FOREWORD
At the dawn of the third millennium,
as the nation prepares for its second war in the Persian Gulf in
little more than 10 years, the same debate rages in this country
that has defined it for the last three centuries: What exactly
does it mean to be an American? Is America a place or a state of
mind? The British may love their language, and the French may
love their gold, but Americans love more than anything to argue
over who they really are. And in all that time, and all that
arguing— from the dueling essays of Jefferson and Hamilton, to
the confused politics of the Reform Party and Pat Buchanan—the
American story has ultimately never strayed very far from the
plotline that has energized it from the start. You may devote a
lifetime to peeling back the onion skins of the American
Experience, as so many scholars have
done, and no matter where you stop you will always encounter the
same basic question that frames our history: In a democracy,
what are the limits to legitimate power? At its core, that is
the question that informs The Iron Triangle: Inside the Secret
World of the Carlyle Group—-just as it eventually seems to
inform our understanding of everything that ever happens in
American public life, from the XYZ Affair to the Pentagon
Papers. It is why one generation of Americans enacts the Sherman
Antitrust Act, and a later generation eviscerates it. At the
start of the 1950s, a screenwriter named Ring Lardner, Jr. was
imprisoned as a Communist sympathizer; a generation later he was
lionized in Hollywood as the screenwriter of M*A*S*H.
Of such moments is the history of this country eventually told,
as Americans engage in the ceaseless pursuit of midcourse
corrections to get where we want to go as a nation without
becoming a tyranny in the process. When Richard Nixon lamented
the nation's seeming obsession with "wallowing in Watergate," he
missed the key point: As a nation and a people, we really had no
other choice.
Now, in the winter of 2003, with
America's wrath once again poised to strike down Iraq, a
palpable sense is abroad in the land— not shared by all, but
shared by enough—that we have somehow drawn a line in the sand
where we never really intended to stand. How did we get to this
moment anyway? In the visible mechanism of political cause and
effect, part of what's happening feels hidden from view. We see
the cause, and we see the effect. But the assembly of gears that
transmits the power seems off somewhere else, in another room.
It is the work of scholarship—and in particular, of that
uniquely American kind of contemporary scholarship that we call
investigative journalism—to enter those darkened rooms and
switch on the light so that all may see what is actually taking
place. When the work is done well, and the message is true, we
find ourselves in a diorama we never imaged could exist.
One thinks in that regard of Jacob
A. Riis's How the Other Half Lives, or more recently, and on a
different stage entirely, Wise and Ross's Invisible Government.
At other times, the exposes connect invisible dots, and in
fairly short order are deservedly consigned to the ash bin of
history as conspiracy theory. (Want to find yourself standing
alone at a cocktail party? Then try suggesting that you have it
on good authority that the Trilateral Commission actually runs
the world.)
Briody's scholarship will meet no
such fate, for not only are the facts of The Iron Triangle
accurate, but the picture they present is also true. And just as
Invisible Government in 1964 helped bring depth to our
understanding of some of the missing gears that soon drove
America into the jungles and highlands of Indochina, so too does
The Iron Triangle introduce us to the men (and they are mostly
just that) whose role in the geopolitics of the Middle East is
now only glimpsed fleetingly, and never by design.
In the foreign policy apparatus of Washington, the Carlyle Group
inhabits one of the most darkened rooms of all—hiding in plain
sight in offices a mere five minutes' walk down Pennsylvania
Avenue from the White House. Into this room, Briody has wandered
uninvited and flipped on the light, to reveal the entire
spin-cycle apparatus of post-public-sector employment that keeps
the top men of successive administrations still gainfully
employed in the fields they know best (typically aerospace and
defense) once the boss has vacated the White House and returned
to private life.
In this room, you'll meet the crude
and brashly entertaining original founder of the Carlyle Group,
Stephen Norris, a one-time hotel executive for the Marriott
Corporation, who figured out how to exploit a late-1980s tax
break passed for some Eskimos whose businesses kept failing, and
parlayed it into a gimmick for monetizing the value of failure
itself, and then marketing it as tax loss carry-forwards. From
this gimmick sprang the Carlyle Group—named by Norris and some
chums after an organizing meeting they'd held in New York's
Carlyle Hotel, as if the Group were nothing more than a piece of
faux Regency furniture in need of a credential. In these pages,
you'll meet the relentlessly over-achieving David Rubenstein,
now no longer the boy wonder bullet-biter of the Carter White
House, where he held the title of Deputy Domestic Policy
Assistant at the age of 27, and was said to have eaten three
squares a day, for the entire four years, on junk food from
White House vending machines.
You'll also come face-to-face with
hatchet-faced Frank Carlucci ("Spooky Frank"), a man with a
shadowy past including allegations that he began his career in
the CIA with a foiled attempt to assassinate Patrice Lumumba in
the Eisenhower years—something that Spooky Frank denies. You'll
see him rise to deputy director of the CIA late in the Carter
years, then "retire" early in the first term of Ronald Reagan's
administration to become head of Sears World Trade—a company
with a business that consisted, intriguingly, of neither deals
nor revenues.
