Tag: Switzerland

  • Marc Rich and Glencore: The Fugitive Who Built the World’s Largest Commodity Trader

    In 1983, a federal grand jury in New York indicted Marc Rich on 65 criminal counts — income tax evasion, wire fraud, racketeering, and trading with Iran during the hostage crisis in violation of U.S. sanctions. The potential sentence exceeded 300 years. It was the largest tax evasion case in American history at the time, prosecuted by a young federal attorney named Rudolph Giuliani. Rich learned of the indictment, flew to Switzerland, and never returned. He stayed on the FBI’s Ten Most Wanted Fugitives list for years, narrowly escaping capture in Finland, Germany, Britain, and Jamaica. He didn’t even return for his daughter’s funeral in 1996. And on January 20, 2001 — his last day in office, among 140 pardons and commutations — President Bill Clinton gave Marc Rich a full and unconditional pardon. The New York Times called it “a shocking abuse of presidential power.” Jimmy Carter said the pardon was “disgraceful.” The company Rich built from his exile in Zug, Switzerland, had by then become the largest commodity trading firm on earth. It is still operating. Its name is Glencore.

    The invention of modern commodity trading

    Rich was born Marcell David Reich in Antwerp in 1934. His Jewish family fled the Nazis through Vichy France, Spain, and Portugal, arriving in the United States aboard the liner Serpa Pinto. He dropped out of college in New York and went to work in the mailroom at Philipp Brothers, then the world’s dominant metals trading house. He was a prodigy. By his mid-twenties he was making deals across Europe; by his thirties he was Phibro’s top producer. In 1973, during the OPEC oil embargo, Rich figured out how to bypass the cartel’s ban on sales to the United States, buying cargoes from one company and reselling them to another on a short-term basis. He essentially invented the crude oil spot market — the system of buying and selling individual cargoes of oil outside of long-term contracts that defines global oil trading to this day.

    Furious over his compensation, Rich left Phibro in 1974 with his partner Pincus “Pinky” Green and founded Marc Rich + Co. AG in Zug, Switzerland. The choice of Zug was not incidental. Swiss law at the time drew a distinction between tax evasion (a civil matter) and tax fraud (a criminal matter). Switzerland interpreted its neutrality doctrine so strictly that it declined to enforce many international trade embargoes. And Zug’s tax rates were among the lowest in Europe. Rich had found the jurisdiction that would let him trade with anyone, pay minimal taxes on the proceeds, and resist extradition from the country whose laws he was breaking.

    The sanctions portfolio

    Rich traded with everyone the United States told its citizens not to trade with, and he was explicit about why. “You can’t run a business based on sympathies,” he told his biographer Daniel Ammann. “Otherwise our business would be hampered.” The client list reads like a sanctions compliance officer’s nightmare: Iran during and after the hostage crisis, apartheid South Africa, Cuba under Castro, Libya under Gaddafi, Ceaușescu’s Romania, Pinochet’s Chile, Sandinista Nicaragua, Marxist Angola.

    The Iran-South Africa oil pipeline was his masterpiece of sanctions arbitrage. Iran, post-revolution, was under U.S. embargo and couldn’t easily sell its crude. South Africa, under UN sanctions for apartheid, couldn’t easily buy oil. Both were desperate — Iran to sell, South Africa to buy. Rich positioned himself as the only trader willing to bridge the two pariah states, extracting enormous margins from both sides because neither had alternative counterparties. The structural logic was identical to what made BCCI valuable to its clients: when legitimate channels are closed, the middleman who operates outside the law captures the entire spread. Rich’s companies earned an estimated $2 billion from these trades alone.

    Rich also served as an asset for Israeli intelligence. He reluctantly acknowledged in interviews with Ammann that he had assisted the Mossad, a claim confirmed by a former Israeli intelligence officer. Rich financed Mossad operations and supplied Israel with strategic quantities of Iranian oil through a secret pipeline arrangement. This dual role — private businessman and intelligence asset — would become critical to his pardon. When the pardon effort began, it was coordinated by Avner Azulay, a former high-ranking Mossad agent who had been running Rich’s philanthropic foundations in Israel since 1993. Azulay persuaded Rich’s ex-wife Denise to appeal directly to Clinton. He also enlisted Israeli Prime Minister Ehud Barak to call Clinton on Rich’s behalf.

