Bush Is No Good Trade

According to U.S. Securities and Exchange Commission records, on four separate occasions Gov. George W. Bush disregarded federal statutes by failing to file insider stock trade reports on a timely basis, back-dating one trade by some four months. Moreover, one key trade just a few weeks before Iraq invaded Kuwait -- but reported some eight months late after the Gulf War was over -- netted Bush close to $1 million in profit as he sold stock in Harken Energy, an oil company doing business in the Middle East wherein some of his father's largest contributors also maintained substantial positions.

The SEC under President Bush carried out an incomplete investigation of the younger Bush's pre-Gulf War trade in 1991 after key presidential advisor George Jr. claimed that he filed a report, but that the SEC had most likely lost it. (No one has really asked whether the governor bothered to use registered mail to verify receipt of the documents.)

According to an Oct. 28, 1991, Time Magazine report, SEC spokesman John Heine said, "as far as I know, nobody ever found the 'lost' filing." And, strangely, Bush refused comment to Time regarding either the incident or his involvement with Harken.

The governor also did not reveal the blatant conflicts of interest involved, since the chairman of the SEC was Richard Breedon, former lawyer with Houston firm Baker and Botts and deputy counsel to Bush's father when he was vice president. Breedon received his SEC appointment after the elder Bush became president.

The SEC investigation of George W. was led by general counsel James R. Doty who, according to a UPI report, mysteriously neglected to interview any of the Harken directors. Moreover, Doty had previously served as George W. Bush's personal lawyer in the deal involving his Texas Rangers purchase. So, in the end, the younger Bush was cleared of insider trade wrongdoing by his personal attorney and by his father's vice-presidential counsel, a virtual impossibility for the average U.S. citizen.

That the mainstream media has refused to question Bush regarding what voters might consider a mockery of the criminal investigative process is a story in and of itself -- especially considering it concerns how a possible future president might enforce U.S. laws if he had also broken those statutes.

Consider that Americans who currently hold stocks or mutual funds would never -- by virtually no stretch of the imagination -- be able to obtain access to corporate insider information that could turn a million dollars profit. But reporters following Bush have not broached the subject during the campaign.

Most reports involving Bush's insider oil stock trades refer only to his highly controversial June 22, 1990, million dollar trade made six weeks before Gulf War hostilities broke out in Kuwait -- a trade which was reported eight months later. However, SEC documents between 1986 and 1993 show that Bush acquired 212,152 shares of Harken stock on Nov. 1, 1986, at the time he merged his Spectrum 7 company with Harken. But the future governor did not report the transaction until April 7, 1987 -- more than five months later.

When Bush filed late on April 7,1987, SEC filings show he had purchased another 80,000 shares on March 10, 1987. But strangely, two weeks later, an April 22 filing noted that the 80,000-share purchase was backdated to Dec. 10, 1986. When questioned by the media, Bush's attorney said it was the same 80,000 shares but he could not explain the discrepancy regarding the purchase dates or why Bush even reported the trade two times.

Another SEC filing, this from June 6, 1989, showed that Bush purchased another 25,000 shares of Harken but again waited more than four months to report the transaction.

The Houston Post, recognizing Bush's late SEC filings, noted that he "took eight months to notify the government of his sale of stock in a company on whose board he served" and "also missed the filing deadline for reporting other insider trades involving Harken Energy."

Documents obtained by the Post showed "additional instances in which Bush ... ran afoul of the SEC rule requiring notification." And George W. described himself as a "small, insignificant" Harken stockholder; but news reports examining SEC documents identified Bush as the third largest non-institutional investor.

In October 1991, Time Magazine questioned why the tiny country of Bahrain would stake so much of its financial future on Harken Energy, which it labeled an "obscure, money-losing company with no refineries and no experience in offshore oil exploration." But the magazine also noted that oil-insiders speculated that Bahrain's rulers saw the arrangement as a way to gain influence with the Bush administration.

Mysteriously, primary reporters have also ignored what could point to a nexus regarding foreign policy and personal financial interests. Interestingly, the Village Voice in January 1991 reported that in 1990 the Bush administration signed an agreement with Bahrain that chose the small country as the permanent principal allied base in the Middle East, although it was some 200 miles away from the hostilities in Iraq and Kuwait.

The military-base deal came after Harken announced its Jan. 30, 1990, joint oil-drilling venture with Bahrain. So President Bush's key contributors and his son George W. were carrying on personal financial business with Bahrain at the same time decisions were being made regarding the possibility of a war in the Gulf.

And neither the president nor his adviser, George Jr., let the press know that Bahrain had been permitted to infuse $7.7 million in foreign cash to hire U.S. public relations firm Hill & Knowlton to lobby Congress and the American people; a stunning variety of opinion-forming devices and techniques were employed to inflame U.S. patriotic passions of war while personal financial interests were on the line.

On May 21, 1990, less than ten weeks before Saddam Hussein's troops invaded Kuwait to initiate the Middle East hostilities -- but just four weeks before Bush unloaded the bulk of his Harken stock -- a renegotiated corporate loan agreement featured an unusually high interest rate of 12 percent, less credit for acquisitions, a $750,000 debt fee and even requirements by some of Harken's major stockholders to guarantee $22.5 million in debt, according to Associated Press.

Did Bush know of impending losses when he sold his stock on June 22, 1990, since Federal securities law prohibits corporate insiders from trading "on the basis of" material information that is not publicly known? Bush denied the charge in spite of his positions on the Harken Energy board of directors, audit committee and stock restructuring panel. He added that he had no idea Harken was going to get an audit report full of red ink until weeks after he had made his stock sale.

But U.S. News & World Report said, "there is substantial evidence to suggest that Bush knew Harken was in dire straits. ... Harken's SEC filings make it clear that the company's directors knew radical steps were necessary." The magazine added that "one informed source says Harken's creditors had threatened to foreclose on the company if substantial debt payments were not made." Shortly thereafter, Bush cashed out of Harken.

The April 4, 1991,Wall Street Journal added that "Mr. Bush didn't return their phone calls seeking comment, and the Bush White House said 'it doesn't comment on the activities of the president's children.'"

According to the Washington Post, Harken's audit committee, of which Bush was a member, met with Mikel Faulkner and

auditors from Arthur Andersen & Co.

, Harken's accountants, on June 11, 1990 -- just 11 days before Bush sold his stock on June 22. When asked for a copy of the June 11 minutes or permission to inspect them, the company declined to make the records available.

Bush's insider transaction yielding a profit of $848,560 -- some 250 percent profit on the stock's original value -- came a week prior to the end of a quarter in which the company lost $23 million. The quarterly report was released just a few days after Iraq invaded Kuwait and the Harken stock plummeted. However, as reported in a 1992 Mother Jones report, Bush attended a meeting regarding a revised stock offering in May 1990 working with Smith Barney's financial consultants concerning corporate restructuring.

In an Oct. 11, 1994, UPI report, Bush also claimed that he was not aware of Harken's poor financial condition when he sold the stock, but UPI said that the Dallas Morning News reported on the same day that a corporate official who served with Bush on the audit committee at Harken felt otherwise; Stuart Watson told the Dallas paper that he and Bush were constantly made aware of the company's finances. "You bet we were," said Watson. "We were both trying to keep that company on the straight and narrow."

On March 16, 1992, U.S. News echoed Watson's statement, reporting that "according to documents on file with the Securities and Exchange Commission, his position on the Harken (restructuring) committee gave Bush detailed knowledge of the company's deteriorating financial condition."

Chuck McDonald, spokesman for Texas Gov. Ann Richards' campaign, said that SEC chief counsel in the Bush investigation -- James Doty, George W.'s former attorney -- never talked to George W., Watson or other Harken officials in its 1991 probe. He said, "Was this a real investigation, or was it a whitewash of an insider stock sale by the son of the sitting president?" UPI, which reported McDonald's statement, went on to note that "while Bush claims the SEC investigation absolved him of illegal insider trading, he has refused to release the investigation files."

Harken founder, Phil Kendrick, noted that the company's "annual reports and press releases get me totally befuddled. There's been so much promotion, manipulation and inside deal making." And even Harken chief executive Mikel Faulkner, an accountant, offered advice for those trying to decipher the financial statements: "Good luck. They're a mess."

Press accounts note that Bush requested a letter from the SEC, issued in October 1993, The letter, signed by SEC Associate Director Bruce A. Hiler, said that "the investigation has been terminated as to the conduct of Mr. Bush and that, at this time, no enforcement is contemplated with respect to him." But the letter also stated that "it must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result."

On Oct. 18, 1993, the Bush administration SEC said it would not bring a case against George W. Bush.