Then, drawn back to Washington by
the Great Revolving Door of government, Carlucci took a seat on
the National Security Council, once again for Ronald Reagan,
then hopped over to Defense, finally spinning back through the
door and into the private sector. At the end of Reagan's second
term, he was settling behind his desk at the Carlyle Group.
You'll meet such figures as George Bush, Sr.'s one-time
secretary of state, James Baker, who also joined the team, and
even the ex-president himself, now a senior advisor to the
Group. And, for the first time anywhere, you'll go behind the
scenes to see what this group really does as a "business." How
it nails down deals, whose arms get twisted, and why.
On the light side, you'll encounter
comic relief figures like Prince Alwaleed bin Talal, who has
promoted himself around the world as a top member of the Saudi
royal family but has proved to be a spectacularly inept
investor, pouring vast sums of Saudi money into dot-corn stocks
at the top of the boom. More darkly, you'll enter the
astounding—and until now almost entirely hidden—world of the
Vinnell Corporation, which has been training the Saudi Armed
Forces in how to protect their country's oil fields since the
mid-1970s.
There are now an almost unbelievable
45,000 private mercenaries working for Vinnell and outfits like
it in place in the country. Vinnell was a Carlyle Group
subsidiary from 1992 to 1997. What is one to make of all this?
Certainly enough to want to know more, which is why a book such
as The Iron Triangle is such an important contribution: It puts
the subject in play.
A half century ago, Douglas
MacArthur, having been summoned back to Washington from Korea by
his Commander in Chief, Harry Truman, and relieved of his
command over a dispute regarding his conduct of the war, stood
before a joint session of Congress and declared, in one of the
most memorable moments in American life, that "old soldiers
never die, they just fade away . . ." after which he retired to
the penthouse suite of the Waldorf Astoria Hotel in New York and
was rarely seen in public again.
Today, he would more likely have
retired to the Carlyle Group, where he'd find a reporter named
Dan Briody dogging his every move.
—CHRISTOPHER BYRON
March 2003
Back
to Contents
Time Line
-
February 1975—Vinnell Corp., a
construction contractor and future Carlyle company, signs a $77
million contract to train the Saudi Arabian National Guard. The
news touches off a controversy that would dog Vinnell, and then
later Carlyle, to the present day, even after Carlyle sold off
Vinnell to TRW in the mid-1990s.
-
December 1986—Frank Carlucci is
named national security advisor to President Ronald Reagan,
succeeding John Poindexter, who resigned in disgrace following
the Iran-Contra scandal. While waiting to assume his
responsibilities as national security advisor, Carlucci is
briefly embroiled in an arms scandal of his own, when the
Washington Post reports that Sears World Trade was involved in
clandestine international arms deals while Carlucci was
chairman.
-
September 1987—After making millions
brokering deals that exploited an obscure tax loophole, Stephen
Norris and David Ruben-stein form the Carlyle Group, named after
the posh Carlyle Hotel on New York's Upper East Side.
-
November 1987—Frank Carlucci is
named secretary of defense by President Ronald Reagan. During
his short tenure, Carlucci worked extensively on restructuring
the Pentagon's procurement system, a system he would later
exploit as chairman of the Carlyle Group.
-
July 1988—BDM, soon to be a Carlyle company, is accused by
rivals of currying favor with the Navy officer in charge of
procurement, Melvyn Paisley, by hiring his wife. Paisley would
go on to become the highest profile conviction of Operation 111
Wind, the years-long investigation into corruption at the
Pentagon.
-
September 1988—Fred Malek resigns as
chairman of the Republican National Committee after reports that
while a Nixon aide, he compiled figures on the number of Jews
working in the Bureau of Labor and Statistics. He immediately
signs on with Carlyle.
-
January 1989—Six days after his term
as secretary of defense ended, Frank Carlucci joins the Carlyle
Group.
-
July 1989—Marriott Corp. sells its
In-Flite Services catering business to Marriott's upper
management. Carlyle invests in the deal, renames the company
Caterair, and loses millions when the airline catering business
evaporates in the early 1990s.
-
February 1990—George W. Bush joins
Caterair board at the behest of Fred Malek, a good friend of his
father's. Bush would later drop his disastrous experience with
Caterair from his resume when he runs for governor of Texas in
1994.
-
September 1990—Carlyle Group buys
BDM Consulting, one of the largest and most successful defense
consultancies in the world. Carlyle would use the $130 million
purchase to evaluate future buyouts in the defense industry.
-
January 1991—-After months of
contentious negotiations, Carlyle snags a board seat at Harsco,
a maker of military vehicles. The seat would eventually help
Carlyle to obtain Harsco's defense business, later known as
United Defense.
