Bush envoy’s double life

President George W Bush’s special envoy, James Baker, who has been trying to persuade the world to forgive Iraq’s crushing debts, is simultaneously working for a commercial concern that is trying to recover money from Iraq, according to confidential documents.

Baker’s Carlyle Group is in a consortium secretly proposing to try to collect $27-billion on behalf of Kuwait, one of Iraq’s biggest creditors, by using high-level political influence. It claims Baker will not benefit personally, but the consortium could make millions in fees, retainers and commission as a result.

Other countries have been urged by Baker to relieve the new Iraq regime of its $200-billion debt burden.

One international lawyer described the consortium’s scheme as “influence peddling of the crassest kind”.

Jerome Levinson, an expert on political and corporate ethics at American University in Washington, said: “The consortium is saying to the Kuwaiti government, ‘Through us you have the only chance to realise a substantial part of the debt. Why? Because of who we are and who we know.'”

When Bush appointed Baker, a former secretary of state, as his unpaid envoy on December 5 last year, he called Baker’s job “a noble mission”. But Baker is also a senior counsellor and an equity partner with a reported $180-million stake in the merchant bank and defence contractor the Carlyle Group.

A confidential 65-page Proposal to Assist the Government of Kuwait in Protecting and Realising Claims against Iraq was sent in January from the consortium to Kuwait’s Foreign Ministry, according to documents obtained by the Nation magazine in New York, which are currently available on the website of The Guardian.

In a letter dated August 6 2004, the consortium informs Kuwait’s Foreign Ministry that the country’s unpaid debts from Iraq “are in imminent jeopardy”.

World opinion is turning in favour of debt forgiveness, another letter warns, as evidenced by “President Bush’s appointment of former secretary of state James Baker as his envoy to negotiate Iraqi debt relief”.

The consortium’s proposal spells out the threat: not only is Kuwait unlikely to see any of its $30-billion from Iraq in sovereign debt, but the $27-billion in war reparations that Iraq owes to Kuwait from Saddam Hussein’s 1990 invasion “may well be a casualty of this US debt-relief effort”.

In the face of this threat, the consortium offers its services. Its roster of former high-level United States and European politicians have “personal rapport with the stakeholders in the anticipated negotiations” and are able to “reach key decision-makers in the [United Nations] and in key capitals”.

Kathleen Clark, a law professor at Washington University and a leading expert on government ethics and regulations, said this meant that Baker was in a “classic conflict of interest”.

“Baker is on two sides of this transaction: he is supposed to be representing the interests of the US, but he is also a senior counsellor at Carlyle, and Carlyle wants to get paid to help Kuwait recover its debts from Iraq.”

She added: “Carlyle and the other companies are exploiting Baker’s current position to try to land a deal with Kuwait that would undermine the interests of the US government.”

A Carlyle spokesperson said the company had scaled down its involvement after the Baker appointment: “Neither the Carlyle Group nor James Baker wrote, edited or authorised this proposal to the Kuwait government. When Baker was named special envoy, which was before the proposal was produced and sent, Carlyle explicitly restricted its role to only investing assets on behalf of Kuwait, an activity that Baker would play no role in nor benefit from.”

According to the documents, Carlyle is seeking to secure as part of the deal an extraordinary $1-billion investment from the Kuwaiti government.

The main proposal would transfer ownership of $57-billion in unpaid Iraqi debts. The debts would be assigned to a foundation created and controlled by a consortium in which the key players are the Carlyle Group, the Albright Group (headed by another former secretary of state, Madeleine Albright) and several other well-connected firms.

Under the deal, Kuwait would also give the consortium $2-billion to invest in a private equity fund devised by the consortium, with half of that going to Carlyle.

The consortium would then use its personal connections to persuade world leaders that Iraq must “maximise” its reparation payments to Kuwait. The more the consortium gets Iraq to pay over a period, the more Kuwait collects, with the consortium taking a 5% commission or more.

The goal of maximising Iraq’s debt payments directly contradicts the stated US foreign policy aim of drastically reducing Iraq’s debt burden.

Chris Ullman, Carlyle’s spokesperson in Washington, said that the firm was aware that a $1-billion investment for Carlyle was part of the Kuwait proposal: “We were aware of that. But we played no role in procuring that investment.”

When asked whether that meant he was willing to take the billion but not to try to get it, he answered: “Correct.”

