This investigation was conducted in the Balkans in the last quarter of 2017, exclusively for the Observatory of Journalism. It was funded by our readers.
The dazzling career of David Petraeus, in turn — from Commander-in-chief of International Forces in Iraq and Afghanistan, to director of the CIA, to leader of the financial giant KKR and a media magnate — embodies a new form of military-security-financial-media power.
It is a career that seemed to have come to an abrupt end when a sex scandal forced Petraeus to resign from the CIA in 2012. The case of adultery was further exacerbated by the fact that the four-star general had lied during the investigation and, more importantly, that he was leaking state secrets to his mistress. He would be sentenced to two years on parole and would be charged with a $ 100,000 fine — a trifle in comparison to similar cases, including that of Edward Snowden, who claims to have disclosed much less confidential information.
Petraeus would recover. Six months after the scandal, he would be recruited by the venture capital fund Kohlberg, Kravis, Roberts & Co. L. P. (KKR) to run its newly founded Global Institute.
The Barbarians of Wall Street
In the 1970s and 1980s, KKR was the pioneer of LBO, or the “leveraged buyout” – leverage here signifying massive debt. The architect of this concept, Jerome Kohlberg, soon worried by the “overpowering greed that pervades our business life,” would leave the fund he had created, leaving only his K at the head of the acronym. Following his departure, it was the second K, Henry Kravis, who would lead these LBOs to skyrocket, thus earning KKR the unflattering nickname of the “Barbarians of Wall Street” (the best-seller and film “Barbarians at the Gate” are dedicated to their historical LBO on RJR Nabisco). They would remain the champions of this method, despite the practice often resulting in the dismemberment or even bankruptcy of the companies bought, as was the case with their other historical LBO: Energy Future Holdings. The same method is now practiced by Patrick Drahi, who built his media empire on colossal debt.
At the end of 2016, Donald Trump was considering Petraeus for head of US diplomacy, but he would remain with KKR, henceforth as a partner. Kravis and Petraeus are also members of the Council on Foreign Relations and regular participants in Bilderberg meetings. Kravis was ranked 38th on the list of the richest Jews by the Jerusalem Post.
The invasion begins
Upon his migration into the business world, the former government official immediately proved his worth by expanding KKR’s already impressive portfolio. In 2013, the fund made its first direct investment in the region of Central and Eastern Europe by taking over United Group (SBB/Telemach) for an amount never disclosed but estimated to be over 1 billion euros. United Group represented a consolidation of the leading cable, satellite, and internet providers in the former Yugoslavia, with almost two million subscribers:
- SBB (Serbia Broadband) — the largest cable operator and internet provider in Serbia with 700,000 subscribers;
- Telemach — the leading cable operator and internet provider in Slovenia and Bosnia and Herzegovina;
- Total TV — the first satellite TV network in Serbia, present in all six countries of the former Yugoslavia;
- NetTV Plus — the leading OTT platform for PayTV and fixed telephony;
- United Media — channels Sport Klub, Cinemania, Ultra, Mini Ultra, Lov i Ribolov;
- CAS Media — the largest agency for the sale of advertising space on cable and satellite channels.
In the following year, 2014, KKR strengthened its grip. Via United Group, it bought the “turbo-folk” entertainment giant Grand Production and acquired a controlling stake in the Montenegrin cable operator BBM. The company also became co-owner of the number one information website in Serbia, Blic.rs, by buying a 49% stake in Ringier Digital SA, a digital subsidiary of the Swiss press group.
Finally, KKR launched its own regional television channel, N1 TV, an exclusive partner of CNN, with studios in Belgrade, Zagreb, and Sarajevo. Through this controversial move, United Group unified content distribution with production.
In 2015, the group set another precedent with the first acquisition of a mobile network — Slovenian Tušmobil — by a cable operator. In 2017, it acquired the activities of Central European Media Enterprises (CME) in Croatia and Slovenia, which included TV Nova, the most watched Croatian channel, whose evening news attracts the widest audience in the country amongst news programs; as well as POP TV, whose 24ur is Slovenia’s main news program. Meanwhile, United Group has continued to expand its activities in fixed and mobile telephony and to absorb its competitors, including BHB Cable TV (Bosnia-Herzegovina), M‑kabl (Montenegro), and Ikom (Serbia).
