The Iron Triangle

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

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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.

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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.
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.
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.
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.
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.
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.
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."
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.
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.
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.
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.
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."
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.
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.
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.
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.
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:

It is the first time a former president has toiled on behalf of a defense contractor.
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.
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.
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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