Family of Secrets: The Bush Dynasty, America's Invisible Government, and the Hidden History of the Last Fifty Years

by Russ Baker

  While the grounding came back to inconvenience W. decades later at a key moment in his political career, it seems not to have hurt Jim Bath. To the contrary. Within a few short years, at a turning point for the American intelligence establishment under Poppy Bush, a man with no particular experience in finance or administration became the investment manager for the scions of two of the wealthiest families in Saudi Arabia and the world.

  Drilling Deep for Answers

  Was Jim Bath connected to American intelligence, in an official or unofficial capacity? Craig Unger’s 2002 interview is the only in-depth one that Bath ever gave. I had a couple of brief conversations with Bath, in which he declined to answer any questions on the record. Unger wrote that Bath “equivocated.” “There’s all sorts of degrees of civilian participation [in the CIA],” Bath said. “It runs the whole spectrum, maybe passing on relevant data to more substantive things. The people who are called on by their government and serve—I don’t think you’re going to find them talking about it. Were that the case with me, I’m almost certain you wouldn’t find me talking about it.”16

  Once the business relationship between Bath and his partner Bill White had turned into a fractious legal battle, a curious White decided to research Bath’s hints of a secret agent past, and used the phone book to find a local number for Houston’s CIA outpost.

  “I hooked up a Radio Shack tape recorder to my office phone and called the number. I gave my name in a familiar, friendly tone of voice like I was one of the boys. I told the man who answered that I was working with the Financial Crimes Enforcement Network and that I was attempting to locate Jim Bath. He was apparently caught off guard and assumed that I was with one of the federal alphabet agencies, as he never asked for credentials. He responded without hesitation, saying in effect: ‘Oh, it’s been a few years now since we’ve heard from Bath. Give me a minute and I’ll pull his file.’ After a short delay he came back on the line and told me that Bath’s file had been sent to DC.” When White called again to request the file, he was given the runaround.17

  To understand the roots of this tangled tale, in which the Bushes’ friend Jim Bath turns an unexpected order for an outmoded plane into a relationship with representatives of the most powerful oil empire in world history, one has to look back seventy years or so, to the foundations of the American relationship with the House of Saud.

  Friends with Benefits

  The friendship of the Saudis has long been sought by Westerners. Even before Americans got into the kingdom, the British were there. In the 1930s, the founder of modern Saudi Arabia, King Abdul Azizibn Saud, was advised by British expatriate St. John Philby. A former British intelligence operative who “went native,” Philby represented King Saud in negotiations with foreign suitors eager to explore for oil beneath the shifting sands. The wily Briton soon realized that the Americans were showing more interest than were the British, and so—much to Britain’s everlasting regret—he helped negotiate Saudi Arabia’s first oil contract with a premier American company, Standard Oil of California (SoCal), one of the spin-offs of John D. Rockefeller’s original Standard Oil Company.

  Philby advised the king to give SoCal a sixty-year exclusive contract for exploration and extraction along the shores of the Persian Gulf. It didn’t hurt the company’s standing that it was quietly compensating Philby on the side. In 1938, SoCal struck oil in commercial quantities. Shipments abroad commenced the next year.

  World War II firmly established oil as the preeminent strategic resource, and the United States and the Soviet Union as the world’s two superpowers. As one member of an official U.S. delegation visiting Saudi Arabia in 1944 put it, “The oil in this region is the greatest single prize in all history.” The delegation was led by Everette DeGolyer, a central player in the Dallas oil crowd who was back then a deputy to Secretary of the Interior Harold Ickes in the Petroleum Administration for War.18 In February 1945, Abdul Aziz met with President Franklin D. Roosevelt on board the USS Quincy in the Suez Canal, and the two cemented what would become one of the most consequential agreements in world history: the trade-off of oil for security.19 This led to the establishment of a U.S. training mission in Saudi and the onset of a long-term U.S. military aid program, one that continues to this day. As part of that assistance, the United States helped create the modern Saudi army as well as the Saudi Arabian National Guard (SANG), a rival organization responsible for internal security and protection of the royal family.20

  The allure of the seemingly unlimited Saudi petroleum deposits (and of the profits the kingdom was beginning to amass) beckoned increasingly as the limits of domestic U.S. oil production became apparent. Moreover, the United States increasingly looked like a good bet as protector of the Saudi royal house, especially after the humiliation of the British and French in the 1956 Suez Canal crisis. The Eisenhower Doctrine of 1957 led to a deepening of America’s commitment to the Saudis.