Who’s hiding whom?
The “financial barbarians” spearheaded by Petraeus have erected a true media empire, but they have done so very discreetly, shying away from public scrutiny. Rare, reluctant, and belated investigations have, however, eventually revealed some details.
In 2015, a “Report on Ownership Structure and Control over Media in Serbia” by the Serbian Anti-Corruption Council identified the lack of transparency of media ownership as its priority issue. The following year, the ownership structure of United Group was investigated by the Slovenian newspaper Delo in cooperation with the Organized Crime and Corruption Reporting Project (OCCRP). Their article “On the Dark Side of Telemach” finally allowed the people of the region a behind-the-scenes look at their prime source of information. What they found in their probe was a labyrinth of ghost offshore companies, mushrooming in tax havens in order to hide the original owners and their financial networks.
A half revelation: the figue leaf is Serbian
The primary target of this investigation was Serbian Dragan Solak. In 2000, he founded KDS, a local cable operator in Kragujevac (Serbia), and while his start-up soared, becoming SBB in 2002, SBB / Telemach in 2012, and United Group in 2013, he was always able to maintain his hold on the managerial reins. There was nothing secret about it. The true discovery of the investigation was that he also kept 20% of the shares, hidden behind the company Gerrard Enterprises, which had he founded in 2001 on the Isle of Man.
This “king of the cable”, regularly “not available to the media,” now stands as a new business magnate in a devastated economic landscape and a flamboyant nouveau riche outlier among his impoverished compatriots, with his private jets, villa at Geneva lake, and a golf course that once belonged to the king of Yugoslavia (Petraeus’s lifestyle has also long been the subject of gossip and reports, even in Huffington Post and Washington Post). A Serbian in a region where national rivalries are alive and well, an illusionist opening three offshore companies per day and pulling off “now you see it now you don’t” tricks with millions of euros – and all of this without paying taxes – are just some of the reasons that the journalists of Delo and those who have followed in their footsteps (Nacional, Jutarnji list, Ekspres…) chose to turn the spotlight on Solak. Moreover, the risk was smaller than if they had followed the tracks of bigger game.
The role of American ambassadors
The investigation of Delo attempting to untangle the tentacles of the United Group’s ownership structure made one thing clear: the owners were hiding behind a series of veils. What was less clear was whether Solak was one of the owners or one of the veils.
Solak did not operate alone. His overseas financiers, including KKR, were majority partners in all of his operations. They were the ones who allowed him to retain his position at the head of the United Group and who were keeping a watchful eye over his spectacular rise from the very beginnings, according to a diplomatic cable of the US Embassy in Belgrade revealed by WikiLeaks. It is unfortunate that this source, although readily available on the internet, has not been considered so far.
The cable, from 2007, was focused specifically on SBB, which is clearly evident right from its title “Serbia Broadband operating in hostile environment.” Solak appears as the main interlocutor of the Embassy, to such an extent that one might wonder about the nature of his relationship with American diplomacy. The signatory, Ambassador Michael Polt, transmits Solak’s concerns to Washington and adds his own report on the joint efforts of US diplomats and investors to address them. Their pretext: to combat the market domination of the public operator Telekom, which “continues to use aggressive tactics and political influence” to ensure its monopolistic position. Today we understand that the ambassador was doing exactly what he accused Telekom of, just in SBB’s favor. The telegram is dated June 1, 2007, and on June 27, Mid Europa Partners announced the historic conclusion of the first LBO in Serbia: its acquisition of SBB.
