HOUSE OF BUSH, HOUSE OF SAUD -- THE SECRET RELATIONSHIP BETWEEN THE WORLD'S TWO MOST POWERFUL DYNASTIES
CHAPTER SEVEN: Friends in High Places
Breezily likable, seemingly uncomplicated, George W. Bush once said that the difference between him and his father was that his dad "attended Greenwich Country Day and I went to San Jacinto High School in Midland."  He was right.
Dubya, as he was known in Texas, shared much of his father's legacy -- Andover, Yale, Skull and Bones, Texas, and the oil business. But, culturally speaking, he was more of a real Texan than his dad -- much more. The elder George Bush was very much at home in the East Coast sanctums of Old Money. By contrast, Dubya was profoundly uncomfortable when he was surrounded by the "intellectual arrogance" he encountered at Yale and Harvard Business School at the height of the counterculture in the sixties and early seventies.
For George H. W. Bush, it was always a stretch to make nice with the Republican Party's powerful Christian right, which, in turn, viewed him as suspect, an interloper who sometimes said the right things but didn't really believe them. By contrast, Dubya was a genuine born-again Christian who had "accepted" Jesus Christ as his personal savior in 1985 and read the Bible and prayed daily. The elder Bush loved the family's summer retreat on Walker's Point in Kennebunkport, Maine, and all that it suggested -- golfing, lobster, the rugged Maine shore, and a rich family heritage that was deeply embedded in the Eastern Establishment. By contrast, Dubya's home away from home was not Maine, the Hamptons, or Nantucket, but Crawford, Texas, in the hardscrabble dry plains near Waco. Located right in the middle of Texas's Baptist-dominated Bible Belt, its history was bereft of Yankee railroad barons and the like and was instead studded with Ku Klux Klan marches and incidents such as the FBI assault on David Koresh's Branch Davidians, who became martyrs of the right-wing militia movement.  Not exactly a likely oasis of choice for a scion of the East Coast elite.
Finally, Dubya had one political advantage over his father. The elder Bush so embodied the image of a spoiled and privileged son of the Eastern aristocracy that in 1988 when Ann Richards, who was soon to become governor of Texas, delivered her famous sound bite about the elder Bush at the Democratic National Convention, the words resonated throughout the United States and made Richards a national figure. "Poor George," she had drawled, "he can't help it. He was born with a silver foot in his mouth."
By contrast, Dubya cast a figure that could be powerfully evocative of the cowboys who once strode Texas's wide-open spaces. At a time when most Texans lived in air-conditioned suburbs, but still longed for its rich and powerful mythic imagery of wide-open spaces and the Old West, he understood and appealed to rural Texas archetypes that were an amalgam of male-bonding rituals forged on the ranch, in the oil fields, and in the locker room. These were ideals that celebrated the virtues of toughness, self-reliance, and neighborliness, all generously larded with Marlboro Country-type cowboy imagery. At their best, these values were democratic in the true sense of the word, recognizing no social barriers separating the ranch hand from the millionaire. This was in large part a source of Dubya's appeal that enabled him to win support that crossed class barriers.
But the reality was wildly at odds with the imagery. Dubya was still very much a child of privilege himself. He accepted his high station in life so unquestioningly that detractors often said he had been born on third base and thought he had hit a triple. After graduating from Yale, Bush returned to Houston to join the Texas Air National Guard in 1968.  In addition to aircraft broker James Bath, Bush's unit consisted of several members of the River Oaks and Houston country clubs, and Lloyd Bentsen III, a son of the Texas senator. According to the Washington Post, Bush's political connections helped him get into the unit, a highly sought-after refuge for young men seeking to avoid service in Vietnam. Dubya gained admission to the guard only after Ben Barnes, the powerful Speaker of the House in Texas, intervened to get him a pilot's slot. 
Even after he got into the guard, Bush's stint was marked by controversy. In 1972, orders had required Bush to report to a lieutenant colonel with a Dickensian name, William Turnipseed, in Montgomery, Alabama. But, according to Turnipseed, Bush "never showed up." 
In the end, Bush's National Guard record was something less than distinguished and it created issues that would haunt his electoral future. In 1972, Bush was suspended from flying for "failure to accomplish annual medical examination."  As it happened, that was the year drug testing became part of military medical exams, and political opponents later accused Bush of avoiding the exam so as to escape detection of cocaine use.  [i]
During his sojourn at Harvard Business School, Bush made it clear exactly where his heart was. Classmate Marty Kahn's first memory of Bush was "sitting in class and hearing the unmistakable sound of someone spitting tobacco. I turned around and there was George sitting in the back of the room in his [National Guard] bomber jacket spitting in a cup. You have to remember this was Harvard Business School. You just didn't see that kind of thing."  Coming as it did during the height of the Vietnam War, in hippie-infested Cambridge, Massachusetts, the East Coast epicenter of the tie-dyed, Birkenstocked, long-haired antiwar movement, chewing tobacco was a defiant fashion statement that loudly proclaimed George W. Bush would have absolutely nothing to do with the counterculture.
If Dubya received favored status in the National Guard as a result of his powerful father, it was nothing compared to the help he got in his business career. In 1977, Bush had decided to follow in his father's footsteps and moved to Midland, Texas, where his father had started out, to launch his first oil company, Arbusto Energy.
Arbusto, which means "bush" in Spanish, [LC-1] was founded as a one-man outfit that Bush hoped would grow into a company that could drill for oil all over the country. Thanks to help from his uncle Jonathan Bush, a Wall Street financier, and his grandmother Dorothy Bush, Dubya, then thirty-one, put together a $4.7-million partnership consisting largely of relatives and powerful family friends to launch Arbusto. There was venture capitalist William Draper [ii] and Celanese Corporation CEO John Macomber, each of whom would serve as chairman of the Export-Import Bank during the Reagan-Bush era; Prudential Bache CEO George Ball; multimillionaire New York Republican Lewis Lehrman; and George H. W. Bush fundraiser Russell Reynolds among others.  Also among the investors was Dubya's National Guard friend James Bath, who put up $50,000 for 5 percent of the stock.
According to the Washington Post, Bush immediately put Arbusto on his resume to use as a credential in his unsuccessful 1978 congressional race -- even though it didn't start operations until March 1979, several months after he lost the election.  When it did get going, Arbusto struggled financially, forcing Bush to seek new investors to save the day. In January 1982, just a year after his father had become vice president, Dubya managed to find such an angel, New York investor Philip Uzielli, a Princeton classmate  and longtime friend of James Baker's. What was particularly astonishing about Uzielli's participation in Arbusto was the exorbitant price he paid -- $1 million in exchange for 10 percent of Bush's tiny company. According to Time, the entire company was then worth only $382,000.  In other words, Uzielli had paid twenty-six times market value for his share of the company's equity.
Bush rationalized the high price by saying, "There was a lot of romance and a lot of upside in the oil business." But at the time, the international oil market was collapsing, with the price per barrel plummeting from $38 in 1981 to $11 in 1986.  The situation was so bad that Vice President Bush flew to Saudi Arabia to persuade King Fahd that the oil glut had made oil too cheap and was decimating West Texas oil companies.  Arbusto continued to drill one dry hole after another. Its name became such a subject of mockery -- with detractors derisively emphasizing the second syllable -- that Bush changed it to Bush Exploration.