Gov. Bush speaks about his outstanding business record on the campaign stump; however, in 1989, U.S. News & World Report said, "Harken Energy lost over $12 million against revenues of $1 billion." Harken President Mikel Faulkner said that in addition to Bush's position as a director at $2,000 per meeting, stock options worth $131,250, 5 percent loans and 40 percent discounts on stock purchases, he was also a consultant to Harken for "investor relations and equity placement" at a salary of $80,000 per year from 1986 until 1989, when his salary jumped to $120,000.

The board was equally generous to Bush in 1990 as "the company lost another $40 million and shareholder equity plunged to $3 million -- down from more than $70 million in 1988." Faulkner declined to say what services George W. has performed as a consultant.

In March 1992, U.S. News said that "Despite repeated requests for interviews, George W. declined to discuss Harken or the reason for his stock sale, saying through an assistant that he 'does not want to read about himself.'" But some might ask whether American voters have a right to know whether a possible president would strictly enforce federal statutes or appoint lenient attorneys with suspect ethical standards leading to fixed politically sensitive investigations.

Moreover, should Bush -- a director of the corporation -- be accountable when huge losses are reported over a period of time, especially as a presidential candidate purporting to have an outstanding entrepreneurial business record at every presidential campaign stop? The answers have real implications regarding presidential character, morality and personal ethics.

Author and commentator Kevin Phillips offered a perceptive look at the Texas governor in the February 2000 issue of Harpers magazine when he said, "We can fairly ask whether George W. Bush is anything more than another scion who has made a decent governor during a period of prosperity and easy growth, and whether the United States can afford nominees who are to presidential politics what legacies are to college fraternities."

Terrorists, Dollars And A Tangled Web - The tentacles of terrorist-linked offshore money in America

Excerpt follows:

SECRET MONEY

In the mid-1970s, an obscure Saudi money man named Ghaith Pharaon began investing large sums in U.S. banks, first in Detroit and Houston, and then, in 1977, in the National Bank of Georgia, which he acquired from Jimmy Carter’s one-time director of the Office of Management and Budget, Bert Lance.

Only later was it learned that Pharaon was actually a front man for a Pakistani financier named Agha Hasan Abedi, who presided over an outfit bearing the name Bank For Credit & Commerce International. This institution, ostensibly based in Pakistan but with its main offices in London and New York, was in turn bankrolled by moneymen from Saudi Arabia. Among the fat cats were top members of the Saudi royal family and even the Croesus-rich head of Saudi Arabia’s intelligence service, Kamal Adham, a brother-in-law of King Faisal.

The bank — whose false bookkeeping and impending collapse first came to public attention as a result of an expose I published in New York Magazine in June of 1991 — turned out to be a colossal criminal enterprise that touched nearly every country on Earth. The bank was engaged in widespread, pandemic bribery of officials in Europe, Africa, Asia and the Americas. It laundered money on a global scale, intimidated witnesses and law enforcement authorities, engaged in extortion and blackmail. It supplied the financing for illegal arms trafficking and global terrorism. It financed and facilitated income tax evasion, smuggling and prostitution.

Its main means of operation? Secrecy — the secrecy that came from acting through BCCI-controlled shell companies in every offshore banking center in the world, the exact same modus operandi employed by thousands upon thousands of crooked offshore banks to this very day.

BUSH UNKNOWINGLY TIED IN

Through its fronts and various other disguises, BCCI penetrated the top-most echelons of American business, co-opting and exploiting many of the most visible and influential public figures in America. They ranged from former Secretary of Defense Clark Clifford, to Robert Magness, the founder and chairman of the nation’s largest cable television company, TCI Inc. For his part, Magness wound up serving as the titular head of a shadowy commodities trading company, Capcom Inc., which laundered billions of dollars of offshore money through the commodities markets of Chicago.

For a period in the 1980s, the bank’s tentacles even touched George W. Bush. This occurred when Bush — who at that point had not yet entered politics, but whose father was vice president in the Reagan administration — sold a small and struggling oil company he had started to a Texas wildcatting outfitter named Harken Energy, which was not much bigger than Bush’s outfit. Doing so set in motion a chain of events that wound up entangling Bush, briefly but awkwardly, in the affairs of not just BCCI but of the bin Laden family itself.

BIN LADEN CONNECTION

One of Bush’s original partners in his oil company - which initially bore the name Arbusto Corp. — had been a fellow named James Bath. Bath in turn had contacts in the Middle East and was actually named in a 1976 trust document as the Houston business representative for none other than Salem M. bin Laden, a half-brother of the infamous Osama bin Laden, who is accused of masterminding the terrorist attacks of Sept. 11.

Several published reports from the early 1990s quote an associate of Bath’s named William White — himself an Annapolis graduate and Naval fighter pilot — as claiming that Bath was actually involved in a secret conspiracy to funnel Saudi money into the United States and that he has worked as a CIA liaison to Saudi Arabia since 1976 — the year when Bush’s father, George H. W. Bush, became head of the CIA. White is quoted as saying that Bath ran an aviation business and obtained several aircraft from the CIA. Bath was quoted as denying any involvement with the CIA. In 1988, Salem bin Laden was killed in Texas in a private-plane crash. There has been much conjecture — but no established facts — as to the reasons for, or circumstances of, the crash.

In any event, Houston-based Bath ran a Cayman Islands-based aviation business bearing the name Skyway Aircraft Leasing Ltd., which was actually owned, according to a court document, by a wealthy Saudi banker named Khalid bin Mahfouz. In 1977, Mahfouz — who was reported by The Wall Street Journal in 1999 to be undergoing treatment for drug abuse — joined up with the previously mentioned Saudi front man for BCCI, Ghaith Pharaon, and became an investor in a small Houston bank, Main Bank of Houston, in which Bath himself held a stake.

When Harken needed capital to expand, Bush — by then a member of Harken’s board — helped the company obtain a $25 million infusion from the Union Bank of Switzerland, via an Arkansas investment banker named Jackson Stephens. Few people at the time had yet even heard of BCCI, but Bush would doubtless have been astonished to learn that he was being surrounded by people with ties of one sort or another to the biggest and most crime-infested bank in the history of world capitalism.

For starters, Jackson Stephens, head of the Little Rock investment firm that bears his name, would eventually be named as the promoter of a deal in which BCCI attempted, through various front men, to take over the largest bank in Washington D.C. Bush would also have been astonished to learn that the Persian Gulf patron of his oil patch pal, James Bath — Mr. Khalid bin Mahfouz — was himself an early and large investor in BCCI. Finally, he would doubtless have been surprised to learn that the bank that actually cut the $25 million check for Harken — an outfit bearing the name Banque de Commerce et de Placements — was in fact only half owned by Union Bank of Switzerland. The other half was owned by BCCI.

Those facts would certainly have eliminated much of Bush’s presumed surprise when he subsequently learned that no sooner was the Harken financing completed than Union Bank of Switzerland sold its interest in Harken to a Saudi real estate developer named Abdullah Bakhsh, whom The Wall Street Journal has described as a “sometime business associate of BCCI figures Ghaith Pharaon and Khalid bin Mahfouz.”

As for Mahfouz, who was fined $212 million by the United States for his involvement in BCCI and barred from any further activities in the American banking system, he has now resurfaced - in connection with Osama bin Laden.

A March 2000 press report by the Paris-based Intelligence Newsletter said bin Mahfouz was being held under house arrest in Taif, Saudi Arabia, at the behest of U.S. authorities. The reason: Mahfouz was believed to have provided financial aid to a charitable front organization raising money for Osama bin Laden — the Afghan-based terrorist who had already been linked to the 1993 World Trade Center bombing, the 1992 attack on U.S. Servicemen in Somalia, a 1995 bombing in Riyadh, Saudi Arabia, and the 1998 bombings of U.S. embassies in Africa. A top counter-intelligence source in Washington says Mahfouz is still under house arrest.

These are the types of people Washington now needs to root out of the nation’s — and the world’s — financial systems if it is to cut off the flow of money to the terrorists who have attacked America. But the tentacles not only now reach into just about every major money center bank in the country, they have even brushed up against the early business affairs of the very man who is now rallying America to the fight. In the end, getting the dirty money out of America may prove every bit as hard as pulling bin Laden from the mountains of Afghanistan.
[End of Partial Transcript]

Bush Name Helps Fuel Oil Dealings

Excerpt:

Bush's name, however, was to help rescue him, just as it had attracted investors and helped revive his flagging fortunes throughout his years in the dusty plains city of Midland. A big Dallas-based firm, Harken Oil and Gas, was looking to buy up troubled oil companies. After finding Spectrum, Harken's executives saw a bonus in their target's CEO, despite his spotty track record.