  The rise of the nationalist Gamal Abdel Nasser and his dalliance with the Soviets, coupled with fears of rebellion in Saudi Arabia, led to U.S. military support of Saudi Arabia in the Yemeni Civil War (1962–70). President Kennedy was the first to order U.S. troops into the kingdom, during the Yemeni crisis.

  But the outright defense of Gulf states by the U.S. military would soon end. In response to growing public distaste for American military entanglements in the developing world, the Nixon Doctrine (1969) declared that the United States would no longer bear the main responsibility for the defense of Gulf states. Rather than sending troops to protect developing countries, the Nixon administration sent billions of dollars’ worth of equipment. This led to even greater U.S. military investment in Saudi Arabia. During this time, the U.S. Army Corps of Engineers was charged with constructing a new headquarters for SANG.

  As the Saudis became cognizant of the full extent of their natural riches, they took steps to gradually get control of them, and especially the revenue they produced. The vehicle for this was Aramco, which was SoCal’s postwar consortium that included Texaco, Standard Oil of New Jersey, Standard Oil of New York, and later, as a nationalized Saudi-controlled concern, Saudi Aramco, the world’s richest oil company. The turning point came during the 1973 Arab-Israeli War, in which the Nixon administration tilted decisively in support of Israel, after which Saudi Arabia nationalized its oil deposits. In response the United States turned to new ways of maintaining the relationship, and in the process retain access to Saudi oil supplies on favorable terms. Mostly, this meant a kind of mutually beneficial shotgun marriage between the two highly dissimilar cultures, which brought more military dependence and increased financial and personal ties.

  Saudi Arabia would become—and remains today—the leading recipient of U.S. arms and military services, far exceeding Israel and all other U.S. allies. Much of this assistance goes to SANG rather than the army, and therefore is intended specifically to protect and sustain the Saudi royal family.21

  This military assistance extended to pilot training. Previously, the United States had concentrated on training its own aircrews for operations over Saudi Arabia. Now it was equipping and training the Saudi Royal Air Force to operate Saudi aircraft—planes that had been purchased from the United States.22 This was an approach that President Richard Nixon also favored: take care of the despotic rulers who sat upon these thrones of petroleum, equip and train their military, and direct juicy contracts to U.S. defense contractors at the same time. The Pentagon convinced the Saudis to buy Lockheed’s new F-104 Starfighter, the first service combat aircraft designed to fly at twice the speed of sound.

  The United States hosted Saudi princes and other Saudi scions in American universities, fostering deeper personal ties as well as inculcating American-style values and perspectives on such topics as economics and investing. The princes, exposed to American planes, fell in love with the toys—and then with others, including American ranches, mansions, and the like.

  One aspect of this deepening bond was the increasing frequency with
which Saudi princes came to United States for education and military training. The latter was a crucial aspect of the effort to protect the royal family from kingdom intrigues and plots and to reinforce Saudi dependence on the U.S. military. For example, in 1970, Prince Bandar bin Sultan bin Abdul Aziz, a grandson of the late king Abdul Aziz, was at Perrin Air Force Base near Sherman, Texas, in the Dallas area, being trained as a fighter pilot on the F-102.23

  Access to the world’s most expensive toys—American high-performance aircraft, and even spacecraft—was a significant attraction to the Saudi princes. Bandar’s father, the longtime Saudi defense secretary Prince Sultan, was training in Houston at NASA and became the first foreign national to fly on the American Space Shuttle in 1985.24