-
February 1991—Prince Alwaleed of
Saudi Arabia buys $590 million of stock in Citicorp, America's
largest bank. Carlyle brokers the deal and gains a reputation as
the merchant bank of choice for wealthy Saudis.
-
March 1992—BDM, a Carlyle company,
buys Vinnell, a privatized military training company that does
extensive work with the Saudi Arabian National Guard.
-
August 1992—Carlyle wins a year-long
struggle over control of LTV Corp.'s defense and aerospace
division, paying $475 million in conjunction with Loral Corp.
and Northrop Corp. The deal instantly legitimizes Carlyle as a
serious player in defense buyouts.
-
September 1992—George Soros, a
future Carlyle investor, brings the British economy to its knees
by speculating on the demise of the British pound. When the
value of the pound cratered on Black Wednesday, September 16,
1992, Soros pocketed a cool billion.
-
February 1993—A month after the Bush
administration cleans out its desks at the White House, Richard
Darman, the outgoing director of the Office of Management and
Budget, joins the Carlyle Group in a package deal with James
Baker III.
-
March 1993—After spending 12
straight years in the White House in various capacities under
Reagan and Bush, James Baker III takes his considerable talents
to the Carlyle Group, lending the firm instant international
recognition and credibility.
-
September 1993—Carlyle snags its
highest profile investor to date when George Soros invests $100
million in Carlyle Partners II, a fund that would go on to
become the biggest and most successful of all Carlyle's funds.
-
December 1994—A Washington Post
article exposes a secret arms deal conducted by BDM, a Carlyle
company. In the deal, BDM used the same arms broker from the
Iran-Contra scandal to arrange the transfer of Russian military
equipment to the United States.
-
January 1995—Co-founder Stephen
Norris is forced out of the company, accused by his colleagues
of erratic behavior and fiscal irresponsibility. Norris faults
his former colleagues for waging a smear campaign against him,
spreading rumors and undermining his credibility to the
financial community.
-
March 1995—University of Texas
Investment Management Company, UTIMCO, weeks after George W.
Bush became governor of Texas, places a $10 million investment
into the Carlyle Group, which up until 1994, employed the young
Bush.
-
September 1995—Onex Food Services
buys Caterair from Carlyle for $500 million, nearly $150 million
less than Carlyle had originally paid for the company.
-
November 1995—A car bomb attack on
Americans living in Saudi Arabia puts a spotlight on Vinnell,
BDM, and the presence of the Carlyle Group in Saudi Arabia.
Three spouses of BDM workers are injured in the attack.
-
September 1996—Carlyle closes
Carlyle Partners II at a total of $1.33 billion, more than twice
its original target for the fund, and 13 times as much as the
company had ever raised for a single fund. The defense-oriented
fund would go on to produce returns of better than 35 percent.
-
September 1997—Carlyle buys United
Defense for $850 million, one of the company's largest buyouts
ever. United Defense has plans to build the Army a 60-ton mobile
howitzer called Crusader.
-
March 1998—John Major, former prime
minister of the United Kingdom, joins Carlyle as European
advisor. He would later become chairman of Carlyle Europe in May
2001.
-
April 1998—Carlyle closes another
$1.1 billion fund, called Carlyle European Capital Partners, at
double its initial target. The company was able to raise the
money in just under a year.
-
May 1999—Former President George
Herbert Walker Bush visits South Korea on behalf of Carlyle,
cultivating business and political ties that result in Carlyle's
investing more than $1 billion in South Korea's struggling
economy.
-
July 1999—Former Connecticut State
Treasurer Paul Silvester is forced to resign his new position at
Park Strategies after the FBI begins an investigation into a
series of investments he made with Connecticut State Pension
funds before he left office. Among the investments is a $50
million placement with Carlyle Asia.
-
September 1999—Silvester pleads
guilty to corruption. Court documents are sealed, and the
identities of the private equity firms involved are kept secret
by the state, awaiting Silvester's sentencing, which is ongoing.
-
January 2001—SBC Communications, a
Carlyle client, wins FCC approval to offer long-distance phone
service in Texas, Oklahoma, and Kansas, after the Justice
Department had rejected the company's request. The approval is
given on the last day of FCC Chairman William Kennard's tenure.
Three months later, Ken-nard is given a job at Carlyle.
-
February 2001—George W. Bush, a
month into his presidency, reverses America's policy of
diplomacy toward North Korea, angering North and South Koreans
alike, and threatening Carlyle's extensive investments in the
region.
-
June 2001—Former President George H.
W. Bush urges his son to reconsider his stance on North Korea,
reminding him, among other things, of the U.S. business
interests in the Korean peninsula. George W. Bush subsequently
reverses his policy toward North Korea.
-
July 2001—Former President George H.