By the end of September 1986, the deal was done. Harken assumed $3.1 million in debts and swapped $2.2 million of its stock for a company that was hemorrhaging money, though it had oil and gas reserves projected to produce $4 million in future net revenue. Harken, a firm that liked to attach itself to stars, had also acquired Bush, whom it used not as an operating manager but as a high-profile board member.

..In fact, Bush lost money for most of his well-connected investors. At the same time, the management fees and other expenses he collected from them kept him in business and enabled him to buy oil reserves for his company's own account, including the reserves that eventually attracted Harken's attention.

Three times during his years in Midland, Bush was saved from financial trouble or stagnation by the appearance of new partners or financial angels who gave him a fresh start. One was a Princeton classmate and friend of James A. Baker III, who was to serve as his father's secretary of state; another was a fellow Yale man who shared Bush's love for baseball.

The third was Harken, which was to save Bush from humiliating failure but also create a target for later criticism. Reporters would scrutinize the deal as early as 1990. Led by then-Texas Gov. Ann Richards, Bush's opponent in the 1994 gubernatorial election, his political critics have asked whether Harken used Bush's name to obtain oil business. Even now, questions linger about a 1990 sale of Harken stock by Bush that was the subject of a probe by the Securities and Exchange Commission.

...The only hope seemed to be finding another angel. Bush, Rea and Conaway started looking for small or medium-sized companies they might approach. Rea remembers they contacted at least one, in Pennsylvania, and were turned down.

Harken ended the search for them. The company had been taken over in 1983 by a group headed by a New York lawyer and management expert, Alan G. Quasha, who seems to have had a penchant for stars on his board. Hungarian-born billionaire George Soros was one; he was listed as the company's biggest stockholder (46.8 percent) in 1986. Representatives of Harvard University's endowment fund and a wealthy Saudi real estate magnate were given seats on the board in 1987.

Bush's name was one of Spectrum's obvious assets, but, according to Jeffrey Laikind, who was on Harken's board at the time, not the most valuable one.

...The merger became final in September 1986, with Harken handing over one share of its publicly traded stock in return for roughly five shares of Spectrum.

...But four years later, his sale of his Harken stock prompted an SEC probe into whether he had engaged in insider trading. The probe centered on Bush's sale of all of his 212,140 shares of Harken stock for $4 a share on June 22, 1990, just before the conclusion of a second quarter that produced huge losses. The transaction was to net Bush $835,307, according to the "notice of proposed sale," signed and dated June 22, that Bush was required to send to the SEC as a member of Harken's board.

...Eight days after Bush's stock sale, Harken wound up its second quarter with operating losses from day-to-day activities of $6.7 million, almost three times the losses it reported for the second quarter of 1989.

The public didn't learn of this until Aug. 20, when the company, now known as Harken Energy, announced in a press release that its overall losses for the quarter, including non-recurring expenses as well as operating losses, totaled $23.2 million. Harken's stock had slipped to $3 a share earlier that month when Iraq's invasion of Kuwait stirred fears that it would endanger a potentially lucrative offshore drilling contract with Bahrain. On Aug. 20, the stock dropped to $2.37.

Did Bush know of the impending losses when he sold his stock in June? Federal securities law prohibits corporate "insiders" from trading "on the basis of" material information that is not publicly known.

Bush says he did not know, even though he had a seat on Harken's three-member audit committee as well as its eight-member board of directors. He said he had no idea Harken was going to get an audit report full of red ink until weeks after he had made the sale.

"I wouldn't have sold if I had," Bush said. "I got clearance by the lawyer [Harken general counsel Larry E. Cummings] to sell this stock. I was mindful that this transaction would be completely scrutinized. I knew the law and I sold at a time that I was cleared to sell."

Bush said he didn't seek a buyer, but was approached by a Los Angeles broker, Ralph D. Smith. Now retired, Smith said he had an institutional client who wanted a large bloc of Harken stock. Smith said he called other Harken officials before calling Bush on June 9, 1990.

"I had no takers until I got to him," Smith said. "It was just like a shot out of the blue."

Bush's lawyer, Robert Jordan, who also represented Harken in the SEC inquiry, said Bush and other board members were not informed until July 13, 1990, in a communication from Harken president Mikel Faulkner that "operating losses were incurred in the second quarter, which will be further quantified and explained." Even then, Jordan said, Faulkner did not provide details. Many companies project and announce expected profits and losses before the end of a quarter, but Jordan said this was not done at Harken.

Asked for a copy of the July 13 communique, or permission to inspect it, Jordan checked with company officials and said they would not allow it. He said Harken has "a policy of keeping internal documents private."

Before Bush's stock sale, Harken's audit committee – Bush, Watson and another Harken director, Talat Othman – met on June 11 with Faulkner and auditors from Arthur Andersen & Co., Harken's accountants. Jordan, however, said the committee "did not discuss operating losses that might be coming up, because that would be in the realm of conjecture and speculation." The minutes of the meeting, Jordan said, "show that."

Asked for a copy of the June 11 minutes or permission to inspect them, the company, through Jordan, again declined to make the records available. Jordan said company officials felt that granting the requests would put them on "a slippery slope."

Before giving Bush clearance to sell his stock, Jordan said that company counsel Cummings "checked with Mr. Faulkner at least and maybe others" to see if there was "any material, undisclosed information out there that would prevent the sale." The answer was no, Jordan said.

Faulkner, a certified public accountant who used to work at Arthur Andersen and who has spoken frequently with reporters over the years, declined through Jordan to be interviewed. So did Cummings.

The SEC investigation was launched in April 1991 when it found that Bush apparently failed to submit notice of actual sale of the stock (as distinct from the separate "notice of proposed sale") until eight months after the deadline. Bush said he is sure he did, but the filing couldn't be found.

The inquiry became an issue in the 1994 governor's race when Richards, the incumbent Democrat, challenged its thoroughness, calling it "at best, incomplete, and at worst, a coverup."

Bush was prepared, having obtained a letter from a top SEC official, associate director for enforcement Bruce A. Hiler, a year earlier.

Dated Oct. 18, 1993, three weeks before Bush announced his candidacy for governor, the carefully worded letter was addressed to Jordan and said that "the investigation has been terminated as to the conduct of Mr. Bush, and that, at this time, no enforcement action is contemplated with respect to him."

Bush took that as vindication. "The SEC fully investigated the stock deal," he said in October 1994. "I was exonerated." Supporting Bush, the head of the SEC's enforcement division, William McLucas, went beyond the letter and stated publicly that "there was no case there."

Hiler, however, was more cautious. His statement said it "must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result from the staff's investigation."

How thorough the SEC inquiry was remains unclear. Jordan said Harken provided investigators with "thousands of pages" of documents, including the June 11 minutes and Faulkner's July 13 communique. Investigators interviewed Cummings, stockbroker Smith and a member of the Arthur Andersen auditing team, but they did not talk to Faulkner or any other officers or directors of Harken.

In an interview, McLucas said the investigation was handled "the same way we would handle any inquiry as to [insider] trading or delinquency in reports," but such matters are usually not accorded high priority.
[End of Partial Transcript]

Records Show What Bush Knew Before Stock Sale

Regulators Concluded in 1992 That He Did Nothing Improper

The Dallas Morning News
By Mark Curriden
September 7, 2000

Days before selling 212,000 shares of stock in a Texas oil company in 1990, George W. Bush received a memo as a company director estimating it might lose $4 million that quarter and faced serious problems refinancing its debt, according to documents made public Wednesday.

The records released by the Securities and Exchange Commission and Mr. Bush's lawyer show Mr. Bush didn't have any information that wasn't publicly available elsewhere. And, his lawyer said, the records were available to federal regulators who investigated Mr. Bush's stock sale and did not alter their 1992 conclusion that the he did nothing improper.

The internal corporate documents, provided by the SEC after Freedom of Information requests from The Dallas Morning News and The Associated Press, offer the most extensive details yet of Mr. Bush's knowledge of Harken Energy Corp.'s financial troubles when he sold his shares for $848,560 in June 1990.

Insider trading allegations have been raised during both Mr. Bush's run for governor and his presidential race. Mr. Bush has said he did not know that Harken was going to report a $22 million loss two months after he sold his stock.

"I absolutely had no idea and would not have sold it had I known," he told The News during his 1994 campaign for governor.

The records released Wednesday show Mr. Bush, a Harken board director and member of its audit committee, received a so-called "flash sheet" in early June 1990 estimating quarterly losses for the company would reach $4 million.

Other reports available to Mr. Bush disclosed that Harken faced a "liquidity crisis" regarding the refinancing of it's $43 million debt. Another told Mr. Bush the company was "in a state of noncompliance" with its lenders.

Those same documents also say the company expected to make a profit in subsequent quarters and that two of its largest stockholders had agreed to refinance its debt.

