The ex-presidents' club


http://www.guardian.co.uk/wtccrash/story/0,1300,583869,00.html

Oliver Burkeman and Julian Borger
Wednesday October 31, 2001
The Guardian

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. The address reflects Carlyle's position at the very centre 
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 defence firms.

But since the start of the "war on terrorism", the firm - unofficially
valued at $3.5bn - 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 travelled 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 Defence 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 defence 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 favour? 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 realise 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.

The Carlyle Group does not employ anyone at its Washington headquarters 
to deal with the press. Inquiries about the links with the Binladins (as 
most of the family choose to spell their name) are instead referred to 
someone outside the company, on condition he is referred to only as "a source
familiar with the relationship". This source says: "I can confirm the 
fact that any Binladin Group investment in Carlyle has been terminated or is
being terminated. It amounted to a $2m investment in the Carlyle II 
Fund, which was anyway a very small portion of a $1.3bn fund. In the scheme 
of the investments and in the scheme of the business of either party it was 
very small. We have to get this into perspective. But I think there was a 
sense that there were questions being raised and some controversy, and for 
such a small amount of money it was something that we wanted to put behind us. 
It was just a business decision."

But if the Binladins' connection to the Carlyle Group lasted no more 
than six years, the current President Bush's own links to the firm go far 
deeper. In 1990, he was appointed to the board of one of Carlyle's first 
purchases, an airline food business called Caterair, which they eventually sold at 
a loss. He left the board in 1992, later to become Governor of Texas. 
Shortly thereafter, he was responsible for appointing several members of the 
board which controlled the investment of Texas teachers' pension funds. A few
years later, the board decided to invest $100m of public money in the
Carlyle Group. The firm's magic touch was already bringing results. 
Today, it is proving as fruitful as ever.






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