THE election of George W. Bush to the presidency of the United States promised to be a major boost to Carlyle’s business. Accordingly Carlyle handed out more than $427,000 in political contributions in 2000. Eighty-four per cent of the money went to Republicans, making Carlyle the most partisan of the top ten defence contributors.
After George W. Bush’s swearing in, the national media immediately picked up Carlyle’s scent. As a member of Carlyle’s Asian advisory board, Bush Sr. was visiting the Middle East and, in particular, Saudi Arabia. Photos taken of a meeting between Bush Sr. and King Fahd started popping up all over the internet. A natural confusion arose over the nature of Bush’s visits to foreign dignitaries. Was the former president representing US interests? Or was he just there on behalf of a money-making behemoth by the name of the Carlyle Group? The same questions arose in the United Kingdom over the actions of John Major, who accompanied Bush on the trips to Saudi Arabia.
Of greater concern was that Major and Bush Sr. had been to see the bin Laden family, the wealthy relatives of a known terrorist (by this time Osama bin Laden was unambiguously viewed as a terrorist threat to the United States and estranged from his family). It wasn’t clear what either of the former world leaders were up to. And it was this confusion, on the part of both the public and foreign world leaders, that played to Carlyle’s advantage. Carlyle repeatedly reaped the benefit of blurred boundaries, with foreign business owners and world leaders not knowing whether Bush Sr. represents American political interests or Carlyle’s financial interests. That was, and still is, a very powerful tool for Carlyle.
On May 27, 1999, George Bush Sr. touched down in Seoul, Korea, for a whirlwind business trip. His visit was celebrated in Seoul, with newspapers hailing his arrival, excited about the possibility of American investment in Korea in the wake of the Asian Economic crisis of 1998. He met Prime Minister Kim Jong-pil, and president of the United Liberal Democrats party Park Tae-joon, a major political figure in Korea who had been advising Carlyle since 1998. He also met the chairman of Korea’s Financial Supervisory Commission, Lee Hun-jai, chairman of SK Telecom, Choi Tae-won, and the president of an ailing Asian conglomerate called Halla. Again, it was classic Carlyle: a measured blend of business and politics that sufficiently blurred the boundaries between the two.
Carlyle was really starting to get busy in Korea now. That same spring, the company hired Michael Kim, a Harvard-educated native Korean, to open its new Seoul offices. Kim is the son-in-law of aforementioned Park Tae-joon. Carlyle and nepotism seemed to go hand in hand.
Following Bush’s visit Korean newspapers lauded an announced $1 billion investment in the country by Carlyle, including a buyout of a division of Mando Machinery, a Korean industrial firm, owned by Halla, the same company Bush Sr. had visited weeks earlier. By now Michael Kim was working to put together another massive deal. This time Carlyle was looking to buy one of the few healthy banks left in Korea, KorAm Bank.
Carlyle gained approval for the buyout by the KorAm board, thanks to its highpowered connections with Park Tae-joon, who became Prime Minister of South Korea in January of 2000 and lobbied on Carlyle’s behalf. By the fall of 2000, Carlyle had snagged 40.7 per cent of the bank for $450 million. Carlyle had invested close to a billion dollars into Korea’s recovering economy. It was the best financial news Korea had seen in years, and it was largely Carlyle’s doing. But the mirth would soon come to an abrupt halt.
When George W. Bush was sworn in to office in January 2001, everything changed suddenly and dramatically. One of the first things that young Bush did as President was call off the missile control talks that the Clinton Administration had been conducting with North Korea for years. Bush revealed open hostility toward North Korea, calling it a rogue state. It was a stunning reversal of American policy, which heretofore had been to use diplomacy in mitigating North Korea’s military aggression to South Korea. Not surprisingly, the backlash was felt far and wide. This also threatened Carlyle’s extensive investments in South Korea, which would plummet in value as instability in the region increased. At first it seemed as if this was a rare case in which being associated with the Bushes was not going to work to the benefit of Carlyle.
On June 6, Bush reversed course. After what the New York Times described as a “forceful’’ discussion with his father, the President announced plans to resume negotiations with North Korea, picking up where the Clinton Administration had left off. Among the issues that the new Administration would work on with North Korea was improving relations between North and South Korea. The sigh of relief could be heard around the world, and especially from Carlyle’s offices on Pennsylvania Avenue and in Seoul. Carlyle refuses to talk about how ex-president Bush is compensated for his work on their behalf. Former employees, however, say that he is invested in the funds that he helps raise and place. If that is the case, the senior Bush’s involvement in foreign policy regarding South Korea is a clear conflict of interest. He stands to gain financially from decisions he is urging his son to make. It doesn’t get any more egregious than that.
By now, the world outside of Washington, DC, had a vague and nagging notion that there was something wrong with the way Carlyle was conducting its business. They were just having trouble putting a name to it. Everyone was looking for the proverbial smoking gun. Little did they know that it was literally a smoking gun they would find.
The saga began in the summer of 1997, when Carlyle was raising money like mad, hiring world leaders, and, in general, becoming the dominating global private equity firm it is today. Among the investments Carlyle had targeted was a maker of armoured vehicles named United Defence.
The news around the defence industry was that General Dynamics had bid $1 billion for United Defence, far more than any other bidder. But at the last minute the company was sold to the Carlyle Group, which had submitted a low-ball bid of $850 million, 15 per cent less than General Dynamics had been offering. It turns out that rumours had begun to circulate around Washington that General Dynamics was going to run into antitrust issues. Eventually, the rumours grew so loud that General Dynamics was forced to back out of the bidding, and Carlyle was there to pick up the scraps. It was another stunning victory for Carlyle.
There was one drawback. Since 1994, United Defence had been working on a massive gun: a mobile howitzer that can fire ten rounds of 100lb shells per minute, 25 miles in distance, cruise at 29mph, and reload on the battlefield.
