|
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 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.
The sanctions have loopholes our vice president
made millions from.
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.
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.
 
Fair
Use Notice: This site contains copyrighted material
the use of which has not always been specifically authorized by the copyright
owner. We are making such material available in our efforts to advance understanding
of environmental, political, economic, democratic, domestic and international
issues, etc. We believe this constitutes a 'fair use' of any such copyrighted
material as provided for in section 107 of the US Copyright Law. In accordance
with Title 17 U.S.C. Section 107, the material on this site is distributed without
profit to those who have expressed a prior interest in receiving the included
information for research and educational purposes. For more information go to:
http://www.law.cornell.edu/uscode/17/107.shtml.
If you wish to use copyrighted material from this site for purposes of your own
that go beyond 'fair use', you must obtain permission from the copyright owner.
|