Federal law prohibits company insiders, such as corporate directors and consultants, from buying and selling stock based on private information they received as an officer of the company.

In separate internal SEC records obtained by the AP, federal investigators concluded in March 1992 that "Bush did not engage in illegal insider trading because it does not appear that he possessed nonpublic information or that he acted with wrongful intent when he sold the Harken stock."

Bush critics have noted that Mr. Bush's father was president at the time of the investigation and that a longtime Bush supporter, Richard Breeden, was then the SEC's general counsel.

Mr. Bush has said he received no special treatment and cited a letter from SEC associate director Bruce Hiler, stating that "the investigation has been terminated as to the conduct of Mr. Bush and that, at this time, no enforcement action is contemplated with respect to him."

Mr. Bush received the 212,156 shares of Harken stock in 1986 when he helped merge Spectrum 7, an oil company of which Mr. Bush was chairman and 15 percent owner. Mr. Bush has said he needed to sell his Harken stock to pay off a loan he got to invest in the Texas Rangers baseball club.

Mr. Bush's lawyer said Wednesday that the information, while new to the presidential campaign, is "old news.''

"The SEC did their job by the book, and this is old news," attorney Robert Jordan said. He said that "the company's financial situation was well-disclosed to the public" through filings at the time with the SEC.

"By the time Bush sold his stock, the cash crisis had been largely resolved," Mr. Jordan said. "By May 21, 1990, the major shareholders had agreed to a credit agreement which put $26 million into the company immediately. ...This stock sale was completely legal and proper."

The SEC investigators never interviewed Mr. Bush about what else he might have known about the company's financial situation before selling the stock.

The investigators said that Mr. Bush did not initiate the sale of his stock, that he was approached by a broker and checked with the company's general counsel about the propriety of the sale before carrying it out.

Bush’s Insider Connections
Preceded Huge Profit
On Stock Deal

It has been widely reported that Texas Gov. George W. Bush made money over the years with a little help from his friends. But new details show that he served on an energy corporation’s board and was able to realize a huge profit by selling his stock in the corporation because an accounting sleight-of-hand concealed it was losing large sums of money. Shortly after he sold, the stock price plummeted. That profit helped make him a multimillionaire.

By Knut Royce
The Center for Public Integrity

(Washington, 4 April) The year 1986 was very good for George W. Bush.

After a decade of striking Texas brown dust instead of oil, his luck finally turned that year when go-for-broke Harken Energy Corp. bought his failing oil exploration firm for stock. Four years later the company concealed large losses just before the GOP presidential hopeful unloaded those securities for a nice profit. That, in turn, helped finance his stake in the Texas Rangers baseball club and catapult him into the ranks of multimillionaires.

And it was in 1986, too, that Harken’s CEO introduced Bush, the company’s new director and consultant—as well as son of then-Vice President George Bush--to a little startup health-care company. He put in a modest investment, and a few years later walked away with a six-figure windfall.

There also was a little benefit on the side. In 1994, when Bush was running for Texas governor, and scrambling for campaign cash, insiders in that health-care company, now known as Advance Paradigm, contributed $23,700.

Bush’s sale of the Harken stock in 1990 attracted the attention of regulators and the national media because he was tardy in filing the required public disclosure, and because the trade came shortly before the company reported for the first time that it was incurring huge losses.

Timeline

1986
George W. Bush and partners sell their failing Spectrum 7 Energy Corp. to Harken Energy Corp. Bush receives more than 200,000 shares of Harken stock and is made director and consultant to the company.

Harken’s CEO, Mikel Faulkner, introduces Bush to an old business associate, David Halbert, who is raising seed money to start up Allied Home Pharmacy. Bush becomes one of 30 initial investors who put up a total of $250,000.

1989
Harken sells a subsidiary, Aloha Petroleum, to International Marketing & Resources, a partnership of Harken insiders, through a seller-financed loan, but declares the profit in its annual report as a cash gain. This effectively masks big losses by the company that year.

1990
At the beginning of the year, International Marketing & Resources in turn, sells Aloha to Halbert’s Advance Petroleum Marketing for no profit. Advance now must pay the Harken-financed loan.

On June 22, Bush sells his Harken stock at $4 a share, for a total of $848,560. He uses most of the proceeds to pay off a loan he had taken out the previous year to buy a partnership interest in the Texas Rangers for $600,000.

On Aug. 22, Harken files a second quarter report disclosing for the first time that it is hemorrhaging. Total losses for that quarter are $23.2 million. Stock plunges to $2.37 a share.

That fall the Securities and Exchange Commission discovers that Harken had effectively concealed earlier losses in its 1989 annual report, before Bush sold his stock, by claiming a capital gain on the Aloha sale even though it was financed through a loan. It directs Harken to recast its balance sheet for 1989.

1990
On Feb. 5, Harken files an amended 1989 report, asserting that after “discussions” with the SEC about its method of accounting, it was recasting its losses for that year from a modest $3,300,000 to a whopping $12,566,000. But by then Bush had already sold.

1994
On July 22, insiders of Halbert’s Allied Home Pharmacy, now called Advance Health Care, hold a fund-raiser for gubernatorial candidate Bush, chipping in $20,750. Other contributions from those insiders that year bring the total to $23,700.

1996
Advance Health Care becomes a publicly traded company called Advance Paradigm.

1998
Bush’s trust sells his Advance stock. In his financial disclosure statement last year, he declares a capital gain of up to $1 million on the sale. It also sells his $600,000 stake in the Texas Rangers for about $16 million.

Hemorrhaging Concealed

But The Public i has found that Harken was bleeding profusely even before Bush unloaded his stock. Harken effectively concealed the hemorrhaging by selling a retail subsidiary through a seller-financed loan but recording the transaction in its 1989 balance sheet as a cash sale. Securities and Exchange Commission records suggest that Bush, a company director who sat on Harken’s audit committee and was a paid consultant to the firm, may nonetheless have been unaware of the sleight-of-hand accounting or, for that matter, other significant company actions Nevertheless, SEC accountants cried foul when it discovered Harken had recorded the 1989 sale as a capital gain.

But it was months after Bush’s June 1990 sale of the stock at $4 a share, for a total of $848,560, that the SEC directed Harken to recast its 1989 annual report and to publicly disclose the extent of its losses that year, according to records reviewed by The Public i.

It is unclear how a timely acknowledgement of the true losses would have affected the value of the stock when Bush sold. But most investors look at a company’s balance sheet, among other indicators of corporate well-being, before parting with their money.

Two months after Bush’s sale, Harken reported for the first time in a quarterly report that it was losing a lot of money, and the stock dropped to $2.37 a share. By the end of the year, it was trading at about $1.

Harken masked its 1989 losses when in mid-year it sold 80 percent of a subsidiary, Aloha Petroleum, to a partnership of Harken insiders called International Marketing & Resources for $12 million, $11 million of which was through a note held by Harken. By Jan. 1, 1990, IMR, in turn, sold its stake in Aloha to a privately held company called Advance Petroleum Marketing, and the Harken loan was effectively transferred to Advance, though garanteed by IMR.

‘George and I Became Friends’

Advance Petroleum was headed by a Texas entrepreneur, David Halbert, who had been a friend and business partner of Harken’s CEO, Mikel Faulkner. In 1986, Faulkner had introduced Harken’s newest director, Bush, to Halbert. Harken, in a stock swap, had just acquired the ailing Spectrum 7 Energy Corp., where Bush had been CEO and a significant shareholder.

“George and I became friends,’’ recalled Halbert in a telephone interview with The Public i. Halbert said that at the time Faulkner introduced Bush to him he had just formed a little home-health-care firm, Allied Home Pharmacy, and was in the process of raising $250,000 in seed money.

“Mikel said (to Bush), ‘Hey, you might want to invest in this,’” Halbert recalled. “I said fine. I don’t remember how many people we brought in, but it wasn’t that many. Maybe 25 or 30 . . . It was sort of friends and family, and George invested.’’ So did Faulkner. Halbert said Bush also put in a little more money in an offering to existing shareholders in 1991.

Halbert said he did not recall how much Bush invested in the company.

Allied Home Pharmacy became known as Advance Paradigm, one of the nation’s leading pharmacy benefits management companies, when it went public in 1996. Two years later, Bush’s trust sold his stock in the firm.

Public records give no precise amount of how much he earned on the Advance stock sale, but Bush’s financial disclosure form made public last year shows that he realized a capital gain, or profit, of as much as $1 million on the sale. Asked how much the Texas governor paid for the stock and how much he profited from the sale, spokesman Scott McClellan referred all questions to the manager of Bush’s blind trust, Robert McCleskey. McCleskey declined to discuss his client’s investment in the Advance stock. He said that under the terms of the Texas blind trust—a legal requirement for the governor but less rigorous than the blind trust that applies to federal executive branch officers—he cannot tell even Bush how much profit he made on the sale.

