to look into Ravenswood's tangled ownership -- which is what led it to Rich. To rope him into the dispute, the union complained to Representative Bob Wise (D-W. Va.), whose district includes Ravenswood. Now, Wise's subcommittee on government operations is investigating allegations that Rich & Co. may have traded in Iraqi oil during the Persian Gulf war. This would have violated both U. N. sanctions and Swiss law. European unionists are also attacking. They're trying to thwart Rich's attempts to buy Slovak State Aluminum Co. And pro-union politicians in the European Parliament have questioned his ethics.

Rich's lawyers continue to press for his return to the U. S., offering to pay multimillion-dollar fines he still owes. Rich's one condition is that he avoid prison. He may have allies in the State Dept. U. S. marshals have tried several times to trap Rich, most recently in September, when they alerted officials in Finland that he was due to arrive by private plane. But in that instance, as in previous ones, Rich got away. A. Craig Copetas, author of a 1985 book on Rich, says the marshals suspect that someone in State, which must be notified of such operations, is leaking their plans to Rich because they value his high-level contacts around the world. The Justice Dept., however, "will never make a deal that will let Rich buy his way out of a possible prison term," says Morris "Sandy" Weinberg, a former U. S. prosecutor who led the case against Rich.

Implicit in the USW's strategy is that if Ravenswood is settled, the spotlight on Rich will go dark. Maybe so. But it's just as likely that, win or lose, the union has ensured that the fugitive from New York will long remain a prisoner in Zug.

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