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The Mideast oil connection: Assignment to Saudi Arabia opens up adventure to Mellon banker

Second of three parts

Tuesday, March 18, 2003

By Dan Fitzpatrick, Post-Gazette Staff Writer

Part Two: For one young Mellon banker a Middle East assignment opened up a world of oil, riches and Saudi finance.

Pittsburgh banker Rick Petterson was 33 and longing for adventure when he volunteered to move himself, his wife and two children to the Saudi Arabian city of Jedda, overlooking the Red Sea. Mellon Bank, his employer, wanted someone to look for loan opportunities in the oil-rich kingdom and protect the bank's Middle Eastern portfolio.

To Petterson, "The lure was something new, different and challenging."

What Petterson, now a 60-year-old owner of a real estate company in Florida, did not realize in 1976 was how his assignment would bring him inside the homes and offices of some of the wealthiest and most influential figures in Saudi Arabia. He would come to know the then-leader of the bin Laden family, befriend the mysterious owner of the largest bank in the Saudi kingdom and, as a result, play a role in the rise of the Middle East as an economic power.

Petterson's time in Saudi Arabia, as it turns out, was one of many important markers in Pittsburgh's seven-decades-long involvement in that volatile part of the world. In a three-part series that continues today and concludes tomorrow, the Post-Gazette traces the many connections between Pittsburgh and the oil-rich countries of the Middle East -- connections that are newly relevant with war looming in Iraq.

While the story of Pittsburgh's involvement does not begin with the work of Petterson, the ex-Mellon executive came as close as anyone to the Arab world's oil culture, its sudden opulence of the 1970s and its conflicted relationship with the United States.

His first day in Saudi Arabia, in September 1976, fell on the eve of the Muslim holiday Ramadan. The city streets, Petterson said, were "hot, dusty and chaotic," and he soon realized that Jedda, a city deriving 95.5 percent of its revenue from oil, also was a place where electricity and air conditioning rarely worked, the roads were not paved, the homes were not numbered and few telephones could be found. What brought Petterson there was the promise that Middle Eastern countries suddenly rich with oil had billions to invest in rebuilding projects. Mellon Bank was "getting all kinds of proposals," recalled ex-Mellon executive Dave Mathies, who followed Petterson to Saudi Arabia a few years later.

Upon his arrival, Petterson worked closely with the owner of Saudi Arabia's largest bank, National Commercial Bank, which had a consulting relationship with Mellon through investment bank First Boston. The owner's name was Khalid bin Mahfouz, a man who would play a formative role in Petterson's life while becoming a key figure in a budding business relationship between the United States and the Saudi kingdom.

That same U.S.-Saudi connection would become controversial later. Bin Mahfouz would come under scrutiny for an alleged investment made in a Texas oil company owned by a young George W. Bush. In the early 1990s, he would be tied to a scandal involving the Bank of Credit and Commerce International. Then, in 1999, bin Mahfouz's National Commercial Bank would be accused of funneling millions to front organizations for al-Qaida leader Osama bin Laden, according to media reports that cited a Saudi audit obtained by U.S. intelligence.

Part One: How Mellon money and the Gulf Oil giant it spawned helped to create and shape the Middle East

One of bin Mahfouz's biggest bank customers -- and his best friend -- was Salem bin Laden, the eldest son of construction magnate Muhammad bin Oud bin Laden and an older brother of Osama bin Laden, who was a teenager in the 1970s. The Bin Laden construction firm was one of the largest in the Middle East, benefiting from a close relationship with the ruling Saudi family and contracts to renovate the Islamic religious shrines of Mecca and Medina. Salem bin Laden, who took over the firm after his father's death in the late 1960s, and bin Mahfouz were close friends who spent their leisure time together playing pool. Petterson got to know both men, spending time in each of their homes.

Salem bin Laden, educated in an English boarding school and familiar with Western culture, was "very carefree," a "live-life-to-the-fullest kind of guy," Petterson recalled. Bin Mahfouz, who had a pool that he chose not to fill with water due to the perceived immorality of swimming while other people went thirsty, was a billionaire who also was paranoid about secrecy, often preferring not to talk to Petterson by phone.