  Bandar became the Saudi ambassador to the United States in 1983 while Poppy Bush was vice president and remained in the post for twenty-two years. Bandar would grow so close to the Bush family that W. nicknamed him “Bandar Bush.”25

  In 1973, the evolution of the U.S.-Saudi relationship quickened. Paradoxically, this heightened cooperation emerged from discord. U.S. support for the Israeli victory in the Yom Kippur War prompted the Arab nations to embargo oil and gas deliveries to the United States. Politicians felt the wrath of voters fed up with long lines at the gas pump and considerably higher prices.26 Saudi revenues increased dramatically, as the selling price of Saudi crude nearly quadrupled between 1970 and 1974.27

  To forestall any more such upheavals in the supply pipeline, the United States quickly struck a secret deal. Thanks to a covert agreement between the Saudi Arabian Monetary Agency (SAMA) and the U.S. Treasury, Saudi petrodollars would pour back into the United States in the form of investment in American businesses and prime real estate. In effect, the Saudis were using the gas being pumped into American tanks to buy America out from under the Americans. It was, to quote Saudi prince Fahd, “a new and glorious chapter in relations between Saudi Arabia and the United States.”

  The United States would continue to serve as protector of the Saudi royal family—assuring its continued survival against domestic and foreign enemies— despite its authoritarian and anti-democratic foundations.28 U.S. companies, particularly Texas-based ones such as Bechtel and Brown and Root (later bought by Halliburton), would make vast fortunes by helping Saudi Arabia develop its infrastructure. This further benefited the royal family and (it was assumed) secured goodwill with the Saudi people. In return, the Saudis would agree to provide a stable oil supply and to invest a substantial percentage of their petroprofits in the United States. As noted by John Perkins, a former economic consultant who says he worked secretly for the National Security Agency, “What had initially appeared to be so negative [about the oil embargo] would end up offering many gifts to the engineering and construction businesses and would help pave the road to global empire.”29

  Which brings us back to Poppy Bush and his special position at the nexus of oil and intelligence. The United States agreed—secretly, of course—to help develop the Saudi military and intelligence service, and to work closely with the latter. The United States also agreed to pass along intelligence gathered by the Israelis throughout the Arab world on radical Islamic elements.

  As a result of the deal, not only did Saudi funding for unauthorized American covert operations increase, but Saudi money also flowed to American friends of the royal family. Law firms and others who secured the Saudis as clients significantly increased their role in raising and bundling political contributions while handling Saudi business.

  There was also a calculated decision to use the Saudis as surrogates in the cold war. The United States actually encouraged Saudi efforts to spread the extremist Wahhabi form of Islam as a way of stirring up large Muslim communities in Soviet-controlled countries. (It didn’t hurt that Muslim Soviet Asia contained what were believed to be the world’s largest undeveloped reserves of oil.) The Democrats played a role in all this, too. Jimmy Carter’s national security adviser, Zbigniew Brzezinski, has proudly asserted that the unleashing of radical Islam played a crucial role in destabilizing the USSR and ending Communism as a dominant world force.

  In retrospect, it was not among the more farsighted policies in American history. It elevated a radicalized element of Islam with military training over what had been largely a moderate and insular Muslim population, and it prepared the militants to play a significant role around the world as well-trained and well-financed terrorists.

  In the two years leading up to the oil embargo, Poppy Bush had been United States ambassador to the United Nations. In this capacity, he had worked for the foreign policy czar Henry Kissinger. By the time of the oil embargo, Poppy was the chairman of the Republican National Committee, which of course was concerned with the political consequences of the embargo—in particular, the public anger over the long gas lines. On top of all this was his close relationship with Texas petroleum refiners, who not only were among the GOP’s top funders but also were staring at dwindling domestic reserves. The Texas oilmen were eager for both the crude and the petrodollars the former Bedouins had in abundance.30

