The Business of Access to Power: The Carlyle Group (27.01.06)
Even a partial list of the powerful and influential directors, major shareholders and well-paid consultants involved with the Carlyle Group in recent years is long: John Major (former British prime minister), Fidel Ramos (former Philippine president), Prince Al-Wahid of Saudia Arabia, Colin Powell, James Baker and Madeleine Albright (former U.S. Secretaries of State), Caspar Weinberger (former U.S. Secretary of Defense), Arther Lewitt (former head of the U.S. Securities and Exchange Commission) and Karl Otto Poehl (former president of the German Federal Bank). Former U.S. president George Bush Sr. was a "Senior Advisor" to Carlyle until October 2003.
Carlyle is a private equity firm that has invested a total of US $15 billion, mostly in non-publicly-held firms in all sectors imaginable. The majority of its profits come from reselling these firms, or the portion owned by Carlyle, for markedly higher prices. The contact network helps in many cases to increase the worth of Carlyle's share. For example, after the involvement of Carlyle, the arms manufacturer United Defense received a controversial US $11 billion contract for a mobile artillery system, although the technology was already considered obsolete. Carlyle is very active in the arms industry as well as with firms doing business in Afghanistan and Iraq. Even by U.S. standards, where the line between politics and business is blurred, the Bush connection to Carlyle presents a unique situation: Current U.S. president George W. Bush will, in all probability, profit from the economic consequences of his own policies when he inherits his father's assets that have increased in value through Carlyle investments.
From Tax Avoidance Assistance to Power Poker
Carlyle was founded in 1987 by a group of partners led by David Rubenstein, a former consultant to Jimmy Carter. Their first commercial activity consisted of taking advantage of legal loopholes. Debts from firms belonging to the Innuit of Alaska were taken over by profitable U.S. firms, thus lowering the apparent profits of those firms and reducing their tax liabilities overproportionally. The man behind the current Carlyle system was Frank Carlucci, who joined Carlyle in 1989 and in different periods held the posts of Deputy Director of the CIA, National Security Advisor and Secretary of Defense (under Ronald Reagan). Carlucci is one of the best friends of U.S. Secretary of Defense Donald Rumsfeld, with whom he shared a room at Princeton.
Conflicts of Interest
James Baker, a senior advisor at Carlyle who holds an estimated US $180 million in company stock, was named by George W. Bush as his envoy on Iraq's debt on 5 December 2003. At that time, Carlyle was active in a consortium that attempted to recover the highest possible portion of Iraqi debts and reparations, on Kuwait's behalf. As a part of the deal, Kuwait was to make a US $1 billion investment in Carlyle.
On 21 January 2004, Baker, in his official function as envoy, met with the Kuwaiti prime minister and relayed the U.S. government's position that Kuwait should, in the interests of regional stability, forgive the Iraqi debts. Baker's consortium partner delivered their plan for the deal in Kuwait later that day. Taking Kuwait's interests into account, it was advised to make the distinction between ordinary debt and reparations payments. Three days later, Baker made this distinction for the first time in Washington: "My job is to deal with Iraqi debt to sovereign creditors, not with war reparations."
In the first 18 months after the U.S. invasion, Iraq paid US $1.8 billion in reparations to Kuwait, considerably more than Iraq invested in its own education and health care systems in 2004. Former chief envoy to Iraq Paul Bremer warned that the idea of reparations should be looked at critically, recalling the heavy burden of reparations payments on the Weimar Republic, creating an environment that facilitated Hitler's later rise to power.
The U.S. magazine "The Nation," which investigated the Baker story, quotes a Washington University professor and expert on ethics who cites the Baker case as a "classic conflict of interest. Baker is on two sides of this transaction: He is supposed to be representing the interests of the United States, but he is also a senior counselor at Carlyle, and Carlyle wants to get paid to help Kuwait to recover its debts from Iraq."
On 11 September 2001, Carlyle invited 500 of its most important investors to the Ritz Carlton hotel in Washington D.C., where Frank Carlucci and James Baker were the masters of ceremonies and George Bush Senior stopped by briefly in the morning. Among the guests was Shafiq bin Laden, one of Osama's many brothers. This episode tempted some observers to indulge in abstruse conspiracy theories. But theorizing is not necessary when the subject is Carlyle, because examples in practice are plentiful.
The founder and president of Carlyle, David Rubenstein, and co-founder William E. Conway Jr., are taking part in WEF 2006. Rubenstein speaks on the panels "Escaping the Market's Tyranny" and "Global Business -- Saviour or Scapegoat?"
Andreas Missbach +41 (0)79 478 91 94
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