The world of abundance was an eye-opener for Petterson. On business trips, Petterson carried with him, for bin Mahfouz, a minimum of $100,000 in cash. On one trip, in Thailand, bin Mahfouz asked Petterson to give a private plane attendant a $500 tip as compensation for walking bin Mahfouz from the terminal to the plane. "That was over a year's salary for her," Petterson said.

"She started screaming and broke down crying."

When Petterson and bin Mahfouz returned from a trip together, bin Mahfouz would ask for whatever was left in Petterson's pocket and throw the money in the air, in front of his staff. The people in his office were welcome to whatever was left. Sometimes, that amounted to $30,000.

But perhaps the ultimate gesture of generosity came when bin Mahfouz visited Petterson's home in Jedda and spotted a painting of three Saudi Arabian mosques sketched by Petterson's wife Kitty. Bin Mahfouz asked if the art was for sale, and how much she wanted for it. Kitty Petterson named a price -- $10,000 -- that she thought would be "outrageous." The next morning, at work, Rick Petterson found a stack of 100 "crisp" $100 bills on his desk, along with a note saying bin Mahfouz would pick up the painting at 6 p.m. that night.

But when he arrived that evening, bin Mahfouz told Kitty Petterson that he suspected she put such a high price on it because she didn't really want to part with the painting. "Here -- it is a gift from me,'" he said, handing the painting back to her. Hoping to return the gesture, Kitty Petterson spent 90 days sketching a mosque that bin Mahfouz's father gave to the city of Jedda. When finished, she gave the painting to bin Mahfouz as a gift.

It still hangs in the lobby of the National Commercial Bank..

Petterson, who left Mellon's Saudi Arabian operation in 1979 to become president of bin Mahfouz's Saudi Economic Development Co. and help bin Mahfouz invest his money in the United States, is still protective of his relationship with bin Mahfouz and Salem bin Laden, who died in a 1988 Houston plane crash. One subject that upsets him more than others is the allegation that bin Mahfouz and Salem bin Laden were somehow involved in an oil company founded in the 1970s by George W. Bush, who, of course, is now president.

The story, which Time magazine wrote about in 1991 and which resurfaced after Sept. 11, is used by Bush opponents to argue that Bush was once connected to Middle East money. It revolved around a Houston businessman named James Bath, who represented bin Mahfouz and Salem bin Laden at a time when Bath invested $50,000 in Bush's oil company, which was sold to Harken Energy Corp. in 1986. Petterson said he knew Bath, whom he described as a "confidant" of bin Mahfouz.

Petterson, in fact, said he arranged bin Mahfouz's first investment in Texas oil and acknowledged that Bath helped with the introductions "through the Bush family and others." But the drilling programs in which bin Mahfouz invested had "nothing to do with the Bushes," Petterson said, "so far as I know." And, he said, "I structured the investment."

After Petterson left bin Mahfouz's operation in 1982 and the Middle East in 1984, bin Mahfouz would later become tied to a scandal involving the Bank of Credit and Commerce International, where he was a shareholder. The bank was accused of money laundering and using Middle East oil money to influence political leaders. Then, in 1999, bin Mahfouz's bank would be accused of funneling money to Osama bin Laden, and the Saudi government purchased bin Mahfouz's interest in the National Commercial Bank.

Petterson emphasized that he had no knowledge of any terrorist ties or illegal activity, and he said he would have been the "last" person to know about either. The post 9/11 speculation about bin Mahfouz and Salem bin Laden upsets him. "It saddens me very much to see generalizations made about the Arab world and the Arab community," he said. "These were gentle people who were nice to me and gracious to my family to whom I owe quite a bit of loyalty."

At the same time, Petterson said, there was "never any pretense about their love for Americans and their love for our politics. They made it clear they didn't like it." Petterson's Arab friends would say, "We like you; we like your family; but we really don't like your country."

Next: Playing football in the desert

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