In 1984, in need of more financing, Bush merged Arbusto into another oil company, Spectrum 7. But even that wasn't enough. In the rapidly deflating boomtowns of Houston and Dallas, this was the era of real estate busts, see-through skyscrapers, and so-called glass prairies -- gleaming, new skyscrapers built during that boom that were almost entirely empty because of the recession. Banks were folding. Oil giants faced huge layoffs. The prospect for small independent oil companies in West Texas was even worse. 
Bush's problem was not just that Spectrum had drilled too many dry wells. As the price of oil fell, even the value of its productive wells plummeted. Investors were nowhere to be seen. In 1985, Spectrum lost $1.6 million. Altogether, it owed more than $3 million,  and Bush had little hope of paying it off. "We lost a lot of money," said Philip Uzielli, who had become a director of Spectrum 7. " ...Things were terrible. It was dreadful." 
By this time, Bush's father, then vice president, was the odds-on favorite to be the next president of the United States. But Dubya, who was about to turn forty, had accomplished almost nothing. One by one, his oil companies in their various incarnations -- Arbusto, Bush Exploration, and Spectrum 7 -- slid toward the brink, even after getting generous help from his father's and James Baker's powerful friends. The normally optimistic Bush was despondent. "I'm all name and no money," he said. 
But, in 1986, another savior came to Bush's rescue. A Dallas-based energy firm owned partially by Harvard University and international investor George Soros, Harken Energy, then known as Harken Oil and Gas, gave Bush a spectacular deal and bought his failing company for $2.25 million in stock. Bush got roughly $600,000 out of the deal,  a seat on the board, and a consultancy paying between $50,000 and $120,000 a year.  Now he didn't even have to work full-time and could help his father pursue the White House, where he was rapidly becoming a trusted adviser to the president.
As for why his benefactors were so generous, Harken founder Phil Kendrick was to the point: "His name was George Bush. That was worth the money they paid him." 
"You'd have to be an idiot not to say [that's] impressive," added Alan Quasha, a Harken shareholder. 
Meanwhile, Harken had problems. Loaded with debt and a history of drilling dry wells, Harken had almost nothing going for it. In 1989, it lost more than $12 million. The next year, it lost $40 million. Even these losses vastly understated the gravity of Harken's crisis. New York Times columnist Paul Krugman has since charged that Harken created a front company that seemed independent but was really under Harken's control solely to concoct phony transactions and to buy some of the firm's assets at high prices -- all to falsely inflate revenues.  "Mr. Bush profited personally from aggressive accounting identical to recent scams that have shocked the nation," Krugman wrote, referring to the Enron and Arthur Andersen scandals.
Phil Kendrick, who had sold most of his stock but was still a small shareholder, best characterized Harken's incomprehensible business practices: "Their annual reports and press releases get me totally befuddled," he said. "There's been so much promotion, manipulation, and inside deal-making. It's been a fast-numbers game." 
And yet, with the Bush name now on its marquee, suddenly all sorts of marvelous things started to happen to Harken -- new investments, unexpected sources of financing, serendipitous drilling rights in faraway countries. All thanks to people who now found Harken irresistible -- many of them close to BCCI, the Saudi-dominated bank that had political connections all over the world and whose biggest shareholder was Khalid bin Mahfouz. It was a kind of phantom courtship.
Even if Harken had not had its liabilities, for Saudi billionaires, whose wealth came from the biggest oil reserves in the world, investing in Harken was at best truly a case of selling coals to Newcastle, ice to the Eskimos. "Think about it," explains Bush's friend and business partner James Bath. "It doesn't make sense. What we would consider a big oil drill here [in Texas] would be laughable to them."
"You had this terribly complicated dance," recalls a former senior Senate investigator into BCCI. "It was not just that the Saudis used BCCI to buy power. There were people in the United States who saw the opportunity to make scads of money. They weren't exactly raping the system. It was more like consensual sex."
Neither George W. Bush nor Harken, it should be said, had any direct contact of any kind with bin Mahfouz or BCCI. Bin Mahfouz professed no knowledge of any intention to create a special relationship with Bush or Harken  and, according to his attorney, "does not recall that the matter of BCCI's relationship with Harken" was brought up at BCCI board meetings or "in any other fashion."  Likewise, Harken officials, including George W. Bush, said they were unaware of their new investors' links to BCCI. On paper, there was no relationship whatsoever between the two institutions or their principals.
But like so much of what went on with BCCI, this elaborate dance often took place through convoluted financial transactions and third parties. It was not essential for the key players in this aspect of the Saudi-Bush drama even to know each other to have productive relationships. In fact, for many of the participants, the less they knew the better.
In particular, in later years George W. Bush would very much not want to know bin Mahfouz. According to his associates, bin Mahfouz was a moderately devout Muslim who eschewed excess -- at least by the standards of Saudi billionaires.  That meant that in addition to his Texas properties, he had, or would acquire, a large estate in Buckinghamshire, England, and homes in Jeddah, Cairo, New York, Paris, London, and Cannes.  Bin Mahfouz's greatest extravagance was his preferred mode of transportation. He flew his own Boeing 767, a Boeing 737, and in later years, a Bombardier Global Express, one of the hottest ultra-long-range, high-speed business jets on the market.  An observer who boarded one of his 767s in 2003 said that $40 million had been spent on the interior to outfit it with gold-plated bathroom fixtures, magnificent wood paneling, a drop-down movie screen with surround sound, and a bedroom with emergency medical equipment. 
In decades past, the Saudis had put constraints on the international ambitions of the bin Mahfouz family and National Commercial Bank, in part because Islamic tradition had outlawed the charging of interest. But with petrodollars flooding into the country and the globalization of the financial markets, such antiquated practices no longer made practical business sense. In addition, such strictures might interfere with the kind of political ties the Saudis could create through BCCI, as they had with Bert Lance and Clark Clifford when Jimmy Carter was in the White House. 
In 1987, when Vice President George H. W. Bush was positioning himself to succeed Reagan, several people close to BCCI began to approach Harken Energy. One of them was Arkansas investment banker Jackson Stephens, a principal in Little Rock's Stephens, Inc., one of the biggest investment banks outside of Wall Street. Stephens was so politically wired that he had access to the White House from the Carter administration through the Reagan-Bush era and into the Clinton administration. A classmate of Jimmy Carter's at the U.S. Naval Academy, Stephens was also an associate of Bert Lance, the first casualty of the BCCI scandal. But Stephens's political affiliations were not merely Democratic. Though he had been a contributor to Jimmy Carter, Stephens also gave $100,000 to George H. W. Bush's presidential campaign in 1988 and his company put in another $100,000. In addition, his wife, Mary Anne, was Arkansas cochairman of the Bush for President Campaign that year.
In the late seventies, Stephens had suggested to BCCI that it try to take over Washington, D.C.'s biggest bank, First American Bankshares, and he subsequently became a defendant in a suit aimed at preventing the takeover. He was the man who had introduced Bert Lance to BCCI founder Agha Hasan Abedi. His proximity to the corrupt bank notwithstanding, Stephens was seen as an innocent bystander or a victim in the BCCI scandal.