    The pardon

    The mechanics of the pardon are the part that connects Rich to the Shadowcraft thesis. Denise Rich — who had divorced Marc in 1996 — donated $450,000 to the Clinton Presidential Library Foundation and over $100,000 to Hillary Clinton’s Senate campaign. Leonard Garment, Nixon’s former special counsel, represented Rich. Scooter Libby — later convicted in the Plame affair, later pardoned by Trump — served as Rich’s attorney until 2000. The lobbying campaign deployed former intelligence officials, Israeli heads of state, and major Democratic donors in a coordinated effort to secure clemency for a man on the FBI’s Most Wanted list.

    Clinton’s defense was that the charges were better adjudicated through civil rather than criminal procedure. Eric Holder, then deputy attorney general, later testified that if he had known all the facts, he would not have recommended the pardon. Congress launched a bipartisan investigation. The episode became shorthand for the proposition that wealth and political connections can purchase outcomes the justice system was designed to prevent — a proposition that Rich’s entire career had already demonstrated through commodity markets rather than courtrooms.

    What Rich built — and what it became

    In 1993, Rich sold Marc Rich + Co. to his management team. They renamed it Glencore. Under CEO Ivan Glasenberg — who had joined the firm in 1984 and worked his way up through the South African coal trading desk — Glencore became the world’s largest commodity trading company and one of the largest publicly traded companies on earth. It went public in 2011 and merged with mining giant Xstrata in 2013, creating Glencore Xstrata (later just Glencore), a vertically integrated behemoth that trades and mines copper, cobalt, zinc, nickel, coal, oil, and agricultural commodities across every continent.

    Rich died in 2013 in Switzerland. He was 78. He was buried in Israel. But the corporate culture he built — the willingness to trade with sanctioned regimes, the use of intermediaries and shell structures to obscure transactions, the treatment of bribery as an operating expense — survived him. In May 2022, Glencore pleaded guilty in the United States to one count of conspiracy to violate the Foreign Corrupt Practices Act. The company admitted to paying more than $100 million in bribes to government officials in Nigeria, Cameroon, Ivory Coast, Equatorial Guinea, Brazil, Venezuela, and the Democratic Republic of Congo between 2007 and 2018. Separately, it pleaded guilty to commodity price manipulation. The combined penalties across U.S., UK, and Brazilian proceedings exceeded $1.1 billion. In August 2024, Swiss authorities convicted Glencore of “inadequate organisation” leading to corrupt mine deals in the DRC, imposing an additional $152 million penalty.

    The DRC case is the one that illustrates the mechanism. Glencore used Dan Gertler — an Israeli businessman and mining middleman now on the U.S. sanctions list — to negotiate mining deals with the government of then-president Joseph Kabila. When Glencore acquired a majority stake in Kamoto Copper Company, one of the world’s largest copper-cobalt mines, Gertler negotiated a $440 million discount on the signing bonus. Glencore paid $140 million instead of $585 million. The difference — money that should have gone to the Congolese state — disappeared into the gap between what Glencore paid and what the asset was worth. Gertler continues to receive tens of thousands of dollars daily in royalty payments from these mines. Glencore’s $180 million settlement with the DRC covers “all present and future claims” from 2007 to 2018, buying permanent immunity from further prosecution for a fraction of the revenue the mines generate in a single year.

    The accounting line item for bribes in Glencore’s 1990s-era books was labeled “useful expenses.” That phrase tells you everything about the continuity between Marc Rich + Co. and the company that inherited its culture.

    What it means

    Marc Rich invented modern commodity trading. He also invented the modern template for sanctions evasion as a business model — positioning yourself in the jurisdictional gap between the countries imposing sanctions and the countries subject to them, using Swiss neutrality and corporate opacity as infrastructure, and treating the legal risk as a cost of doing business rather than a constraint on behavior. Russia’s shadow fleet runs on the same structural logic Rich pioneered in the 1970s: find the parties who can’t trade through legitimate channels, insert yourself as the intermediary, extract the premium, and structure the operation through jurisdictions that won’t enforce the sanctions. The shell company architectures are the same. The flag-of-convenience registries are the same. The willingness to treat enforcement risk as a pricing input rather than a moral constraint is the same.