SEC Probe Was Limited

The SEC’s division of enforcement launched a probe of Bush’s sale of his Harken stock the day after the Wall Street Journal on April 4, 1991, reported that he had been eight months late in filing the required insider-trading form with the regulators. This investigation was separate from the earlier division of corporation finance probe that resulted in Harken’s recasting its 1989 balance sheet.

SEC enforcement investigators focused on whether Bush dumped his stock on June 22, 1990, because he knew that the company’s second-quarter report, announced on Aug. 20, would show a $23.2 million loss and depress the stock. Part of that loss was $7.2 million that Harken wrote off because it was being pressed by a nervous bank and renegotiated the Aloha sale to generate quick cash. Aloha’s buyer, Advance Petroleum, was a clear winner in the renegotiated deal.

The SEC probe was limited to whether Bush had inside knowledge of the red ink that would be reported in the August filing and concluded that he did not.

It is unclear whether Bush, who holds a master’s degree from the Harvard Business School, knew that the company, after five straight years of profits, began to bleed profusely in 1989, its first year of being traded on the New York Stock Exchange, though in its annual report for that year it had declared a net loss of only $3,300,000.

Even that small loss would have surprised readers of the January 1990 issue of National Petroleum News, a trade publication. Interviewed some time during the fourth quarter of 1989 for a lengthy and glowing article on Harken, company president Faulkner said that based on the strong earnings during the first three quarters, he expected that year to be the most profitable yet. “We made $6 million last year (1988) . . .We’ll certainly be ahead of last year.’’

Alas, a year later, in an amended 1989 annual report filed on Feb. 5, 1991, the company reported that after “discussions” with the SEC, which insisted that Harken use the traditional “cost recovery’’ method of accounting, it was revising its declared 1989 net loss of $3,300,000 fourfold--to $12,566,000. Harken also filed an amendment to its third quarter report for 1989 revealing that over the first nine months of that year it had lost nearly $4 million, rather than the $4.6 million profit it had declared.

Faulkner, now Harken’s chairman, did not return repeated calls from The Public i seeking comment on the Aloha sale and the subsequent public filings.

Company Directed to Correct Reports

The SEC can prosecute company officers for willfully filing fraudulent reports. But in the Harken case, as in most similarly questionable filings, the investigation was conducted by the agency’s accounting staff, which did not believe there was intent to defraud and therefore did not refer the matter to the SEC’s enforcement division. Instead, the agency directed the company to publicly correct its reports, according to a retired SEC official familiar with aspects of the case.

It is also clear that Harken did not draft the misleading 1989 annual report, filed with the SEC on April 16, 1990, merely to buttress the value of Bush’s stock. The filing date was two months before the company reported it became aware that Bush wanted to sell.

In its 1989 annual report, Harken recognized a profit of $8 million on the sale, which allowed it to limit its declared losses to only $3,300,000 for the year. But the SECobjected, saying that the income can be recognized only as the principal of the loan is reduced—that is, when real cash comes in.

A corporate accountant interviewed by The Public i agreed with the SEC’s claim, saying he found it “unusual’’ for a company to declare an earning on the sale when it is contingent on a loan. The accountant, who asked to not be further identified, said he knew of no other instance when a company declared full gain on a sale based on a loan.

Why Harken initially sold to IMR is unclear. But a senior tax lawyer who works for a leading auditing firm told The Public i after reviewing portions of the SEC filings that he believes Harken wanted to show a cash infusion to mitigate the 1989 losses.

“It looks like the sale was done (to IMR) in order to show a book gain of $7 or $8 million,’’ said the attorney, who also asked not to be further identified. “That would have eliminated a good part of their loss during that time. Given the fact that the sale was to a related entity, I would guess they were just trying to show a better financial statement at that time.’’

Advance’s Halbert said that he believes IMR bought, and then quickly sold, Aloha because of a sudden change of heart. “I think it had something to do with IMR wanting to own it [Aloha] but there was some concern about the affiliate relationship [between Harken and IMR],’’ he said.

The SEC, too, was curious about the transaction, according to agency records obtained under the Freedom of Information Act.

Six weeks before Harken publicly announced in January 1991 that it was revising its 1989 losses upward, the SEC asked the company to explain “whether the sale of Aloha to Advance was contemplated at the time IMR purchased Aloha from Harken.’’ In a letter, it also asked Harken to explain why the company and its independent accountants concluded it could declare a capital gain on the sale.

The SEC declined to provide Harken’s responses to The Public i.

Conflicting Accounts Offered

In its public filings to the SEC, Harken gave conflicting accounts of who sold Aloha, who bought it, and even when the sale occurred.

In its 1989 annual report, for example, it declared that it sold Aloha to IMR on June 30. In one passage of the report, it says that IMR then sold Aloha to Advance on Jan. 1, 1990; in another it says IMR sold on March 30.

But in its 1990 report, Harken declared that it was its subsidiary E-Z Serve Holding Co. that sold Aloha to IMR.

Adding to the confusion, E-Z Serve, which shortly after the transaction was spun off as a separate publicly traded company, claimed in its 1991 annual report that it had sold Aloha to Advance Petroleum—not IMR—in 1989.

Harken was notorious during that period for filing confusing reports. In 1991, Harken founder Phil Kendrick told Time magazine that the company’s annual reports “get me totally befuddled.’’Quoted in the same article, Faulkner had this advice to those trying to figure out the company’s financial statements: “Good luck. They’re a mess.’’

The corporate fog did not, however, obscure the fact that by the time the SEC directed Harken to recast its 1989 report, Bush already had already sold his stock in the company.

The bulk of the $848,560 went to pay off a bank loan he had taken out in 1989 to buy a partnership interest in the Texas Rangers for $600,000. He received nearly $16 million for his stake when the team was sold two years ago.

Bush’s run of financial good luck starting in 1986 is in stark contrast to the woeful performance of his previous oil ventures, which he had launched in 1977. Though he had little difficulty in rounding up investors for his Arbusto, Bush and Spectrum 7 oil exploration firms, they were all money losers.

Even as Harken in late 1989 and early 1990 appeared to be trying to minimize its losses, its bankers were clamping down because the company was having trouble meeting its loan payments.That led to a renegotiated loan agreement in May 1990, which required Harken to come up with fresh cash, raised the interest rate, required new guarantees from major shareholders and featured stricter terms overall.

“After closure (on the sale of Aloha) Harken discovered they had trading losses on gasoline purchases and they came back to us and said, ‘We really need some cash,’” Halbert recalled.

Cash Raised in Nick of Time

Halbert said he was able to raise the cash in the nick of time—just three days before Iraq invaded Kuwait, setting in motion huge gasoline-price increases that drove numerous small distributors out of business.

Under the original contract, Harken had given Advance an option to purchase the remaining 20 percent of Aloha, or 60,000 shares, for $50 each, or a total of $3 million.

By the time the contract was renegotiated in August, Advance agreed to pay off the $10 million note by the following year, which it did, instead of in March 1993 as stipulated in the original contract.It also relieved Harken from picking up the cost of fixing leaking underground tanks to meet environmental standards.

In turn, Advance got the $3 million of Aloha stock for $1. Harken also forgave $5 million in loans it had made to Aloha and about $1 million in interest payments.

The renegotiated contract reduced Harken’s bottom line, and the SEC clearly believed the write-off might have helped depress the stock. During its investigation of whether Bush benefited from insider information when he sold his stock, the SEC on July 25, 1991, asked both Bush and Harken to disclose when the company’s officers and directors “first became aware . . . that the Advance note . . . was going to be renegotiated; and that Harken intended to write down its investment in Aloha.’’

Unaware of Magnitude

After the SEC ended its investigation, according to one of its memos, the regulators concluded that Harken and Bush were unaware of the magnitude of the write- downs until at least mid-July, or after Bush’s stock sale.

While the renegotiated contract clearly hurt Harken’s bottom line, Halbert admits it clearly was beneficial for Advance Petroleum.

Meanwhile, Bush was generating admirers among Advance Paradigm’s insiders, the limited number of shareholders.

In 1994, when the company was known as Advance Health Care and Bush was making his first run for Texas governor, those insiders gave him $23,700 for his first gubernatorial run, including $14,500 from Halbert, his brother, Jon, their father and their wives. Virtually all the money came on the same day, July 22.

“That was his first time around, and he was trying to raise money any way he could,’’ recalled Halbert.

And, as has been the case throughout Bush’s career, a long-time friend of the family came to his aid.

This time it was Benno C. Schmidt, the pioneering venture capitalist and partner in J. H. Whitney & Co. in New York. Schmidt, who died last October at age 86, had been a director of Advance Health Care, and J. H. Whitney had provided the firm with much needed capital in 1993.

