Businessman Adnan Khashoggi’s High-Flying Realm

High above the clouds, at 35,000 ft., Adnan Khashoggi’s DC-8 is cruising noiselessly toward his estate in Marbella, Spain. His guests, sipping 1961 Chateau Margaux from crystal goblets with triangular silver bases, lounge on the jet’s cream-colored chamois-and-silk banquettes. His masseur, his valet, his barber and his chiropractor — they accompany him everywhere — are relaxing as well because “A.K.,” as he is known to his employees, is fast asleep on the $200,000 Russian sable spread covering his 10-ft.-wide bed in one of the plane’s three bedrooms.

In the plane’s fully equipped kitchen, Khashoggi’s chef is preparing hors d’oeuvres. They will be served on white triangular china, embossed in gold with the letters AK, designed, along with the crystal and flatware, at a cost of $750,000. The plane, which Khashoggi bought in 1982 for $31 million and had reconfigured for an additional $9 million, has the streamlined and futuristic feel of a flying 21st century Las Vegas disco. In the sumptuous lounges, digital panels indicate the time and altitude, and electronic maps chart the jet’s current position. Inside a coffee table, a color monitor shows a view of the ground. Built into the ceiling is an elaborate electronic map of the cosmos, a 50th-birthday gift to Khashoggi, who is fascinated by astronomy. One by one, against a dark background, the outline of the constellations lights up, the tiny stars winking against the blankness. Aquarius . . . Cancer . . . Gemini . . . Then there is Leo, Khashoggi’s birth sign, and as the constellation brightens, a small image of the round-faced, mustachioed Saudi Arabian arms merchant and businessman flashes on and off, on and off.

To those who work for him, Adnan Khashoggi is not a constellation but the very center of a mysterious and splendiferous universe. His is a dazzling and ostentatious realm of luxury beyond the dreams of Croesus, a shadowy sphere of deals, arms brokering and billion-dollar investments. But with Khashoggi’s well-publicized role as the middleman in America’s arms-for-hostages deals with Iran, light has been cast on the sometimes shaky financial state of his private and public dealings. Like the arms sales to Iran, several of his recent investments have been ill-conceived, botched deals.

The round-figured Khashoggi, who could pass as an amiable neighborhood shopkeeper, has been described as the world’s richest man, though he probably never was and certainly is not now. He sometimes seems to be dancing a curious line between fabulous profits and grim losses. What he was and continues to be is the world’s biggest spender, a man whose unrivaled profligacy gilds his self-image as a grand merchant-statesman. This soft-spoken man with a gift for putting people at ease, the product of a strict Islamic upbringing from one of the world’s most conservative and ascetic nations, has become an international symbol of sybaritic self-indulgence. “I am an artist with my wealth,” he says in quiet measured tones while relaxing in a room at the rear of his jet.

It costs Khashoggi an estimated $250,000 a day to support his life-style. His twelve estates around the world include a 180,000-acre ranch in Kenya and a $30 million apartment that takes up two entire floors of a luxury building on Manhattan’s Fifth Avenue. He has homes in Marbella, Paris, Cannes, the Canary Islands, Madrid, Rome, Beirut, Riyadh, Jidda and Monte Carlo. His 282- ft. yacht Nabila (complete with helicopter) makes Queen Elizabeth’s Britannia look like a package-tour ship. His fleet includes three commercial- size jets, twelve stretch Mercedes limousines, a total of 100 vehicles and a stable of Arabian horses.

This past Christmas Eve, Khashoggi entertained some 60 guests at his 5,000- acre spread on Spain’s postcard Mediterranean coast. For the occasion, La Baraka (in Arabic, “the blessings of God”) was transformed into a Moorish palace: gold chandeliers draped in white leaves and red streamers, the ceiling of the 50-ft.-high ballroom covered with shimmering silver and gold spangles like the fringes on a flapper’s dress. That night, like a magnanimous feudal lord, Khashoggi, in a gray-and-black satin tuxedo, greeted his guests with kisses on both cheeks. Servants trooped into the ballroom carrying great silver salvers of lobster thermidor and pheasant with apples. For the children, there was a magic show featuring live doves, as well as hand-painted Cinderella-like carriages for them to ride around in.