And so, not long after he joined forces with Harken, George W. Bush found himself in Little Rock with Jackson Stephens, who began to put a rescue plan in motion by raising $25 million from the Union Bank of Switzerland to invest in Harken in exchange for equity. What happened next was best reported in a 1991 article by Thomas Petzinger, Peter Truell, and Jill Abramson in the Wall Street Journal that detailed the links between BCCI and Harken after George W. Bush became a board member of the struggling oil company.
From the start, the deal Stephens put in play had two anomalies: For one thing, the Union Bank of Switzerland didn't ordinarily put money in small U.S. firms. For another, UBS was linked to BCCI through a joint-venture partnership in a Geneva-based bank. 
Before the deal could be finalized, however, the financing from UBS ran into unrelated difficulties and fell apart. As a result, still another financier was needed to rescue Harken.  This time, Stephens introduced Harken to a new investor, Abdullah Taha Bakhsh, a real estate magnate from Jeddah, whose subsequent injection of capital resulted in his ownership of 17.6 percent of Harken's stock.
A well-known Saudi investor, Bakhsh had been a founding member of the board of Investcorp, the enormous global investment group.  Bakhsh had had business dealings with the most prominent people in Saudi Arabia, including members of the Saudi royal family.  He also had at least two ties to BCCI. According to the Journal, he had been chairman of the Saudi Finance Co., a holding company partly controlled by BCCI shareholders. In addition, he was well acquainted with bin Mahfouz. 
All parties concerned -- bin Mahfouz, Bakhsh, and Harken -- have denied that Bakhsh's role in Harken had anything to do with BCCI or his relationship to bin Mahfouz.  "Mr. Bakhsh was not in any way representing Khalid bin Mahfouz's interests in any investment by Mr. Bakhsh in Harken Energy," says Cherif Sedky. 
Certainly, the Saudis could allow companies like BCCI to engage indirectly in major transactions while giving the principals plausible deniability about what was really going on. "In general, there are two sorts of investment mechanisms that wealthy Saudi businessmen do in the U.S.," says Saudi oil analyst Nawaf Obaid, "those in which they act on their own behalf, and those done on behalf of a group or consortium." 
Or, as the 1992 Senate investigation into BCCI put it, BCCI's principal mechanisms for doing business included "shell corporations, bank confidentiality and secrecy havens, layering of corporate structure, front men and nominees, back-to-back financial documentation among BCCI-controlled entities, kickbacks and bribes, intimidation of witnesses, and retention of well-placed insiders to discourage governmental action." 
In their group investments, the Saudis at times made the identities of their investors intentionally opaque. When Salem bin Laden and Khalid bin Mahfouz had first come to Houston in the seventies, they had taken on James Bath as their representative to do business deals in which they were not always visible as investors. Even if Bakhsh wasn't representing bin Mahfouz or BCCI, a knowledgeable Saudi source speculates that the Harken investment may have been part of the same strategy the Saudis had of investing in U.S. companies that were connected to powerful politicians.
Moreover, this serendipitous infusion of capital was not the only windfall for Harken that was tied to BCCI. In January 1990, by which time the elder George Bush had become president, Harken came into another stroke of unexpected good luck. The beleaguered oil company had had no offshore drilling experience whatsoever and had never even drilled outside the borders of the United States. Nevertheless, tiny Harken stunned industry analysts by beating out giant Amoco to win exclusive offshore drilling rights in Bahrain -- thanks to yet another BCCI stockholder, the prime minister of Bahrain, Sheikh Khalifa bin Salman al Khalifa.
By all accounts, George W. Bush was against the Bahrain deal and argued that Harken was too inexperienced to undertake such a costly and sophisticated venture on the other side of the globe.  "I thought it was a bad idea," he said, adding that he "had no idea that BCCI figured into Harken's financial dealings." 
But because he was the son of the president of the United States, people were lining up to do business with him. In the end, the Harken board found the prospects irresistible. Bush went along with it when the final vote came. Striking oil was never a sure thing, but if Harken got lucky, the payoff could be enormous. "This is an incredible deal, unbelievable for this small company," Houston energy analyst Charles Strain told Forbes. 
No one in the oil industry doubted that the Bahrain deal happened solely because Bush's father was president. Moreover, George W. Bush was one of its greatest beneficiaries and profited handsomely from it. Harken was hemorrhaging money at the time and the prospects of the Bahrain deal kept the stock price reasonably high. And since George W. had a far more grandiose business deal on his mind, the timing could not have been more fortuitous. On May 17, 1990, Bush attended a special meeting of the Harken board of directors that was called during a crisis. According to internal documents from Harken obtained by the Boston Globe, the board was told that Harken was expected to run out of money in just three days. 
At the time, one of Harken's biggest investors, the endowment fund of Harvard University, had engineered a plan to stave off bankruptcy by spinning off two of Harken's most troubled divisions.  [iii] According to a Harken memo, if the plan did not go through, the company had "no other source of immediate financing." 
Five days later, on May 22, Harken issued an announcement about the plan to spin off its divisions, but it expressly stated that terms of the offering were still being formulated. Meanwhile, Bush had taken out a $500,000 loan to buy into the Texas Rangers baseball team -- an investment that would later bring him $15 million and was thinking of selling his Harken stock to pay off the loan. In early June, he asked Harken's general counsel for advice.  In response, Bush was given a nine-page memo dated June 15, 1990, and titled "Liability for Insider Trading and Short-Term Swing Profits."
It explicitly cautioned Bush about trading so soon after the meeting the previous month: "The act of trading, particularly if close in time to the receipt of the inside information, is strong evidence that the insider's investment decision was based on the inside information. ... The insider should be advised not to sell." 
On June 22, just a week after the memo was written, Bush ignored the warnings given to him in it and sold 212,140 shares of stock for $848,560. It was just in time: about two months later, Harken announced soaring losses for the second quarter of $23 million. Before the year was out, the stock had plummeted from $4 to $1.25.
Not long afterward, the Securities and Exchange Commission began to consider whether to bring insider-trading charges against Bush. According to a July 1991 SEC memo, Bush declined to turn over many documents to the SEC, claiming they were private correspondence between him and his lawyer. "Bush has produced a small amount of additional documents, which provide little insight as to what Harken nonpublic information he knew and when he knew it," the memo said. 
On August 21, 1991, however, the SEC ruled that it would not charge Bush with insider trading. Not until the next day did Bush's attorney finally turn over the memo warning Bush against insider trading.  California securities lawyer Michael Aguirre told the Boston Globe that he was surprised the SEC did not probe more deeply into the case. "It appears that Mr. Bush had insider information," he said, "that he was told that such insider information could be considered material, [and] was given express warnings about what the consequences could be."