“Benno was an old friend of the Bush family. He called me one day and said, ‘David, I think we ought to do something for young George,’” Halbert recalled. “He said, ‘I think we ought to have a fund-raiser.’”

So after a board meeting on July 22, Bush spoke at a private little dinner attended by the directors and their wives and walked away that night with $20,750.

Knut Royce is a senior fellow at the Center for Public Integrity.

Investigative Report
Bush Violated Security Laws
Four Times, SEC Report Says

By Knut Royce
The Public I
October 4, 2000

(Washington, Oct. 4) George W. Bush violated federal securities laws at least four times when he was a director of a Texas oil firm in the late 1980s and early 1990s, according to an internal government report.

The document was prepared by the Securities and Exchange Commission in 1991 during its well-publicized investigation into whether Bush had benefited from insider information when he sold Harken Energy Corp. stock before its value plummeted, and then failed to promptly report the transaction to the SEC in violation of federal law. Bush’s stake in Harken helped make him a multimillionaire.

The internal SEC memorandum, prepared by the commission’s enforcement division and obtained by The Public i from sources, discloses what was previously not known--that Bush also had been tardy in reporting three other transactions involving stock in Harken, on whose board he sat as director.

(This report was prepared in collaboration with Talk magazine, whose article, "George W. Bush . . . And the Horse He Rode In On," appears in the magazine's November issue.)

The Securities and Exchange Act of 1934 requires company insiders to disclose publicly, in a report called a Form 4, all stock purchases and sales by the 10th day of the month following the transaction.

A former SEC official who asked not to be further identified said that he could recall at least one instance—involving the late stock manipulator Alexander Guterma, who began a three-year prison term in 1960 for a variety of securities offenses — where a prison sentence was imposed for failure to report a transaction. More commonly, he said, the SEC has obtained court injunctions barring frequent violators from repeating the offense. But he said that instances of insiders filing late disclosures were “fairly common’’ and that the SEC, with a limited staff, seldom pursued those cases.

The filing requirements are not a trivial matter. Insider transactions can sometimes alert outside investors that corporate officers or directors are nervous about the company’s earnings or growth. They can also alert the SEC that an officer or director benefited from information that only an insider could have known, a violation of securities laws.

	Related Reports
	- Bush’s Insider Connections Preceded Huge Profit On Stock Deal (April 4, 2000) - Overnight Guests at Governor’s Mansion Added $2.2 Million to Bush Campaign. (March 15, 2000) - Under the Influence --George W. Bush: Pragmatic, with Ties to Corporate America (Feb, 28, 2000) - How George W. Bush Scored Big with the Texas Rangers (Jan. 28, 2000)

Bush, the SEC memo noted, had on four occasions filed late Form 4s involving Harken stock worth more than $1 million. The tardiest—34 weeks late—was his Form 4 report disclosing that he had sold $848,560 of Harken stock on June 22, 1990, just weeks before the company filed a quarterly report revealing that it had hemorrhaged $23 million during that period. Bush had sold his stock for $4 a share. By the end of the year it was trading not much above $1.

The Public i in April reported that Harken had been bleeding profusely in 1989, before Bush sold his stock, but masked the losses by claiming in its annual report a capital gain on the sale of a subsidiary even though the transaction was through a seller-financed loan. Months after Bush sold the stock, the SEC directed Harken to recast its balance sheet to reflect a net loss of $12,566,000 for 1989.

The SEC did not press charges against Bush, even though the tardy disclosures had become something of a pattern, according to the memo, which was drafted for the files on April 9, 1991, by three enforcement investigators.

“The SEC never raised any missed deadlines with us,’’ Bush’s attorney in the matter, Robert Jordan, told Talk magazine, which analyzed the transactions in cooperation with The Public i. “It was either a trivial matter to the SEC, or everything was fine.”

That indeed appears to have been the SEC’s conclusion after it learned that between 1987 and 1989, Bush was about three months late on three other occasions in reporting the acquisition of Harken stock, including the shares he eventually sold in June 1990, the memo discloses.

Yet the memo also makes clear that Bush was aware of the requirement to report insider transactions. On June 25, 1984, the document reveals, he was timely in filing a report disclosing that he was a director of Silver Screen Management Inc., the managing partner of a movie production company, Silver Screen Partners; was prompt in reporting on Aug. 31, 1989, that he owned shares in Tom Brown, Inc., an energy company on whose board he served, and was only three days late in reporting on Jan. 6, 1984, that he owned stock in Lucky Chance Mining, where he also was a director.

In its book The Buying of the President 2000, the Center for Public Integrity reported that Bush had acquired the stock he sold in 1990 in a deal that made little economic sense. Bush had been chief executive officer of a tiny money-losing energy company called Spectrum 7. Harken acquired the firm in 1986 from Bush and two partners for $2 million in stock despite the fact that Spectrum 7 had posted losses of $400,000 six months before the purchase and carried a debt of $3 million.

“His name was George Bush,’’ Phil Kendrick, Harken’s founder, said of the purchase. “That was worth the money they paid him."

At about the same time Bush unloaded his Harken stock in 1990, he also sold nearly $700,000 worth of shares in four other companies. His accountant, according to a March 1992 SEC memo to the file, had been “bugging him to get liquid.” About $600,000 of the proceeds, the memo noted, went to pay off a bank loan he had taken a year earlier for his minority stake in the Texas Rangers baseball team. In 1998 Bush’s trust sold that stake for $16 million, catapulting him to the rank of multimillionaire.

If one violates federal securities laws four times, does one not go to prison in America? What good are the laws? How's it work? Just curious.

Never mind.

"A former SEC official who asked not to be further identified said that he could recall at least one instance—involving the late stock manipulator Alexander Guterma, who began a three-year prison term in 1960 for a variety of securities offenses — where a prison sentence was imposed for failure to report a transaction."

We're moving on, baby.

See Wallaby's great post and compilation of other articles.

Charities 'linked' to bin Laden

Not for commercial use. Solely to be used for the educational purposes of research and open discussion.

FINANCIAL EXPRESS; BIN LADEN LINK TO BCCI MARK WATTS Sunday Express; FINANCE; Pg. 2 November 11, 2001

FBI AGENTS investigating the financing of the terrorist attacks in America are poring over prosecution files on the $ 10billion BCCI collapse 10 years ago.

The FBI is convinced many of those who helped finance Osama Bin Laden's al-Qaeda network were involved in the BCCI scandal. The New York district attorney's office, which led some BCCI prosecutions, has given the FBI access to its old case files on the world's most spectacular banking collapse.

A source said: "The FBI believes many of the key figures in the BCCI affair also have roles in financing al-Qaeda."

The CIA used BCCI as a channel to fund the Afghan fighters who resisted

This line of inquiry is sensitive because Bin Mahfouz is an associate of a Texas businessman who, in the Seventies, helped finance George W Bush's oil company, Arbusto Energy.

Soviet occupation, a network that became al-Qaeda. The source said investigators had been asking questions about the Saudi billionaire banker Khalid Bin Mahfouz, Bin Laden's brother-in-law. This line of inquiry is sensitive because Bin Mahfouz is an associate of a Texas businessman who, in the Seventies, helped finance George W Bush's oil company, Arbusto Energy.

The businessman invested money in the US on behalf of Bin Mahfouz. The Sunday Express revealed three weeks ago how Bin Mahfouz, who paid $ 225million after a plea bargain with New York prosecutors over his role in BCCI, and who was accused in the Irish parliament of helping to finance Bin Laden's terror network, was a "core shareholder" along with Barclays in a Guernsey-registered bank.

Not for commercial use. Solely to be used for the educational purposes of research and open discussion.

Mexico Drug War Has a U.S. Front Christopher Whalen; INSIGHT Insight on the News; INVESTIGATIVE REPORT; Pg. 22 April 02, 2001, Monday

Vicente Fox says he wants to fight the in the Mexican government. But, to be successful, he will need more vigorous law-enforcement efforts from Washington.

