No TYPO HERE...BUSH AND CRONIES....INCREDIBLE!
Bush special envoy embroiled
in controversy over Iraq debt
Consortium plans to cash in as Baker asks countries
to end £200bn burden
Read the documents
Naomi Klein
Wednesday October 13, 2004
The Guardian
President Bush's special envoy, James Baker, who has been
trying to persuade the world to forgive Iraq's crushing debts, is
simultaneously working for a commercial concern that is trying
to recover money from Iraq, according to confidential
documents.
Mr Baker's Carlyle Group is in a consortium secretly proposing
to try to collect $27bn (£15bn) on behalf of Kuwait, one of Iraq's
biggest creditors, by using high-level political influence. It claims
Mr Baker will not benefit personally, but the consortium could
make millions in fees, retainers and commission as a result.
Other countries, including Britain, have been urged by Mr Baker
to relieve the new Iraq regime of its $200bn debt burden. Iraq
owes Britain approximately $1bn.
One international lawyer described the consortium's scheme as
"influence peddling of the crassest kind".
Jerome Levinson, an expert on political and corporate ethics at
American University in Washington, told the Guardian: "The
consortium is saying to the Kuwaiti government, 'Through us you
have the only chance to realize a substantial part of the debt.
Why? Because of who we are and who we know'."
When George Bush appointed Mr Baker, a former secretary of
state, as his unpaid envoy on December 5 2003, he called Mr
Baker's job "a noble mission". But Mr Baker is also a senior
counsellor and an equity partner with a reported $180m stake in
the merchant bank and defence contractor the Carlyle Group.
A confidential 65-page Proposal to Assist the Government of
Kuwait in Protecting and Realising Claims Against Iraq was sent
in January from the consortium to Kuwait's foreign ministry,
according to documents obtained by the Nation magazine in
New York, which are published today on the Guardian website.
In a letter dated August 6 2004, the consortium informs Kuwait's
foreign ministry that the country's unpaid debts from Iraq "are in
imminent jeopardy".
World opinion is turning in favor of debt forgiveness, another
letter warns, as evidenced by "President Bush's appointment of
former secretary of state James Baker as his envoy to negotiate
Iraqi debt relief."
The consortium's proposal spells out the threat: not only is
Kuwait unlikely to see any of its $30bn from Iraq in sovereign
debt, but the $27bn in war reparations that Iraq owes to Kuwait
from Saddam Hussein's 1990 invasion "may well be a casualty
of this US [debt relief] effort".
In the face of this threat, the consortium offers its services. Its
roster of former high-level US and European politicians have
"personal rapport with the stakeholders in the anticipated
negotiations" and are able to "reach key decision-makers in the
UN and in key capitals".
Kathleen Clark, a law professor at Washington University and a
leading expert on government ethics and regulations, said this
meant that Mr Baker was in a "classic conflict of interest".
"Baker is on two sides of this transaction: he is supposed to be
representing the interests of the US, but he is also a senior
counsellor at Carlyle, and Carlyle wants to get paid to help
Kuwait recover its debts from Iraq."
She added: "Carlyle and the other companies are exploiting
Baker's current position to try to land a deal with Kuwait that
would undermine the interests of the US government."
Last night, a Carlyle spokesman said the company had scaled
down its involvement after the Baker appointment: "Neither the
Carlyle Group nor James Baker wrote, edited or authorised this
proposal to the Kuwait government. When James Baker was
named special envoy, which was before the proposal was
produced and sent, Carlyle explicitly restricted its role to only
investing assets on behalf of Kuwait, an activity that James
Baker would play no role in nor benefit from."
According to the documents, Carlyle is seeking to secure as
part of the deal an extraordinary $1bn investment from the
Kuwaiti government.
The main proposal would transfer ownership of $57bn in unpaid
Iraqi debts. The debts would be assigned to a foundation created
and controlled by a consortium in which the key players are the
Carlyle Group, the Albright Group (headed by another former
secretary of state, Madeleine Albright) and several other
well-connected firms.
Under the deal, Kuwait would also give the consortium $2bn to
invest in a private equity fund devised by the consortium, with
half of that going to Carlyle.
The consortium would then use its personal connections to
persuade world leaders that Iraq must "maximize" its repa ration
payments to Kuwait. The more the consortium gets Iraq to pay
over a period, the more Kuwait collects, with the consortium
taking a 5% commission or more.
The goal of maximizing Iraq's debt payments directly contradicts
the stated US foreign policy aim of drastically reducing Iraq's
debt burden.
Chris Ullman, Carlyle's spokesman in Washington, said that the
firm was aware that a $1bn investment for Carlyle was part of the
Kuwait proposal: "We were aware of that. But we played no role
in procuring that investment."
"So you were willing to take the billion but not to try to get it?"
