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Thu Aug 15, 2002 - Updated at 01:32 PM

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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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