How will President George W. Bush personally make millions (if not billions)
from the War on Terror? The old fashioned way. He'll inherit it.
Meet the Carlyle Group
hereinreality.com
Oliver Burkeman and Julian Borger
Wednesday October 31, 2001
The Guardian
Former World Leaders and Washington Insiders Making Billions in the War on Terrorism
Bush
Baker
Carlucci
Darman
Ramos
Major
It is hard to imagine an address closer to the heart of American power.
The offices of the Carlyle Group are on Pennsylvania Avenue in
Washington DC, midway between the White House and the Capitol building,
and within a stone's throw of the headquarters of the FBI and
numerous government departments.
Also see The Axis of Corporate Evil
The address reflects Carlyle's position at the very center of the Washington establishment, but amid the frenetic
politicking that has occupied the higher reaches of that world in recent weeks, few have paid it much attention.
Elsewhere, few have even heard of it.
This is exactly the way Carlyle likes it. For 14 years now, with almost no publicity,
the company has been signing up an
impressive list of former politicians - including the
first President Bush and his secretary of state, James Baker; John
Major; one-time World Bank treasurer Afsaneh Masheyekhi and
several south-east Asian powerbrokers - and using their
contacts and influence to promote the group.
Among the companies Carlyle owns are those which make equipment,
vehicles and munitions for the US military, and its celebrity employees
have long served an ingenious dual purpose,
helping encourage investments from the very wealthy while also
smoothing the path for Carlyle's defense firms.
But since the start of the "war on terrorism", the firm - unofficially valued
at $13.5bn - has taken on an added significance. Carlyle has become the
thread which indirectly links American military policy in Afghanistan to the
personal financial fortunes of its celebrity employees, not least the
current president's father And, until earlier this
month, Carlyle provided another curious link to the
Afghan crisis: among the firm's multi-million-dollar investors were
members of the family of Osama bin Laden.
The closest the Carlyle Group has previously come to public
attention was last May, when a Seoul-based employee
called Peter Chung was forced to resign from his £100,000-a-year job
after sending an email to friends - subsequently
forwarded to thousands of others - boasting of his plans to "fuck
every hot chick in Korea over the next two years". The
more business-oriented activities of Carlyle's staff have
been conducted much more quietly: since it was founded in 1987
by David Rubenstein, a policy assistant in Jimmy Carter's administration,
and two lawyer friends, the firm has been
dispatching an array of former world leaders on a series of strategic networking trips.
Last year, George Bush Sr and John Major traveled to Riyadh to talk
with senior Saudi businessmen. In September
2000, Carlyle hired speakers including Colin Powell
and AOL Time Warner chair Steve Case to address an extravagant
party at Washington's Monarch Hotel. Months later,
Major joined James Baker for a function at the Lanesborough Hotel
in London, to explain the Florida election controversy to the wealthy attendees.
We can assume that Carlyle pays well. Neither Major's office
nor Carlyle will confirm the details of his salary as
European chairman - an appointment announced shortly
before he left the House of Commons after the election - but we
know, for the purposes of comparison, that he is paid £105,000
for 28 days' work a year for an unrelated non-executive
directorship. Bush gives speeches for the company and is paid with
stakes in the firm's investments, believed to be
worth at least $80,000 per appearance. The benefits have attracted
political stars from around the world: former
Philippines president Fidel Ramos is an adviser, as is former
Thai premier Anand Panyarachun - as well as former
Bundesbank president Karl Otto Pohl, and Arthur Levitt
former chairman of the SEC, the US stock market regulator.
Carlyle partners, who include Baker and the firm's chairman,
Frank Carlucci - Ronald Reagan's defence secretary and a
former deputy director of the CIA - own stakes that would be worth
$180m each if each partner owned an equal slice. As
in many areas of its work, though, Carlyle is not obliged to
reveal the details, and chooses not to.
Among the defence firms which benefit from Carlyle's
success is United Defense, a Virginia-based contractor which
makes vertical missile launch systems currently on board
US Navy ships in the Arabian sea, as well as a range of other
weapons delivery systems and combat vehicles. Carlyle's other
holdings span an improbable range, taking in the French
newspaper Le Figaro and the company which bottles Dr Pepper.
"They are big, and they are quiet," says David Mulholland,
business editor of Jane's Defense Weekly. "But they're not
easy to get information out of, [but] United Defense are going
to do well [in the current conflict]." United also owns
Bofors, a Swedish munitions manufacturer.
Carlyle has said that it does not lobby the federal government,
thus avoiding a conflict of interest when, for example,
Carlucci met Rumsfeld in February when several important
defiance contracts were under consideration. But critics see
that as a matter of definition.
"It should be a deep cause for concern that a closely
held company like Carlyle can simultaneously have directors and
advisers that are doing business and making money and also advising
the president of the United States," says Peter
Eisner, managing director of the Center for Public Integrity,
a non-profit-making Washington think-tank. "The problem
comes when private business and public policy blend together.
What hat is former president Bush wearing when he tells
Crown Prince Abdullah not to worry about US policy in the Middle East?
What hat does he use when he deals with
South Korea, and causes policy changes there? Or when
James Baker helps argue the presidential election in the
younger Bush's favor? It's a kitchen-cabinet situation,
and the informality involved is precisely a mark of Carlyle's
success.
"The world of private equity is an inherently secretive one. Firms
such as Carlyle make most of their money buying firms
which are not publicly traded, overhauling them and selling them at a profit,
so the process by which likely targets are
evaluated is much more confidential than on the open market.
"These firms certainly don't go out of their way to get into
the headlines," says Steven Bell, chief economist at Deutsche Asset Management.
"They'd rather make a splash in
Institutional Pensions Week. The aim is to realize very high returns
for your investors while exerting a high degree of
control over the company. You don't want to get into the headlines
when you force the management to fire a director."
The process has worked wonders at United, and this month
the firm announced plans to go public, giving Carlyle the
chance to cash in its investment.
But what sets Carlyle apart is the way it has exploited its political contacts.
When Carlucci arrived there in 1989, he
brought with him a phalanx of former subordinates
from the CIA and the Pentagon, and an awareness of the scale of
business a company like Carlyle could do in the corridors
and steak-houses of Washington. In a decade and a half, the
firm has been able to realise a 34% rate of return on its investments,
and now claims to be the largest private equity firm
in the world.
Success brought more investors, including the international
financier George Soros and, in 1995, the
wealthy Saudi Binladin family, who insist they long ago
severed all links with their notorious relative. The first president
Bush is understood to have visited the Binladins in Saudi Arabia twice on the firm's behalf.
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