However, it is not difficult to make a case that the SEC may have been lenient because it had close ties to the Bushes. At the time, Bush's father was president of the United States. The chairman of the SEC was Richard Breeden, a former lawyer from James Baker's firm, Baker Botts, and a good friend of the Bush family's who had been nominated to the SEC by President George H. W. Bush.  In addition, the SEC's general counsel at the time of the investigation was James Doty, another Baker Botts attorney, who had represented George W. Bush earlier when he negotiated to buy an interest in the Texas Rangers.  (Doty recused himself from the investigation.) Bush himself was represented in the SEC case by Robert Jordan, who had been law partners with both Doty and Breeden at Baker Botts and who later became George W. Bush's ambassador to Saudi Arabia.  Insider-trading allegations aside, Harken was also under fire because of its ties to BCCI. Criticism went all the way to the Bush White House, which repeatedly denied that anything underhanded was going on. "There is no conflict of interest, or even the appearance of conflict, in these business arrangements," said presidential press secretary Marlin Fitzwater. 
The younger Bush was not the only figure close to the president who appeared to benefit from BCCI. In August 1991, President George H. W Bush's political director, Ed Rogers, was leaving the White House. Rogers, who had only briefly practiced law, accepted a $600,000 contract to be a lawyer for BCCl's American representative, Sheikh Kamal Adham.  Likewise, the deputy manager of the 1992 Bush reelection campaign, James A. Lake, won a lucrative contract as an adviser with another BCCI -- associated company.  One by one, BCCI hired government officials, federal prosecutors, and Federal Reserve attorneys. [iv]
The elder George Bush deftly deflected charges about BCCI. "I would suggest that the matter is best dealt with by asking [Ed Rogers] what kind of representation he is doing for this sheikh," he told a press conference. "But it has nothing to do, in my view, with the White House."
Yet there is evidence that Saudi favors to Bush interests had begun to payoff. In August 1990, Talat Othman, a Chicago investor of Arab descent who represented the interests of Abdullah Taha Bakhsh on the board of Harken Energy, was granted unusual access to the president and attended White House meetings with him to discuss Middle East policy -- at a time of crisis during which the Gulf War was brewing. [v] The White House, George W. Bush, and Harken all denied that Othman's presence was related to Bakhsh's investment.
In addition, according to the 1992 Senate BCCI investigation, the Bush Justice Department went to great lengths to block prosecution of BCCI. The Senate probe determined that federal officials repeatedly obstructed congressional and local investigations into BCCI, and for three years thwarted attempts by Manhattan district attorney Robert Morgenthau to obtain critical information about the bank.
The Senate investigation concluded that in 1990 and 1991 the Bush Justice Department, with Assistant Attorney General Robert Mueller [vi] leading the way, consistently put forth the public impression that it was aggressively moving against BCCI. But, in fact, the Senate probe said the Justice Department was actually impeding "the investigations of others through a variety of mechanisms, ranging from not making witnesses available, to not returning telephone calls, to claiming that every aspect of the case was under investigation in a period when little, if anything, was being done." 
Specifically, among other charges, the Senate report alleged that a federal prosecutor lied to Morgenthau's office about important material; that federal prosecutors failed to investigate serious allegations that BCCI laundered drug money; and that Justice Department personnel in Washington, Miami, and Tampa actively obstructed and impeded congressional attempts to investigate BCCI in 1990, and this practice continued to some extent until William P. Barr became attorney general in late October 1991.
There were many possible explanations for the Justice Department's failures -- bureaucratic rivalries and ineptitude among them. But BCCI had also shown it could undermine the judicial process in many countries. In the media, the Washington Post, Time, and many others speculated that that was exactly what was happening in the Bush Justice Department.
Given the international scope of BCCI's crimes, however, even the White House could not keep investigators away from BCCI forever. On July 5, 1991, in Great Britain, the Bank of England finally shut the bank down, letting it collapse under $12 billion of debt, and opening the way for charges in the United States and Europe against bin Mahfouz and his associates.
On July 1, 1992, Morgenthau indicted bin Mahfouz for allegedly having fraudulently obtained $300 million from BCCI depositors. BCCI's Ponzi schemes and unorthodox accounting procedures had created an insolvent bank that had defrauded depositors of between $5 billion and $15 billion. It was the biggest fraud in banking history. In England, the Observer described it as "the Gulf sheikhs' version of Robin Hood: robbing the poor to help the rich." 
A spokesman for bin Mahfouz says the indictment was "completely unwarranted."  Nevertheless, bin Mahfouz immediately resigned his position as chief operating officer of the National Commercial Bank in Saudi Arabia. To settle the charges against him, in 1993 he paid $225 million in restitution and penalties. As part of the settlement agreement, bin Mahfouz was forbidden to engage in banking in the United States in perpetuity. He also later paid an additional $253 million to settle claims with BCCI creditors. "It was a very painful experience," bin Mahfouz said, "... I'm glad it's nearly over. You are an example of your family. You have to be strong in front of your customers and in social life, but inside you are personally shattered."
As for BCCI's links to the Bush family, when political opponents suggested something was amiss, as Ann Richards's campaign did in the 1994 Texas gubernatorial race, it often blew up in their faces. "George W. Bush did not take proper precautions in choosing his business partners," says Jason Stanford, a former aide to Ann Richards, who lost the gubernatorial race to Bush. "Your average small-town preacher had better sense. These BCCI guys had some pretty bad criminal problems at the time, so there was a hint of trying to buy favors. Maybe they were hoping for a pardon -- who knows?" 
However, when the Richards campaign attacked Bush on the issue, they were assailed as conspiracy nuts. "Ann Richards has dragged her campaign into the gutter," said Bush spokeswoman Karen Hughes. "We have no response to silly conspiracy theories." 
The strongest critique of the Bush family's relationship with BCCI came from the 1991 Wall Street Journal. "An investigation by this paper has not revealed evidence of wrongdoing or influence-peddling by George W. Bush or anyone else connected with Harken," the Journal reported. "Yet what does emerge is a complex pattern of personal and financial relationships behind Harken's sudden good fortune.
"The mosaic of BCCI connections surrounding Harken Energy may prove nothing more than how ubiquitous the rogue bank's ties were. But the number of BCCI-connected people who had dealings with Harken -- all since George W. Bush came on board -- likewise raises the question of whether they mask an effort to cozy up to a presidential son." 
With regard to this tantalizing but murky relationship between the Bushes and the Saudis, the Journal could not possibly have known two things. One was that bin Mahfouz, the biggest stockholder in the most corrupt financial institution in history, would later be seen by U.S. counterterrorism analysts as the owner of one of the key conduits for the growing global terror network. And the other was that George W. Bush would become far more than just another presidential son.
[i] According to Bill Burkett, a former lieutenant colonel in the Texas National Guard, when Bush was governor of Texas and beginning plans to run for the presidency in 2000, his aides visited National Guard headquarters "on numerous occasions" to make sure that public records about his military service squared with his official autobiography's version of his service in the guard. Bush's military records read, somewhat mysteriously, "Not rated for the period 1 May 1972 through 30 April 1973. Report for this period not available for administrative reasons." A website at www.awolbush.com/ offers readers many of the relevant documents.
[ii] Readers may recall that as head of the Export-Import Bank in 1984, Draper, in response to lobbying from Vice President George H. W. Bush, reversed bank policy and guaranteed loans to Saddam Hussein's Iraq.
