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2004-10-13

Broadcast Exclusive: James Baker’s Double Life in Iraq: The Carlyle Group Stands to Make Killing on Iraqi Debt

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In a major expose published last night on The Nation magazine’s website, columnist Naomi Klein reveals that President Bush’s special envoy on Iraq’s debt, former Secretary of State James Baker, has been using his position to benefit his corporate clients and the Carlyle Group, the powerful merchant bank and defense contractor where Baker serves as a partner. [includes rush transcript]

According to confidential documents obtained by The Nation, Carlyle has sought to secure an extraordinary $1 billion investment from the Kuwaiti government, with Baker"s influence as debt envoy being used as a crucial lever. The secret deal involves a complex transaction to transfer ownership of as much as $57 billion in unpaid Iraqi debts. The debts, now owed to the government of Kuwait, would be assigned to a foundation created and controlled by a consortium in which the key players are the Carlyle Group and the Albright Group, which is headed by another former Secretary of State, Madeleine Albright. There are also several other well-connected firms involved.

Under the deal, the government of Kuwait would also give the consortium $2 billion up front to invest in a private equity fund devised by the consortium, with half of it going to Carlyle. In a letter dated August 6, 2004, the consortium informed Kuwait’s foreign ministry that the country"s unpaid debts from Iraq are "in imminent jeopardy." Another letter warns the Kuwaitis that world opinion is turning in favor of debt forgiveness. As evidence the consortium points out to Kuwait "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 U.S. [debt relief] effort."

In the face of this threat, the consortium offers its services. If Kuwait agrees to transfer the debts to the consortium"s foundation, the consortium will use these personal connections to persuade world leaders that Iraq must "maximize" its debt payments to Kuwait, which would be able to collect the money after ten to fifteen years. And the more the consortium gets Iraq to pay during that period, the more Kuwait collects, with the consortium taking a 5 percent commission or more.

  • Naomi Klein, award-winning journalist and author of Fences and Windows: Dispatches From the Front Lines of the Globalization Debate and No Logo: Taking Aim at the Brand Bullies.
  • Naomi Klein’s article in The Nation: "James Baker’s Double Life"

Transcript

This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: We turn now to Naomi Klein, author of the expose in The Nation magazine. She joins us from Toronto. Naomi, welcome to Democracy Now!

NAOMI KLEIN: Thank you, Amy.

AMY GOODMAN: It’s great to have you. Naomi Klein, award winning journalist and author of Fences and Windows: Dispatches From the Front Lines of the Globalization Debate and the book No Logo: Taking Aim at Brand Bullies. Her new film is called The Take. Tell us exactly how you learned about this deal, and if you could explain further what it is.

