For the 11th-largest defense contractor in the United States, wartime is boom time. No one knows that better than the Carlyle Group, which less than a month after U.S. troops began bombing Afghanistan filed to take public its crown jewel of defense, United Defense, a company it has owned for nearly a decade. That this company is even able to go public is testament to the Carlyle Group's pull in Washington.
United Defense makes the controversial Crusader, a 42-ton, self-propelled howitzer that moves and operates much like a tank and can lob ten 155-mm shells per minute as far as 40 kilometers. The Crusader has been in the sights of Pentagon budget cutters since the Clinton administration, which argued that it was a relic of the cold war era--too heavy and slow for today's warfare. Even the Pentagon had recommended the program be discontinued. But remarkably, the $11 billion contract for the Crusader is still alive, thanks largely to the Carlyle Group.
"This is very much an example of a cold war-inspired weapon whose time has passed," notes Steve Grundman, a consultant at Charles River Associates, a defense and aerospace consultancy in Boston. "Its liabilities were uncovered during the Kosovo campaign, when the Army was unable to deploy it in time. It is exceedingly expensive, and it was a wake-up call to the Army that many of its forces are no longer relevant."
But the Carlyle Group was having none of that. While it is impossible to say what U.S. secretary of defense Donald Rumsfeld was thinking when he made the decision to keep the Crusader program alive, people close to the situation claim to have a pretty good idea. Mr. Carlucci and Mr. Rumsfeld are good friends and former wrestling partners from their undergraduate days at Princeton University. And while Carlyle executives are quick to reject any accusations of them lobbying the current administration, others aren't so sure. "In this particular effort, I felt that they were like any other lobbying group, apart from the fact that they are not," said one Washington, D.C., lobbyist with intimate knowledge of the Crusader negotiations, noting the fine line between lobbying and having a drink with a old friend.
…Perhaps even more disconcerting than Carlyle's ties to the Pentagon are its connections within the White House itself. Aside from signing up George Bush Sr. shortly after his presidential term ended, Carlyle gave George W. Bush a job on the board of Texas-based airline food caterer Caterair International back in 1991. Since Bush the younger took office this year, a number of events have raised eyebrows.
Shortly after George W. Bush was sworn in as president, he broke off talks with North Korea regarding long-range ballistic missiles, claiming there was no way to ensure North Korea would comply with any guidelines that were developed. The news came as a shock to South Korean officials, who had spent years negotiating with the North, assisted by the Clinton administration. By June, Mr. Bush had reopened negotiations with North Korea, but only at the urging of his own father. According to reports, the former president sent his son a memo persuasively arguing the need to work with the North Korean government. It was the first time the nation had seen the influence of the father on the son in office.
But what has been overlooked was Carlyle's business interest in Korea. The senior Bush had spearheaded the group's successful entrance into the South Korean market, paving the way for buyouts of Korea's KorAm Bank and Mercury, a telecommunications equipment company. For the business to be successful, stability between North and South Korea is critical. And though there is no direct evidence linking the senior Bush's business dealings in Korea with the change in policy, it is the appearance of impropriety that excites the watchdogs. "We are clearly aware that former President Bush has weighed in on policy toward South Korea and we note that U.S. policy changed after those communications," says Peter Eisner, managing director at the Center for Public Integrity, a watchdog group in Washington, D.C., which has an active file on the Carlyle Group. "We know that former President Bush receives remuneration for his work with Carlyle and that he is capable of advising the current president, but how much further it goes, we don't know."
…And the controversy is expected only to increase as Carlyle's investments in Saudi Arabia are scrutinized during the war on terrorism. Mr. Eisner says that very little is known about Carlyle's involvements in Saudi Arabia, except that the firm has been making close to $50 million a year training the Saudi Arabian National Guard, troops that are sworn to protect the monarchy. Carlyle also advises the Saudi royal family on the Economic Offset Program, a system that is designed to encourage foreign businesses to open shop in Saudi Arabia and uses re-investment incentives to keep those businesses' proceeds in the country.
But the money flowing out of Saudi Arabia and into the Carlyle Group is of even more interest. Immediately after the September 11 attacks, reports surfaced of Carlyle's involvement with the Saudi Binladin Group, the $5 billion construction business run by Osama's half-brother Bakr. The bin Laden family invested $2 million in the Carlyle Partners II fund, which includes in its portfolio United Defense and other defense and aerospace companies. On October 26, the Carlyle Group severed its relationship with the bin Laden family in what officials termed a mutual decision. Mr. Bush Sr. and Mr. Major have been to Saudi Arabia on behalf of Carlyle as recently as last year, and according to reports, the Federal Bureau of Investigation is currently looking into the flow of money from the bin Laden family. Carlyle officials declined to answer any questions regarding their activities in Saudi Arabia.
http://www.redherring.com/vc/2002/0111/947.html
http://www.guardian.co.uk/wtccrash/story/0,1300,583869,00.html