W. Bush personally calls Crown Prince Abdullah of Saudi Arabia,
reassuring the heir to Saudi Arabia that his son is "going to do
the right thing" and "his heart is in the right place." The call
is in response to George W. Bush upsetting the Saudi prince with
his policy toward the Israeli-Palestinian conflict. It also
helps protect Carlyle's extensive business in the region.
-
September 11, 2001—America sustains
a highly organized attack by terrorists, leveling the World
Trade Center towers, and ripping a gash in the Pentagon
building. The attacks would lead to a massive increase in
defense spending. A week after the attacks, Anthrax-laced
letters are found throughout the East Coast, leading to
heightened fears, and unexpected new contracts for Carlyle
companies.
-
October 2001—Carlyle is forced to
liquidate its holdings from the bin Laden family as news reports
of the company's association with terrorist Osama bin Laden's
estranged family overwhelm the press.
-
December 2001—Carlyle takes United
Defense public after newly approved defense spending temporarily
secures the Crusader's future. The company earns $237 million in
one day on the sale of shares, and on paper made more than $800
million.
-
April 2002—Cynthia McKinney, a
Democratic congresswoman from Georgia calls for an investigation
into the September 11 attacks, pointing out the President's
extensive ties with the Carlyle Group, a company that stands to
make millions from the aftermath of September 11.
-
May 2002—The Army is forced to
investigate whether its own officials illegally lobbied Congress
in support of the Crusader in the face of the program's
cancellation.
-
August 2002—United Defense issues an
official press release announcing the cancellation of the
Crusader program. The same press release announces the awarding
of a new contract for United Defense to build another gun for
the Army, effectively replacing Crusader.
-
November 2002—Lou Gerstner, the man
who engineered IBM's stunning turnaround during the 1990s, is
hired as Carlyle's chairman. The move is characterized by many
in the media to change Carlyle's image from a defense oriented
buyout firm to a more traditional private equity company. Frank
Carlucci stays on as Chairman Emeritus.
Back
to Contents
Cast of Characters
(in Order of Appearance)
-
Stephen Norris—co-founder Carlyle
Group. Norris was the driving force behind the creation of the
company. A mercurial executive, bent on hunting down big deals,
Norris ultimately would be forced out of the firm by his fellow
co-founders in an acrimonious conflict.
-
David Rubentstein—co-founder Carlyle
Group. Still the brains of the operation, Rubenstein is widely
considered one of the most intelligent men in Washington, DC.
His IQ is surpassed only by his tireless work ethic and
extensive Rolodex. He is what holds Carlyle together.
-
Dan D'Aniello—co-founder Carlyle
Group. A former colleague of Norris at Marriott, D'Aniello was
brought on board only after Norris personally guaranteed his
salary. He is among the more enigmatic, behind-the-scenes
members of Carlyle, often serving as a buffer between the more
explosive executives.
-
William Conway—co-founder Carlyle
Group. The son of a quality control guru and former chief
financial officer at MCI, Conway is reputed to be one of the
finest financiers in the world. His conservative style and
waste-not approach would eventually clash with Norris's
larger-than-life personality, resulting in Norris being sent
packing.
-
Frederic Malek—former Carlyle
consultant. This former Nixon aide and close friend of George
Bush Sr. ran to Carlyle after a furor erupted in Washington over
his involvement in the documented anti-Semitic actions of former
President Nixon. He would go on to introduce Carlyle to some big
names in Washington, but would later be excommunicated from the
firm.
-
William Barr — former Attorney
General. A one-time law partner of David Rubenstein's, Barr
would help Carlyle, along with Rubenstein, funnel millions of
dollars through a temporary tax loophole known as the Great
Eskimo Tax Scam, taking Carlyle into the Big Leagues.
-
Arthur Miltenberger Mellon, then
chief investment officer of the Foundation. As an original
investor in Carlyle Group, Miltenberger was among the first to
see the potential of an investment bank based in Washington, DC.
His early contributions would get Carlyle on its feet.
-
J. W. Marriott — chairman of
Marriott Corp. The hotel magnate was once the boss of Steve
Norris, Fred Malek, and Dan D'Aniello. The influence of Marriott
on Carlyle was a pervasive force, and his former employees still
utter his name with the highest respect.
-
Dan Altobello — former chairman of
Caterair. Yet another former Marriott employee, Altobello had
the dubious honor of presiding over one of Carlyle's worst
investments ever in Caterair. Like many others, he would clash
badly with Norris, and later sell off Caterair at a loss.
-
George W. Bush — president of the
United States of America. An early hire of Carlyle, Bush was
placed on the board of Caterair in 1990 and served for four
years, before leaving to run for governor of Texas. His early
stint with Carlyle would become a source of controversy later
during his presidency.
-
Frank Carlucci — chairman 1989-2002,
currently chairman emeritus of Carlyle Group. A lifelong public
servant, former secretary of defense, former deputy director of
the CIA, and more, Frank Carlucci would lead Carlyle into the
murky world of defense buyouts in the late 1980s and early
1990s. It is Carlucci's close friendship with Secretary of
Defense Donald Rumsfeld that the press most often seizes on when
criticizing Carlyle.
