USA: Bush Faces Flak Over Links to Defense Contractor

President George W Bush's administration, already on the back foot over its connections with the collapsed energy giant Enron, faces questions over a massive defence contract which aided an investment firm with Bush family links.

Last September, the Army signed a $665m (£460m) contract to develop the Crusader Advanced Field Artillery System, a $12bn weapons programme being built by United Defense Industries (UDI). Last week, Mr Bush signed a defence appropriation bill which included $487m for the programme.

This has helped Carlyle Group, the well-connected Washington-based investment group, which controls UDI, to float the defence contractor on the New York stock exchange.

Last month Carlyle sold $225m of shares in UDI in the flotation, retaining a 54 per cent stake worth $560m. But questions are being asked on Capitol Hill because of close links between Carlyle and the Bush administration, and because a Pentagon advisory panel recommended cancelling the Crusader.

Carlyle, which was founded in 1987 by David Rubenstein, a lawyer who worked in the Carter administration, boasts $12.5bn of investments.

Its chairman is Frank Carlucci, who was Defence Secretary in the Reagan administration and is a close friend of Donald Rumsfeld, the current Defence Secretary. The two were members of the same wrestling team at Princeton University. The chairman of Carlyle Europe is John Major, the former British Prime Minister. An adviser to Carlyle in Asia is George Bush Snr, the former president and father of the current president. And George W Bush himself was, for five years, on the board of Caterair, a business Carlyle backed.

"It's the first time the President of the United States' father is on the payroll of one of the largest US defence contractors," said Charles Lewis, a director of the Centre for Public Policy. He is among critics who have raised concerns over the about-turn on the Crusader contract. The programme was first put forward four years ago, then costed at $23bn. It was rejected in December 1997 by the Pentagon-appointed National Defense Panel as being inappropriate for modern warfare, a view reiterated last April despite UDI's shrinking the programme to $12bn.

Carlyle bought UDI for $850m in 1997. Last August it took $290m in dividends out of the company and, in November, $90m. Its total investment is showing a $315m profit.

Carlyle denies that any of its managers, directors or advisers used their influence to aid contracts for UDI.

But the Crusader questions come at a time when the president is facing questions about his links to Enron.

And in a subtle twist, it has emerged that in its darkest hour, when it was trying to raise money to stay afloat, the investment firm Enron turned to for help was Carlyle Group. Carlyle was wise enough to reject the approach.

• 106 Money & Politics
• 124 War & Disaster Profiteering
• 185 Corruption