An article from Norwegian SciTech News at NTNU
The hidden companies
They are the companies you’ve never heard of, but they help grease the wheels of international trade.
Gemini, NTNU Trondheim - Norwegian University of Science and Technology
They are the hidden companies. They are there when Israel wants to import Iranian oil or newly independent states want to sell ore from mines they have forcibly taken from private firms and nationalized.
But hidden companies also arrange for far more mundane trade connections. They are medium-sized and large companies with the contact networks that other companies need. And you’ve probably never heard of any of them.
But Espen Storli, a historian and an associate professor at NTNU, has. He is in the process of studying these unknown companies.
“These companies help ensure a good flow of trade goods. Historically, they have been very important,” says Storli.
Traditional large multinational companies may control the entire production process from mine to end product. But hidden companies play a role in creating trade connections where these links do not exist. They buy goods and then sell them onward, or work in other ways as intermediaries.
Origins in Germany
Some of these hidden companies originated in Germany, where Jews ran the businesses that were critical to making to the nation’s commerce.
“German companies were a major centre of this kind of trade before 1914,” says Storli.
The First World War changed things. German companies largely had their foreign assets seized after the war.
Metallgesellschaft AG was one of Germany’s three largest metal trading companies at the time, and the only one that survived the post-war changes. It existed as a separate company right up until the mid-1990s, when a speculation gone awry in the oil market doomed the company as an independent entity for good. It is now a part of the GEA Group.
With the rise of Hitler and the approach of the Second World War, it became very uncomfortable to be a Jew in Germany. A number of the ablest and most enterprising individuals fled to the United States, and many of them ended up in New York.
The effect of this migration is still felt today, in that many of these hidden companies are run by descendants of people who fled from Nazi Germany.
One of these was Marc Rich, a superstar to the extent that there are superstars in this world. Rich was born in Belgium in 1934, and was originally named Marcell David Reich. His family went to the United States in 1941 to escape the Nazis. Young Reich became Rich, dropped out of university and took a job with Philipp Brothers, which under the company name of Phibro is still among the dominant hidden companies.
Rich traded in metals at a time when several Third World nations had become newly independent and suddenly found themselves with nationalized mines and products that they did not know how to sell. It was here that Philipp Brothers was of help, in exchange for a piece of the pie, of course.
During the oil crisis of 1973-1974, Rich bought cheap oil from Iran and sold it for at least double the price in the United States.
Marc Rich had his disagreements with Philipp Brothers and took his contacts with him to set up a separate company in 1974, where he made his name as “the King of oil”. The firm he set up is known today as Glencore Xstrata. As a hidden company, you would not have heard of it, but the company was eventually able to buy 20th Century Fox in 1981, which is a company you are sure to have heard of.
Rich said later that he made his best trades by breaking trade embargoes and offering services to the apartheid regime in South Africa, Castro’s Cuba, Pinochet’s Chile, Gaddafi’s Libya and Ceausescu’s Romania.
His most famous business dealings are from the Iranian revolution in 1979, when virtually all other international companies pulled out of Iran. Rich sent in his second-in-command, an orthodox Jew from Brooklyn, and placed an ad in the Metal Bulletin magazine announcing that his company was open for business, and subsequently became Iran’s main intermediary for the sale of crude oil over the next 15 years.
At the same time Rich opened doors for Israeli intelligence in Iran. But American authorities became very interested in his work, accused him of 65 different offenses and attempted to kidnap him from his home in Switzerland. Bill Clinton pardoned Rich on his last day in office. The decision is still controversial.
Rich died of a stroke in 2013, without regrets, and with US $1 billion in the bank.
Rich is the most famous, and perhaps the most notorious, of the dealers behind hidden companies and may serve as an example of the kind of the activity that takes place in the darkest corners of this world.
But a number of similar companies filled the void that was created when many newly independent states looked for opportunities to trade in the decades after the Second World War.
Throughout the 1950s, up to and including the 1970s, there was a huge resurgence of these companies. And they still exist. The emphasis has shifted from New York and back to Europe. Now, several companies have head offices in Switzerland and the Netherlands instead of the USA.
These companies are politically independent, survive based on their connections, are found pretty much worldwide and yet few have ever heard of them. And they get the job done without too much fuss. In this context, you have probably never heard of Trafigura and Vitol. Yet they had a turnover of US $133 and 307 billion last year, respectively.
While some of these companies operate beyond the law, many are often a necessary intermediary for those who do not have their own expertise or contacts or other opportunities. They also largely attempt to stay away from each other’s areas of trade.
Some companies have established themselves in the petroleum market, and are the main reason that there is an open spot market for oil today, instead of having everything controlled by the petroleum companies, which would thus be able to determine prices themselves.