Mexico welcomed its first democratic government in almost a century with the inauguration of conservative/populist president Vicente Fox Quesada on Dec. 1, 2000. Fox says he is committed to fighting corruption and narcotics trafficking, yet the former governor and businessman faces a daunting task. The Mexican bureaucracy continues to be dominated by the corrupt Party of the Institutional Revolution (PRI)

A man of obscure origins, Carlos Cabal first surfaced on the North American financial scene in Miami in 1987 operating with Federico de la Madrid, the second son of Mexico's former president, Miguel de la Madrid. …Press accounts in Mexico indicate that they were important clients of the shadowy Bank of Credit and Commerce International (BCCI).

and its allies in the criminal underworld. The Mexican judiciary, police and armed forces are thoroughly penetrated by narcopolitica, the term first applied in Colombia to the fusion of politics and criminality portrayed in the film Traffic. During their meeting in the Mexican state of Guanajuato on Feb. 16, President George W. Bush promised Fox full U.S. support for a war on drugs, but the White House may not know the extent of the chaos left behind by former president Bill Clinton and his attorney general, Janet Reno. Under Clinton the United States pursued a "hands-off" approach to corruption in Mexico, extending the official indifference that prevailed during previous administrations. The United States talks tough on fighting drugs and money laundering, but the law hardly ever is applied to officials of governments of major countries, including Mexico, Colombia and Argentina. In fact, with the notable exception of former president George H.W. Bush's 1989 military attack on Manuel Noriega in Panama, Washington has not moved against any political leader in the Americas for violations of U.S. drug or money-laundering laws.

In January, Fox met in Washington with members of Congress from both political parties to discuss an end to the annual U.S. certification of Mexico's efforts against drug traffickers. The congressional group, led by Sen. Phil Gramm, R-Texas, said it would work to eliminate the certification law that has created growing tensions between the two nations. President Bush supports legislation to accomplish this. Yet law-enforcement officials say commercial, diplomatic and personal conflicts in Washington are likely to remain major obstacles to winning the war against drug trafficking and money laundering.

"The good news is that Mexico has a new leader committed to fighting corruption," a veteran Drug Enforcement Administration (DEA) operative tells Insight. "The bad news is that Washington has been unwilling to act against the top people who protect the cartels. The leading Mexican families are longtime friends with key U.S. political leaders: summit meetings, fishing and hunting trips, friendships among the wives and kids. They use the same clubs and lawyers."

Official indifference toward violations of U.S. law by the Mexican elite is illustrated by the scandal surrounding former president Carlos Salinas and his brother, Raul, known as Raulito in honor of their father, Raul Salinas Lozano.

Former president Salinas was in office from 1988 to 1994 and repeatedly has denied knowledge of more than $200 million stockpiled in Switzerland by his brother. During a trip to Mexico last year to promote his new book, however, the former president was stunned when it was revealed that in a taped telephone conversation his brother had alleged that Carlos Salinas, contrary to assertions in his book, was the true owner of millions of dollars siphoned in part from government accounts, according to Mexican prosecutors. The government of Fox's predecessor, Ernesto Zedillo, verified the authenticity of the taped telephone conversation, which was broadcast by Mexican media giant Televisa.

The Los Angeles Times excerpted the remarkable confession: "I think it's very stupid on his part to say that he's going to demand a precise clarification of the funds , and I'm going to give it to him, Adriana," says the man identified as Raul Salinas. "I'm going to clarify everything - where the money came from, who was the intermediary, what it was for, where it came from and where it went. I'm going to say what funds came from the public treasury so that they're returned." The woman identified as Adriana begins to argue, but Raul declares: "Carlos shows gigantic cowardice. The money is his. And then he says he doesn't know anything about it."

The Swiss government sent Fox an official letter on Nov. 9, 2000, asking Mexico to participate in the investigation of Raul Salinas and former president Salinas, according to the respected weekly Proceso. The Swiss also cite several others with ties to the Salinas clan: Carlos Peralta Quintero, Carlos Hank Rhon and Raymundo Gomez Flores, the former head of the defunct Banca Cremi. Swiss investigators say they have determined that Banca Cremi actually was controlled by Raul Salinas. Carlos Cabal Peniche, the fugitive PRI money-laundering king now jailed in Australia, was the front man for the bank and reportedly the chief moneyman behind Carlos Salinas.

Prince Khalid bin Mahfouz … claimed that Cabal stole around $70 million through a scheme involving his now-defunct New York firm, Eastbrook Inc.

A man of obscure origins, Carlos Cabal first surfaced on the North American financial scene in Miami in 1987 operating with Federico de la Madrid, the second son of Mexico's former president, Miguel de la Madrid. Both men, who were in their early 30s, outwardly were in the business of seafood exports, but press accounts in Mexico indicate that they were important clients of the shadowy Bank of Credit and Commerce International (BCCI). In his book, Destabilization, Jorg Fernandez Menendez describes how the two allegedly drew funds from an offshore entity called Fundacion Caribe and allegedly maintained connections with organized-crime figures in Miami and Mexico.

In 1987, Federico de la Madrid began to make weekend visits to the state of Tabasco with Carlos Cabal. The young men paid cash to buy the best banana plantations and other real estate in the Gulf Coast state, according to Fernandez.

A decade ago, Manhattan District Attorney Robert Morgenthau investigated these matters when Carlos Cabal was charged in New York with civil fraud by a former director of BCCI, Prince Khalid bin Mahfouz. The Saudi national claimed that Cabal stole around $70 million through a scheme involving his now-defunct New York firm, Eastbrook Inc. Though virtually ignored in the United States, this episode in the larger BCCI affair was an important precursor to the alleged subsequent financial fraud reportedly designed and executed by Carlos Cabal, including the movement of millions of dollars through Citibank in New York by the Salinas family.

Swiss prosecutor Paul Perraudin claims, according to Proceso and other Mexican news outlets, to have uncovered links between the drug lord Juan Garcia Abrego and the Salinas family, including massive real-estate investments in Tabasco. Swiss investigators say they have evidence of the Salinas family and their political allies using Banca Cremi to launder tens of millions of dollars. The money allegedly was sent from Mexico to Switzerland via Citibank in New York, leaving an unmistakable electronic trail.

Citibank was rumored to be the subject of two separate grand-jury investigations in 1996, but no indictments were brought. "The U.S. Department of Justice has prepared a series of indictments against Raul Salinas for extortion and narcolavado drug-money laundering ," wrote Carlos Fernandez Vega in the Mexico City daily La Jornada on July 29, 1996. "Charges have also been drawn up against Citibank and its highest officials, including Chairman John Reed, for criminal conspiracy and violations of law by the company in connection with money laundering."

The U.S. attorney for the Southern District of New York has for years refused to comment on the existence of an investigation into whether Citibank or its employees should be charged with money laundering. A spokesman for the Department of Justice, however, confirmed to Insight last week that an investigation still is under way - eight years after the fact - suggesting Justice, not the U.S. attorney in New York, is in charge. Citibank declined comment.

Despite all of this reported evidence of wrongdoing, the Clinton administration never publicly acknowledged any probe into the alleged money-laundering activities by Raul or Carlos Salinas or their political allies and business associates in Mexico. Though the government of Switzerland also sent an official request for assistance to the Justice Department, Washington has done nothing to assist in the investigation, angering officials in Switzerland and Mexico. Swiss prosecutor Carla del Ponte privately expressed outrage at U.S. indifference, says a prominent Washington lawyer, but has made no public comment. Indeed, the only public statements came in December 1995, following an NBC News report about the Salinas scandal when the Clinton administration strenuously denied that there was any investigation of Raul or Carlos Salinas.

The Democratic minority in the Senate made an exhaustive inquiry, however. Their Nov. 9, 1999, report, Private Banking and Money Laundering: A Case Study of Opportunities and Vulnerabilities, prepared by the Democratic staff of the Senate Governmental Affairs Permanent subcommittee on Investigations, details how Raul Salinas allegedly used the U.S. banking system to launder millions. Sen. Carl Levin of Michigan, the ranking Democrat on the subcommittee, has been the driving force behind congressional interest in money laundering.

In January 1992, Carlos Hank Rhon, a prominent Mexican businessman and longtime client of Citibank, "telephoned his private banker, Amy Elliott, and asked her to meet with him and Raul Salinas," according to the minority-staff report. "After accepting him as a client, the private bank opened multiple accounts for Mr. Salinas and his family. i In addition, the private bank did not use Mr. Salinas' name in bank communications about his accounts, but instead referred to him as 'Confidential Client Number 2' or 'CC-2.' 'CC-1' was the code used to refer to Carlos Hank Rhon."

The report discusses how Citibank allegedly acted as a willing conduit for funds moved out of Mexico by Raul Salinas, apparently on behalf of brother Carlos. "After his accounts were first opened, Mr. Salinas made an initial 1992 deposit of $2 million," the report continues. "The funds were deposited through two wire transfers from an account belonging to Mr. Hank, who told Ms. Elliott the funds had been given to him by Mr. Salinas for a business deal which did not go forward. The funds were divided between the Salinas accounts in New York and the Trocca investment accounts in London and Switzerland."

