Carlyle Covers Up
Klein, Naomi, The Nation
Less than twenty-four hours after The Nation disclosed that former Secretary of State James Baker and the Carlyle Group were involved in a secret deal to profit from Iraq's debt to Kuwait, NBC was reporting that the deal was "dead." At The Nation, we started to get calls congratulating us on costing the Carlyle Group $1 billion, the sum the company would have received in an investment from the government of Kuwait in exchange for helping to extract $27 billion of unpaid debts from Iraq.
We were flattered (sort of), until we realized that Carlyle had just pulled off a major public relations coup. When the story broke, the notoriously secretive merchant bank needed to find a way to avoid a full-blown political scandal. It chose a bold tactic: In the face of overwhelming evidence of a glaring conflict of interest between Baker's stake in Carlyle and his post as George W. Bush's special envoy on Iraq's debt, Carlyle simply denied everything. The company issued a statement saying that it does not want to be involved in the Kuwait deal "in any way, shape or form and will not invest any money raised by the Consortium's efforts" and, furthermore, that "Carlyle was never a member of the Consortium." A spokesperson told the Financial Times that Carlyle had pulled out as soon as James Baker was appointed debt envoy, because his new political post made Carlyle's involvement "unsuitable." Mysteriously, there was no paper trail--just Carlyle's word that it had informed its business partners "orally."
You have to hand it to them: It was gutsy. In the leaked business proposal from the consortium to the Kuwaiti government--submitted almost two months after Baker's appointment--the Carlyle Group is named no fewer than forty-seven times; it is listed first among the companies involved in the consortium; and its partner James Baker is mentioned by name at least eleven times. In interviews, other consortium members, including Madeleine Albright's consulting firm, the Albright Group, confirmed that Carlyle was still involved, as did the office of the Prime Minister of Kuwait. Shahameen Sheikh, the consortium's CEO, told me that when Baker was named envoy in December, Carlyle was "very clear with us that they wanted to restrict their role to fund managers," but she said the firm was very much still a part of the deal.
That was exactly what Carlyle spokesman Christopher Ullman had told me. He also admitted that Carlyle would land a $1 billion investment if the proposal was accepted. After I reported these facts, Ullman even called to thank me for quoting him accurately.
So when I heard about Carlyle's about-face, I called Ullman to see what was up. I felt like I was talking to one of the brainwashed characters in The Manchurian Candidate, the Jonathan Demme remake about a Carlyle-esque company that conspires to put a mind-controlled candidate in the Oval Office. "We learned today that we did not even join the consortium," Ullman told me, drone-like. "When I spoke to you yesterday, I did not know that."
Amazingly, it worked. The story--which made front-page news around the world--vanished almost as soon as it had appeared in the press at home. The New York Times has not printed a word about Baker's conflict, despite the fact that when Baker was first appointed envoy, it published an editorial calling on him to resign from Carlyle in order to "perform honorably in his new public job. …