Ullman said Baker would not benefit from the proposed $1-billion investment. “We have controls in place that regulate how partners are compensated, we have a huge back office. We have the mechanisms.”

Asked whether the White House had been informed that the Carlyle consortium had been in negotiation with the government of Kuwait over debts at the time of the Baker appointment, he said: “I’ll get back to you on that.”

In the confidential documents, the consortium appears acutely aware of the sensitivity of Baker’s position as both Carlyle partner and also debt envoy for the US government.

Immediately after listing all of the powerful players associated with Carlyle — including former US president George Bush, former British prime minister John Major and Baker himself, the document states: “The extent to which these individuals can play an instrumental role in fashioning strategies is now more limited due to the recent appointment of Secretary Baker as the president’s envoy on international debt, and the need to avoid an apparent conflict of interest.”

Yet it goes on to state that this will soon change.

“We believe that with Secretary Baker’s retirement from his temporary position as debt envoy, Carlyle and those leading individuals associated with Carlyle will then once again be free to play a more decisive role.”

It was on January 21 this year that Baker’s dual lives converged. That morning Baker flew to Kuwait as Bush’s debt envoy. He met Kuwait’s prime minister, its foreign minister and several other top officials with the stated goal of asking them to forgive Iraq’s debts.

Baker’s colleagues in the consortium chose that same day to hand-deliver their full proposal to the Foreign Minister, Mohammad Sabah al-Salem al-Sabah, the same man Baker was meeting.

A covering letter was signed by Albright; David Huebner, chairperson of the Coudert Brothers law firm (another consortium member); and Shahameen Sheikh, chairperson and CEO of International Strategy Group, a company created by the consortium for the purposes of this deal.

Sheikh, who made the delivery, said it was a coincidence. “It had nothing to do with Mr Baker’s visit … I was in the region so I thought I would stop over on the way to Europe and deliver the proposal”.

The proposal “takes into account the new dynamics that have developed in the region,” states the Albright letter — dynamics that include “Secretary Baker’s negotiations” on debt relief.

If Kuwait accepts the consortium’s offer, it states, “we will distinguish Kuwait’s claims — legally and morally — from the sovereign debt for which the United States is now seeking forgiveness.”

Iraq is the most heavily indebted country in the world. “This debt endangers Iraq’s long-term prospects for political health and economic prosperity,” Bush said when he appointed Baker last December.

At the time, critics expressed concern about whether Baker was an appropriate choice. But the White House brushed them off. Bush assured reporters: “Jim Baker is a man of high integrity. We’re fortunate he decided to take time out of what is an active life to step forward and serve America.”

Ullman said at the time Baker’s post “will have no impact on Carlyle whatsoever”.

The day before Baker’s appointment was announced, John Harris, MD of the Carlyle Group, signed a statement to Alberto Gonzales, counsel to the president. It stated that Carlyle “does not engage in lobbying or consulting” and that “Carlyle does not have any investment in Iraqi public or private debt”.

According to the documents, at the time of that statement the Carlyle consortium was at least five months into its assignment from the Kuwaiti government to “prepare a detailed financial proposal for the protection and monetisation” of reparation debts from Iraq.

The assignment was agreed at a high-level meeting with Kuwaiti officials in London on July 16 2003, according to files obtained by The Guardian.

Clark said both criminal and regulatory statutes prohibited government officials from participating in government business in which they have a financial interest, including matters that affect an outside company that employs the official.

In the statement to Gonzales, Harris wrote that “Secretary Baker has renounced his partnership share of future benefits, if any, that might constitute a conflict with his official duties and he will not benefit personally through his Carlyle partnership income from his work as a special government employee.”

But the proposed deal with Kuwait is so large that it is hard to see how Baker could be prevented from benefiting: Carlyle stands to land a $1-billion investment, which is 10% of the firm’s total equity funds.

And under the proposal, the firm would be benefiting from that investment for at least 12 years.

Clark said: “Even if Baker is somehow being screened from profiting from this deal, Carlyle is using Baker’s government position to benefit themselves.”

She said it was time for the White House to come clean. “There is a tremendous need for transparency here.”

According to Levinson: “What they are proposing is to completely undercut Baker’s mission — and they are using their connection with Baker.” Ahmed al-Fahad, Under-Secretary to the prime minister of Kuwait, said this week: “I have seen it [the proposal] and I am fully aware of the situation.”

But asked about Baker’s dual role, he said: “It’s hard to comment on that issue, especially now. I hope you fully understand.” — Â

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