On Feb. 28, 1995, Raul Salinas was arrested and imprisoned in Mexico on suspicion of involvement with the murder of his former brother-in-law, Jos Francisco Ruz Massieu, a leading PRI politician. The Senate report suggests that Citibank officials sought to conceal the relationship: "On the day following the arrest, a number of telephone conversations took place between Citibank private-bank personnel in New York City, London and Switzerland. The telephone conversations to London were recorded on an automatic taping system. The tape transcripts indicate that the private bank's initial reaction to the arrest was not to assist law enforcement, but to determine whether the Salinas accounts should be moved to Switzerland to make discovery of the assets and bank records more difficult."

Did Citibank give the Federal Reserve confidential information about their clients in the Hank family in return for a de facto "pardon" from the Clinton administration?

The report further states that Citibank never verified Raul Salinas' business background or source of wealth. It says that on Nov. 17, 1995, Citibank filed a Criminal Referral Form on Raul Salinas with U.S. law-enforcement officials. According to the report, the form mentioned Salinas' accounts in New York, which held less than $200,000, but significantly not the offshore accounts in London nor the accounts in Switzerland, which held the bulk of the Salinas money.

In October 1998, a Swiss federal court ordered civil forfeiture of $114 million frozen in the Salinas accounts as illegal proceeds related to narcotics trafficking. The forfeiture order purported to be based upon a report by the Swiss attorney general, summarizing a three-year investigation which concluded that Raul Salinas received substantial funds from narcotics traffickers. In July 1999, the highest Swiss court invalidated the seizure order on procedural grounds but ordered that the funds remain frozen while Swiss authorities considered further proceedings.

In January 1999, after a lengthy trial, a Mexico City court convicted Raul Salinas of murder. Two years earlier, in July 1997, another Mexican court had dismissed money-laundering charges against him on the grounds that no prior court ruling had determined the $21 million in dispute had been illegally obtained. Raul Salinas now is on trial in Mexico City for "illegal enrichment" and is serving a 27-year murder sentence. Yet neither Raul nor Carlos Salinas nor any of their Mexican business associates have been called to the bar of justice in the United States for violation of federal money-laundering laws.

During the last eight years, Insight has learned, the Clinton administration lent no assistance to the Swiss investigation of Raul Salinas and has made no moves against other Mexican officials with documented ties to the Salinas brothers. Even after that formal request by the Swiss government, the Clinton administration continued to ignore the Salinas matter. At the same time, despite the evidence uncovered and reported by the Senate panel, no indictments were brought against Citibank or its employees. A little-noticed legal battle between Carlos Hank Rhon and the U.S. Federal Reserve Board may provide a partial explanation.

According to public documents available in the matter before federal Administrative Law Judge Arthur L. Shipe, on Oct. 4, 1996, Citibank called the Fed and requested a meeting. On or about Oct. 9, 1996, officials of Citibank's Private Banking Department, including counsel John Roche, met with the Fed's legal staff to discuss "possible violations of banking laws and misrepresentations to the board that had come to the attention of Citibank's attorneys i violations that Citibank believed should be brought to the board's attention." A news account apparently based on the same facts covered in the Oct. 9, 1996, meeting between Citibank and the board's staff appeared in the Wall Street Journal on Nov. 1, 1996.

Documents in the Fed's proceedings indicate that the same Citibank private bankers who handled Raul Salinas also represented members of the Hank family and arranged various financial transactions on behalf of the Hanks or entities they controlled. The records contain extensive information about Hank-family financial transactions - information financial specialists say would be virtually impossible to obtain without access to confidential bank records.

An October 1998 report by the General Accounting Office (GAO) observes: "We asked the Federal Reserve to comment on whether Mr. Salinas' private banking relationship with Citibank New York and Citibank's movement of Mr. Salinas' funds had complied with then-applicable laws and regulations. According to Federal Reserve representatives, the facts of the Salinas/ Citibank matter, as known to the Federal Reserve when we inquired, did not provide sufficient information for it to make a determination about whether any law or regulation had been violated. However, the Federal Reserve is continuing to monitor the Department of Justice's investigation."

Did Citibank give the Federal Reserve confidential information about their clients in the Hank family in return for a de facto "pardon" from the Clinton administration? Citibank officials refuse to comment. However, since that October 1996 meeting between Citibank and the Fed there has been no public mention of investigations by Justice or any other federal agency regarding the active role played by Citibank in the alleged money laundering by Raul Salinas. Indeed, say insiders, were it not for the initiative taken by prosecutors in Switzerland and Mexico and the efforts of Sen. Levin, the entire episode surrounding the Salinas family and Citibank might have been happily forgotten by Washington.

But questions persist. The Laredo Morning Times of Texas reported June 13, 1999, that representatives of Carlos Hank Rhon prevailed upon the Zedillo government to send a diplomatic note of protest to U.S. authorities. The note concerned the alleged leak of a secret U.S. government drug-investigation report, "Operation White Tiger," which first was reported by Insight "Family Affairs," March 29, 1999 . Insight reported that "U.S. lawmen say billionaire power broker Carlos Hank Gonzalez and sons protect narcotraffickers" and detailed allegations that the Salinas family looted public agencies in Mexico to build their $240 million offshore hoard. GOP former senator Warren Rudman of New Hampshire, who represents Carlos Hank Rhon, said in a Feb. 3, 2000, letter to then-attorney general Reno that the allegations are "false and defamatory." Rudman states that the intention of the leak was "to defame the Hank family," but DEA officials tell Insight that the result of the leak has been to halt the inquiry into the Hank family's activities.

Conservatives are encouraged by President Bush's commitment to restore honor and integrity to Washington after eight years of Clinton and Reno. Bush has promised to help Fox in his campaign to save his country from the narcopolitica. But there is concern in Washington that any U.S. legal moves against the Salinas family or their political supporters in Mexico could create considerable public-relations problems for the White House. Ties between the Bush family and Mexico run deep, far beyond the public relationship between President Bush and Carlos Salinas during the fight for the North American Free Trade Agreement a decade ago.

"George Bush senior began his family's relationship with Mexico in the 1960s, when his Zapata Offshore Oil Company was a partner in a border-region oil company called Perforaciones Marinas del Golfo (Permargo), with Jorg Diaz Serrano," reports Julie Reynolds, editor of El Andar magazine. "In 1988, the financial newspaper Barron's reported that the two Jorgs - Bush and Diaz Serrano - used prestanombres name-lenders to hide Bush's investment in Permargo from the Mexican government, skirting Mexican foreign-ownership laws. Barron's also accused the Securities and Exchange Commission of destroying related documents after Bush became vice president in 1981."

The use of cutouts to hide U.S. ownership in Mexican business resulted from revolutionary populism in Mexico and was neither unusual nor, in many cases, illegal.

"In 1988, the financial newspaper Barron's reported that the two Jorgs - Bush and Diaz Serrano - used prestanombres name-lenders to hide Bush's investment in Permargo from the Mexican government, skirting Mexican foreign-ownership laws. Barron's also accused the Securities and Exchange Commission of destroying related documents after Bush became vice president in 1981."

"Bush senior met Carlos Salinas' father, Raul Salinas Lozano, back when the latter was Mexico's commerce secretary," reports Reynolds. "The families' friendship has continued through the years. Raul Salinas, the former president's brother, has told investigators that Jeb and Columba Bush joined him three times for vacations at his hacienda, Las Mendocinas. It was the same estate where he reportedly hosted an infamous 1990 party for the cream of Mexico's drug cartels, which Jeb and Columba did not attend."

There is no indication the Bushes were aware of any of this.

But by 1996, as he began his race for the presidency, Fox told the daily El Norte that he knew of Mexican Cabinet officials involved in narcotics: "Everyone knows that there are people involved with drugs at the highest levels of power," said Fox. Now he is in a position to do something about it, and he and President Bush have promised each other to do so.

That may even be possible. A Mexican court decision earlier this year allows extradition of Mexican suspects involved in drug trafficking and related financial crimes. This decision allows Washington to provide real help to Fox. It also puts Fox and his senior aides in mortal danger. One member of Fox's Cabinet told Insight in January: "All of our phones, faxes and e-mails are monitored by the narcos. We are surrounded by enemies. We cannot attack the corruption unless Washington ends its indifference to wrongdoing by the Mexican elite."

Christopher Whalen is a New York-based investment banker and the Latin America editor of The International Economy magazine.

Photos (A,B,D, color), A) I need help: Fox is looking to the Bush administration for U.S. prosecution of foreign officials involved in drugs.; B&C) Crime family: Carlos Salinas, top, looted Mexican agencies while president. Raul Salinas, left, is serving a long sentence for the murder of a politician.; D) On the case: Sen. Levin was the catalyst for the investigation into money laundering by Raul Salinas., A) By Jeff Mitchell/Reuters; B (Top Photo): By Andrew Winning/AFP; C (Left Photo): By AFP; D) By Luke Frazza/AFP

PRESIDENT FOX GUARDING NARCO-HEN HOUSE?

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