[iii] For decades, the most influential person overseeing Harvard's endowment was Robert Stone Jr., an oilman who has been described as "the driving force behind its energy investments." The Wall Street Journal reported that it was not clear if the Bush and Stone families were friends, but they were politically aligned and both had been residents of Greenwich, Connecticut, and Houston, Texas. "Mr. Stone was a financial supporter of the senior Mr. Bush when he ran for president in 1979, as were his father, siblings, and executives at his oil and gas company," the Journal reported. "Mr. Stone and his wife, Marion, also contributed to the senior Mr. Bush's successful 1988 run."
[iv] According to the Senate investigation, other high-level Washington officials hired by BCCI and its various fronts were a former secretary of defense (Clark Clifford), former senators and congressmen (John Culver, Mike Barnes), former federal prosecutors (Larry Wechsler, Raymond Banoun, and Larry Barcella), a former State Department official (William Rogers), and former Federal Reserve attorneys (Baldwin Tuttle, Jerry Hawke, and Michael Bradfield). In addition, BCCI solicited the help of Henry Kissinger, who chose not to do business with BCCI but made a referral of BCCI to his own lawyers.
[v] In 2002, during the presidency of George W. Bush, Othman again won access to the White House and met with Secretary of the Treasury Paul O'Neill to discuss U.S. government raids on Muslim charities that were allegedly funding terror.
[vi] Mueller became the director of the FBI under President George W. Bush.
1. Molly Ivins and Lou Dubose, Shrub, p. xxi.
2. Michael Lind, Made in Texas, pp. 7-9.
3. Bill Minutaglio, First Son, p. 121.
4. George Lardner Jr., "Texas Speaker Reportedly Helped Bush Get into Guard," Washington Post, September 21, 1999, p. A4. In 1999, a spokesman for Bush, who was then governor of Texas, said, "Governor Bush did not need and did not ask anybody for help."
5. Chris Williams, "Did Bush Serve? Claims He Was in Alabama Guard, but There's No Record," Associated Press, June 25, 2000.
6. Francis S. Greenlief, Major General, Chief, National Guard Bureau, September 29, 1972, www.talion.com/suspension.html.
7. "Not rated for the period 1 May 1972 through 30 Apri1 1973. Report for this period not available for administrative reasons," www.talion.com/admin.html.
8. George Lardner, Jr. and Lois Romano, "George Walker Bush," Washington Post, July 30, 1999, p. Al.
9. Ivins and Dubose, Shrub, pp. 22,23.
10. Lardner and Romano, "George Walker Bush," p. A 1.
12. Eric Pooley, Time, June 14, 1999, http://www.www10.cnn.com/ALLPOLITICS/time/1999/06/14/bush.groove.html .
13. "World Oil Market and Oil Price Chronologies: 1970-2002," Energy Information Administration, Department of Energy, www.eia.doe.gov/emeu/cabs/chron.html .
14. "The Bush-Saudi Axis," Time, September 15, 2003, www.time.com/time/covers/1101030915/# .
15. Minutaglio, First Son, p. 208.
16. Lardner and Romano, "George Walker Bush," p. A 1.
17. Thomas Petzinger Jr., Peter Truell, and Jill Abramson, "Family Ties: How Oil Firm Linked to a Son of Bush Won Bahrain Drilling Pact," Wall Street Journal, December 6, 1991, p. A 1.
18. Lardner and Romano, "George Walker Bush," p. A 1.
19. Petzinger, Truell, and Abramson, "Family Ties," p. A 1.
20. Pooley, Time.
22. Petzinger, Truell, and Abramson, "Family Ties," p. A 1.
23. Interview with Cherif Sedky, attorney for Khalid bin Mahfouz.
24. E-mail correspondence with Cherif Sedky.
25. Paul Krugman, "Succeeding in Business," New York Times, July 7, 2002.
26. Richard Behar, "The Wackiest Rig in Texas," Time, October 28, 1991, p. 78.
27. Interviews with James Bath and Cherif Sedky.
28. Interview with Cherif Sedky.
30. Interview with source who boarded bin Mahfouz's planes.
31. Bin Mahfouz's attorney, Cherif Sedky, says that even though bin Mahfouz had invested nearly $1 billion in BCCI, he was little more than a passive figure in its operations. "You have to take everything in scale and context," says Sedky. "A billion is a lot of money, but it is not out of scale when I say 'passive.'" In an e-mail, Sedky added, "To the best of [Khalid bin Mahfouz's] present and unrefreshed recollection, he attended no more than three meetings of the board." "Outlaw Bank," Financial Times, July 13, 1992; and Douglas Farah, "Al Qaeda's Road Paved with Gold," Washington Post, February 17, 2002, p. A 1.
Al Qaeda's Road Paved With Gold
By Douglas Farah
DUBAI, United Arab Emirates -- Just as the United States and its allies swept toward Afghanistan's main cities last autumn, the ruling Taliban and Osama bin Laden's al Qaeda network sent waves of couriers with bars of gold and bundles ofdollars across the porous border into Pakistan.
In small shops and businesses along the border, the money and gold, taken from Afghanistan's banks and national coffers, were collected and moved by trusted Taliban and al Qaeda operatives to the port city of Karachi, Pakistan, according to sources familiar with the events.
Then, using couriers and the virtually untraceable hawala money transfer system, they transferred millions of dollars to this desert sheikdom, where the assets were converted to gold bullion. The riches of the Taliban and al Qaeda were subsequently scattered around the world -- including some that went to the United States -- through a financial structure that has been little affected by the international efforts to seize suspected terrorist assets.
This account of the flight of the Taliban and al Qaeda treasure from Afghanistan is based on dozens of interviews in Pakistan, the United Arab Emirates, Europe and the United States. The gold trail was described by intelligence officers, law enforcement officials, gold brokers, and sources with direct knowledge of some of al Qaeda's financial movements, but not by Taliban or al Qaeda operatives.
The interviews offered a tantalizing glimpse into the critical yet mysterious role played by gold in the finances of al Qaeda, both before and after the Sept. 11 attacks. Gold has allowed the Taliban and bin Laden to largely preserve their financial resources, despite the military attack that battered their forces in Afghanistan, investigators and intelligence sources said.
Al Qaeda also used diamonds purchased in Sierra Leone and the Democratic Republic of Congo, tanzanite from Tanzania and other commodities to make money and hide assets. But gold played a uniquely important role in the group's financial structure, investigators and intelligence sources said, because it is a global currency.
"Gold is a huge factor in the moving of terrorist money because you can melt it, smelt it or deposit it on account with no questions asked," said a senior U.S. law enforcement official investigating gold transactions. "Why move it through Dubai? Because there is a willful blindness there."
Exempt from international reporting requirements for financial transactions, gold is a favored commodity in laundering money from drug trafficking, organized crime and terrorist activities, U.S. officials said. In addition, Dubai, one of seven sheikdoms that make up the United Arab Emirates, has one of the world's largest and least regulated gold markets, making it an ideal place to hide.
Dubai is also one of the region's most open banking centers and is the commercial capital of the United Arab Emirates, one of three countries that maintained diplomatic relations with the Taliban until shortly after Sept. 11. Sitting at a strategic crossroad of the Persian Gulf, South Asia and Africa, Dubai has long been a financial hub for Islamic militant groups. Much of the $500,000 used to fund the Sept. 11 attacks came through Dubai, investigators believe.