The next day Khashoggi called his wife Lamia into his all-white bedroom to give her a $1.9 million diamond, emerald-and-ruby necklace. “Oh, Baba!” (Arabic for “father”) she exclaimed when she saw it. His ex-wife Soraya, who presented her husband with a $2.5 billion divorce suit seven years ago that was resolved amicably, was also at the house: she got a less expensive ruby necklace. Christmas was relatively quiet this year, said Khashoggi, because the family is still grieving the death of his sister in March.

Fantastic parties are a Khashoggi signature. Christmas was a simple tea compared with his 50th-birthday fete in 1985, at which he entertained more than 400 guests at a three-day extravaganza. His birthday cake, a model of Louis XIV’s coronation crown, was created by a chef who was flown to the Louvre to study the original. Khashoggi’s parties also take place in his 30,000-sq.-ft. quarters incorporating the 46th and 47th floors of the Olympic Towers in Manhattan. Created out of 16 separate apartments, the abode has a pool that overlooks the spires of St. Patrick’s Cathedral. What will the host wear to his soiree? At Marbella there is a small warehouse, called the Central European Distribution Center, for Khashoggi’s clothes. More than 1,000 handmade suits, encased in plastic and ranging from size 46 to 56 to accommodate Khashoggi’s shifting figure, line the walls, sorted by color. The clothes are shipped to each of his homes so that he will have a full wardrobe of Arab and Western wear wherever he happens to be.

Khashoggi’s flamboyant life-style, besides gratifying his own inclinations, is a calculated element in his way of doing business. “Flowers and light attract nightingales and butterflies,” he says, a metaphor he prefers to the more homespun “catching flies with honey.” As a schoolboy in Egypt, he would earn $100, save half and use the rest to throw a party. He would be broke the next week, but, he says, “I would make a good impression, and all week everyone would invite me over.” Some 15 years ago, he chartered a yacht and sailed to Sardinia, docking it between Aristotle Onassis’ boat and that of King Constantine of Greece. “Suddenly,” says Khashoggi, “I saw that it was a small club of people who talked and socialized with each other. It was so difficult to meet these people in normal circumstances. This opened my eyes to the fact that there was a certain way to penetrate these classes of people, by meeting them on their own ground.”

These days Khashoggi seems to have trouble affording his own fantasy life. Despite the Iranian deals, his days as a big-time arms broker are past. He has invested in ambitious development projects around the world, several of which have come undone. In Salt Lake City where Khashoggi launched a $1 billion real estate venture, his Triad America company is being sued by dozens of contractors and investors for $140 million. In the Sudan, his multibillion- dollar plan to turn the desert nation into a breadbasket failed when his friend President Jaafar Numeiry was deposed. Khashoggi is also suffering smaller indignities. French authorities last week seized his DC-9 because he had not paid a debt to a British corporation. In Marbella a strike by some 60 servants demanding back pay was recently settled. “There are times,” confides a close friend, “when he has difficulty scrounging together $200,000 of pocket money.”

| Khashoggi’s problems are in keeping with the way he operates. In an age of ubiquitous M.B.A.s and computer transactions, Adnan Khashoggi is a wily and gracious trader, an exemplar of the Arab-Islamic values of daring, cunning, loyalty and generosity. For him the deal is the thing, the only thing. Business, love, politics, diplomacy — they are all forms of dealmaking. He proudly admits that he dissembles, uses women, flaunts his wealth to get an agreement. “When I am trying to broker a deal,” he says animatedly, “in diplomacy or business, I don’t tell the truth to both sides all the time. You should let both sides let off steam and feel vindicated. Then it’s time to encourage both to be generous in victory. You can usually have a deal if each has something the other wants as long as you can defuse the psychological land mines.”

Khashoggi has no real consolidated corporate power base. He is a master broker but a precarious builder. Instead of constructing institutions, he has created a cult of personality. He is the product of the Middle East, where loyalty is to individuals, not institutions; he understands the psychology of one-on-one haggling, not the culture of corporations. “I am a trader,” he says. “If I can make a decent profit, I prefer to take it and get out. There are others who hang on to an investment in the hope of realizing profits several times the money invested. They are welcome to their method. I prefer mine.”

