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Family Business at the Watergate

by Margie Burns

Feb 15, 2005 | Economy, Politics


Not many, if any, news reports have focused on the unpublicized connections of this Bush administration’s family members with politically—and financially—sensitive operations. Business Week recently noted that “dads and sons and other relatives reign so widely in this administration that there have never been so many family combos in an administration at the same time.” And the British Economist has said that “George Bush’s Washington is a study in family influence.” End of storyfew details.

But there are a small number of journalists with enough patience, energetic curiosity and research ability to dig for some of those untold details. One of them is our occasional contributor Margie Burns, a scholarly investigator with a Ph.D. who teaches English literature at the University of Maryland in Baltimore when she is not probing Internet sources for her next article.

She has written for us on White House connections with Halliburton (September 15, 2003); the Bush family’s profiteering in Iraq (February 1, 2004); and the right-wing Washington “neocons” who promoted the U.S. invasion of Iraq (May 1, 2004).

For more than 20 years the Bush family has had extensive business ties to Middle East geopolitics. Among other connections, during the 1990s certain suites at the Watergate office building in Washington, rented by the embassies of Saudi Arabia and Kuwait, were also home to a Bush-linked private investment firm.

The investment company, called the Kuwait-American Corporation (KuwAm), backed and largely controlled a security company named Stratesec and an aircraft company named Aviation General. Both Stratesec and Aviation General convened their annual shareholders’ meetings from 1999 through 2001 in Suite 900 at the Watergate, then rented by the Saudi embassy.

Marvin P. Bush, the youngest brother of George W. Bush and a director of Stratesec, was reelected annually to his directorship there, near the Saudi Arabian Airlines offices. In 2002, the companies moved their shareholders meetings to the Watergate’s Suite 500, held by the Kuwaiti embassy.

Aviation General was founded in the early 1980s as Commander Aircraft. It manufactured and sold private planes to international clients. Stratesec was founded as Securacom (formerly the engineering firm Burns and Roe Securacom). It was reinvented shortly after the first Gulf War, and thereafter marketed large security contracts to big clients, including the World Trade Center, Washington’s Reagan National Airport and Dulles International Airport, various municipalities and airlines.

Stratesec and Aviation General shared top executives, including Wirt D. Walker III, a distant relative “in the Walker branch of the Bush family,” according to a former colleague, and Mishal Yousef Saud Al Sabah of the Kuwaiti ruling family. Walker and Al Sabah also headed KuwAm, the backer of Stratesec and Aviation General.

TIGHT LINKS—The boards and shareholders of the three companies—the investment firm KuwAm, the security company Stratesec, and the aircraft company Aviation General—were tightly connected. Walker, a director at all three companies, was at various times CEO and chairman of the board at Stratesec while at the same time managing director at KuwAm, including when Stratesec hired KuwAm for corporate secretarial services at $2,500 a month. Stratesec, which was de-listed on the American Stock Exchange in the fall of 2002 and went bankrupt, also paid Walker $130,500 annually for consulting, according to its quarterly filings. Both Stratesec and Aviation General are bankrupt now, and KuwAm has relocated its headquarters from the Watergate to Walker’s home in McLean, Virginia, a Washington suburb.

Mishal Al Sabah, son of the former Emir of Kuwait and ex-son-in-law of the current Emir, also served on the boards of both KuwAm and Stratesec and sometimes as chairman of KuwAm. Walker and Al Sabah were major shareholders in both companies. According to interviews Walker has given, their close relationship began when Al Sabah came to America at age 15. When Al Sabah turned 21, he invested in Walker’s companies, including KuwAm, where another Al Sabah relative also served on the board.
Investors in the bankrupt Stratesec are now suing the company’s partners, including Walker and Al Sabah, in federal court in Washington. Al Sabah, under contempt-of-court charges, faces arrest if he returns to this country, according to an individual close to the case. He is thought to be in Kuwait, but recently traveled to the United Arab Emirates to conduct the sale of an airplane by Commander Aircraft, now a subsidiary of Aviation General, Walker’s other company.