He answered: "Correct"
Mr Ullman said Mr Baker would not benefit from the proposed
$1bn investment. "We have controls in place that regulate how
partners are compensated, we have a huge back office. We have
the mechanisms."
Asked whether the White House had been informed that the
Carlyle consortium had been in negotiation with the government
of Kuwait over debts at the time of the Baker appointment, he
said: "I'll get back to you on that."
In the confidential documents, the consortium appears acutely
aware of the sensitivity of Mr Baker's position as both Carlyle
partner and also debt envoy for the US government.
Immediately after listing all of the powerful players associated
with Carlyle - including former President George Bush, former
prime minister John Major and Mr Baker himself, the document
states: "The extent to which these individuals can play an
instrumental role in fashioning strategies is now more limited
due to the recent appointment of Secretary Baker as the
president's envoy on international debt, and the need to avoid an
apparent conflict of interest."
Yet it goes on to state that this will soon change.
"We believe that with Secretary Baker's retirement from his
temporary position [as debt envoy], Carlyle and those leading
individuals associated with Carlyle will then once again be free
to play a more decisive role."
It was on January 21 2004, that Mr Baker's dual lives converged.
That morning Mr Baker flew to Kuwait as Mr Bush's debt envoy.
He met Kuwait's prime minister, its foreign minister and several
other top officials with the stated goal of asking them to forgive
Iraq's debts.
Mr Baker's colleagues in the consortium chose that same day
to hand-deliver their full proposal to the foreign minister,
Mohammad Sabah al-Salem al-Sabah, the same man Mr Baker
was meeting.
A covering letter was signed by Ms Albright; David Huebner,
chairman of the Coudert Brothers law firm (another consortium
member); and Shahameen Sheikh, chair and CEO of
International Strategy Group, a company created by the
consortium for the purposes of this deal.
Shahameen Sheikh, who made the delivery, said it was a
coincidence. "It had nothing to do with Mr Baker's visit ... I was
in the region so I thought I would stop over on the way to Europe
and deliver the proposal."
The proposal "takes into account the new dynamics that have
developed in the region," states the Albright letter - dynamics
that include "Secretary Baker's negotiations" on debt relief.
If Kuwait accepts the consortium's offer, it states, "we will
distinguish Kuwait's claims - legally and morally - from the
sovereign debt for which the United States is now seeking
forgiveness."
Iraq is the most heavily indebted country in the world. "This debt
endangers Iraq's long-term prospects for political health and
economic prosperity," President Bush said when he appointed
Mr Baker last December.
At the time, critics expressed concern about whether Mr Baker
was an appropriate choice. But the White House brushed them
off. Mr Bush assured reporters: "Jim Baker is a man of high
integrity. We're fortunate he decided to take time out of what is
an active life to step forward and serve America."
Mr Ullman said at the time Mr Baker's post "will have no impact
on Carlyle whatsoever."
The day before Mr Baker's appointment was announced, John
Harris, managing director of the Carlyle Group, signed a
statement to Alberto Gonzales, counsel to the president. It
stated that Carlyle "does not engage in lobbying or consulting"
and that "Carlyle does not have any investment in Iraqi public or
private debt."
According to the documents, at the time of that statement the
Carlyle consortium was at least five months into its assignment
from the Kuwaiti government to "prepare a detailed financial
proposal for the protection and monetization" of reparation debts
from Iraq.
The assignment was agreed at a high-level meeting with Kuwaiti
officials in London on July 16 2003, according to the files the
Guardian has obtained.
Ms Clark said both criminal and regulatory statutes prohibited
government officials from participating in government business in
which they have a financial interest, including matters that affect
an outside company that employs the official.
In the statement to Judge Gonzales, Mr Harris wrote that
"Secretary Baker has renounced his partnership share of future
benefits, if any, that might constitute a conflict with his official
duties and he will not benefit personally through his Carlyle
partnership income from his work as a special government
employee."
But the proposed deal with Kuwait is so large that it is hard to
see how Mr Baker could be prevented from benefiting: Carlyle
stands to land a $1bn investment, which is 10% of the firm's
total equity funds.
And under the proposal, the firm would be benefiting from that
investment for at least 12 years.
Ms Clark said: "Even if Baker is somehow being screened from
profiting from this deal, Carlyle is using Baker's government
position to benefit themselves."
She said it was time for the White House to come clean. "There
is a tremendous need for transparency here."
According to Mr Levinson, "What they are proposing is to
completely undercut Baker's mission - and they are using their
connection with Baker to Ahmed al-Fahad, under secretary to
the prime minister of Kuwait, said this week: "I have seen it [the
proposal] and I am fully aware of the situation."
But asked about Mr Baker's dual role, he said: "It's hard to
comment on that issue, especially now. I hope you fully
understand."
Copyright Naomi Klein. A fuller version of this article
appears on the Nation website www.thenation.com |