NAOMI KLEIN: Absolutely. The documents just came to me. I cannot really say how they came to me, just essentially a leak. And I have them right here. They’re extensive. There’s 75 pages of documents. 65 pages are a proposal that was submitted to the government of Kuwait by this consortium of companies that you have described, and then the rest are letters back and forth, including letters signed by Madeleine Albright herself, letters between the government of Kuwait and the consortium talking about whether or not the deal is going to be accepted. The deal is still under consideration. I have spoken to officials in Kuwait who confirmed that. And I have also spoken to all of the relevant members of the consortium who also confirmed that they’re waiting for a response. Essentially what the deal is is that Kuwait after — at the end of the first so-called Gulf War, as a condition of the cease-fire, Saddam Hussein agreed to pay reparations for the losses stemming from the invasion and occupation of Kuwait. A body was created by the security council of the United Nations, called the United Nations Compensation Commission. This body assessed claims and awarded reparations claims. It’s a little known fact of the occupation of Iraq that even under the brutal circumstances that we know about in that country, Iraq continues to pay reparations. In fact, they have paid $1.8 billion in reparations since the occupation of Iraq started. They have paid — instead of receiving reparations, Amy, they have been paying reparations to this body, the U.N.C.C., with most of the money going to Kuwait. Now, for obvious reasons these reparations are in jeopardy. Part of the reason why they’re in jeopardy is because Iraq has a crushing debt of at least $200 billion, possibly more. About half of that debt is sovereign debts between countries, owed by Iraq to other countries, in the usual kind of foreign debts. The other half is made up of these war reparation payments, these war reparation debts. Now, in December — December 5, 2003, George Bush announced that James Baker, former Secretary of State James Baker, was going to be his special envoy, envoy of the president. That means that it’s the president’s representative to the world, which means that the envoy only meets with heads of state. They don’t meet with ministers, and the envoy reports directly back to the president. That this post would go to James Baker, because it was such an important mission. In fact, James Baker — George Bush referred to it as a noble mission. And the mission was to meet with presidents and prime ministers around the world, and ask them to forgive Iraq’s crushing debt in the name of the reparation needs of that country. Of course, there were benefits to this mission for the United States as well, because as we remember, before and after the invasion of Iraq, we were assured by people like Paul Wolfowitz that Iraq’s oil revenues would go towards rebuilding the country. In fact, a percentage of Iraq’s oil revenues, 5%, continues to go to these reparation payments. So, this is an issue for Iraqis and also an issue of for U.S. taxpayers. When James Baker was appointed, questions were raised about conflicts of interest, because of his connection to the Carlisle Group, as well as to his family law firm, Baker Botts, because both of these companies have extensive ties to business interests in the Middle East, both of them have ties to the Saudi royal family for instance, and the Saudi royal family hold as great deal of Iraq’s debt. So, naturally, there were questions raised about whether Mr. Baker was the right person for the job and in fact The New York Times took the extraordinary step of publishing an editorial after the announcement of James Baker’s appointment that called on James Baker to resign both his post at the Carlisle Group where he’s a partner and at Baker Botts, saying that even if both firms promised that Mr. Baker would not receive any benefits from any investments at all connected to Iraq’s debt, there was still enough of a perception and a threat of conflict of interest that he should resign his private post, if he’s going to hold onto his public post. Now, the White House dismissed these concerns out of hand. In fact, George Bush joked that he doesn’t read New York Times editorials. He assured the world that James Baker was a man of high integrity. At the time the Carlisle Group submitted a signed statement — I have a copy of it right here — to Alberto Gonzales, the White House counsel, pledging — and this was not made public at the time, but I have a copy of it — pledging that they do not have interests that conflict with James Baker’s mission. And I’ll quote a couple of lines from this statement. They say, "Carlisle does not engage in lobbying or consulting." And they also say, "Carlisle does not have any investment in Iraqi public or private debt." Now, in this statement, they do not say something very crucial, which is at the time of James Baker’s appointment, the Carlisle Group was five months into, at least five months into negotiations with the government of Kuwait to help secure its debts from Iraq. In fact, members of the Carlisle Group, according to these documents, attended a meeting in London in July, that’s five months before James Baker’s appointment as debt envoy, in which they were commissioned along with several other companies to come up with a proposal about how Kuwait could make sure that its reparation debts were not a casualty of these new political circumstances, i.e., the new political circumstances post-invasion. This was July, so just a couple of months after the occupation of — U.S. occupation of Iraq began. And Carlisle did not, as far as I can see, on this statement, they did not disclose that they were in negotiations with one of Iraq’s major debt holders, and they were about to submit a proposal to help secure these debts. Now, at the time of James Baker’s appointment, the Carlisle Group could have recused itself. They could have told the rest of the consortium members because of Mr. Baker’s appointment, we can no longer be involved in anything having to do with Iraq’s debts because it obviously presents a conflict of interest, or James Baker could have resigned as The New York Times called him to do to prevent exactly this kind of scenario from cropping up. Neither of those things happened.

AMY GOODMAN: Naomi, let’s talk about what happened after this break. Naomi Klein, Nation columnist and author. Major expose went up on The Nation website last night. This is the first broadcast of this story in this country. Naomi Klein joining us from her Toronto studio. This is Democracy Now! We’ll be back with her and find out what happened also about that trip that James Baker took on January 21, 2004, and then also what is the role of the former Secretary of State, Madeleine Albright. [break]

AMY GOODMAN: As we continue with this Nation expose by Nation columnist, Naomi Klein, author and filmmaker. She joins us from our Toronto studio. I’m Amy Goodman, as we continue to hear about the double life of James Baker. Documents obtained by The Nation magazine reveal that the Bush envoy has a private interest in the Iraqi debt. Naomi Klein, continue.

