Blackwater Mercenary Prince Has a New $1 Trillion Chinese Boss

(Bloomberg) -- Erik Prince, the former Navy Seal who founded Blackwater, hardly seems like the type who dwells on corporate niceties. He was, after all, America's foremost mercenary executive.

But there he was in Beijing, bearing an unlikely gift for a man who might open China to a freelancer known for his band of private contractors. It was a copy of his Blackwater memoir, “Civilian Warriors.''

With that 2013 introduction to Chang Zhenming, chairman of China's powerful CITIC investment conglomerate, Prince gained entry to a lucrative new market -- and, now, new controversy.

Prince, brother of Education Secretary Betsy DeVos, has made no secret about his ambitions in China. But since he became chairman of Frontier Services Group in Hong Kong five years ago, CITIC, his mainland benefactor, has slowly cemented its grip on the firm. Prince stepped down as FSG Chairman in December to make way for a new boss from the conglomerate, which has amassed a bigger stake than Prince's 9 percent.

International Attention

Now FSG has drawn international attention for a signing ceremony to build a training center in far western China, where the Chinese government has detained as many as a million Uighur Muslims in political camps. The statement, made in Chinese, was subsequently removed from the firm's website. Prince distanced himself from the region in a statement to Bloomberg.

“Erik Prince has no plans, desire nor interest to engage in any activity whatsoever either personally, through FSG or any other vehicle in Xinjiang Province now or at any time in the future,” an FSG spokesman added.

Unlike Blackwater, which became infamous after killing 14 Iraqi civilians in a Baghdad square, FSG focuses on logistics and security, rather than paramilitary operations.

Nonetheless, FSG's controversial business with the Chinese government has thrust Prince back into the spotlight. Critics accuse FSG of potentially helping the Beijing government engage in mass repression of ethnic Uighurs and other Muslims in western Xinjiang and, in the process, advancing the geopolitical agenda of a strategic U.S. competitor.

In an interview before the Xinjiang news broke, Prince dismissed concerns about his company's work in China.

‘Proud American'

“I am a businessman, not a politician, but I am also a proud American who would never do anything against my country's national interest,” Prince said in a phone interview.

While the U.S. and China are at odds over trade, and the Pentagon said in its 2018 National Defense Strategy that strategic competition with China and Russia are the new top priority, Prince is sure Washington and Beijing will work it all out. He said he keeps his eye on the prize of the thirst for resources in the world's most populous nation that will drive growth for FSG.

Ultimately, “the two nations will go on and remain friendly,” he said. Even as China's economic growth slows, it will still demand “more and more energy and natural resources and places for their products to go.”

Prince is no stranger to controversy. He's made headlines recently by suggesting the Trump administration privatize the U.S. war in Afghanistan. He's also been questioned in investigations into Russian meddling in the 2016 presidential election, over whether he tried establishing a back channel between the Trump administration and the Kremlin in a January 2017 Seychelles meeting. Prince hasn't been accused of wrongdoing, and testified to lawmakers that he wasn't representing the Trump campaign.

Belt and Road

Prince's push into China began in 2013, the same year President Xi Jinping unveiled a key plank of China's foreign policy: the Belt and Road Initiative. China is moving to project its money and influence by linking economies in Asia, Europe and Africa with power grids, highways and other strategic infrastructure.

Prince, 49, had traveled to Hong Kong that year to raise private-equity money to invest in Africa. He pitched the idea to Johnson Ko, an investor whose boutique investment bank had caught the eye of Alibaba's Jack Ma. Ko suggested another tack: a publicly traded company to capitalize on China's coming push across Asia and Africa.

Enter FSG, which was created to provide logistical, aviation and security services. By 2014, Prince and Ko had secured a Hong Kong listing with the backing of CITIC, which has $972 billion in assets.

Since then, FSG has engaged in variety of ventures, from providing security in a Somalian free zone to running air ambulances out of Kenya. For its shareholders, it's hardly been a standout investment. FSG has yet to report a profit, and its stock gained 14 percent over the past five years, half of the increase for Hong Kong's Hang Seng Index.