    Rich died wealthy, pardoned, and free. Glencore paid $1.1 billion in fines and kept operating. The Congolese communities that lost hundreds of millions in mining revenue have received a fraction in opaque settlements. The system Rich built — where the intermediary captures the value and the source country absorbs the loss — is the system the Shadowcraft course is designed to make visible. Not because it’s secret. Because it’s legal enough to survive prosecution and profitable enough that the fines are a line item.

    We cover Marc Rich alongside BCCI, Crypto AG, Wagner Group, and 20 other case studies of covert institutional power across our Shadowcraft course — where “useful expenses” is the two-word summary of how the world actually works.

  • Crypto AG: How the CIA and BND Sold Rigged Encryption to 120 Countries for Decades

    In 1970, the Central Intelligence Agency and West Germany’s Bundesnachrichtendienst paid $5.75 million for a Swiss encryption company called Crypto AG. They didn’t announce the purchase. They didn’t change the branding. They didn’t replace the employees. They installed one or two people at the executive level who knew the truth, kept the rest of the workforce in the dark, and for the next 48 years sold encryption machines to more than 120 governments worldwide — machines that the CIA and NSA had rigged so that every message encrypted on them could be read by American and German intelligence as easily as plaintext. The governments of Iran, Egypt, Pakistan, Saudi Arabia, Italy, Argentina, India, the Vatican, and dozens of others paid good money for equipment they believed was protecting their most sensitive diplomatic and military communications. It was doing the opposite. A CIA internal history, leaked in 2020, called the operation “the intelligence coup of the century.” That’s not journalistic hyperbole. That’s the agency’s own classified assessment of its own program.

    The Hagelin relationship

    The story starts before the CIA owned the company. Boris Hagelin, a Swedish inventor, founded Crypto AG in 1952 after building the M-209 cipher machine that the U.S. military used extensively during World War II. Hagelin relocated to Switzerland and built a business selling encryption equipment to governments worldwide, leveraging Swiss neutrality as a brand asset — a company based in a neutral country, manufacturing security products, seemed inherently trustworthy. By the early 1950s, Hagelin had entered an informal arrangement with William Friedman, the NSA cryptologist widely regarded as the father of American codebreaking. The “gentlemen’s understanding” was straightforward: Hagelin would sell his most capable machines to countries approved by the U.S., and weaker, breakable versions to everyone else. The arrangement was unofficial, personal, and — critically — it worked. Correspondence between Friedman and Hagelin, declassified in 2015, documented the relationship in detail.

    By the late 1960s, Hagelin was aging and the informal arrangement was becoming untenable. When French and West German intelligence approached Hagelin in 1967 to propose their own partnership, Hagelin reported the approach to his CIA handlers. The agency decided it was time to buy the company outright. They partnered with the BND, and in June 1970 the purchase was completed. Crypto AG was given the internal codename “Minerva.” The operation was initially called “Thesaurus,” later renamed “Rubicon.” Hagelin’s son, Boris Jr., who had been the company’s sales manager for the Americas, died in a car accident the same year. His father investigated and did not believe it was an accident.

    How the rigging worked

    The manipulation was elegant rather than crude. The CIA and NSA didn’t install obvious backdoors or program the machines to dump their encryption keys. They weakened the algorithms — specifically, they rigged the keystream generators so that the output, while appearing random to the user, contained mathematical structures that the NSA could exploit to recover the plaintext. To anyone without knowledge of the specific weakness, the encryption looked secure. To the NSA, it was transparent. As the technology evolved from mechanical cipher machines to electronic systems to software, the rigging evolved with it. NSA cryptologists and CIA engineers worked with a small number of witting Crypto AG technical staff to design each new generation of products with weaknesses that were invisible to the company’s own unwitting engineers and to every customer who tested the equipment.

    Siemens, the German electronics conglomerate, manufactured teleprinters for Crypto AG, provided management personnel for 20 years, and held a five percent share of the profits. Siemens engineers helped develop the encryption equipment. The Maximator alliance — a second Western signals intelligence partnership comprising Denmark, France, Germany, Sweden, and the Netherlands, operating parallel to the Five Eyes — was also read into the vulnerabilities and exploited them for their own intelligence collection. The circle of governments benefiting from Crypto AG’s compromised machines was wider than the CIA and BND alone.

