A Giant Among Giants
Glencore -- founded by famous fugitive Marc Rich -- has cornered the market on just about everything. Now that it's going public, will its ties to dictators and spies stand up to scrutiny?



When Glencore, the world's biggest commodities brokerage firm, went public in May 2011, the initial public offering (IPO) on the London and Hong Kong stock exchanges made headlines for weeks in the Financial Times and the trade-industry press, which devoted endless columns to the company's astonishing valuation of nearly $60 billion -- higher than Boeing or Ford Motor Co. The massive new wealth turned nearly 500 employees into overnight multimillionaires and made billionaires of at least five senior executives, including CEO Ivan Glasenberg. "We are not going to change the way we operate," vowed Glasenberg, who had started as a lowly coal trader for the Swiss firm nearly three decades earlier and, with the IPO, immediately became one of Europe's richest men. "Being public will have absolutely no effect on the business."

And what a business it is. The firm was forced to pull back the curtain on its famously secretive doings to go public, and what it revealed shocked even seasoned commodities traders. Glencore, which Reuters once called "the biggest company you never heard of," turned out to be far more globally dominant than analysts had realized. According to its 1,637-page IPO prospectus, the company controlled more than half the international tradable market in zinc and copper and about a third of the world's seaborne coal; was one of the world's largest grain exporters, with about 9 percent of the global market; and handled 3 percent of daily global oil consumption for customers ranging from state-owned energy companies in Brazil and India to American multinationals like ExxonMobil and Chevron. All of which, the prospectus said, helped the firm post revenues of $186 billion in 2011 and employ some 55,000 people in at least 40 countries, generating an average return on equity of 38 percent, about three times higher than that of the gold-standard investment bank Goldman Sachs in 2010. Since then, the company has only gotten vaster in scale. It recently announced a $90 billion takeover of Xstrata, a global mining giant in which it already holds a 34 percent stake; if the deal goes through, Glencore will rule over an "empire stretching from the Sahara to South Africa," as the Africa Confidential newsletter put it. As it is, Glencore already trades, manufactures, refines, ships, or stores at least 90 commodities in some three dozen countries. "Glencore is at the center of the raw material world," said Peter Brandt, a longtime commodities trader. "Within this world there are giants, and Glencore is becoming a giant among giants."

What the IPO filing did not make clear was just how Glencore, founded four decades ago by Marc Rich, a defiant friend of dictators and spies who later became one of the world's richest fugitives, achieved this kind of global dominance. The answer -- pieced together for this article over a year of reporting that included numerous interviews with past and current Glencore employees and a review of leaked corporate records, dossiers prepared by private investigative firms, court documents, and various international investigations -- is at once simpler and far more complicated than it appears. Like all traders, Glencore makes its money at the margins, but Glencore, even more so than its competitors, profits by working in the globe's most marginal business regions and often, investigators have found, at the margins of what is legal.

This means operating in countries where many multinationals fear to tread; building walls made of shell corporations, complex partnerships, and offshore accounts to obscure transactions; and working with shady intermediaries who help the company gain access to resources and curry favor with the corrupt, resource-rich regimes that have made Glencore so fabulously wealthy. "We conduct whatever due diligence is appropriate in each situation to ensure we operate in line with Glencore Corporate Practice," said spokesman Simon Buerk, when asked how the firm chooses business partners and local representatives.

But to experts, there's simply no other way for a company like Glencore to thrive. "Unlike the case with many industries, minerals and energy are often owned by the state in Third World countries," said Michael Ross, author of The Oil Curse and a professor at the University of California, Los Angeles. "And in a number of countries where Glencore operates, doing business means putting money into the pockets of repressive governments and corrupt rulers. In some of those places … it's hard to draw a line between what's legally corrupt and what's not."

Indeed, going public, according to the sources I spoke with, means building on the business model created and perfected by Rich, who, before his controversial pardon by U.S. President Bill Clinton, was a legendary fugitive, a regular fixture (along with Osama bin Laden) on the FBI's Most Wanted list. The new Glencore, these sources say, will be like the Glencore of old -- only much, much bigger. In today's superheated market for natural resources driven by booming emerging markets such as Brazil, China, and India, Glencore wants to grow -- and in a major way. Already the world's biggest middleman, it now wants to control the entire business chain, from mines and smelters to storage facilities for finished products, and from pumping oil to shipping it to refineries, while trading and hedging all along the way, industry experts say. "That's one way that Glencore makes so much money," a Geneva-based industry source told me. "When you are vertically integrated you make more at every step. The money stays in the same pocket."

Another way Glencore makes so much money is by leveraging information to take advantage of the wild swings that have marked global commodity prices in recent years, with oil yo-yoing from $147 a barrel in mid-2008 down to $40 later that year and more recently back up over $100. Poor countries that sell commodities often end up losers when prices go down -- like Zambia, which in recent years has been intermittently walloped by a combination of rising prices for agricultural products and sharply falling prices for copper and the other mineral exports on which it depends. But Glencore, like a casino where the house always wins, "benefits directly from the volatility," as Deutsche Bank noted cheerfully in a report on the IPO for potential investors.

Still, the real secret to Glencore's success is operating in markets that scare off more risk-averse companies that fear running afoul of corporate governance laws in the United States and the European Union. In fact, those markets are precisely where the future of the company lies. Consider what Deutsche Bank identified as Glencore's "key drivers" of growth: copper in the Democratic Republic of the Congo, coal in Colombia, oil and natural gas in Equatorial Guinea, and gold in Kazakhstan. All are places with a heady, dangerous mix of extraordinary natural wealth and various degrees of instability, violence, and strongman leaders. Glencore's experience and adeptness operating in these "frontier regions" and "challenging political jurisdictions" -- Deutsche Bank's delicate euphemisms for countries known for corruption, autocracy, and human rights abuses -- is central, the investment firm wrote, to Glencore's "significant growth potential."