-
Patrice Lumumba—former president of
Zaire. Assassinated after only two months in power, Lumumba
would later become the subject of the film Lumumba, directed by
Raoul Peck. In the film, there was originally a scene showing
Frank Carlucci plotting the murder of the erstwhile leader. The
scene was edited at Carlucci's request before the film's
release.
-
Mobuto Sese Seko—former president of
Zaire. Chosen by Americans to succeed Lumumba, Sese Seko led
Zaire into decades of famine and war. He remains part of
Carlucci's legacy from his time as second secretary to the U.S.
Embassy in Zaire.
-
Raoul Peck—filmmaker. It was Peck's
accounting of the murder of Patrice Lumumba that caused an
uproar from Frank Carlucci. At Carlucci's request, Peck edited
the scene that showed Carlucci plotting the assassination, but
Peck stands by the film's veracity.
-
Donald Rumsfeld—secretary of
defense. A former college roommate and wrestling teammate of
Frank Carlucci, Rumsfeld and Carlucci are never far apart. The
two followed each other through the executive ranks of
government, worked for Sears Roebuck together, and remain very
close friends to this day.
-
Caspar Weinberger—former secretary
of defense. As one of Carlucci's many mentors, Cap Weinberger
helped legitimize Carlucci, grooming him to one day become
secretary of defense.
-
Roderick Hills—former CEO of Sears
World Trade.As the CEO of Sears World Trade, Hills fought off
allegations of the company being a front for CIA activity and
eventually resigned amidst huge financial losses, leaving
Carlucci to succeed him.
-
Earle Williams—former CEO of BDM.In
leading BDM, a highly successful defense consultancy, Earle
Williams curried favor with countless Washington, DC insiders,
among them Frank Carlucci. Carlyle would go on to buy BDM and
make a killing.
-
Melvyn Paisley—former Naval officer.
When in the Navy, Paisley was in charge of awarding Navy
contracts, a task he did while accepting kickbacks from defense
contractors. He would go on to work for BDM, then get convicted
after pleading guilty in the 111 Wind investigation into
corruption in the Pentagon.
-
Vicki Paisley—Melvyn's wife. Also an
employee at BDM, Vicki was thought to be the reason that Earle
Williams received a highly coveted appointment to the Naval
Advisory Board.
-
Phil Odeen—chairman of TRW.
Williams' successor as BDM CEO, Odeen would grow the company
into a highly successful and diversified consultancy. He was
also CEO when BDM employees were targeted in a vicious car
bombing in Saudi Arabia.
-
M. W. Gambill—former CEO of defense
contractor Harsco. The CEO of one of Carlyle's early takeover
targets, Gambill would fight the fledgling buyout firm for
control of Harsco, eventually conceding only a seat on the
company's board.
-
Norman Augustine -former CEO of
defense contractor Martin Marietta. Augustine would go
toe-to-toe with Carlyle over the heavily disputed takeover of
LTV, an aerospace company spun out of Ford. After a protracted
battle, Augustine and Martin Marietta would eventually lose out
to Carlyle.
-
Prince Alwaleed bin Talal—Saudi
Arabian prince. A billionaire international investor, the Prince
played a central role in raising Carlyle's name recognition,
both at home and in Saudi Arabia. The Prince would go on to
become close friends with Steve Norris, and make enormous
investments in American companies.
-
King Fahd—king of Saudi Arabia. As
the leader of Saudi Arabia, King Fahd hired Carlyle companies to
protect him and his family, as well as to manage the Saudi
Economic Offset Program, a government-run program that brings
foreign investment into Saudi Arabia.
-
Faissel Fahad—San Francisco lawyer.
This friend of Prince Alwaleed was responsible for making the
key connection between Carlyle and the Prince, which led to the
$590 million investment in Citicorp.
-
Prince Sultan bin Abdulaziz—Saudi
Arabian defense minister. According to a financial advisor to
Prince Alwaleed, Prince Sultan bin Abdulaziz used Prince
Alwaleed bin Talal as a front to invest money on his behalf,
among others, in U.S. companies, like Citicorp. Prince Alwaleed
denies the allegation.
-
Henry Jackson—former U.S. senator.
Jackson saw early on the perils of letting private companies
contractwith foreign governments on military missions. His
investigation into Vinnell's deal with Saudi Arabia revealed a
contract fraught with controversy.
-
Richard Secord—retired Air Force
general. An ex-employee of Vinnell, but better known as one of
the Iran-Contra fall guys, Secord drew unwanted attention to
Vinnell when he was implicated in trading arms for hostages.
-
James Baker III—Carlyle managing
director, senior counselor. The former secretary of state under
President George Bush Sr. led five different Republican
presidential campaigns, and spent 12 straight years in the White
House during the Reagan and Bush administrations. He took a
position with Carlyle in 1993, and would later lead George W.