Polt’s successor, Cameron Munter, continued his post-diplomatic career at Mid Europa as an advisor to SBB / Telemach during negotiations with Petraeus in 2013. Polt’s predecessor, the famous William Montgomery, the first ambassador to be sworn in after the NATO intervention in 1999 and the Color Revolution of October 5, 2000, and influential in the manner of an imperial proconsul, was a business partner of Brent Sadler. The latter, a CNN correspondent in Belgrade at the time of the bombings, is now President of N1 TV, the flagship channel of United Group, an exclusive affiliate of CNN in Eastern Europe.
When enemies become companions
The consulting firm Montgomery Sadler Matić & associates (MSM) gathered an unlikely trio: the former US ambassador and the former reporter became collaborators with Goran Matic, the Yugoslav Federal Minister of Information in 1998 and 1999. His Serbian counterpart in the same period was the current President of Serbia, Aleksandar Vucic.
Just before the bombings of 1999, Matic criticized the media that had been serving foreign masters: “the situation is very clear — the owner pays, the owner requests the dissemination of certain information.” When NATO attacked, it was he who declared on CNN: “We are ready to fight against the aggressors.” When missiles razed Radio-Television of Serbia on April 23, 1999, killing 16 people, the BBC relayed his following statement; that this act was “a monstrous crime without precedent in history.” In the less verbose report of his future companion Sadler on CNN, the quote would be reduced to two words: “criminal act.” Tony Blair would retort that the bombing of the television station was “fully justified.” On the third of May that same year, World Press Freedom Day, NATO would raze to the ground another media outlet, Radio Television Novi Sad.
Since then, both former ministers of information have made a U‑turn regarding their former enemies, Vucic’s being particularly spectacular. His political party went so far as to hire Montgomery as an advisor and, once in power, his party-led government did the same with Tony Blair, whom these very same people regarded as a bete noire in 1999. As late as 2005, Vucic wrote a favorable review of a monograph elegantly entitled “British Faggot Fart Tony Blair” (sic). The ex-nationalist also currently cultivates a warm friendship with other protagonists of aggression against his country, Gerhard Schroeder and Bill Clinton.
As for Petraeus, he sports a NATO medal for former Yugoslavia. In 1999, he assisted in the planning and coordination of the bombings of Serbia as aide-de-camp to the Chairman of the Joint Chiefs of Staff, General Hugh Shelton. Before returning as an investor, Petraeus had already been present in the region in 2001–2002, serving as Assistant Chief of Staff of the NATO Stabilization Force (SFOR) in Bosnia and Herzegovina and as a Deputy Commander of a clandestine counter-terrorist unit charged with capturing Serbs wanted by the Hague, until September 11 redefined his priorities by turning jihadist allies into supreme enemies. “That was where his future course was charted” says Fred Kaplan in his biography “The Insurgents: David Petraeus and the Plot to Change the American Way of War” (2013, 65).
His four-star colleague, Wesley Clark, NATO commander-in-chief during the bombing of Yugoslavia, also moved into big business (just like Odierno, McChrystal, and Mullen — remember that as early as 1961, Eisenhower had warned against the military-industrial complex). Wesley Clark chairs the Canadian group Envidity Energy Inc., which is negotiating, in the midst of controversies, the exploration of very significant coal deposits of Kosovo “liberated” by his troops. Although on the sly, Petraeus was KKR’s main negotiator in United Group’s takeover in 2013. He met with Serbian PM Aleksandar Vucic several times, both publicly and in private.
The millions of Soros or how to soar
The Wikileaks cable also includes a reference to a pivotal moment in the rise of United Group. In 2002, Solak’s small start-up was given an extraordinary opportunity. It managed to attract a $10 million investment from the Southeastern Europe Equity Fund (SEEF). The fund manager was Soros Investment Capital Management, later renamed Bedminster Capital Management, founded by George Soros.
This billionaire activist shares some coincidental features with Kravis (from KKR), such as a resort on the Atlantic coast where the two are neighbors, as well as less coincidental aspects, like their collector’s penchant for Balkan cable operators.
It was from the investment of Soros that SBB started its exponential growth and its vertiginous dive into the murky depths of international finance. After Soros, the European Bank for Reconstruction and Development (EBRD) called and raised the stakes by investing 15 million euros in SBB in 2004. This “European” bank, whose largest shareholder is the United States, has remained co-owner and co-investor of United Group into the present day, the end of 2017.
