Iraq's Odious Debts

Carlyle disavows plan to get Kuwait business

Washington Post (U.S.)
October 14, 2004

The Carlyle Group yesterday said it was not part of a consortium that touted its political ties in an attempt to win business collecting and managing billions of dollars owed to Kuwait by Iraq.

The consortium, called International Strategy Group LLC, offered in January a proposal to help the government of Kuwait seek full repayment of Iraqi debt. The offer, which emphasized Carlyle’s participation as manager of any funds recovered, came a month after Carlyle’s senior counselor, James A. Baker III, was appointed by President Bush to persuade foreign governments and private lenders to forgive more than $200 billion in Iraqi debt.

Carlyle, in a letter sent to International Strategy yesterday after the consortium’s offer was publicly reported, said it never consented to be a part of the consortium and “does not want to participate in any way, shape or form” with International Strategy Group’s efforts.

A Carlyle spokesman said yesterday that the firm had considered managing funds recovered by the consortium but that deal was never finalized.

The organizers of International Strategy Group, including the law firm Coudert Brothers LLP and the consulting firm led by former secretary of state Madeleine K. Albright, either could not be reached for comment or declined to comment for the record about Carlyle’s involvement in the venture.

The controversy involved a January proposal, reported yesterday on the Web site of the Nation magazine, to the Kuwaiti minister of foreign affairs. The proposal was signed by International Strategy chief executive Shahameen J. Sheikh, Albright and Los Angeles lawyer David Huebner, Coudert Brothers’ chairman.

In the proposal, International Strategy described itself as a consortium of investment and political advisory firms that would lobby international governments and the United Nations on behalf of Kuwait. Kuwait has $27 billion in outstanding reparations and other claims against Iraq stemming from its 1990 invasion by Iraq.

The consortium’s proposal, which was never acted on by Kuwait, offered the services of Carlyle to help manage up to $1 billion of the funds collected from the reparations and other claims. International Strategy offered to create an entity, initially funded by $2 billion in Kuwaiti government money, that would take control of any funds collected from Iraq. Carlyle, according to the proposal, would initially manage $1 billion of the funds to make private investments in the Middle East, including Iraq.

In the proposal, the consortium said it could use its influence to get the Kuwaiti government priority over other Iraqi creditors during negotiations over the final settlement of Iraq’s foreign debt.

“We will distinguish Kuwait’s claims – legally and morally – from the sovereign debt for which the United States is now seeking forgiveness,” the proposal states. The proposal’s cover letter was made available yesterday on the Web site of the London newspaper the Guardian.

The consortium would be compensated based on a percentage of how much it collected, plus fees for managing the money.

In the January proposal, Carlyle was billed as an integral part of the consortium, “successfully consummating deals at the intersection of politics and finance, with its roster of political stars, including, among others, former U.S. Secretary of Defense Frank Carlucci, former British Prime Minster John Major, and until recently former U.S. President George Bush.”

Carlucci is chairman emeritus of Carlyle. Major, the former British prime minister, is a former chairman of Carlyle’s European operations who sits on the firm’s European advisory board. Former president George H.W. Bush is a former senior adviser to Carlyle’s defunct Asia advisory board.

According to Chris Ullman, a spokesman for Carlyle, the company was first approached about the consortium in the summer of 2003. Carlyle began working on a memorandum of understanding that would have made it the private equity adviser to International Strategy, helping the group invest Kuwait’s money. Kuwait is already an investor in Carlyle’s existing private equity funds.

Then President Bush appointed Baker, a former secretary of state, as his Iraqi debt relief envoy on Dec. 5.

Ullman said that within days, Carlyle informed International Strategy it could not be a part of the consortium because of Baker’s role as envoy. Carlyle told the consortium it would consider helping the group manage Kuwait’s investments of recovered funds, but that agreement was never finalized, Ullman said.

Ullman said Carlyle was not aware of the January proposal from International Strategy to Kuwait. In April, a copy of that proposal was sent to Carlyle, but the firm never responded and did not ask that its name be removed from the document, Ullman said. Carlyle never signed the memorandum of understanding with International Strategy, he said.

If Carlyle had been hired by the consortium to manage Kuwaiti reparations funds, the firm would have made sure Baker would not have benefited from the business, Ullman said. “If it had happened – and I say if, because it never did happen – we have the controls required to make sure Baker was in total compliance with his agreement” with the U.S. government in his role as Bush’s Iraqi debt envoy, he said.

Carlyle general counsel Jeffrey W. Ferguson, in the letter sent yesterday to Sheikh, Coudert Brothers and Albright Group, said Carlyle did not participate in the proposal to Kuwait. “In addition, we want to make clear that, at the time Mr. Baker was appointed as a special presidential envoy on Iraqi debt and at all times thereafter, Mr. Baker understood that Carlyle would have no involvement with the consortium,” Ferguson wrote. He asked the consortium to cease using Carlyle’s name in its communications.

Baker was traveling yesterday and could not be reached.

Sheikh, a Pakistani national who has worked on the Kuwaiti reparations for more than decade, could not be reached for comment. The White House had no immediate response to the controversy last night, according to a senior administration official.

Albright’s consulting firm said in a statement yesterday, “Our purpose in joining the consortium proposal was to help secure justice for victims of Saddam’s invasion of Kuwait and ensure that compensation to Kuwaiti victims, fully consistent with U.S. policy, be used to promote reconciliation, environmental improvements and investment in Kuwait, Iraq and the region.”

Jamie Smith, spokeswoman for the Albright Group LLC, said the consortium has, as of yesterday, stopped pursuing business with Kuwait. “The proposal is clearly dead,” she said.

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