  The point man for weaving together the complex economic relationship with the Saudis was a little-known fellow by the name of Gerald Parsky. His grasp of U.S. tax laws enabled him to advise Arab countries how to benefit from IRS tax exemptions for foreign investment in real estate. Parsky’s enthusiasm and expertise landed him a slot as assistant to Treasury Secretary William Simon, who was often referred to as Nixon’s “energy czar.” Between 1974 and 1977, Assistant Secretary Parsky visited many oil-rich Gulf states—Saudi Arabia, Kuwait, the United Arab Emirates, and Qatar—and worked every angle to ensure that petrodollars would flow back to the United States. He soon became known as the “whiz kid” in the Treasury for his mastery of details related to the Arab countries—revenues, development plans, investment strategies, and the rest.31 Parsky also developed a close relationship with the Bushes, and would later serve as one of W.’s top California fund-raisers.

  The Men to Know

  Meanwhile, other alliances were being forged that would play a significant role in the rising fortunes of the Bush dynasty. Bill White, Jim Bath’s onetime business partner, first met Ken Lay in the early 1980s when Lay was being trained to succeed Robert Herring as CEO of Houston Natural Gas Company. That company would become the energy trading giant Enron, whose spectacular collapse amid widespread fraud under Lay’s leadership would make headlines in 2001. In the early eighties Herring was dying of cancer. His socialite wife, Joanne, a hostess of Saudis and honorary ambassador to Pakistan at the time, is credited with bringing James Baker, Prince Bandar, and Congressman Charlie Wilson together to arm the mujahideen to fight the Soviets in Afghanistan. In the film Charlie Wilson’s War, Joanne Herring is played by Julia Roberts.

  It is a little-known fact that Ken Lay played a central role in the new relationship between the United States and Saudi Arabia that developed in the 1970s.32 Lay did so as one of Gerald Parsky’s young colleagues in the Nixon White House energy operation. Lay had gone directly from college to senior economist and speechwriter for the chief executive of Humble Oil in Houston, the Texas subsidiary of the Rockefellers’ Standard Oil of New Jersey, which later became Exxon. His professor Pinkney Walker had been named by Nixon as vice chairman of the Federal Power Commission, the precursor to the Federal Energy Regulatory Commission, and he brought Lay with him as his aide.33 After less than two years, Lay was put in charge of coordinating government energy policies, as deputy undersecretary of interior (the Department of Energy did not yet exist).34

  It happened that Lay was in charge of energy policies just when the oil embargo hit in 1973. In the Nixon administration, as would be true later with the Bush-Cheney administration, the person in charge of energy policy was in effect the point man to the industries he was expected to regulate. This of course was the energy industry so closely tied to Poppy Bush, who became the chairman of the Republican Party in 1973. Resolving the supply instability issue h
ighlighted by the embargo was not just good policy. It was good politics.

  Though the crisis created hardships for most Americans, it meant enormous opportunity for some: Lay left Washington in 1974 and eventually signed on with Houston Natural Gas (later called Enron). Citing the embargo, he began pushing for complete deregulation of the industry. By 1974, Aramco could see the power shift and moved its headquarters from New York to Houston.

  Another person who would figure prominently in Bush-circle dealings with the kingdom, and who will resurface in subsequent chapters, was a young Saudi named Ghaith Pharaon. A soft-featured man with the requisite Vandyke beard, private jet, and French château favored by the Saudi elite— and like George W. Bush a graduate of Harvard Business School—he was the son of a political adviser to the Saudi royal family. In 1975, Pharaon became the first Saudi to purchase a controlling interest in a domestic American bank—Detroit’s ailing Bank of the Commonwealth, the biggest in Michigan, with assets of one billion dollars. The firm’s real value, though, was as a foot in the door of the American banking system and a potential stepping-stone for further acquisitions.

  Pharaon soon turned his attention to Texas and established Houston as his base of operations.35 He created a holding company called Arabian services Corporation, quickly took control of a number of American firms, and eventually built a global corporate empire. His approach to business would be characterized by Time as a “tendency to leave many major decisions to others, combined with a rather offhand manner when discussing business and money.” One of his domestic companies, a Dallas-based contractor, would plead guilty to bribing foreign officials in the Carib bean.36