Bush's successful battle for the presidency during the Florida
recounts.
-
Richard Darman—Carlyle executive.
The former director of the Office of Management and Budget under
Bush Sr., Darman wrangled his way into a position at Carlyle by
including himself in a package deal with Baker.
-
Colin Powell—secretary of state. A
former Carlyle advisor, Powell's role in Carlyle's history is a
bit of a mystery. Most believe that he merely advised the
company while he was not in public office. One of his early
mentors was Frank Carlucci, and the two remain close.
-
Michael Eisner—chairman of Walt
Disney. Eisner was involved with a deal between Prince Alwaleed
and Euro Disney, in which Norris negotiated a huge investment
from the Prince. Eisner was among the many that found Norris
undisciplined.
-
Antonio Guizzetti—Italian business
man. After meeting Steve Norris in a sauna at a Washington area
gym, Guizzetti led Norris and Baker on a wild tour of Italy in
search of the perfect investment. Ultimately, the investment
they had targeted fell apart when Norris resigned in the middle
of negotiations.
-
Basil Al Rahim—former Carlyle
employee. In charge of raising capital in Middle East during the
early 1990s, AlRahim was the man who introduced Carlyle to
members of the bin Laden family, a relationship that would later
cause both parties discomfort.
-
George Soros—Carlyle investor. This
internationally respected investor and speculator helped
legitimize Carlyle when he committed $100 million to the Carlyle
Partners II fund. The sizeable investment was accompanied by
Soros' public endorsement of Carlyle.
-
John Major—chairman Carlyle Europe.
The former prime minister of the United Kingdom, Major came on
board with Carlyle during a fevered spate of highly political
hir-ings by the company. Since then he has spent time stumping
for Carlyle throughout the world.
-
Paul Silvester—former Connecticut
state treasurer. Silvester is awaiting sentencing after pleading
guilty to corruption charges while working as the state
treasurer of Connecticut. In his final two months in office,
after losing reelection, Silvester invested $800 million of the
state's pension fund in several private equity firms for which
he received kickbacks. One of the firms he invested in was
Carlyle, which was investigated, but no charges were brought.
-
Berman—president of Park
Strategies. A consummate Washington insider, Berman is a major
financial backer of George W. Bush, as well as the president of
Park Strategies, the company that hired Silvester after he
invested Connecticut's pension funds through his firm.
-
Denise Nappier—Connecticut state
treasurer. Stepping into the mess that Silvester left behind,
Nappier required that all firms doing business with the
Connecticut state pension fund disclose their finder's fee
arrangements. After initially holding out, Carlyle disclosed a
$1 million fee to Wayne Berman.
-
Thomas Hicks—founder of Hicks, Muse,
Tate & Furst. This Texas billionaire and George W. Bush backer
was responsible for taking the University of Texas' asset
management private and investing the school's money with various
Republican-friendly firms, including Carlyle.
-
William Kennard—Carlyle managing
director. The former chairman of the Federal Communications
Commission (FCC), Kennard approved a highly questionable bid by
SBC Communications, a Carlyle client, to enter into
long-distance markets days before he left office. Two months
later, he landed a job with Carlyle.
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Frank Yeary—Carlyle managing
director. A former investment banker at Salomon Smith Barney,
Yeary used his extensive connections at SBC to get Carlyle
business there.
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Arthur Levitt—Carlyle senior
advisor. The former chairman of the Securities and Exchange
Commission (SEC) was known for his policy that protected the
individual investor and railed against corporate malfeasance.
The irony of his current position with Carlyle is less than
subtle.
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George Herbert Walker Bush—Carlyle
advisor. The former president of the United States of America
has been the source of the majority of Carlyle's controversy.
His visits with world business leaders everywhere from Saudi
Arabia to South Korea and his repeated influence on American
foreign policy make him an easy target for public advocacy
groups, who accuse him of influence peddling and damaging
conflicts of interest.
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Park Tae-joon—Carlyle advisor. This
former prime minister of South Korea was instrumental in
securing Carlyle's extensive business interests in the Korean
Peninsula.
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Michael Kim—Carlyle managing
director. The son-in-law of Park Tae-joon, Kim runs Carlyle's
Korean operations, and spearheaded the successful buyout of one
of Korea's few healthy banks, KorAm.
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Crown Prince Abdullah—heir to the
Saudi Arabian throne. Upset with George W. Bush's pro-Israel
policy, Prince Abdullah received a phone call from the
president's father, George H. W. Bush, reassuring him that his
son was okay, and that George W.'s "heart is in the right
place."
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Tom Fitton—president of Judicial
Watch. A died-in-the-wool Clinton hater, Fitton caused a stir in
Washington when he came out publicly against George H. W. Bush's
involvement with the Carlyle Group. His efforts to obtain
documents from the federal government have produced some of the
most tangible evidence of Carlyle's influence yet.