"All roads lead to Dubai when it comes to money. Everyone did business there," said Patrick Jost, who until last year was a senior financial enforcement officer in the Treasury Department's Financial Crimes Enforcement Network.
32. Petzinger, Truell, and Abramson, "Family Ties," p. A 1.
34. Larry Gurwin and Adam Zagorin, "All That Glitters," Time, November 6, 1995, p. 52.
Monday, Nov. 06, 1995
ALL THAT GLITTERS...
FOR YEARS, GUCCI HAD BEEN descending from Riviera swank to Jersey gaud. Its overlicensed double-G appeared on everything from coffee mugs to ashtrays. Fake versions of its handbags were sold on urban street corners everywhere. Then, suddenly, it found a shoe that fit: a sexy, backless clodhopper that became the must-have of devotees of high style in 1993. Gucci went on a winning streak. By March 1995 its designer, Tom Ford, was electrifying the fashion world with a revival of '60s rebellion. Soon celebrities like Madonna were in head-to-toe Gucci. At the company's London boutique this fall was a waiting list 100 chic names long for the new, $325 velvet hip-huggers. At Bergdorf Goodman in Manhattan, 256 women await a reshipment of $295 high-heel pumps. The fever has hit Wall Street. Last week Gucci was the red-hot initial public offering. At $22 a share, the once unhip, money-losing 72-year-old Florentine company was worth $1.3 billion.
No one is as happy about that turnaround as Nemir Kirdar, 59, the Iraqi-born founder and president of Investcorp, the Arab investment boutique that engineered Gucci's turnaround. Shod in black reptile-skin Gucci loafers, Kirdar sat confidently in his company's New York City office--occupying the entire 37th floor of a Park Avenue high-rise--contemplating Gucci's renaissance. After Investcorp bought the company in the late 1980s, Gucci lost so much money some feared it would go bust. "There was a time," says Kirdar, "when--in the minds of several of our clients as well as some of our own professionals--Gucci was a write-off." But during the first half of this year, Gucci posted a $24.8 million profit, five times the figure for the same period last year.
Gucci is only one of many jewels in Kirdar's crown. In 1984 Investcorp bought Tiffany & Co.--and sold it in a 1987 public offering for six times its purchase price. In 1990 Investcorp bought Saks Fifth Avenue. Since its founding in 1982, Kirdar's bank has arranged more than 50 acquisitions in the U.S. and Europe, valued at more than $7 billion. Such deals have spawned press accounts praising the bank's "gold-plated reputation" and Kirdar as "the banker to billionaires...a legend in financial circles." Says G. William Miller, a former Treasury Secretary: "Investcorp [has] shown a tremendous ability to buy, develop and sell businesses."
A close look at Investcorp's record, however, indicates its reputation may not be entirely deserved. Many Investcorp acquisitions have turned into costly disappointments. The bank stands accused of serious misconduct in two court cases that have received almost no public attention. Moreover, former executives of a prestigious jewelry firm under Investcorp control have told TIME they believe the firm has engaged in misleading accounting practices. Investcorp has a cozy relationship with officials in Bahrain, where the company is based and where the government is responsible for regulating it.
Although Investcorp calls itself a merchant bank, it is more like a leveraged buyout firm, the Arab world's answer to Kohlberg Kravis Roberts. Kirdar rounds up brand-name companies and repackages them for sale to deep-pocket clients in the Persian Gulf. At the right moment, Investcorp and its partners "cash out" by selling off acquisitions at a profit--through a private sale or a public stock offering. Investcorp certainly spends money like a billionaires' bank. An eight-story headquarters in Bahrain (Investcorp House) is complemented not only by the premises on New York's Park Avenue but also by posh offices in London's Mayfair district. White-uniformed butlers glide around serving executives catered gourmet lunches at their desks. Many clients receive annual invitations to conferences like one held in July at New York's Waldorf-Astoria. In 1992, on the occasion of its 10th anniversary, Investcorp threw a lavish party at London's Victoria and Albert Museum. Guests nibbled on caviar served from ice sculptures and strolled under garlands of peonies adorned with caged songbirds. When major deals are in the works, senior executives zoom across the Atlantic on the Concorde. "They fly the Concorde if they want a salami sandwich," jokes a former bank adviser. "I've never seen anybody throw money around like Investcorp."
Before launching Investcorp, Kirdar worked for Chase Manhattan Bank, where he was in charge of operations in the Persian Gulf. (Many of his senior executives are Chase alumni.) He was there at the height of the oil shocks of the 1970s and forged close ties with some of the richest men in the region. Abdul-Rahman Al-Ateeqi, a former Oil Minister and Finance Minister of Kuwait, has been Investcorp's chairman since the beginning. The vice chairman, Ahmed Ali Kanoo, heads a family with a net worth estimated at $1.5 billion.
In 1983, just a year after the bank was launched and when Kirdar and his colleagues were doing business from rented space in a Holiday Inn in Bahrain, he boasted that he was putting together a bank "like something J.P. Morgan envisaged." Thanks to Kirdar's connections, Investcorp was able to raise $50 million in start-up capital and four years later another $50 million. Investcorp's list of founding shareholders reads like a Who's Who of the gulf, including the names of dozens of leading businessmen and members of the region's ruling families, among them Sheik Ahmed Zaki Yamani, the former Oil Minister of Saudi Arabia, and seven members of the Saudi royal family. The vips generated tremendous interest, and when the new bank sold a large chunk of its stock to the public, prospective buyers in Bahrain queued up at dawn.
The bank has reported healthy profits year after year. (In 1994 it posted a net profit of $51 million, down from record earnings of $67.3 million in 1993.) Its stock, listed on the Bahrain Stock Exchange, has quadrupled in price since the bank's founding. But for Investcorp clients who participate in takeovers arranged by the bank, it has not always been smooth sailing. Many deals have been duds. Dellwood Foods, a troubled New York dairy acquired in 1985, languishes unsold in Investcorp's portfolio. Also unsold is Chaumet, a world-famous French jeweler, which has racked up millions of dollars in losses. Other flops include the Carvel ice-cream chain and New York Department Stores of Puerto Rico, disposed of last year at a substantial loss. A huge disappointment has been Color Tile, America's largest chain of floor-covering stores. The company lost $46.3 million last year and was close to bankruptcy until Investcorp and other investors pumped in $30 million in August. Kirdar acknowledges that many deals have not worked out as hoped, but cites the bank's willingness to work with troubled companies over the long haul, nursing them back to health.
Investcorp's biggest deal ever was the 1990 takeover of Saks Fifth Avenue. When Investcorp bought the prestigious chain, it was evidently hoping to repeat its triumph with Tiffany. Investcorp certainly promoted Saks to its clients that way. A 1990 private-placement memo to Arab clients obtained by TIME contains an extremely bullish forecast on the first page: Saks was expected to produce an investment return of 25.9% a year, and was likely to be sold within four years. One reason Investcorp failed to repeat its Tiffany coup with Saks is that the $1.6 billion purchase price was $200 million to $300 million too high, according to several sources, including a former Investcorp executive with direct knowledge of the deal. "Kirdar wanted it badly," recalls this source, "and he said, 'Let's just do a bid that'll knock everybody out.'" During the two years after the takeover, Saks reportedly lost $398 million, and Investcorp and its clients were forced to invest an additional $300 million in the company. More than five years have passed, and there has been no public offering. Investcorp says Saks has rebounded, but it declines to provide details or predict when the company will go public.