The Soros fund would diversify into SEEF I and II, which would figure as both buyer and seller in the 2007 takeover of SBB by Mid Europa. In 2014, this private investment company headed by former senior officials of the World Bank and the IMF boasted of tripling its investments thanks to the exorbitant amount paid by KKR.
George Soros (born Schwartz) saw his last name changed by an esperantist father. In Esperanto, the word “soros” means “will soar.” A good omen for small György, as well as for Solak’s start-up which he supported with such foresight.
But who helped Soros at the beginning of his career? The initial investment for his start-up, Double Eagle Fund, later renamed Quantum Fund, was provided by George Karlweiss of Banque Privée from Lugano, owned by Baron Edmond de Rothschild (see the erased article in Washington Times). According to Time Magazine, “Members of the Rothschild family and other rich Europeans soon kicked in an additional $6 million.” Enough to soar, as the future would prove.
Lavish investments in loss-making media
Even the most lawless and faithless financiers observe one sacrosanct law: make a profit. And yet, the return on KKR’s investment in the Balkan media has yet to appear on the horizon. The sector has experienced such difficulties that even flagship acquisitions like SBB in Serbia and Nova TV in Croatia are known to have generated consecutive losses.
In the case of SBB, KKR’s astronomical investment in 2013 did not improve the situation. On the contrary, the available annual reports show a steady increase in losses, in millions of euros: 33 in 2010, zero in 2011, 10.5 in 2012, 1.4 in 2013, 29 in 2014, 33 in 2015, and 35 in 2016. We can see that in 2016 SBB incurred a record-breaking loss of thirty-five million euros.
The explanation? By buying media, Petraeus was buying influence. The question then arises of what type of investor would be pleased to hear his fund explain: “We have neither the billion that you have committed nor the profit that we promised, but we have gained media influence in Eastern Europe.” It is hard to imagine that pensioners from the Oregon pension fund would be delighted. On the other hand, it might accommodate the interests of more than one among Petraeus’ acquaintances at Bilderberg.
Another likely explanation is that their expenses are inflated in order to declare losses that do not really exist. Thanks to its net loss, SBB has not paid a penny of income tax for years, despite an income of 170 million euros only in 2016. The damage to the Serbian national budget could reach eight-figure sums in euros.
States not doing their job
The biggest losers in this dubious scheme are citizens, who are the main creators of the wealth that United Group is pooling to tax havens and who, on the contrary, do pay taxes. Then comes the competition, which does not stand a chance against this privileged heavyweight competitor on the market, with its financial capacity, zero taxation, trans-border cartelization, and CNN programming. Ultimately, it is the sovereign states that renounce collecting taxes. To say nothing of their obligation to protect citizens and free competition.
The sovereign states are best placed to inspect KKR’s activities. They alone would be able to penalize illegal practices and close gaps in legislation.
Instead, the states have chosen to turn a blind eye. The only revelations about the KKR’s media empire to date were made by non-governmental individuals and organizations. As for legislative changes, they have only widened existing gaps, as demonstrated in the report of the South East European Media Observatory with the explicit title “Major powers tailored Serbian media legislation for ‘Balkan CNN.’”
The European Union as a lobby
In 2014 Serbia and KKR seemed destined to clash. KKR was planning to launch its new channel N1 TV on its SBB/Telemach network, under its umbrella company United Group. At the same time, the government published its draft media laws. However, one excluded the other, since the laws did not allow distributors to also be content providers. The ban seemed logical: the distributor would favor his own channels at the expense of the competition. Just a few years prior, the European Union had imposed the same principle on the public television station RTS, which had to give up its distribution network.
This time, however, the opinion of Brussels would be the reverse, or more precisely, would be reversed due to the lobbying of the European Bank for Reconstruction and Development (co-owner of the United Group) and the law firm Gide Loyrette Nouel. After a new meeting with Petraeus, the Serbian Prime Minister brought events to an abrupt conclusion: “N1 is welcome in Serbia”. The state had caved.
