Private Power Partnerships

It has all the makings of a Tom Clancy bestseller. The government plans to sell a stake in its top-secret defence laboratories – currently working on technology to enable people to live on the moon (anyone remember Ben Elton’s Stark?). The buyer? – a shadowy American organisation, with ex-presidents and prime ministers as special advisors, that has invested millions of dollars for the Bin Laden family and Saudi royalty.1

The deal, announced on 5th December, involves the US based private equity firm the Carlyle Group acquiring a 33.8% stake in the MoD owned research organisation QinetiQ, and is likely to send conspiracy theorists the world over wild. The Carlyle Group has already been accused of exerting undue influence over defence policy in the US. The group’s involvement in defence research in the UK raises an array of questions concerning potential conflicts of interest and the ever increasing influence that the US is exerting over UK defence policy.
The QinetiQ company was formed in July 2001 from the greater part of the Defence Evaluation and Research Agency (DERA), as part of the MoD’s plan to partially privatise the industry (something even the Tories didn’t think of trying). The company included the bulk of the MoD’s non-nuclear research, technology, and test and evaluation establishments.
Although the MoD originally intended to float the company on the stock exchange, market conditions led them to instead seek a public-private partnership (PPP). The MoD will receive between £140-150 million for the transaction and plans to sell its entire stake in QinetiQ within 3-5 years, probably through stock market flotation.
The Carlyle Group is certainly extremely well connected. It is one of the world’s largest venture capital groups and is chaired by former US Defense Secretary Frank Carlucci. The numerous former politicians on its payroll include George Bush Sr and his former Secretary of State James Baker; John Major; former chairman of the US Securities and Exchange Commission Arthur Levitt; the former Philippines President Fidel Ramos; and the former Thai Premier Anand Panyarachun. Carlyle’s headquarters on Pennsylvania Avenue in Washington DC, midway between the White House and the Capitol Building, reflect the group’s position at the very heart of the Washington establishment.
The group was formed in 1987 by a small group of executives including David Rubenstein, a former Jimmy Carter aide. Since then the group has faired exceedingly well and currently manages funds of more than $13.9 billion. Investors have included George Soros, members of the Saudi royal family and the wealthy Saudi Bin Laden family, who insist that they long ago severed all links with their notorious relative, but nevertheless withdrew their investment at the request of Carlyle in the wake of September 11. 2
Despite defence only constituting 7% of the group’s investment, in 2001 Carlyle was the 11th largest defence contractor to the US Department of Defence (DoD). Last year George W’s administration faced questioning over its support for the Crusader Advanced Field Artillery System, a $12 billion weapons program being built by United Defence Industries (UDI), owned by Carlyle. In September 2001, the US Army signed a $665 million contract to develop the system and in January 2002 George W signed a defence appropriation bill which included $487 million for the program. This was despite the Pentagon National Defence Panel rejecting the program as inappropriate for modern warfare as far back as 1997. The deal allowed Carlyle to float UDI on the stock exchange. The timing of the float – a couple of months after September 11th – drew criticism that the group was cashing in on terrorism.
As concerns about the links between the White House and the Carlyle Group continued to grow, George Bush Sr (who reportedly has an equity stake in Carlyle) and his relationship with the group also came under scrutiny. ‘Bush has to seriously consider the propriety of sitting on the board of a group that is impacted by his son’s decisions’ argued the Center for Public Integrity.3
Unsurprisingly, George W also has historical links to Carlyle. In 1990, he was appointed to the board of a Carlyle-owned airline food business called Caterair, which the group eventually sold at a loss. After he became Governer of Texas, he was responsible for appointing several members of the board controlling the investment of Texas teachers’ pension funds. A few years later the board decided to invest $100 million of public money in (you guessed it!) – Carlyle.4
Critics are concerned at the degree of insider influence Carlyle executives may exert: Peter Eisner, managing director of the Center for Public Integrity, argues, ‘It should be a deep cause for concern that that a closely held company like Carlyle can simultaneously have directors and advisors that are doing business and making money and also advising the president of the United States…The problem comes when private business and public policy blend together. What hat is former president Bush wearing when he tells Crown Prince Abdullah not to worry about US policy in the Middle East? … It’s a kitchen cabinet situation, and the informality involved is precisely a mark of Carlyle’s success.’5
The announcement that Carlyle would be acquiring a stake in QinetiQ immediately raised concerns that national defence research may be subjected to increasing influence from overseas interests, notably the US arms lobby. Fiona Draper from the trade union Prospect, which represents scientists at QinetiQ, pointed out that ‘in the past at least, they have had investors from ‘interesting’ parts of the world, shall we say’ she also asserted that ‘given Carlyle’s fairly opaque structure, there must be concerns over whether undue influence may be brought to bear that may not be in Britain’s interest.’ There also concerns that QinetiQ, which acts as an independent advisor to the government on defence, should not be allowed to judge any tendering involving companies in which Carlyle has money invested.6
The government has tried to allay these fears, arguing that ‘there will be robust safeguards to prevent conflicts of interest.’7 Just like there are in the US, no doubt.

1 Doward, J. (2002) For sale to the highest bidder: Britain’s secret weapons labs, The Observer, 15/9/02 http://education.guardian.co.uk/Print/0,3858,4501260,00.html ; Parkins, K. (2002) The Al-QinetQ Network, available from keithpp@hotmail.com .
2 ibid; Carlyle Group website: www.thecarlylegroup.com ; Hoovers (2002) The Carlyle Group: Company Capsule, www.hoovers.com/premium/profile/6/0,2147,42166,00.html
3 Doward, J. (2002) For sale to the highest bidder: Britain’s secret weapons labs, The Observer, 15/9/02 http://education.guardian.co.uk/Print/0,3858,4501260,00.html ; www.bushnews.com/bushmoney.htm
4 Burkeman, O. & Borger, J. (2001) The ex-presidents’ club, The Guardian, 31/10/01.
5 Ibid.
6 Pank, P. and agencies (2002) MoD rejects fears over defence sell-off, The Guardian, 5/9/02; Doward, J. (2002) For sale to the highest bidder: Britain’s secret weapons labs, The Observer, 15/9/02 http://education.guardian.co.uk/Print/0,3858,4501260,00.html
7 BBC (2002) US firm buys stake in UK defence labs, 5/12/02, http://news.bbc.co.uk/l/low/business/254683.stm