The Carlyle Connection

How the Pentagon Learned to Love the Weapon No One Wanted

Frank Carlucci never trained much as a salesman. The former CIA spook turned Reagan defense secretary has been working as chairman for the Carlyle Group, the nation's 11th largest military contractor, and for the last five years, he's been championing the the production of 482 Crusader armored vehicles, over $11.2 billion dollars' worth of self-propelled Howitzer firepower.

He might as well have been going door-to-door with vacuum cleaners. Nobody seemed to want the damn things. They were bulky, outdated, expensive. "It looks like it's too heavy; it's not lethal enough," Bush said during a 2000 campaign debate. "There's going to be a lot of programs that aren't going to fit into the strategic plan for a long-term change of our military."

What a difference a war can make.

Late this March, as part of the post-9-11 military buildup, Donald Rumsfeld gave United Defense, Carlyle's subsidiary, the full monty: over $470 million to continue development on the problem-riddled Crusaders, puzzling some military analysts.

"The Crusader has been the GAO's poster child for bad weapons development," says Eric Miller, an analyst who watches defense for the Project on Government Oversight. "Influence is tough to measure, but it's certainly had a friend somewhere."

Make that a very close friend. Two internal Defense Department documents—letters between Carlyle and Rumsfeld—recently made available to the Voice show the intimate relationship between the Bush administration and the Carlyle Group.

"Dear Don," reads the first note, dated February 15, 2001, and signed by Carlucci on Carlyle stationery. "Thanks for the lunch last Friday. It was great seeing you in such good spirits even if you are 'all alone.' "

Rummy, all alone? The Defense Department declined to comment on that one. A spokesman for the Carlyle Group, Chris Ullman, explains that 'all alone' simply means Rumsfeld, fresh in office, felt overwhelmed by the duties of his new job. He invited Carlucci over to the Pentagon for advice—not as a Carlyle chairman, but as a former public servant—along with William Perry, former Clinton defense secretary. The letter, Ullman says, should not have been printed on Carlyle stationary. "It was an oversight."

Still, Judicial Watch, the right-wing group that got the memos through a Freedom of Information Act request, says the connection between the Pentagon and the Carlyle Group —whose advisers include the first president Bush—creates the "appearance of conflict" and violate the public's trust.

"Under normal circumstances, it would be advisable for Rumsfeld to meet with his former secretaries to talk shop," says the group's president, Tom Fitton. "But when [you're] working for a defense contractor, it's probably not a good idea."

The letter indicates they intended to continue chatting. It continues: "We thought it useful to follow up on our discussions on the need for reductions in the infrastructure of the Department [of Defense] and how that might best be done. . . . We would be pleased to introduce to you, or to whomever you might designate, the Commissioners who put this effort together. Best Regards . . . "

Located a few long blocks from the White House, Carlyle has been called the world's most powerful private equity firm. But since September 11, the company has been having a little PR problem, not least because it once had both Bush and bin Laden family money—though not Osama's.

Carlyle's front men tend to come from the dark, Bushy corners of the Republican party—like the president's Florida consigliere, James "the Velvet Hammer" Baker, and former White House budget chief Dick Darman. Their staff is like a fantasy camp for former world dignitaries and international policy wonks.

On the roster of retirees: head of the FCC William Kennard; head of the SEC Arthur Levitt; treasurer and chief investment officer of the World Bank and husband of Bush biographer Afsaneh Beschloss; former Brit prime minister John Major; and former Philippines prez Fidel Ramos.

These bigs do business in 55 countries and specialize in investing in private sectors heavily affected by government change. Which, in simple terms, means they buy smaller companies in areas where they can predict public policy, then sell them for bigger profits.

First in a string of high-profile recruits, Carlucci joined Carlyle in 1989, giving the company an inside edge on the Pentagon's $150 billion Pentagon defense-spending feast. With yearly receipts that topped $1 billion, he also showed company founders the wisdom of having a former cabinet member at the head of the table.

But what people misunderstand about Carlyle, co-founder David Rubenstein told Fortunemagazine last month, is that his celebrity staff does less than people think, and whatever the public may be speculating—e.g., global-domination conspiracy stuff—is just not true.

"We don't lobby government," he said—and by law, even if the company did, it wouldn't be illegal. Carlucci, who has been out of office long enough to work as a lobbyist if he wanted to, told Fortune he had been "particularly cautious" not to discuss Carlyle business with Rumsfeld. True, the two have become close friends since their Ivy League days together on the Princeton wrestling team, and the defense secretary and his wife, Joyce, often dine at the Carluccis' house, and Rummy occasionally lends Frank and Marsha the keys to their $280,000 ski condo in Taos, New Mexico. Talk of weapons development could easily come up between the two Tigers alums. In the magazine interview, Carlucci insisted it does not.

"I have never mentioned the word Crusader in his presence," he said.

Maybe so, but the letters uncovered by Judicial Watch indicate the chairman might have gotten his foot back inside the Pentagon doors. On April 3, 2001, Rumsfeld replied:

"Dear Frank and Bill:

"There is no question but that we are going to have to tackle the infrastructure issue. What I may do is ask the two of you to come in and meet with some of the key staff folks who are working on those types of things here in the department.

"I will be back in touch with you. Sincerely, R."


Additional reporting: Jess Wisloski

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