James Baker's Double Life (Page 2)

Iraq is the most heavily indebted country in the world, owing roughly $200 billion in sovereign debts and in reparations from Saddam's wars. If Iraq were forced to pay even a quarter of these claims, its debt would still be more than double its annual GDP, severely undermining its capacity to pay for reconstruction or to address the humanitarian needs of its war-ravaged citizens. "This debt endangers Iraq's long-term prospects for political health and economic prosperity," President Bush said when he appointed Baker last December.

But critics expressed grave concern about whether Baker was an appropriate choice for such a crucial job. For instance, one of Iraq's largest creditors is the government of Saudi Arabia. The Carlyle Group does extensive business with the Saudi royal family, as does Baker's law firm, Baker Botts (which is currently defending them in a $1 trillion lawsuit filed by the families of September 11 victims). The New York Times determined that the potential conflicts of interest were so great that on December 12 it published an editorial calling on Baker to resign his posts at the Carlyle Group and Baker Botts to preserve the integrity of the envoy position.

"Mr. Baker is far too tangled in a matrix of lucrative private business relationships that leave him looking like a potentially interested party in any debt-restructuring formula," stated the editorial. It concluded that it wasn't enough for Baker to "forgo earnings from clients with obvious connections to Iraqi debts.... To perform honorably in his new public job, Mr. Baker must give up these two private ones."

The White House brushed off calls for Baker to choose between representing the President and representing Carlyle investors. "I don't read those editorials," President Bush said when asked by a reporter about the Times piece. Bush assured reporters that "Jim Baker is a man of high integrity.... We're fortunate he decided to take time out of what is an active life...to step forward and serve America." Carlyle was equally adamant: Chris Ullman assured a Knight-Ridder reporter that Baker's post "will have no impact on Carlyle whatsoever."

In fact, several months earlier, on July 16, 2003, Carlyle had attended a high-level London meeting with Kuwaiti officials about the deal. According to the document, the Kuwaitis asked Carlyle and the other consortium members to "prepare a detailed financial proposal for the protection and monetization" of reparation debts from Iraq. But at the time Baker was appointed envoy, the consortium had not yet submitted its proposed plans to Kuwait. That means that the Carlyle Group could have pulled out of the consortium, citing the potential conflicts of interest. Instead, Carlyle stayed on, and the consortium proceeded to use Baker's powerful new position to aggressively pitch a deal that positioned the consortium as the Kuwaiti government's chief lobbyist on Iraq's debts and that gave Carlyle a clear stake in the fate of Iraq's debts.

However, several changes were made in the way the consortium presented itself. The documents state, "Prior to [Baker's] appointment [former US Secretary of Defense Frank] Carlucci had played a convening and guiding role on behalf of Carlyle." But after the appointment, according to Carlyle's Chris Ullman, the firm's role was scaled back. "When James Baker was named special envoy...Carlyle explicitly restricted its role to only investing assets on behalf of Kuwait." Shahameen Sheikh, chairman and CEO of International Strategy Group, a company created by the consortium to manage this deal, said that Carlyle told her that "they are not a lobbying firm." Days before Baker's appointment, the consortium reached out to another high-profile Washington firm, the Albright Group, which eventually signed on as the leading political strategists and lobbyists for the consortium.

Moreover, Ullman said that Carlyle put "controls in place" that would insure that Baker "would play no role in nor benefit from" the proposed $1 billion investment--an amount that would constitute nearly 10 percent of Carlyle's total equity investments.

But it's not clear that Carlyle has been straightforward about its dealings so far. The day before Baker's appointment was announced, John Harris, managing director and chief financial officer of Carlyle, submitted a signed statement to White House Counsel Alberto Gonzales. "Carlyle does not have any investment in Iraqi public or private debt," he wrote. He didn't mention that Carlyle had for months been in negotiations with Kuwait to help secure its unpaid war debts from Iraq. Asked if the White House had been informed of the Carlyle Group's dealings with Kuwait at any point, Ullman replied, "I'll get back to you on that." He did not.

According to Kathleen Clark, it is unclear whether Baker is complying with the criminal statute and administrative regulations that prohibit government officials from participating in government business in which they have a financial interest-including matters that affect an outside company that employs the official. Clark notes, "even if Baker is somehow being screened from profiting from this deal, Carlyle is using Baker's government position to benefit themselves." She says it's time for Carlyle and the White House to come clean. "There's a tremendous need for transparency here." The White House and James Baker's office did not respond to repeated requests for comment.

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