It was the new law, dictated by bankers and lawyers via the Brussels administration, and not the original stemming from an electoral and participatory process, which would be passed in August 2014. Out went the people, in came the transnational financial oligarchy, twisting the arm of a Parliament which now wouldn’t even consider defending itself.
Epilogue: N1 TV would be launched in October 2014. In March 2017, the cable operator SBB removed the most watched channel, the public television station RTS1, from the first position in the channel lineup. In this place, held undisputedly by RTS1 since the beginning of television in the region, SBB inserted N1 TV.
Does the owner influence his media?
When NATO bombed RTS in 1999, its argument was based on the idea that a television outlet necessarily broadcasts the propaganda of its owner. As the owner in this instance was the enemy state, and propaganda was part of the war effort, NATO concluded that television was a weapon of war and hence a legitimate target.
Now, N1 too has owners. Among them is a general who was engaged in that same war. Regarding propaganda, its press releases addressing the change in the channel lineup provide prime examples of manipulation. The title “Growing Political Pressure to Lower N1 on the SBB Network” (N1, 2017) suggests that KKR’s channel was being lowered when it was actually being raised. N1 is also the grand champion of manipulation with numbers. In 2016, its reports quadrupled attendance at a demonstration supported by US NGOs, while the number of anti-NATO protesters was reduced thirty-fold (sic). During Serbian presidential elections in 2017, television served as а press service for some candidates, while entirely omitting others.
Warrior for perceptions
The defenestration of democracy by KKR for the benefit of its “Balkan CNN” would be explained by Petraeus as the “development of democratic values.” This was the only time an owner of N1 has publicly commented on N1, and he did so exclusively to journalists of N1. With a straight face, he stressed their objectivity and independence.
If these statements are the exact opposite of reality, it is because we are dealing with an expert on wars of perceptions.
“Hardly anything is more important in international affairs than the historical images and perceptions that men carry in their heads.” This quote opens Petraeus’ first academic article in 1986, as well as his doctoral thesis, defended at Princeton the following year. Since then, the soldier-scientist has been championing a reorientation of the US military. Priority should pass from the conventional war to counterinsurgency (or COIN), under the motto “win hearts and minds.” In 2006 he elucidated his doctrine in a landmark military manual (“FM 3–24 Counterinsurgency”). When he took command in Iraq and Afghanistan from 2007 to 2011, these countries would serve as laboratories for putting his theories into action. Mission accomplished, there was little left for him to do but leave the army he revolutionized after a very well thought-out career. As a Cadet at West Point, he courted the superintendent’s daughter, which made him the subject of mockery among his comrades, but earned him the hand of the young lady. He then advanced in the shadow of commanders Galvin, Vuono, and Shelton. Until his sex scandal broke in 2012, he was the blue-eyed boy of the media, which gave him nothing but laudatory articles (nicely called “blow jobs” in journalist slang). His charm met few critics, like admiral Fallon, who supposedly called him an “ass-kissing little chickenshit.”
Conquering hearts and minds
A correspondent of Marcel Bigeard and an avid reader of “The Centurions” by Jean Larteguy, Petraeus has readily admitted his French influences, in particular that of the theorist David Galula. This did not prevent a French comrade-in-arms, General Maurice Druart, from denouncing his motto “win hearts and minds” as “an oppressive merchandising exercise carried out on the population” (see the excellent study of the French army “Gagner les cœurs et les esprits”, CDEF, 2010, p. 57).
The true meaning of this phrase is defined in the manual FM 3–24 as follows: “‘Hearts’ means persuading people their best interests are served by the COIN’s success. ‘Minds’ means convincing them that the force can protect them and that resisting it is pointless. Note that neither concerns whether people like the troops. Calculated self-interest, not emotion, is what counts.” The section “Media and the Battle for Perceptions” offers almost Orwellian precepts: “Consider word choices carefully… For example, is the COIN force a liberator or an occupier?”