To do business, he zigzags around the world on his jets the way others hop in a car to run an errand, because he must be there face-to-face. He believes that through the force of his personality, he can broker a billion-dollar merger or patch up a domestic tiff. Recently, in a conversation with a woman he had just met, she confided to him that she was in the final stages of divorce. “Stop!” he said excitedly. “Let me reconcile you! I am good at it.”

Born in Mecca, Khashoggi grew up with the confidence that comes from being the firstborn son in a country where the eldest boy is the prince of the family. His father, Dr. Mohammad Khashoggi, was the chief physician to King Abdul Aziz, the founder of modern Saudi Arabia. From his father, Khashoggi says, he learned the difference between compassion and realism, as well as the value of giving as a prelude to receiving. Khashoggi recalls that one oppressive summer afternoon when he was eight, he discovered a beggar asleep on the front steps. Knowing of Islam’s emphasis on charity, Adnan brought the man inside, gave him some food and said he could sleep in the hall. When his father returned that evening, Adnan expected great praise but got a lecture instead. “You’ve ruined this man’s life,” Dr. Khashoggi said. “He’ll never be able to sleep on the sidewalk again.” The incident, Khashoggi recounts, taught him that compassion must be tempered with logic, and logic with compassion. “It was the first time that I was touched by the reality of life.”

Saudi Arabia was then a poor and barren desert kingdom, lagging far behind the West in development. But Dr. Khashoggi was determined to give his son a modern education. Through a timely investment, he was able to send Adnan to Victoria College, a British-run school in Egypt that was the cradle of leadership for the elite of the Middle East. Khashoggi’s classmates included two princes who would become Kings, Faisal II of Iraq and Hussein of Jordan. There Khashoggi learned the rudiments of dealmaking. He found out that a Libyan schoolmate’s father wanted to buy sheets and towels; he knew that an Egyptian classmate’s father manufactured them. He introduced buyer and seller, and it yielded his first commission, about $1,000.

Khashoggi wanted to become a petroleum engineer and enrolled in the Colorado School of Mines. But Colorado was too cold for his desert blood, so his father arranged for him to go to the California State University at Chico, a school of 2,000. Set in a conservative rural town, it was an oasis for wealthy Middle Eastern students seeking an American education. When his father sent him $10,000 to buy a car and rent a better apartment, Khashoggi purchased two trucks that he leased to the owner of a small construction company for $125 a month. “I used to get $225 a month from home,” he remembers. “So, my income rose to $350 a month. I became a rich student.” He promptly moved to a hotel, hired a female student to do chores and type his papers, and began to give elegant soirees, replete with polished silver, pressed linen and fresh flowers.

It was the creation of an image. The 18-year-old student began brokering sales for a Seattle truck manufacturer. Soon all kinds of businessmen, assuming he was influential in Saudi Arabia, began offering him deals. “My life-style was my only way of making important contacts. I had put together a track record. But that was not enough. I would spend money in order to justify my request to be on prize society and business guest lists. In a few years everybody wanted to be on my guest lists.”

Khashoggi left Chico after only three semesters; wheeling and dealing would provide the rest of his education. In 1956 Khashoggi garnered a contract to supply trucks for the Saudi army. The pattern was set: the deal, the commission, the party, more contacts and contracts. By 1962 Khashoggi was the sales agent in Saudi Arabia for Chrysler, Fiat, Westland Helicopters Ltd. and Rolls-Royce. “One association,” he says, “led to another, one business to another.” For Western companies, Khashoggi was the man to know in Saudi Arabia.

Throughout his life he has played up his closeness to the Saudi royal family. Lately there have been rumors that Khashoggi is out of favor in Riyadh, but he adamantly denies them. “Having heard so much revolutionary rhetoric, I can really appreciate what the Saudi government did for its people,” he says. “King Fahd is the real revolutionary, after all. It takes a revolutionary to rule by common sense and compassion in the midst of turmoil.”

When Fahd’s half-brother King Faisal took the Saudi throne in 1964 and set the country on a course of close cooperation with the U.S., Khashoggi positioned himself to be the middleman between American arms manufacturers and the Saudi Defense Ministry. At Khashoggi’s instigation, the Saudis commissioned the U.S. to study their defense needs and make recommendations as to what they should buy. As a result, Khashoggi had the inside track and locked up sales-agency rights with such U.S. firms as Lockheed, Raytheon and Northrop. He eventually won exclusive commissions on 80% of all U.S. military sales to Saudi Arabia.