NAOMI KLEIN: Yeah. So, we got to the point where Carlisle had submitted their statement. James Baker was appointed debt envoy. He did not resign from the Carlisle Group and the Carlisle Group did not resign from this consortium that was trying to convince the government of Kuwait that it should allow it to become its chief lobbyists to the world, to the United Nations, to members of the Security Council, and that’s very important to understand, because the Security Council has the power to stop reparations from Iraq to Kuwait at any time. These reparation payments are entirely at the discretion of the Security Council. So, essentially what they were in communications with the government of Kuwait about was how they could access high-level people at the Carlisle Group. As we know the Carlisle Group is called the ex-presidents club because it has people associated with it like the president’s father, like John Major, like James Baker, and so that was what they were doing. In the documents, it says, previously to James Baker’s appointment, Frank Carlucci, who is the chairman emeritus of the Carlisle Group and also former Secretary of Defense, had been engaged in they say in a convening role for the Carlisle Group, but after Secretary Baker’s appointment as debt envoy, the optics had to change. The way the optics changed is that Carlisle no longer was publicly involved as a lobbyist. They said that their only role in the consortium was going to be to manage the investments. Now, this is kind of strange, because as you said at the top, Amy, we’re talking about a huge amount of money going to the Carlisle Group, a billion dollars in investment. Even for a company like the Carlisle Group, a billion dollars represents 10% of all of their equity investments. So this is a very, very big deal that they’re landing. But they said that all they would do is manage this money for the government of Kuwait, and this presented a problem for the consortium, because, of course, what really, one of the people who I showed the deal to, Jerome Levinson, who is a very respected international law professor with experience in the area, he described it as "influence peddling of the crassest kind," but they had this problem, which is that the Carlisle Group couldn’t openly admit that it was involved in lobbying. So, they needed to find another politically connected firm, and on December 1st, which was four days before Secretary Baker’s appointment was publicly announced, the consortium reached out to the Albright Group. The Albright Group is the consulting firm that is headed by former Secretary of State Madeleine Albright, and is also populated by many powerful ex-politicians. And the Albright Group signed on to basically take the lead in the lobbying and public relations effort involved in this deal so that the Carlisle Group could only deal with the money part of it. And I had a really interesting exchange yesterday with Chris Ullman, who is the vice president and chief spokesperson for the Carlisle Group, where he told me that the Carlisle Group would not be engaged in lobbying at all, and was not involved in trying to secure the deal. So I asked him, "So what you’re saying is that you were willing to take the $1 billion, but you weren’t willing to try to get it." And he said, "That’s correct." But, of course, as I said before, $1 billion is a huge investment for the Carlisle Group, so obviously, they were very interested in how these negotiations were proceeding.

AMY GOODMAN: And how has the Albright Group responded? What is it they’re saying about this relationship they have with the Carlisle Group and Kuwait and Iraq right now?

NAOMI KLEIN: Well, they’re not publicly admitting that they were brought in as political cover. It looks to me as if the Albright Group was brought in as political cover by consortium so that attention would be taken away from the Carlisle Group, and to fill this gap, because the Carlisle Group could not publicly be engaged in lobbying to secure Iraq’s debt at the same time as James Baker was asking the world to forgive those debts. But of course, we’re really splitting hairs here because the Carlisle Group was part of this consortium, and the consortium’s main pitch to the government of Kuwait, and we have the documents to prove it, was saying, look, you will not be able to secure these debts on your own. In fact, they say that they talked to financial experts and told them that the $27 billion that Kuwait is owed in reparation awards, at this point would be worth, if they were to try to sell it on the market, $1.5 billion. So, that’s so — it would be discounted to the tune of 90% if they tried to do this on their own. But they said because we are so politically connected, we would be able to get a portion of these reparation payments for you. So it’s a trade, really, of influence for money as well as investment expertise and public relations. That’s essentially what’s outlined in the proposal. The documents are actually already online on The Guardian website if people want to take a look at them. Now, the Albright Group, their position is that Madeleine Albright, as Secretary of State, was involved in securing these reparations. And that’s true. In fact, Madeleine Albright was the main author of the Security Council resolution that created the Oil for Food program, which diverted 30% of Iraq’s oil revenue to these reparation payments. And they say that it’s not a conflict of interest, but of course, U.S. policy has changed, and now U.S. policy is to get as much debt forgiveness for Iraq as possible. So, what you have are two former Secretaries of State, both of whom had key roles, of course, in the invasion, the first — the first war, the first Gulf War in the case of James Baker, that the peace — the cease-fire that forced Iraq to pay these reparations, and then you have Madeleine Albright who enforced the sanctions regime and the reparation payments, both of them part of the same deal to now get a piece of those reparation payments, that they themselves helped to secure. So, it’s quite shocking.

AMY GOODMAN: That —

NAOMI KLEIN: The Albright Group, just to be clear, they say that they are involved in this deal because they believe that the Kuwaitis deserve reparation payments, and that they were essentially on a humanitarian mission. Now, I think it’s very important to understand that these reparation payments — there are genuine humanitarian and environmental claims being made before the United Nations Compensation Commission, but the vast majority of the money has been going to oil companies. It’s been going — the largest single award was $15.9 billion to Kuwait’s oil — national oil company for lost revenue during the occupation of Kuwait. What they don’t — what the Compensation Commission didn’t assess was how much Kuwait’s oil industry gained during the long embargo against Iraq because they were able to sell much more oil. The United Nations Compensation Commission is a controversial body. It’s a quasi-tribunal with very very little oversight. So we’ve seen things like Texaco receiving an award of $505 million, once again for lost revenues, damages, things like this. It’s actually become a bit of a slush fund for corporate America. As I have been learning more about the reparation payments that Iraq has been paying, I have come to understand why corporate America hasn’t — during the embargo, during the sanctions, during the 90’s why they didn’t make more of a fuss about not being able to invest in Iraq, because they were collecting losses in Geneva at the United Nations Compensation Commission for billions of dollars. You have awards being given to Kentucky Fried Chicken, to Toys-R-Us, to companies like this, simply for lost revenue they would have made if Iraq had not invaded Kuwait.

