Canada's link to little-known world of the
Carlyle Group
By Steven Staples
IN THE
WORLD of business, a game of golf is just another way to hold a
business meeting. Last week in Moncton, N.B., two unlikely
businessmen met to hit the links — former U.S. president George Bush
Sr. and former New Brunswick premier Frank McKenna.
This golf game draws attention to the main sponsor of the
event — the Carlyle Group. Both Bush and McKenna are tied to the
Carlyle Group, a private equity-investment firm with $13 billion
(U.S.) in assets based in Washington, D.C. It buys and sells
privately held companies and claims to be the largest investment
firm of its kind.
The Carlyle Group has been dubbed "the ex-presidents' Club."
Former president Bush Sr. has served on its Asia advisory board
since he left the Oval Office. Carlyle also claims James A. Baker
III, George Bush Sr.'s former secretary of state; Frank Carlucci,
Ronald Reagan's former defence secretary and former deputy director
of the CIA; John Major, a former British prime minister; Fidel
Ramos, former president of the Philippines; and a host of other
Washington hawks.
The group's traditional involvement in the defence and
aerospace industry and its roster of former national security
mandarins has placed the Carlyle Group in the murky world of the
military-industrial complex. When the current president, George W.
Bush, declared the "War on Terror" and opened the floodgates of
military spending, the Carlyle Group was uniquely positioned to
profit.
Until now, few people had ever heard of the Carlyle Group.
Who even knew that there was a Canadian advisory board? Apparently
there is, and its membership includes ex-premier McKenna along with
Peter Lougheed, the former premier of Alberta; Power Corp.'s Paul
Desmarais, Bombardier's Laurent Beaudoin, former Canadian ambassador
to the United States Allan Gotlieb, and others.
Even more, since June every Canadian has had a stake in the
Carlyle Group.
That's when the Canadian Pension Plan Investment Board
committed to investing $60 million (U.S.) into a Carlyle Group
venture fund over the next five years. The board invests Canadians'
accumulated pension contributions that are not needed to pay
benefits.
The dramatic rise in the fortunes of arms makers has cast a
bright light on the arms industry and the Carlyle Group, especially
Carlyle's series of "coincidences and ironies" involving U.S.
defence and foreign policies.
One of the biggest coincidences surrounds Carlyle's crown
jewel, United Defense Incorporated — the U.S. army's fifth-largest
contractor and builder of armoured vehicles, artillery, defence
electronics and naval guns used on destroyers. "It's the first time
the president of the United States' father is on the payroll of one
of the largest U.S. defence contractors," said Charles Lewis,
director of the Center for Public Policy, one of Carlyle's critics.
When Carlyle bought United Defense in 1997, it held contracts
to build a rapid-firing howitzer called the Crusader.
This $20-billion weapon program was harshly criticized by the
Pentagon's own review panels, saying the gun was too slow and too
heavy for modern warfare. Nevertheless, Crusader was a difficult
target to hit on Capitol Hill.
President Bush continued to support contracts for Crusader
despite expert opinion. Following the Sept. 11 attacks, Carlyle took
the president's support for Crusader and the market's scramble for
defence stocks and made a public offering of United Defense. In a
single day, Carlyle raised $237 million from the sale of United
Defense stocks.
The Pentagon finally cancelled the Crusader program in May,
but not before Carlyle had reaped $400 million in dividends and
capital gains from its original $170 million cash investment.
From coincidences to ironies. One can't overlook the fact
that the Carlyle Group's investors once included the Saudi Binladen
Group, the $5-billion construction firm run by Osama bin Laden's
estranged family. Relations with the family were severed on Oct. 26,
2001, but for a time they were in the strange position of standing
to profit from the war against their own son.
When the controversial CPP Investment Board was created in
1997, many groups such as the Council of Canadians and the Canadian
Labour Congress argued that the board would overlook ethical and
social concerns that reflect Canadians' values. Apparently, the
critics were right.
The CPP Investment Board should divest from this Carlyle
Group, and instead invest in Canadians' needs such as water
infrastructure, medical research, affordable housing, and other
socially positive endeavours that could guarantee a reasonable rate
of return and leave a positive legacy.
Steven Staples is a director at the Polaris Institute, an
Ottawa-based corporate watchdog organization.
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