Experienced in this type of doublethink, Petraeus keeps talking about a “victory” in Iraq while the intervention has been an indisputable catastrophe. The region has been plunged into chaos, the reasons initially invoked proven to be false, and the stated objectives not achieved. In fact, the Petraeus model of counterinsurgency has combined great manipulation and great violence: civil war, air strikes, night raids, drone attacks, and torture. This reality has hardly emerged in the media, which also seem to have followed the Petraeus textbook (section “Exploit a single narrative”).
The year 1986 would prove pivotal for Petraeus. He became a theorist of counterinsurgency, a member of the Council on Foreign Relations, and met James Steele, a veteran of the Phoenix Program in Vietnam. In direct communication with Petraeus, Steele would help organize death squads and torture centers in Iraq.
Spying and manipulation on the web
In 2010 Petraeus recruited the first army of internet trolls (“US Spy Operation That Manipulates Social Media”, Guardian, 2011). His CENTCOM Command issued a solicitation for an online persona management service that would allow 50 users to run 500 sock-puppets “without fear of being discovered by sophisticated adversaries.”
A few years later, similar practices by Russia are now in the spotlight of many journalists, but the founding American example is regularly omitted. Thus, an article of the Obs-Rue89 enumerates five involved countries yet still leaves out the United States.
The soldier in Petraeus understands very well that information technologies are essential for information operations. As Chief of the CIA, he warned: “We’ll Spy on You Through Your Dishwasher” (Wired, 2012). As a media mogul, he has remained as bellicose as ever: “Cyberspace Is a Whole New Domain of Warfare” (BBC, 2017). He is campaigning primarily for ever-greater control of the internet.
Regarding this same subject, KKR controls a large number of internet companies, including Optiv (cyber security), GoDaddy (hosting), First Data (digital money), and, of course, United Group’s internet service providers.
The massive surveillance of the internet by Anglo-American intelligence services, revealed by Edward Snowden, was in full swing while Petraeus was heading the CIA. It included projects like PRISM, which allowed direct access to servers of Google, Facebook, Apple, Microsoft, and other giants, as well as Muscular and Tempora, projects which directly infiltrated fiber optic cable systems.
In the Balkans, a large part of the internet traffic goes through providers bought by Petraeus. A Serbian study on “Invisible infrastructures” found that all the traffic led to a single point: “if you would like to examine, filter, or retain all the national traffic going through the SBB network, you would be able to do that using just this one point.” It so happens that this point is in the possession of KKR.
Why infiltrate, if you can own?
Public money and private money
The wars of Petraeus have come at a high price, not only in terms of human lives, but also measured in taxpayer money. The costs are no longer estimated in billions but in unheard-of trillions of dollars. Unprecedented sums have also ended up in the hands of private corporations (“Contractors Reap $138bn from Iraq War”, Financial Times, 2013) for civil tasks (Halliburton-KBR) as well as for military (Blackwater) and intelligence services (Bell Pottinger). War has been privatized, hence the section “Multinational corporations and contractors” in Petraeus’ manual.
Already as commander-in-chief, Petraeus had colossal funds at his disposal and dealt directly with private corporations. But who is really in command when the biggest military power gets over-indebted to pay for its wars: the commander or the financier?
From military to finance – a promotion
All his life, Petraeus has built up his career by courting those highest in power. His passage from the summits of military and intelligence fields to the ranks of financiers is typically seen as one of retirement or resignation. We are inclined to see it as a promotion.
The career of David Howell Petraeus follows the same ascending line and the same red thread: the manipulation of perceptions. His case illustrates a radical change in the world of media. Before him, no one could have imagined a former chief of intelligence at the head of the media, especially not in a country he had helped to destroy. An enemy general, head of the secret service, and a propaganda specialist, he has imposed himself on the media of a bombed nation, under the pretext of bringing objective information to it – a real tour de force. But nothing shocks hearts and minds already conquered.
Crédit photo : Darren Livingston via Wikimedia (cc)