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The Marc Rich Hearings
Margie Burns
Regrettably, Congressperson Dan Burton suspended hearings on former President Clinton's pardon of fugitive trader Marc Rich. The hearings could have told us something about Rich's opulent-but-murky deals with rogue entities, whole governments, and multinational corporations around the globe. Take Alcoa Aluminum, for example.
Until recently, Alcoa may have been most visible in the pantry (aside from automobile and aircraft materials). But Alcoa's former CEO, Paul O'Neill, is now President Bush's Secretary of the Treasury, and Alcoa has engaged in a notably beneficial arrangement with metal trader Marc Rich for over 15 years.
Total world trade in aluminum is over $30 billion a year. Of the aluminum that gets into the open market, Rich controlled over one-third and was the world's largest independent seller, trading about two million tons of ingot annually, according to writer Craig Copetas. His total sales were second only to those of Alcoa.
Jamaica, island paradise and depressed little island economy possessing major bauxite and alumina mines, was part of the picture. In the mid-1980s, shortly before O'Neill became head of Alcoa, the price of aluminum dropped. Alcoa, one of the biggest businesses in Jamaica, shut down its plant there—putting the Jamaican government, desperately in need of exports under International Monetary Fund constraints, in something of a bind. Alcoa then agreed to lease the plant to the Jamaican government, but someone had to be found to buy the aluminum produced.
Rich signed a ten-year agreement to buy most of what Alcoa produced in Jamaica; so from 1986 to 1995, Rich received a guaranteed four million metric tons of alumina annually, at about half market price, and Alcoa and its new CEO in 1987—when O'Neill took over—had a relatively low-risk, cheap-labor operation, with the blessing of world governments.
In 1987, aluminum prices soared; and Rich, with Alcoa's substantial collaboration, was abruptly in command of a 30 percent global market share in aluminum—including trade in the United States (after Rich was already a U.S. tax fugitive) and in the Soviet Union, among other countries. The transactions with American companies while Rich was on the run from American justice seem never to have been sorted out. Alcoa and O'Neill were praised in the press for “a tough, growth-by-acquisition strategy” (Business Week, February 5, 2001) and for Alcoa's remaking itself into “a globally integrated unit” (Wall Street Journal, September 26, 1996) with 59 percent of its operating profit in foreign countries.
In basically a triangular arrangement with Rich and Alcoa, cash-hungry Jamaica needed the deal to be creditworthy for the International Monetary Fund. Half of any money it received went to pay its foreign debt; if it missed a payment, its currency would be devalued. Under IMF rules it could not pay off IMF loans with other loans; cash had to come through a sale or lease.
There has been some downside for the continuing partnership, however. In 1990, Alcoa Minerals and Clarendon Alumina Partners (Rich formed Clarendon when the indictments were coming down) were sued in Jamaica over health and property damage caused by pollutants, noxious gases, and corrosive dust. The lower court ruled for the plaintiffs in 1995; Clarendon and Alcoa appealed to Jamaica's Appeal Court, where they lost in 1996; they then appealed to Jamaica's highest court, the Privy Council, where they also lost, in March 2000. (Rich, plaintiff as well as defendant in numerous lawsuits, has never been shy about using the world's courts to bolster his business ventures.)
The judgment seems not to have diminished the value of Alcoa stock and stock options held by O'Neill, estimated at $100 million. (O'Neill has agreed to sell the stock.) But according to the Federal Procurement Data Center, Alcoa received $86,668,000 in federal contracts in fiscal year 2000, including over $47 million from NASA. (Alcoa also received another seven million in contracts for FY 2000 that were subsequently “de-obligated.”)
Meanwhile, O'Neill also received high marks for emphasizing employee injury issues in Alcoa's plants at home, reducing its losses from employee injury to one-third the U.S. average. If only he had weighed in on current executive orders regarding workplace safety/ health.
He is unlikely to weigh in on Marc Rich. Alcoa is reportedly now purchasing a company called Century Aluminum, 40 percent owned by Glencore International, formerly Marc Rich & Co. O'Neill has already said publicly that he is keeping his Alcoa stock; the purchase will join his interests ever closer with those of Marc Rich associates and trading partners.
By the way, stock options mean “ordinary income” to the IRS; President Bush's “tax cut” may do little for the U.S. Treasury, but it will hugely benefit the Treasury Secretary (last reported income over $59 million).
This is not to disregard Clinton's appearance of impropriety, at best, in pardoning a jetsetter fugitive from justice who never paid his debt to society. The pardon enables Marc Rich to make more of the deals that made him rich.
Still, it should be remembered that most such deals are directly or indirectly GOP-linked enterprises, netting the party millions far exceeding the hundreds of thousands donated to the Clinton library. Congress-person Burton's committee had a window of opportunity there for a minute, to let the public in on some of what has cost it so much. Z