KuwAm was by far the biggest long-term backer for both Stratesec and Aviation General, acting much like a swinging door for Kuwaiti money to pass through. In 1996, KuwAm owned 90 percent of Securacom, directly or through partnerships with names like “Special Situations Investment Holdings” and “Fifth Floor Company for General Trading and Contracting.” KuwAm owned 31 percent of Securacom in 1998 and 47 percent of Stratesec in 1999.

Marvin Bush was reelected to the Stratesec board of directors annually from 1993 through 1999. His last reelection was on May 25, 1999, for July 1999 to June 2000.

The company described itself this way: “Stratesec, Incorporated, is a fully integrated single source security systems company. The company provides consulting and planning, engineering and design, systems integration, and maintenance and technical support services to commercial and government clients worldwide. Stratesec has completed security projects for airports, corporations, utilities, prisons, universities, and federal, state and local governments.”

When Securacom went public on September 11, 1997, its prospectus for the Initial Public Offering prominently featured photographs of its clients the World Trade Center and Dulles airport, with a client list that included United Airlines and Los Alamos National Laboratories.

While on the board, Marvin Bush served on the company’s Audit Committee and Compensation Committee. He acquired 53,000 shares of stock in the company at 52 cents a share, partly through his private company, Andrews-Bush, located in northern Virginia. Shares in the 1997 initial offering sold at $8.50.

Company stock became worthless after the company’s de-listing. Securities and Exchange Commission (SEC) filings ceased showing Marvin Bush as a shareholder after 2000, but there are no filings indicating when his stock was sold. Bush, whose investment firm still backs other contractors at the Dulles and Reagan airports, has not responded to requests for comment.

One of Stratesec’s biggest security contracts was with the Metropolitan Washington Airport Authority, to provide electronic security for Dulles and Reagan airports. The company got its first preventive-maintenance contract with Dulles airport in 1995 and received about $6.3 million in revenue from the Dulles project between 1995 and 1998.

Stratesec did not handle passenger screening at Dulles, where one of the 9/11 jets was hijacked. According to Dave Swennes, a contracting official for the Metropolitan Washington Airport Authority, its three-year contract was for maintenance of security systems. The company maintained the airfield access system, the closed circuit television system and electronic badging.

Given the security sensitivities of Dulles airport, there are ironies in having some of its electronic security handled by a company with Middle East ties. After completing its three-year contract with Dulles, the company bid on a new contract but lost out in spite of being the lowest bidder.

TIES TO THE TWIN TOWERS—Securacom, beginning with its previous incarnation, Stratesec, unlike many other security firms, did not separate security consulting from providing security services. As a single-source provider of end-to-end security services, it offered everything from a diagnosis of existing systems, to hiring subcontractors, and to installing video and electronic equipment. It also offered armored vehicles and security guards.

The company emphasized continuing relationships with a few big long-term clients, including the World Trade Center, home to the Twin Towers. According to SEC filings, the World Trade Center and the Metropolitan Washington Airports Authority, were two of the company’s three biggest clients in 1996 and 1997.

After the first attack on the World Trade Center, in 1993, the Port Authority of New York and New Jersey began a multimillion-dollar, multiyear revamping of security in and around the Twin Towers. As Burns and Roe Securacom, the company had previously done security studies on the World Trade Center. Securacom was hired along with many other contractors for the upgrade and was praised in security industry publications, although the board membership of former President Bush’s son Marvin went unnoticed.

NO COMMENT—Marvin Bush had joined Securacom’s board of directors in 1993, part of a new management team hired when Securacom separated from Burns and Roe, and he remained on the board through 1999.

The White House has not responded to repeated questions and requests for comment about Marvin Bush’s relationship with Securacom. (Wirt Walker and other former management figures were interviewed by phone.)
Securacom got the $8.3 million World Trade Center security contract in October 1996 and received about $9.2 million from the WTC job from 1996 (a quarter of its revenues that year) to 1998. But in 1998, the company was “excused from the project” because it could not fulfill the work, according to former manager Al Weinstein, and the electronic security work at the WTC was taken over by EJ Electric, a larger contractor.

