Prior to joining Harken, Mr. Bush's business record was not good. He started his first firm, Arbusto Energy, in 1977, the headiest days of the oil patch, and was buffeted along with all the others by the high interest rates and collapsing oil prices of the next few years. Hoping to boost its fortunes, he changed Arbusto's name to Bush Exploration, then merged it with Spectrum 7 Energy Corp. in an effort to stay afloat. As the hard times continued, Spectrum merged with Harken Energy.
Harken viewed Mr. Bush's famous name as an important asset, oil industry executives close to the deal have said. Harken officials will not comment about Mr. Bush, but records show that the company's stock began to climb right after the Spectrum merger was announced, hitting $6 a share within a year before falling back. Mr. Bush was philosophical about losing his management role in the oil business but retaining profit. "I try to talk up Harken whenever I can," he told Forbes magazine in June 1987, "and I'd feel a lot worse if the stock hadn't tripled."
In 1989, Harken's stock was trading at between $4 and $5 a share. That's when Mr. Bush put up his shares as collateral for the Rangers loan. In January 1990, with shares trading around $4.50, Harken announced that it had signed a potentially lucrative oil-exploration deal with the government of Bahrain. On June 20, 1990, Mr. Bush sold the bulk of his Harken stock for $848,000, at $4 a share, and paid off the Rangers loan. Eight days later, Harken finished the second quarter with losses of $23 million, and the stock went into a nosedive, losing nearly 75% of its value, finishing the year at a little over $1 a share.
Critics of Mr. Bush cried foul, charging that as a Harken director he was in a position to trade illegally on insider information before the stock's decline. Mr. Bush ultimately was cleared by the Securities and Exchange Commission. But suspicions of Mr. Bush's lucky timing had heightened at first, when the SEC, discovering that he had not filed the proper disclosure form, opened an investigation into the president's son. Mr. Bush claimed that he did file the correct form, but that it had been lost. He also said that he had cleared the stock sale with Harken's general counsel.
"At the time of the sale," explained Ms. Hughes, the Bush spokeswoman, "he did not know about the losses that would later be posted." Mr. Bush was not selling ahead of bad news, Ms. Hughes said, but into the good news that the Bass brothers, Texas billionaires with deep pockets and overseas drilling experience, were inking a joint-exploration pact with Harken in Bahrain. In October 1993, the SEC sent Mr. Bush's attorney a letter stating that "the investigation has been terminated into the conduct of Mr. Bush, and that, at this time, no enforcement action is contemplated with respect to him."
Harken's Bahrain deal was also a piece of exceptional luck. It raised oil-industry eyebrows when the government of that Persian Gulf state announced it had chosen tiny Harken to explore an offshore site for gas and oil. Harken appeared to have little to offer the Bahrainis. It had no overseas experience and no experience with offshore drilling. Bahrain officials have since said they had no idea President Bush's son was associated with Harken, a claim oil-industry sources ridicule. Former Harken exploration chief Monte Swetnam told the New York Times earlier this year that there "was never a question" that Bahraini officials knew about Mr. Bush and that they "were clearly aware that he was the President's son."
The Bahrain deal was brokered in part by Arkansas investment banker David Edwards, one of Bill Clinton's closest friends. Formerly an employee of Arkansas investment powerhouse Stephens Inc., Mr. Edwards now runs his own firm in Little Rock and has wide connections in the Middle East. At the start of President Clinton's first term, he brokered a $23 million Saudi contribution for a Middle East studies center at the University of Arkansas at Fayetteville.
While Mr. Edwards was at Stephens, one of his clients was Saudi financier Abdullah Taha Bakhsh. In 1987, soon after Mr. Bush joined Harken, Mr. Edwards brought Mr. Bakhsh together with the Texas firm. Harken was struggling with debt and in need of cash. Mr. Bakhsh bought a 17% stake in the company. His American representative, Chicago businessman Talat Othman, was given a seat on Harken's board. By August 1990, Mr. Othman was attending White House meetings with President Bush to discuss Middle East policy. Mr. Bakhsh and Mr. Othman did not respond to an interview request. But in 1995 an attorney representing both men told the Journal that Mr. Othman's visits to the White House were solely based on his "longstanding involvement in Arab-American affairs."
Mr. Bakhsh also was a co-investor in Saudi Arabia with Ghaith Pharaon, a front man for the corrupt Bank of Credit and Commerce International, which was shut down in 1991 with some $10 billion in losses following a global looting spree. Mr. Bakhsh's banker in Saudi Arabia was Khalid bin Mahfouz, head of the country's largest bank, National Commercial, and one of the key players in the BCCI scandal. Stephens Inc. also crossed paths with BCCI, handling an early, unsuccessful effort by figures later identified as BCCI front men to acquire Financial General Bankshares, a Washington, D.C., bank holding company. Stephens withdrew from the deal, but within a few years the same group of front men won Federal Reserve approval to buy Financial General.
In 1992, Mr. bin Mahfouz was charged by Manhattan District Attorney Robert Morgenthau and the Federal Reserve Board in separate actions with scheming to conceal BCCI's role in U.S. banking. He reached a settlement in which he paid $225 million in fines and restitution, with the understanding that he would not again seek a major role in U.S. banking. Mr. Pharaon has been permanently banned from the U.S. banking industry and fined $37 million for his role in the BCCI scandal. Mr. Bakhsh was never charged with any wrongdoing and his attorney told the Journal that the Saudi financier "was not involved in any way in any of the matters or transactions that constituted the BCCI scandal."
