WASHINGTON, 12 November — With the war grinding on in Afghanistan, low-voiced rumors are beginning to circulate in Washington regarding who stands to profit from the war.

It is the Carlyle Group, a Washington-based private equity investment firm, which is raising inevitable questions about waging war for profit.

David Rubenstein, a staff member in the Carter White House, founded the Carlyle Group in 1987. The firm has succeeded in recruiting former politicians as consultants, including former President George H.W. Bush, along with several of his associates.

The Bush connection to the Carlyle Group is nothing short of scandalous, says Larry Klayman, a notable government watchdog.

Now that the United States is bombing Afghanistan and allocating huge sums of money for defense, including $40 billion for the "war on terrorism" and more than $200 billion for the Joint strike Fighter (JSF), the conflict of interest is "direct," Klayman says. "President Bush should not ask, but demand that his father pull out of the Carlyle Group," as Carlyle owns many of the companies that will share in the $200 billion JSF deal.

"Carlyle is as deeply wired into the current administration as they can possibly be," Charles Lewis, executive director for the Center for Public Integrity, recently told reporters. "George Bush is getting money from private interests that have business before the government, while his son is president. And, in a really peculiar way, George W. Bush could, some day, benefit financially from his own administration’s decisions, through his father’s investments. The average American doesn’t know that. To me, that’s a jaw-dropper."

The Carlyle Group, which claims to be the largest US private-equity fund with some $14 billion in assets, makes money by investing in undervalued companies and reselling them at a profit. The Washington Business Journal said in May that the Carlyle Group "seems to play by a different set of rules."

Open only to the very rich, Carlyle owns numerous defense- related companies, and has considerable business with the US government. It is now one of the biggest US defense contractors, and a major force in global telecommunications. Carlyle employees many former top-level government officials from the Bush and Reagan administrations, including former President Bush. The chairman is Frank Carlucci who was Ronald Reagan’s defense secretary.

Former Secretary of State James Baker III, former Budget Director Richard Darman, and Arthur Levitt, chairman of the Securities and Exchange Commission through most of the Clinton Administration are all senior advisers to the firm.

"Nothing in recent history seems to approach the success this group has had in the wholesale conversion of former high government rank to gigantic profits," Dan K. Thomasson, former editor of Scripps Howard News Service wrote in March 2001. The success of the relatively young Carlyle Group is hardly surprising given that it primarily buys companies that are regulated by government. Nearly two-thirds of its investments are in defense and telecommunications companies, which are affected by shifts in government spending and policy.

Additionally, with Carlucci as chairman, it is no surprise that Carlyle is drawn to defense firms. Carlyle owns numerous defense and aerospace firms such as United Defense Industries, which makes tanks, guided missiles, space vehicles, and weapons delivery systems.

Carlucci’s knowledge of the Pentagons’ inner workings gives Carlyle an advantage when buying defense companies that have fallen in market value. The fact that President Bush’s father and his secretary of state, James Baker, serve as senior advisers to the company has raised red flags in Washington. Bush senior and Baker reportedly use their extensive government contacts to further their business interests as Carlyle Group representatives. "It punches up the brand awareness for us globally," said Carlyle partner Dan D’Aniello. "We are greatly assisted by Baker and Bush. It shows that we are associated with people of the highest ethical standards."

Baker’s stake was estimated to be worth more that $180 million when the fund was valued at $3.5 billion; today it is worth much more.

Bush senior has no ownership stake in Carlyle. As an adviser and an investor, however, Bush is allowed to put the money he earns giving speeches, between $80,000 and $100,000 per speech, into Carlyle’s investment funds.