Aviation General boasted of its international clientele. A 1996 press release announced its sale of airplanes to the National Civil Aviation Training Organization (NCATO) of Giza, Egypt, “the sole civilian pilot training organization in Egypt.” The announcement mentioned “Sheik Mishal Yousef Saud Al Sabah” as “Chairman of KuwAm Corporation and board member of Commander Aircraft Company.” NCATO also had contractual partnerships with several U.S. flight schools, including Embry-Riddle University in Florida. Embry-Riddle has not responded to questions about the partnership.

Aviation General was de-listed on the Nasdaq exchange in October 2002 after filing for bankruptcy protection.

Although, Stratesec and Aviation General were both troubled companies, with blatant managerial problems including litigation, tax arrears, and trouble paying vendors, both companies received substantial funding throughout the 1990s. On top of the massive capital infusion from the Kuwaitis, millions were generated through its Initial Public Offering statement in 1997, and revenues from large contracts. Stratesec also obtained capital from numerous investors. Why was that, if the companies were so troubled?

Former managers speculate that the Bush connection was helpful. A partial list of companies investing in Stratesec while Marvin Bush was on the board of directors includes several well-known investment management companies, including Morgan Stanley Dean Witter, Munder, Fidelity, Putnam, and John Hancock.

According to Jeff Gallup, a former Stratesec manager who left the company for a position at Landtek, Inc., Stratesec installed the initial security-description plan—the layout of the electronic security system—at the World Trade Center. Gallup knows the WTC site well, since Landtek, like EJ Electric, was a prime contractor at the trade center. He was “intimately involved” with WTC security, he said in a phone interview last year, up to September 12, 2001, when “the F.B.I. left my office with all the contents of the WTC visitors database,” by then three-quarters of a million visitors’ badges. It is regrettable that the F.B.I. has not been equipped with an adequate computer system to analyze this information.

ENLARGING MARVIN—Among his other business interests, Marvin Bush also served on the board of directors of HCC Insurance (formerly Houston Casualty Company), one of the main insurance carriers for the World Trade Center. Thus Bush, paradoxically, was connected to two companies with a significant interest in security at the trade center. In spring 1999, Bush was simultaneously a nominee for the boards of both Stratesec and HCC Insurance.

Bush’s directorship at Stratesec was not included on the proxy statement for HCC that year, and his connections with HCC were not included on the proxy statement for Stratesec. SEC regulations require directors and officers of public companies to list their other directorships and business connections. In addition to Bush’s violations of the SEC regulations in these instances, his directorship at Fresh Del Monte, where he and a longtime friend who brought him into HCC were also on the Audit and Compensation committees, was also omitted in the Stratesec proxy filing.

Bush’s HCC proxy information did disclose his positions at his own firm, Andrews-Bush, and at Fresh Del Monte, but in addition to not disclosing his Stratesec connection, he omitted yet another association, with Kerrco, an oil company in Houston.

Bush left Stratesec after 1999 but currently remains an adviser to HCC Insurance. HCC lost $29 million at 9/11, largely from World Trade Center property losses, medical payouts in New York City, and workers’ compensation reinsurance losses.

The chairman and CEO of HCC Insurance, Stephen Way, brought Bush onto the boards of both HCC and Del Monte. L. Byron Way, HCC vice president, explained in a telephone interview that HCC “handled easily maybe a dozen or so coverages for the World Trade Center,” mainly property and workers’ compensation, going back through the 1990s. Way could not say when HCC became a carrier for the center or how much its WTC exposure totaled. “With stakes that big, premiums can vary,” he said, adding that property coverage was handled through the London office. The company has not responded to questions about Bush’s proxy statements.

The security industry is an extraordinary combination of hush-hush secrecy and wild openness. When you hire a security contractor, one specialist said, “What’s on your computer is on their computer.” This is particularly a concern when the contractor services both government and private clients, or both domestic and foreign customers, as Marvin Bush’s companies did. Why has the White House been so silent on this concern, particularly when enormous federal contracts have been involved?

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