It wasn't long after introducing Mr. Bakhsh and his money to Harken Energy that Mr. Edwards again surfaced with another lucrative deal. In 1988, the government of Bahrain had retained Houston oil consultant Michael Ameen, a former head of governmental relations for Aramco and an old friend of Mr. Bakhsh, to handle the search for a company to explore a possible new oil and gas field offshore. Mr. Edwards, who by then had left Stephens, learned of the Bahrain contract from Mr. Ameen and soon was representing Harken with the Bahrainis. Harken quickly beat out the big boys for the oil-exploration franchise; Bahraini officials have explained that they were looking for a small company that would devote full attention to them. Mr. Edwards did not respond to an interview request.
A wide-ranging 1991 team report by Wall Street Journal reporters Thomas Petzinger Jr., Peter Truell and Jill Abramson revealed many of the BCCI links to Mr. Bush and Harken, but found no evidence of improbity by anyone connected to the company. "The mosaic of BCCI connections surrounding Harken Energy may prove nothing more than how ubiquitous the rogue bank's ties were," the article noted. "But the number of BCCI-connected people who had dealings with Harken--all since George W. Bush came on board--likewise raises the question of whether they mask an effort to cozy up to a presidential son."
Mr. Bush told the Journal in 1994 that he had been "against the Bahrain deal" and he had "no idea that BCCI figured into" Harken's financial dealings. Harken officials refuse to release any documents, such as board minutes, that might support Mr. Bush, though two company executives have publicly stated he opposed the Bahrain operation. The Bahrain oil project resulted in two dry holes and Harken Energy abandoned the project. Mr. Bush had pretty much cashed out by then, and in November 1993 he resigned from Harken's board. He was replaced by the well-connected Mr. Ameen.
The international oil business has produced a rich set of ties between Saudi Arabia and Texas. To this day, Mr. bin Mafouz of National Commercial Bank and BCCI maintains a palatial home in Houston. He has also had a long and varied business association with James Bath, an aircraft broker and friend of George W. Bush from their days together in the Texas Air National Guard. Mr. Bath invested $50,000 in Mr. Bush's first company, Arbusto Energy. In 1978, Mr. Bath became a director of Houston's Main Bank. Among his fellow investors was Mr. bin Mahfouz, the Saudi banker and BCCI principal; Mr. Pharaon, the BCCI front man; and former Treasury Secretary and Texas Gov. John Connally. Main Bank was absorbed into larger banks in a series of industry mergers in the 1980s.
Mr. Bath's interesting connections to Saudi Arabia go back to at least 1976. It was then, according to a report in the Houston Chronicle, that Salem bin Laden, heir to one of the largest building companies in the Middle East, signed a trust agreement appointing Mr. Bath his Houston representative. (Salem bin Laden's half-brother, Osama bin Laden, has in recent years gained world-wide notoriety as a funder of fundamentalist terrorism, though he has reportedly broken with his family in Saudi Arabia). Court documents show that Mr. Bath purchased an airfield in south Texas, Houston Gulf Airport, in 1978 on behalf of Salem bin Laden.
Mr. bin Laden died in a plane crash near San Antonio in 1988, and his interest in the airfield passed to Mr. bin Mahfouz, according to the Chronicle. Mr. Bath also founded Southwest Airport Services to manage Houston Gulf Airport and to provide fueling service at another Houston-area airport, Ellington Field, where the company fueled military aircraft.
Mr. Bath was as well the president of Skyway Aircraft Leasing Ltd., a Cayman Islands-registered company that acted as a supplier of large passenger and cargo jets. According to a court document cited by the Houston Chronicle, and to someone familiar with Skyway's operation who spoke recently to the Journal, the true owner was Mr. bin Mahfouz. Mr. Bath did not respond to requests for an interview.
Questioned by the Houston Post in 1990, Mr. Bush said he had "never done any business" with Mr. Bath, but that Mr. Bath was "a lot of fun." Last month, Ms. Hughes, the Bush spokeswoman, said that other than the Arbusto investment, "Gov. Bush did not have any other financial dealings with Mr. Bath." She said Gov. Bush has seen Mr. Bath once or twice at social events over the past six years.
A review of the Bush record as governor finds few traces of the past financial connections reviewed above. The one exception might be the January appointment of Kem Thompson Frost, a lawyer who has represented Mr. Bath, to the Texas 14th Court of Appeals. Ms. Frost's law firm, Winstead, Sechrest & Minick, has contributed to Mr. Bush's gubernatorial and presidential campaigns an amount that "exceeds $50,000," according to Texans for Public Justice, a campaign-finance monitor. In a brief telephone interview, Judge Frost said her work for Mr. Bath "ended in the early 1990s." She added that she had "never met Gov. Bush, never discussed Mr. Bath with any of his representatives, and filled out a standard judicial application."
If he wins the presidency, Mr. Bush would have great direct and indirect influence over issues of more moment to his past associates--such as relations with Saudi Arabia. Issues of law enforcement also are particularly sensitive, as we've seen in the Clinton administration. Mr. bin Mahfouz has never been explicitly banned from U.S. banking, for example, and has vigorously tried to rehabilitate his reputation--at one point enlisting the aid of Harvard Law Prof. Laurence Tribe to write a 38-page report denouncing BCCI prosecutors for "scapegoating" the Saudi banker. More recently, Mr. bin Mahfouz was ousted as head of National Commercial Bank in a murky power play reportedly engineered by the Saudi Arabian Monetary Agency. A family representative says Mr. bin Mahfouz then confined himself to a military hospital for treatment of drug abuse; his wife and sons still maintain a substantial stake in the bank.
CC |