    What it produced

    The intelligence yield was staggering across decades of global events. During the 1978 Camp David negotiations between Egypt and Israel, the NSA read every communication between President Sadat and his advisors in Cairo — because Egypt was a major Crypto AG customer. During the 1979 Iran hostage crisis, Iranian communications were intercepted in real time. In 1982, the British government received intelligence during the Falklands War because Argentina’s military encrypted its communications on Crypto AG equipment. In 1986, intercepted Libyan diplomatic traffic between Tripoli and the Libyan embassy in East Berlin provided the evidence President Reagan cited when he ordered the bombing of Tripoli and Benghazi in retaliation for the West Berlin discotheque bombing — and Reagan’s public statement about the intercept nearly blew the entire operation, because Libya and every other Crypto AG customer suddenly had a reason to wonder how the Americans were reading their communications.

    By 1988, the CIA and BND were decrypting approximately 19,000 Iranian messages annually — 80 to 90 percent of Iran’s total encrypted traffic. The operation provided intelligence on the South American Operation Condor dictatorships — Chile, Argentina, Bolivia, Paraguay, Uruguay, and Brazil — as they coordinated cross-border campaigns of imprisonment, torture, and extrajudicial killing. The Condor nations used Crypto AG equipment to coordinate their operations. American and German intelligence read the traffic. They knew what was happening. The CIA and BND documents, as the Washington Post reported, “largely avoid more unsettling questions, including what the United States knew — and what it did or didn’t do — about countries that used Crypto machines while engaged in assassination plots, ethnic cleansing campaigns and human rights abuses.”

    How it almost fell apart — and didn’t

    The operation survived repeated near-exposures across five decades, which is arguably more remarkable than the operation itself. Reagan’s 1986 public reference to Libyan intercepts was the first serious scare. The 1991 assassination of former Iranian Prime Minister Shapour Bakhtiar produced another: Iranian intelligence transmitted a coded message to Iranian embassies the day before Bakhtiar’s body was discovered, and the speed of Western intelligence’s response raised suspicions about how the intercept was obtained.

    The most dramatic exposure came in 1992, when Hans Bühler, a Swiss Crypto AG salesman, was arrested in Iran on espionage charges. Bühler had no idea he was selling rigged equipment — he was a genuine salesman who believed in his company’s products. Iran detained him for nine and a half months. Crypto AG paid approximately $1 million in bail for his release. When Bühler returned to Switzerland, he started talking to journalists. Another former Crypto AG engineer who had independently suspected the company was controlled by Western intelligence also went public. The media coverage was extensive. Bühler was fired. But the operation survived. The BND, rattled by the exposure risk, sold its stake to the CIA in 1993 or 1994 for $17 million. The CIA kept going alone. For another 24 years.

    Why did it survive? An academic study in Intelligence and National Security identified three factors: geopolitical pressures on target countries that limited their alternatives, the target governments’ limited technical resources for independently verifying encryption security, and individual operational brilliance by CIA-BND agents inside Crypto AG who managed each crisis without the operation collapsing. The simplest factor was the most powerful — there weren’t many alternatives. If you were a mid-sized government in the 1980s and you needed encryption equipment, your options were American, Soviet, or Swiss. The Swiss option looked neutral. It wasn’t.

    What it means

    The CIA sold Crypto AG’s remaining assets in 2018. The Swiss company was split into CyOne (domestic Swiss sales) and Crypto International AG (international sales under new ownership). The operation formally ended after 48 years of continuous signals intelligence collection from more than 120 governments. But the structural lesson is the one that connects Crypto AG to every other lecture in the Shadowcraft course: the most effective covert operation isn’t one that steals secrets. It’s one that sells the target the tool they’ll use to betray themselves — and charges them for the privilege.

    The parallel to modern debates about encryption backdoors, tech company cooperation with intelligence agencies, and the post-Snowden landscape is obvious and uncomfortable. As Warwick University researchers noted after the 2020 revelations: “Long before Edward Snowden released documents of modern firms colluding with intelligence agencies, we can see evidence for significant cases in the past. It certainly is not a recent phenomenon and leads us to ask just how many firms had been working directly with intelligence agencies.” The question the Crypto AG story poses isn’t whether intelligence agencies compromise commercial encryption. It’s how many current products carry weaknesses that will take another 48 years to discover. We cover Operation Rubicon alongside BCCI’s financial architecture, the United Front Work Department’s influence networks, Wagner Group‘s mercenary-propaganda fusion, and the shell company structures that make all of it possible across our Shadowcraft course — 24 lectures on the invisible institutions that shaped the modern world from behind the paperwork.