LEVERAGING TIES TO DICTATORS has always been at the heart of the business empire built by Rich, the Belgian-born U.S. citizen who founded what would become Glencore in Switzerland in 1974. "Focus your analysis on Marc Rich," the Geneva source advised me when I first mentioned I was researching Glencore. "He knew that you have to deal with governments and ministers, and you have to service those people. You can call it corruption, but it's part of the system."

Undeniably brilliant, Rich started in 1954 as a mail clerk at Philipp Brothers, then the world's dominant commodities firm, and within two years had worked his way into the position of junior trader. His own politics were conservative, but money trumped ideology for Rich; he was just as willing to cut deals in fascist Spain -- where he worked for a time at the company's Madrid office, which specialized in handling business in rough countries in Africa and the Middle East -- as in communist Cuba, where Philipp Brothers had dispatched him soon after Fidel Castro took power. He went on to travel frequently to Havana, where, in addition to picking up a lifelong fondness for Cohiba cigars, he did business in pyrite, copper, and nickel.

He and Pincus "Pinky" Green left Philipp Brothers in 1974 and established Marc Rich & Co. in the canton of Zug, Switzerland's most business-friendly tax and secrecy haven. From early on, Rich cultivated ties to monarchs and presidents, diplomats and intelligence agencies, especially Iran's SAVAK under the shah and Israel's Mossad. He periodically lent a hand to the latter's clandestine operations, among them the evacuation of Ethiopian Jews to Israel in the 1980s.

Rich made a fortune by buying oil from Iran during the hostage crisis and Libya when Ronald Reagan's administration imposed a trade embargo on Muammar al-Qaddafi's regime, as well as supplying oil to apartheid South Africa. An inveterate sanctions-buster, Rich used offshore front companies and corporate cutouts to try to stay below the radar. He also pioneered the practice of commodity swaps, like the uranium-for-oil deals he brokered in the 1980s between apartheid South Africa and Islamic Iran and Soviet Russia. Such deals frequently caused him trouble with U.S. authorities, and in 1983 Rich fled his home in New York to Switzerland just before the Justice Department issued an indictment against him and Green on charges of racketeering, illegal trading with Iran, and tax evasion. A House committee later described his business as "based largely on systematic bribes and kickbacks to corrupt local officials."

Still, Rich continued to thrive, until he unsuccessfully tried to corner the global zinc market in 1992 and nearly bankrupted the firm with $172 million in losses, at which point he was forced out in a management buyout. The new directors renamed the company Glencore, which is reportedly -- though even this is a secret -- short for Global Energy Commodities and Resources.

Rich's forced exit from Glencore and the U.S. indictment hanging over his head had little impact on his business success. He created a new, independent firm and within a decade was trading 1.5 million barrels of oil a day, with an annual turnover of $30 billion. Then in 2001, on Clinton's last day in office, the president granted Rich a controversial pardon stemming from the 18-year-old indictment; critics argued that the pardon was connected to the generous contributions that Rich's ex-wife, Denise, made to a variety of Democratic causes, including Hillary Clinton's successful 2000 Senate campaign and the Clinton Presidential Library fund. A number of prominent American Jews and Israelis, including then-Prime Minister Ehud Barak and former Mossad Director General Shabtai Shavit, also pressed the White House on Rich's behalf.

read the rest of the article here, this is annoying to copy/paste..
http://www.foreignpolicy.com/articles/2012/04/23/a_giant_among_giants?page=0,2

daedalus wrote:That's boring. There's like, all this text to read, and Glencore is a company I've never heard of, unlike Apple, who produces many products I can easily relate to. What does a commodities brokerage firm have to do with me anyway?

/sarcasm

According to its 1,637-page IPO prospectus, the company controlled more than half the international tradable market in zinc

rodgers37 wrote:But are there any Glencore fanboys? Or haters?

Seriously though, we all now Apple aren't evil. I wasn't mad at Apple either. I did read a chunk of that, but i've been starting at my screen for too long (Real Madrid vs Bayern, 120 mins then penalties ), and unfortunately the iMac doesn't come with a screen that prevents your eyes from getting tired/aching after much staring. Time to read a book.

Some of those figures, for example raking of Xstrata for $90 billion.. I've never heard of Glencore or Xstrata...

These figures are just fantasy, no one actually has a psychical $90 billion, its just numbers on a screen. Someone could probably hack into the worlds bank details and make everything 0. (maybe, thats probably quite advance, any hackers on here?)

rodgers37 wrote:Ok, that makes slightly more sense now. But really, these are still imaginary figures No one is sitting at home in a swimming pool full of $100 bills (is $100 the highest?). Or are they?

rodgers37 wrote:But are there any Glencore fanboys? Or haters?

Seriously though, we all now Apple aren't evil. I wasn't mad at Apple either. I did read a chunk of that, but i've been starting at my screen for too long (Real Madrid vs Bayern, 120 mins then penalties ), and unfortunately the iMac doesn't come with a screen that prevents your eyes from getting tired/aching after much staring. Time to read a book.

Some of those figures, for example raking of Xstrata for $90 billion.. I've never heard of Glencore or Xstrata...

These figures are just fantasy, no one actually has a psychical $90 billion, its just numbers on a screen. Someone could probably hack into the worlds bank details and make everything 0. (maybe, thats probably quite advance, any hackers on here?)

rodgers37 wrote:Ok, that makes slightly more sense now. But really, these are still imaginary figures No one is sitting at home in a swimming pool full of $100 bills (is $100 the highest?). Or are they?