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General Shinseki—U.S. Army chief of
staff. In favor of a more mobile and agile army, General
Shinseki originally presented the argument that would ultimately
kill United Defense's Crusader, a 42-ton howitzer on wheels.
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Andrew Krepinevich—executive
director of the Center for Strategic and Budgetary Assessments.
As a member of the Congressionally appointed 1997 National
Defense Panel which analyzed military spending, Krepinevich came
out against the further development of Crusader, citing the
gun's weight and obsolescence as his reasons.
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Milo Djukanovic—president of
Montenegro. In searching for support to pursue independence for
his country, Djukanovic lobbied the American government to no
avail. But he found an ally in Frank Carlucci, who met with
Djukanovic and then lobbied his former understudy, Colin Powell,
to consider Djkanovic's requests.
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Frank Finelli—Carlyle employee. A
retired Army colonel, Finelli is perhaps the most mysterious of
all Carlyle's employees. He was instrumental in working with
lawmakers to push through incremental approvals of the Crusader
program. He has been characterized as a "behind the scenes" type
that "works in the dark."
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Shafiq bin Laden—estranged
half-brother of Osama bin Laden. Shafiq is the representative to
Carlyle for his family's investments with the company, and as
such, was at the Carlyle annual investor conference in
Washington, DC, on September 11, 2001.
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Cynthia McKinney—former democratic
representative from Georgia. McKinney was an outspoken critic of
Carlyle and was openly ridiculed for voicing her concerns that
people close to the George W. Bush administration stood to gain
financially from the ongoing war on terrorism.
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Chris Ullman—Carlyle spokesperson.
Hired only after the ironies of Carlyle's bin Laden ties were
discovered after September 11. Ullman has been a busy man,
trying to hold back a barrage of negative criticism.
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Paul Wolfowitz—deputy secretary of
defense. Recently profiled by the media as the man behind Bush's
war fetish, Wolfowitz is also reported to be the man that killed
the Crusader, not Rumsfeld. Regardless, United Defense felt no
pain from the cancellation of the program when the company was
awarded another contract to build a different gun the very same
day.
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Louis V. Gerstner Jr.—chairman of
Carlyle, former IBM chief executive. At IBM, Gerstner earned a
reputation as a driven executive, directing Big Blue through an
unforgettable turnaround, restoring the company's reputation as
a global behemoth. It is anticipated that he will only spend 20
percent of his time on Carlyle, advising on two funds and
mentoring senior managers.
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Prologue
MEET THE CARLYLE GROUP
A vast interlocking global network
—Carlyle marketing material, circa 2001
It is hard to imagine a more concentrated display of wealth than
Manhattan's Upper East Side, where building after building reeks of
money, power, and prestige. Multimillion dollar homes share Madison
Avenue sidewalks with lavish galleries, ritzy boutiques, upscale
nannies, and purebreds. But even against this extravagant setting,
the Carlyle Hotel stands out. Its tower rises unapologetically into
the sky, lording over Central Park and dominating the skyline around
it.
The blue-blood interior with lush
carpeting and hushed tones perfectly suits its high-end clientele.
It is a place for those accustomed to success and comfortable with
luxury. In a city full of opulent hotels, it is among royalty. So it
is altogether fitting that the Carlyle Group would assimilate the
name of this regal residence when banding together in the summer of
1987. At the time, co-founders Stephen Norris and David
Rubenstein met often at the hotel on 76th Street and Madison
Avenue.
They wanted the name of their company to
sound like old money, and the Carlyle moniker fit the bill. But
little did either cofounder know, the Carlyle Group would go on to
become one of the most powerful and successful private equity firms
in the world, with over $13 billion under management and more
political connections than the White House switchboard. In its 15
years of existence, the Carlyle Group has become the corporate
embodiment of the hotel it was named after: a towering presence in a
world of wealth, power, and politics.
Today, the Carlyle Group is a story of
dealings inside the "Iron Triangle," the place where the world's
mightiest military intersects with high-powered politics and big
business. It is a company whose history includes ties to CIA
cover-ups and secret arms deals, and an astounding trail of
corporate cronyism. By making defense buyouts the cornerstone of its
business strategy, Carlyle now finds itself the beneficiary of the
largest increase in defense spending in history. Indeed the stars
seem to have aligned perfectly for Carlyle, in just 15 short years.
With the ascension of George W. Bush
to the presidency, the White House is now full of ex-Carlyle
employees, friends, and business partners. And with the newly
fattened defense budget, Carlyle has been able to extract massive
profits from its defense holdings, like United Defense, in the wake
of the terrorist attacks on September 11, 2001. It may be tough
times for America, but as Bette Midler might say, everything's
coming up Carlyle. While the company flew well under the radar
screen for the first decade of its life, lately success has not come
without scrutiny for the Carlyle Group.