AMY GOODMAN: We’re talking to Naomi Klein. That trip that former Secretary of State, James Baker, now the envoy for President Bush, took January 21, 2004…

NAOMI KLEIN: Yeah. Now, this — the timing of this is really quite staggering. We remember when George Bush sent James Baker on his noble mission. First he went to Europe and then he went to the Middle East. On January 21st, he arrived in Kuwait. He spent the morning in Kuwait and then he went on to Saudi Arabia. When he was in Kuwait, he met with the prime minister and he met with the foreign minister and several officials to talk about debt forgiveness, to ask them to forgive Iraq’s debts. At the very same time, January 21, according to these documents, I had this confirmed yesterday, the consortium, a woman named Shamin Sheikh, the head of the consortium, hand-delivered this proposal to Kuwait’s foreign minister. So, as James Baker was meeting with the foreign minister, on the same day, the foreign minister receives the proposal from the Carlisle Group, the Albright Group, all of these other players, including Fidelity Investments and so on, saying actually, we will help you to get Iraq to pay its debts to Kuwait. So, they’re getting this clear mixed message. You have James Baker, the envoy, saying forgive Iraq’s debt, and then you have a document that talks about James Baker extensively. He’s mentioned at least a half a dozen times about both the risk that he prevents as envoy, but also he’s listed when they talk about the consortium members and all of the powerful people that the consortium will bring to the table on behalf of the government of Kuwait, James Baker is listed there. So you have James Baker, who is both the stick in the form of the threat that Kuwait will lose its debt payments, and the carrot in the form of, if you sign with us, if you give a billion investment to the Carlisle Group, then you will have James Baker on your side. And I asked Shamin Sheikh about this timing, why it was that she delivered the proposal on the same day that James Baker, the one day that James Baker was in Kuwait, and she said, it was just a coincidence. She said I was in the region, and so I just stopped by on my way to Europe.

AMY GOODMAN: Naomi Klein, what now? Will Carlisle get the contract? What is the Kuwaiti government saying?

NAOMI KLEIN: The Kuwaiti government is saying — I spoke to the undersecretary for the prime minister of Kuwait, who told me that it is still being considered. He said he read the proposal, was fully aware of it, I asked him actually whether they were confused by the dual role that James Baker was playing. You know, I said, who did you think you were meeting with? Were you meeting with James Baker, the envoy, or were you meeting with James Baker the businessman? After that meeting, interestingly, James — Kuwait’s foreign minister said that James Baker had shown understanding about Kuwait’s position on war reparations. We know it came up in the meeting. There was a long pause when I asked him about this, and he said that he wasn’t able to comment and he hopes that I understand. And I understood from his tone that from Kuwait’s perspective, it’s not just that James Baker can help them, it’s also that James Baker can hurt them. I mean this is the essence of a conflict of interest. They’re not just saying, you know, sign with us because we can help you. The implication, of course, because they have already presented James Baker as a threat to the government of Kuwait, is that if you don’t accept this deal, it could backfire on you quite seriously. So, that’s exactly why arrangements like this are supposed to be barred under U.S. regulations against what’s called the revolving door. But what’s interesting about this case is that James Baker didn’t even wait for the door to revolve. He was in the envoy post while this deal was being put forward. So, I think it’s — the timing is interesting, Amy. You know, the debates are tonight. It happens that James Baker is now much less concentrated on Iraq’s debt and is now concentrated on the debates because he’s head of George Bush’s debate team. I think that he is the president’s special envoy. That’s his post. So, if the president’s special envoy is in a direct conflict of interest, and has been representing the president in this way, obviously, it reflects directly on the president. So, I think the next stage is I hope someone will put some of these questions to the president.

AMY GOODMAN: Well, Naomi, I don’t think that either the Democrats or Republicans, Kerry or Bush, will be raising this in the debate tonight, given the bipartisan nature of the involvement here.

NAOMI KLEIN: I agree.

AMY GOODMAN: I want to thank you very much for being with us. Naomi Klein, with an explosive expose on The Nation magazine website and also on the front page of The Guardian newspaper today. This is the first time that the story is being broadcast. Naomi Klein speaking to us from Toronto, Nation magazine columnist, author of several books, and filmmaker. The Take is her new film. This is Democracy Now!

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