How has Investcorp managed to raise billions of dollars when its track record is so uneven? Its sales force is based in Bahrain, about an hour's flight from most of the bank's clients. Scores of Arabic-speaking marketers travel throughout the region, offering deals and updates on past transactions. It's a level of "expensive, personalized service," says Kirdar, that Investcorp's competitors can't match. Investcorp's success in the Middle East may also be due to its marketing documents, which are not overseen by Western regulatory agencies. The contrast is striking between an Investcorp private-placement memorandum and a prospectus approved by the Securities and Exchange Commission. The SEC-approved prospectus for Gucci is filled with warnings and disclaimers, including a section on "risk factors" that runs 3 1/2 pages. A Saks private-placement memorandum circulated to mostly Arab investors discusses risk factors in less than a page and the language is much less blunt.
Cultural factors also help explain Investcorp's marketing success. When the bank got started in the early 1980s, many of its Arab clients were unschooled in Western business practices. Kirdar was their bridge to the West. He spoke their language, sprang from their culture, yet was Western educated (he has an M.B.A. from New York's Fordham University) and had trained in a big U.S. bank. Kirdar understood his clients' taste in brand names. One reason Investcorp bought Gucci, says an Arab banker, is that "the Arabs wear the shoes." Many were happy to hand millions of dollars to Kirdar with few strings attached.
Now, a younger generation of wealthy Arabs tends to be more sophisticated--and less willing to let Investcorp managers stuff their portfolios with shares of uncertain value. An adviser to an Arab family with a net worth between $500 million and $1 billion told Time his clients have become disenchanted. "If you hit on one of their big deals like Tiffany, the rewards can be spectacular. But a whole string of others have been very disappointing, and all they do is send you fancy reports with Investcorp's latest solution for a turnaround and very little numerical analysis. You have no recourse."
The questions about Investcorp go beyond its dealmaking record. Two former executives of Chaumet, which the bank took over in 1987, accuse it of engaging in accounting gimmickry. The elegant French jeweler, with headquarters in Paris' Place Vendome, was acquired for $45 million in a court-supervised sale after its previous owners were charged with fraud and forced into bankruptcy. Investcorp then sold chunks of the company to clients. Later, as part of a turnaround strategy, seasoned French jewelry executive Charles Lefevre was installed as chairman, working under Investcorp's close supervision.
Despite Lefevre's efforts, Chaumet lost about $24 million in 1992. Early the next year, Investcorp held a board meeting in Paris, and Lefevre was invited to meet the directors. In view of the losses, Lefevre was bracing himself for criticism--or at least some tough questions. Instead, he recalls, "they said, 'Congratulations--for the first time you're showing a profit.'"
DURING HIS TENURE AT CHAUMET, Lefevre says, he uncovered many questionable accounting practices--an observation shared by another former executive. For example, Lefevre discovered that in 1990 Chaumet had sold about $4 million worth of jewelry to a customer in the gulf. The supposed sale, says Lefevre, was a sham. He claims that they "sent worthless merchandise" and that the bill was not paid. But the existence of the invoice made it possible to book $4 million in extra revenue for that year, enabling Chaumet nearly to break even. (Investcorp insists Chaumet never engaged in such practices.)
Lefevre also says Chaumet sold watches and jewelry at inflated prices to a shell company in Switzerland called Lausanne Investments; he says the sales allowed Chaumet to get poorly selling merchandise off its books without showing a loss. (Thousands of watches were later sold to dealers in the U.S. at a fraction of their inventory value, according to sources with direct knowledge of the transactions.) Chaumet's 1993 and 1994 financial statements, filed in a French commercial court, refer to the company's transactions with Lausanne but do not reveal who owned or controlled it.
Lefevre says he protested what he regarded as improper accounting and left the company in early 1993. The remainder of his contract was paid off in full via a wire transfer from a bank in the Cayman Islands. Curiously, Lefevre notes, the money was wired not by Chaumet or even Investcorp but by Lausanne Investments.
Investcorp denies it ever misinformed Chaumet's shareholders about the company's performance and says they knew Chaumet lost money in 1992. The bank acknowledges that clients do not receive complete financial statements (unless they ask for them) but only "investment reports" showing operating income (before interest and taxes) rather than net income. Since clients agree to receive information in this form, says Investcorp, there is no problem. That ignores a critical factor: Chaumet's sales of inventory to Lausanne at inflated prices. If it had not been for those sales, Chaumet would have reported much higher losses in 1993 and 1994.
And who owns Lausanne Investments? "Investcorp does not own Lausanne Investments," a bank spokesman declared. When TIME pursued the issue, the spokesman changed his answer. Lausanne, he said, was owned by the same investors who own Chaumet--a group led by Investcorp. This means Investcorp controlled the seller and the buyer and used that control to slash Chaumet's losses. While there is nothing odd about a jeweler's disposing of excess stock this way, Lausanne's ownership is not disclosed in Chaumet's publicly filed financial statements, which means anyone who read them would get a distorted impression of the company's performance. Investcorp insists its own clients were informed, but declines to provide documentation. "We give our clients what they need," says Kirdar. "We do not mislead them."
Moreover, if you believe the plaintiffs in two civil suits against Investcorp, the company doesn't always play straight. When Investcorp took over the Circle K convenience-store chain in 1993, it did so through a vehicle called CK Acquisitions. That shell company has now been sued by rival bidders for allegedly making false statements to a bankruptcy-court judge who had to approve the bid. The complaint alleges that CK Acquisitions failed to disclose that Circle K management would own stock in the retailer after the takeover. (That was an important point because it could help explain why management endorsed the offer.) The plaintiffs are seeking $30 million in actual damages and $200 million in punitive damages. Investcorp's law firm managed to get the action dismissed, but last spring a judge reinstated it, saying the issues were too complex and important to be decided without a trial. Investcorp partner Savio Tung denies the allegations in the complaint. Says he: "We did not do anything wrong."
Another little-noticed case involves even more serious charges. The complaint, filed in Manhattan federal court, accuses Investcorp and five of its board members, as well as other defendants, of fraud and extortion. According to the complaint, the defendants tried to loot the Saudi European Bank, an Arab-owned institution in Paris. The lawsuit was filed by the bank's former parent company, headed by Syrian-born banker Jamal Radwan. The complaint charges that several defendants concocted a scheme for Investcorp to take over Saudi European Bank. In addition, Kirdar allegedly threatened to persuade other banks to stop doing business with Radwan's. Some of the individuals named in the complaint are also accused of trying to bribe and threaten Radwan to get him to approve "uneconomic and illegal loans and business transactions for their personal benefit." A few of these individuals drained money out of the bank, the complaint alleges, "by making fraudulent statements and presenting false and misleading financial information," leading to bad loans. In 1989 Saudi European nearly collapsed, and in order to avert a financial crisis, French authorities arranged for an investment group to take it over. According to the lawsuit, fraudulent borrowing and other misconduct by the defendants had crippled the bank. Investcorp and several other defendants have filed motions to dismiss the complaint. A number of them are also plaintiffs in continuing litigation against Radwan in which they accuse him of swindling them out of several million dollars. (In fact, Radwan conceived his own lawsuit as a "counterattack.") He denies the allegations.