After all, it's hard to remain anonymous
when your employee roster includes names like George Herbert
Walker Bush, James Baker III, John Major, and Arthur Levitt. It's also difficult to avoid those pesky
accusations of corporate impropriety, conflict of interest, and
influence peddling when your chairman emeritus is former defense
secretary Frank Carlucci, a man who has courted controversy his
entire life and spent his years at Princeton University bunking with
his close friend Donald Rumsfeld, the current secretary of
defense.
Even George W. Bush and Colin Powell put
their time in with the Carlyle Group. After years of doing business
with everyone from the Bushes to members of the bin Laden family,
Carlyle executives have now found their fortunes being accompanied
by the cries of conspiracy. Some critics charge that the company
practices nothing more than "access capitalism," trotting out big
names that bring in big money. Some call it "The Ex-Presidents
Club." Some worry that it is influencing domestic and foreign
policy.
And some, including former Georgia
congresswoman Cynthia McKinney, even implied that President Bush
allowed
the events of September 11 to take place to enable him to
dictate policy that would benefit the Carlyle Group. But no matter
how deep your suspicions run, the Carlyle Group warrants close
examination. That a company like the Carlyle Group even exists is
testament to the irresistible temptation for ex-politicians to cash
in on their time as public servants, in ways that to some seem less
than scrupulous.
The Carlyle Group has established a
number of firsts in America, including:
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It is the first time a former
president has toiled on behalf of a defense contractor.
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It is the first time that a former
president advised his son, while holding office, on foreign
policy decisions that directly impacted both of their financial
fortunes.
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It is the first private-equity firm
of its kind to be based in Washington, DC, rather than the
traditional haunts of New York, or even Chicago.
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It is the first company to assemble
a cast of characters that even X-Files writers couldn't have
dreamed up.
Besides the impressive domestic roster
of political heavyweights, Fidel Ramos, former president of the
Philippines is a senior advisor. Park Tae-joon, former prime
minister of South Korea was also a senior advisor. Former Thai
Premier Anan Panyarachun also worked for the company.
If the thought of all of these men working together outside the
fishbowl of international politics makes you uneasy, you are not
alone. Political watchdog groups, like the Center for Public
Integrity and Judicial Watch, have long been howling over the
potential for corruption at Carlyle. The company has been
investigated by the FBI, excoriated by representatives, sued by
political activists, and embarrassed by scandal. Yet the Carlyle
machine hums along, doing what it does best: making gobs of money
for investors.
Watchdogs might as well be barking at
the moon, because the scandal here is not what's illegal, but what's
legal. In a time when the ties between high-ranking politicians and
billion-dollar businesses has the country on edge, bracing for the
next corporate scandal, and waiting for the political shoe to drop,
the Carlyle Group has come to symbolize the extent to which many of
these relationships continue unchecked. And when accusations of
war-profiteering ring out, Carlyle is usually at the top of most
people's list of guilty parties.
Coincidence and circumstance only go so
far in explaining the unbridled success of this company.
Connections, cronyism, and cunning fill in the gaps. Far more
disconcerting to the discriminating investor is the fact that
Carlyle has become the model for a new generation of investment
banking in which former politicians are brought in at high-level
positions to butter up investors, foreign heads of state, and
business partners. Why else would Los Angeles-based Metropolitan
West Financial appoint Al Gore, with zero professional investment
experience, its vice chairman?
Investment banks are learning that the
Carlyle model pays. But it is Carlyle's particular style of
investing that has raised eyebrows. Concentrating on heavily
regulated industries like defense, telecommunications, energy, and
health care, Carlyle is betting that it can predict future trends in
government spending and policy, or influence them outright. And by
hiring former secretaries of defense, ex-presidents, the former head
of the Securities and Exchange Commission (SEC), and the former chairman
of the Federal Communication Commission, they are in a position to
do either.
Dwight D. Eisenhower, upon
leaving the office of president in 1961,
warned future generations
against the dangers of a "military industrial complex," and the
"grave implications" of the "conjunction of an immense military
establishment and a large arms industry."
He went on to presciently say,
"In the councils of government, we
must guard against the acquisition of unwarranted influence,
whether sought or unsought, by the military industrial complex.
The potential for the disastrous rise of misplaced power exists
and will persist. We must never let the weight of this
combination endanger our liberties or democratic process."
The wisdom of these comments has clearly
been lost in the 40 years since Ike left office. The first step
toward turning things around is understanding how we got here. No
single company can illustrate that progression better than the
Carlyle Group, a business founded on a tax scheme in 1987 that has
grown up to be what its own marketing literature once called "a vast
interlocking global network."
The company does business at the
confluence of the war on terrorism and corporate responsibility. It
is a world that few of us can even imagine, full of clandestine
meetings, quid pro quo deals, bitter ironies, and petty jealousies.
And the cast of characters includes some of the most famous and
powerful men in the world.
This is today's America.
This is the Carlyle Group.
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