Enormous Wealth Spilled Into American Coffers

Monday, February 11, 2002; Page A17

In the three decades it has taken Saudi Arabia to transform itself from nomadic desert kingdom to modern petrostate, a small group of Saudi citizens has accumulated vast personal wealth. Their good fortune has spilled over to the benefit of American and European money managers, investment banks and the companies in which the money is invested.

Members of the royal family -- there are about 40,000 of them, including 8,000 princes -- led the way. The Saudi government has never reported what share of oil income went to the royal family, whose senior princes accumulated fantastic fortunes. According to a credible account, members of the royal family have billions of dollars on deposit in the Banque Pictet in Geneva, for example.

Members of the royal family and others with good royal connections made fortunes in construction and real estate, in trading businesses, or as local agents for foreign firms doing business in the kingdom, which routinely observed a "5 percent rule" -- a 5 percent commission for the local partner, who typically did no real work at all.

After nearly three decades of accumulating this wealth, the group referred to by bankers as "high net worth Saudi individuals" holds between $500 billion and $1 trillion abroad, most of it in European and American investments. Brad Bourland, chief economist of the Saudi American Bank (one-quarter owned by Citibank), said in a speech in London last June that his bank's best estimate of the total is about $700 billion, with the possibility that it is as much as $1 trillion.

Raymond Seitz, vice chairman of Lehman Brothers in London and a former U.S. ambassador to Britain, gave a similar estimate. Seitz said Saudis typically put about three-quarters of their money into the United States, the rest in Europe and Asia. That would mean that Saudi nationals have invested perhaps $500 billion to $700 billion in the American economy.

This is a huge sea of fungible assets supporting the American economy and belonging to a relatively small group of people -- about 85,000 Saudis, Seitz said, is the estimate of bankers. Managing these hundreds of billions can be a lucrative business for brokers and bankers in London, Geneva and New York.

Which financial institutions get the business? When that question was put to Robert Hormats, a vice chairman of Goldman Sachs in New York, he paused for a moment, then answered: "Every major financial institution in the world has some links with Saudi money."

A few established special relationships with the Saudis that have endured. Morgan Stanley, for one, has managed many millions in Saudi money. Richard Debs, former president of Morgan Stanley International, said in an interview that Saudi investors tend to be very loyal. "Over the years those who were good at it and didn't screw up won the business," Debs said.

One American financial institution that has attracted Saudi investments is the Washington-based Carlyle Group, whose principal officers include several members of the Saudis' favorite American government of modern times, the first Bush administration. Its principals, who have made millions of dollars from the firm, include former Office of Management and Budget director Richard Darman, former secretary of state James A. Baker III. Former president George H.W. Bush is also a well-paid adviser to Carlyle. Bush has traveled to Saudi Arabia on Carlyle's behalf.

Responding in writing to questions from The Washington Post, the firm said Saudi citizens had invested less than 1 percent of the $12.5 billion in capital that Carlyle manages. A former Carlyle employee said the firm doesn't know the origin of some funds invested from off-shore havens such as the Cayman Islands, but the firm denied this.

One Saudi investor is Prince Bandar bin Sultan, the Saudi ambassador, according to an informed source, but it could not be learned how much Bandar has put into the firm's investment funds.

A well-placed Saudi source said that wealthy Saudis close to Prince Sultan, the Saudi defense minister and Bandar's father, had been encouraged to put money into Carlyle as a favor to the elder Bush. One family that did so was the bin Ladens, relatives of Osama bin Laden, who have made a huge fortune in the construction business. They put $2 million into a Carlyle investment fund, "a tip" for the bin Ladens, who more often invest billions than millions, according to a Saudi official close to the royal family. When this investment was publicized after Sept. 11 in news, the Carlyle group arranged to return the bin Ladens' $2 million.

The Saudi government hired the Carlyle Group to help manage the "offset" program under which companies selling the Saudis defense equipment are supposed to invest 35 percent of every sale back into Saudi Arabia. The program has never been successful, according to Saudi and American officials, in part because foreign investment in Saudi Arabia is discouraged by local rules and conditions. Carlyle said it decided to end this arrangement late last year. A Saudi official described Carlyle's efforts as "a disaster."

-- Robert G. Kaiser

© 2002 The Washington Post Company