Then came word of the potential business in Xinjiang. Chinese media reported that FSG would invest in the training camp. An FSG spokesman said that the company's statement was published in error by a staff member in Beijing. The statement said CITIC unit executives were in attendance, as well as the political commissar of the Xinjiang Production and Construction Corps, an economic group with paramilitary functions that manages more than a dozen cities in Xinjiang.

Prince said in a statement he had “no knowledge or involvement whatsoever with this preliminary memorandum regarding the company's activity in Xinjiang. Any potential investment of this nature would require the knowledge and input of each FSG Board member and a formal Board resolution.”

Xinjiang Camp

The Xinjiang camp would be for safety training of workers going abroad under the Belt and Road initiative, Ko said. He didn't say whether the company will move forward with the camp.

“It's for overseas workers, not domestic,” he said by phone. “That one I think is more CITIC.”

CITIC Ltd., a unit of CITIC Group, didn't respond to request for comment.

Xinjiang has appeared in FSG's company filings since it unveiled plans in 2016 for a "forward operating base" there to serve businesses in surrounding countries.

Critics are unmoved. The Xinjiang ceremony is more evidence that Prince is “serving the national interest of China, which competes directly with the U.S.,” said Sean McFate, a National Defense University professor who once built a private army in Liberia while working for U.S. military contractor DynCorp International.

CITIC, for its part, has already been tightening its grip on FSG. In December, CITIC's Chang replaced Prince as chairman. Prince is now one of three deputy chairmen, along with Ko and Luo Ning, a CITIC executive and graduate of the People's Liberation Army Institute of Communication Command. FSG last year raised $107 million via CITIC and other investors. The Chinese company now owns 26 percent of FSG.

Prince, the son of the late billionaire industrialist Edgar Prince, sold a rebranded version of Blackwater back in 2010, but he has other business interests. He runs a private equity commodities firm called Frontier Resource Group, that's raising $500 million to mine metals in Africa and Asia to provide materials for electric cars.

Several Americans who were brought in to get FSG off the ground have departed. William Fallon, a retired four-star Navy admiral, and Gregg Smith, a former Marine who was an adviser for Blackwater, left after Ko and Luo presented plans at a 2016 board meeting to provide security to Chinese companies on the Belt and Road Initiative, according to a person familiar with the matter. Reports that Prince had pitched paramilitary services in Libya in 2016, which FSG denied any involvement in, had added to the tension.

Fallon and Smith declined to comment. While a 2016 company filing says they resigned, an FSG spokesman said the two were fired for performance.

China is one of a few nations banned under regulations for U.S. persons offering defense services. But in the interview, Prince said FSG “is not in any way a private military contractor.” His demotion from chairman was strategic, he said, because CITIC's Chang will attract more business from Chinese companies and financiers that aim to erect mega-projects.

The alliance with Prince is already paying dividends for China, in the form of valuable knowledge and training for Chinese companies, said Alessandro Arduino, co-director of the Security and Crisis Management program at the Shanghai Academy of Social Sciences.

Still, there are risks. Prince wrote an op-ed for the Wall Street Journal in 2017 that called for a viceroy to run a privatized war in Afghanistan, and referenced the colonial-era East India Company. Allying with Prince contradicts Xi's narrative of China as “a great power that does not go down the imperialist route,” said Sean Kenji Starrs, a political scientist at City University of Hong Kong.

And Prince? It's unclear, Arduino said, if the former SEAL will win big in China. One possible clue: A CITIC unit published a Chinese-language version of Prince's memoir. The book is currently out of stock on DangDang Inc., a major Chinese online book seller.

--With assistance from Venus Feng and Chloe Whiteaker.

To contact the reporter on this story: Blake Schmidt in Hong Kong at bschmidt16@bloomberg.net

To contact the editors responsible for this story: Pierre Paulden at ppaulden@bloomberg.net, Anne Reifenberg, David Gillen

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