The Saudi European suit, according to Investcorp general counsel Lawrence Kessler, is "completely without merit, and we expect to see it dismissed." (Other defendants deny all charges). When TIME asked Kirdar to comment on the litigation, he not only rejected the charges but also said he barely knew Radwan and doubted he had ever spoken more than "15 words" to him. Both men, however, worked for Chase Manhattan in the Middle East in the '70s and, says Radwan, both attended management meetings. Radwan supplied Time with a photograph of himself with Kirdar taken in Switzerland in 1988.
Whatever the merits of the complaint, it highlights the intriguing background of a key Investcorp insider: Abdullah Taha Bakhsh, a Saudi tycoon who has served on Investcorp's board since the bank was founded and who helped persuade other rich Saudis to invest. (Like Investcorp, Bakhsh filed a motion to dismiss the Saudi European action, and his lawyer expects it to be granted.) The complaint points out that Bakhsh was a major shareholder of Paris-based Al Saudi Banque, which collapsed in 1988, and accuses him of looting that institution. One of Bakhsh's other holdings is the First Commercial Financial Group, a commodities futures firm in Chicago that has been sanctioned repeatedly by regulators. In a court ruling in 1990, a judge held that First Commercial failed to raise "a single credible defense" to a customer's allegations that the firm had defrauded him. "The case," wrote the judge, "establishes once more that there are virtually no limits to greed, or the ingenuity of men in devising schemes to cheat." First Commercial is still having run-ins with regulators. Last May the Commodity Futures Trading Commission accused it of engaging in a check-kiting scheme to mislead regulators about its financial condition. The firm is fighting the charges.
The issue of bank regulation is a vital one in the wake of scandals at Britain's Barings Bank and Japan's Daiwa Bank. The biggest debacle of recent years was the 1991 collapse of the Bank of Credit and Commerce International, which cost depositors billions of dollars. Much of the blame was placed on regulators who seemed oblivious to B.C.C.I.'s frauds. No one is suggesting that this is another B.C.C.I. case in the making. When questioned about Investcorp's practices, its officials noted that the bank is licensed in Bahrain and is well supervised. "It's a very strong regulatory agency," says Kessler.
But questions remain. Investcorp has thrived in the Bahraini environment, perhaps because some of the most powerful businessmen in the tiny island state are directors and major shareholders. When the bank was founded, it was granted an extraordinary privilege by the Bahrain government. At the time, foreigners were barred from buying stock in publicly traded companies unless they were citizens of Bahrain or of one of five neighboring countries in the Gulf Cooperation Council. The Bahrain authorities allowed Investcorp to sell 25.8% of its stock to a company owned entirely by citizens of Iraq (a non-gcc country), including Kirdar. Another clue to the bank's status in Bahrain appears in an SEC filing by Sports & Recreation Inc., a Tampa, Florida-based firm that sells sporting goods through Sports Unlimited shops. When Investcorp took the firm public in 1992, the prospectus said one of its largest shareholders was a shell company owned by Bahrain's Ministry of Finance. This would be roughly equivalent to the U.S. Treasury Department's putting money into a takeover arranged by a Wall Street buyout firm.
In the Middle East, where business deals are often driven by personal ties, Kirdar enjoys a warm relationship with Bahrain's Prime Minister, Sheik Khalifa bin Sulman al-Khalifa, a brother of the ruling Emir. Last year Sheik Khalifa met with Investcorp's board and commended the bank on its success. A press report on the meeting failed to mention that the ruling family may have a considerable personal stake in that prosperity: millions of shares were sold to members of the clan when the bank was founded. As for the Prime Minister, he may not be the best judge of banks. He used to own stock in B.C.C.I.
--With reporting by Ginia Bellafante/New York
35. Petzinger, Truell, and Abramson, "Family Ties," p. A 1.
36. E-mail correspondence with Cherif Sedky.
37. Ibid.; and Petzinger, Truell, and Abramson, "Family Ties," p. A 1.
38. E-mail to author from Cherif Sedky.
39. Interview with Nawaf Obaid.
40. The BCCI Affair: A Report to the Committee on Foreign Relations, United States Senate, by Senator John Kerry and Senator Hank Brown, December 1992, 102nd Cong., 2nd Sess., Senate Print 102-140.
41. Interview with Harken source.
42. Micah Morrison, "Who Is David Edwards?" Wall Street Journal, March 1, 1995, p.14.
43. Toni Mack, "Fuel for Fantasy," Forbes, September 3, 1990, p. 37.
44. Michael Kranish and Beth Healy, "Board Was Told of Risks Before Bush Stock Sale," Boston Globe, October 30, 2002, www.boston.com/dailyglobe2/303/nation/Board_was_told_of_risks_before_Bush_stock-sale+.shtml .
45. Glenn Simpson, "Harvard Was Unlikely Savior of Bush Energy firm Harken," Wall Street Journal, October 9, 2002, http://www.online.wsj.com/article-email/OSB1034111592892893796,00.html.
46. Kranish and Healy, "Board Was Told of Risks Before Bush Stock Sale."
48. White House spokesman Dan Bartlett pointed out that the memo was addressed to the Harken board and did not mention Bush by name. "This is a general memo that goes through the perfunctory guidelines of a rights offering," Bartlett said. "It was not specific to the transaction that the president was contemplating": ibid.
49. Kelly Wallace, "Senators: Release Records on Bush Stock Sale," CNN Washington Bureau, July 16, 2002, www.cnn.com/2002/ALLPOLITICS/07/14/bush.stock.sale/ .
50. Kranish and Healy, "Board Was Told of Risks Before Bush Stock Sale."
51. Mike Allen and George Lardner Jr., "Harken Papers Offer Details on Bush Knowledge," Washington Post, July 14, 2002, p. A 1.
52. Bennett Roth, "Clerical Mix-up Blamed in Bush Stock Sale Filing," Houston Chronicle, July 4, 2002, p. A 1.
53. Allen and Lardner, "Harken Papers Offer Details on Bush Knowledge," p. A 1.
54. Petzinger, Truell, and Abramson, "Family Ties," p. A 1.
55. The BCCI Affair, Senate Print 102-140.
58. Laurence Marks and Barry Hugill, "The BCCI Scandal," Observer, July 21, 1991, p.19.
59. Interview with Cherif Sedky.
60. Interview with Jason Stanford.
61. Associated Press Worldstream, November 3, 1994.
62. Petzinger, Truell, and Abramson, "Family Ties," p. A 1.
[LC-1] The Spanish word for "Bush" is mata : bush; shrub; matas : thicket. Rather, I believe that Arbusto is a pun, as in Our Boost-O: boost : crack cocaine; to steal; to inject a drug; -- 0 : nihilism.