In 1980 and 1981, two Swiss companies associated with Marc Rich engaged in a series of linked transactions involving foreign and domestic oil. These transactions, which also involved major U.S. oil companies, occurred during the period when the United States was still regulating energy prices and were not unlike many other transactions widely engaged in during this period. In accordance with the law and following the advice of competent counsel, payments attributable to the offshore aspects of the linked transactions were properly treated as exempt from U.S. taxes as well as U.S. energy price controls, which were shortly thereafter repealed.
The U.S. Attorney investigating the matter ambitiously turned the proper reporting treatment of these complex corporate transactions – essentially a routine tax allocation dispute – into a highly politicized criminal tax and energy fraud case alleging that domestic oil revenues were improperly diverted offshore. None of the major U.S. oil producers, however, which actually were the ones who insisted on linking their domestic oil sales with offshore foreign oil transactions, was ever criminally prosecuted.
The indictment also included charges brought under RICO, a punitive and much-criticized statute designed to combat organized crime, leading to the imposition of restraints and a severe disruption of business activity. This was the first use of RICO in a tax case, a practice which the U.S. Government itself has since recognized to be inappropriate and has abandoned. As part of a destructive publicity campaign, inflammatory accusations of illegally trading with Iran were further levelled, but this charge was challenged by the companies and dropped against them.
The case achieved particular notoriety in 1983, when the U.S. Government demanded, in contravention of Swiss law, copies of documents located in Switzerland. Even though the United States and Switzerland had recently agreed to procedures for such international requests, the United States refused repeated pleas by the Swiss Government to follow these procedures and imposed heavy fines on the companies.
Threatened with the collapse of the entire group, even before trial, and overwhelmed by ruinous publicity, the companies were forced to plead guilty in order to survive. Fines totalling nearly $ 200 million were paid, and an enormous amount of business was lost as a result of being improperly accused of racketeering.
Shortly after the conclusion of the case against the companies in 1984, the U.S. Department of Energy itself reached conclusions supporting the manner in which the challenged transactions were originally reported. Moreover, two of the United States' leading tax experts have independently confirmed the correctness of the tax reporting of the transactions.
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