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- 12:56pm Apr 5, 2002 EST (#1109
...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."
While the Center for Public Integrity looks for its smoking gun,
others in Washington say hard evidence is unimportant. "Whether the
decisions made by the former president are a real or apparent
conflict of interest doesn't matter, because in the public's eye
they're equally as damaging," says Larry Noble, executive director
and general counsel of the Center for Responsive Politics. "Bush
[Sr.] has to seriously consider the propriety of sitting on the
board of a group that is impacted by his son's decisions."
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.
But for all the questions, Carlyle has stayed clean in the eyes
of the law. Lobbying laws in Washington, D.C., are ambiguous at
best, requiring only that former politicians observe a one-year
"cooling-off period" before they reŽnter the lobbying scene on
behalf of industry. It is playing within this gray area that has
given the Carlyle Group some of the best returns in the business.
After David Rubenstein, a former aide in the Carter
administration, and William Conway Jr., former chief financial
officer of MCI Communications, hooked up at New York's Carlyle hotel
in 1987 to form the company, the Carlyle Group spent two lost years
investing in a hodgepodge of companies. It wasn't until 1989, when
the company brought in Mr. Carlucci, fresh off his two-year stint as
U.S. secretary of defense, that Carlyle got serious in government.
In 1991 the company made a name for itself by facilitating a $590
million purchase of Citicorp stock for Prince Alwaleed bin Talal.
Shortly thereafter, Carlyle snatched up defense contractors Harsco,
BDM International, and LTV, turning the companies around and selling
them to the likes of TRW, Boeing, and Lockheed Martin.
The Carlyle Group has diversified its holdings since then,
investing in everything from bottling companies to natural-food
grocers. In the process, it has become one of the biggest, most
successful private-equity firms in business, with annualized returns
of 35 percent. (Judging by the early numbers from some of their
funds, however, like many other private-equity funds, 2001 will be a
considerably less profit
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