After the Arab-Israeli war of 1973, the Arab states were eager to expand their arsenals. Moreover, the rise in oil prices gave them billions to spend on whatever weapons they desired. “That’s when the middlemen like Khashoggi really started to make their killings,” says one Middle Eastern arms dealer. “It was the gold rush of the 20th century. Every con man in the world was in Arabia.” Between 1970 and 1975, Lockheed alone paid Khashoggi $106 million in commissions. During this same period, he is said to have collected hundreds of millions from other corporations. Khashoggi, says Max Helzel, then vice president of Lockheed’s international marketing, “became for all practical purposes a marketing arm of Lockheed. Adnan would provide not only an entree but strategy, constant advice, and analysis.” His commissions started at 2.5% + and eventually rose to as much as 15%.

In 1975 a Senate subcommittee investigating foreign payments by American corporations looked into Khashoggi’s dealings. Northrop said it had given him $450,000 in bribes for Saudi generals. Khashoggi denied the allegations that he had asked for bribe money, but the accusations did not endear him to the Saudi ruling family. In 1976 and ’77 the Securities and Exchange Commission attempted several times to subpoena Khashoggi as part of its investigation into arms companies. Khashoggi stayed away from the U.S. for nearly two years, but later came back to give a voluntary deposition.

By the mid-1980s, the era of cash-and-carry megadeals had wound down as oil prices declined and the oil sheiks became more sophisticated about arms transactions. By then they had reviewed thousands of arms proposals themselves and had sent their sons off to the U.S. to earn M.B.A.s. Khashoggi was no longer essential.

As a businessman and broker, Khashoggi has as a trademark the exquisite and exotic women who seem to hover around him. He has often been accused of hiring expensive call girls to seduce the men he is attempting to do business with. He amiably confesses to paying for escorts to liven up business functions. The women, he suggests, sweeten the deal. “They lend beauty and fragrance to the surroundings,” he says, while sitting on the terrace of his Marbella house overlooking Gibraltar. “They are also intelligent hostesses. I challenge anyone to come forward and prove that I ever told him the girls are available for sex,” he says with a smile and a wink.

Such women served Khashoggi’s purposes in other ways. In the 1970s Khashoggi spent much time and money recruiting the “escorts” hired by the Shah, in order to get information about the Iranian’s military plans. “The Shah was timid with women,” Khashoggi says, “and liked to impress them by telling them exciting secrets.” Khashoggi himself coached the women on how to guide the conversation to areas of particular interest. “They always came back with valuable intelligence,” he says with a smile.

As Khashoggi began to spread his wealth into other investments — banks, fledgling high-tech companies, farms and ranches — his attorney Morton MacLeod tried to create a corporate organization for his enterprises. It did not work. “We were thinking of corporate organizational structures, operating capital and bottom-line earnings,” says MacLeod. “He’s thinking more in % terms of people, relationships, alliances.” Khashoggi is not an administrator. Instincts guide him; details do not concern him, and he leaves them to his aides.

Some of the deals went bad. One of his first failures was a planned $600 million tourist resort that was shot down by the Egyptian legislature because of concern about damage to the nearby pyramids. Sudan’s President Numeiry invited Khashoggi to become a virtual economic czar in his country. He set up a joint venture with the government to exploit oil resources. When Numeiry was deposed in a coup in April 1985, the new government accused Khashoggi of having interfered in the country’s political and economic affairs. He is now unwelcome there.

Khashoggi’s most public debacle has been in Utah, where he was attracted by what he believed were prime development opportunities. The centerpiece of his $1 billion Salt Lake City project is the Triad Center, a $400 million, 25-acre complex of office buildings, a hotel and retail shops. Work stopped after only about a third of the glitzy complex was completed. Khashoggi refuses to cave in to Triad’s creditors, among them architects, contractors and banks. “They loaned the money against the collateral, the Triad Center,” he says. “Now they hear rumors about my cash-flow problems and call the loans. I am not going to bring in cash from other businesses to pay the bankers. The collateral is all they will get if they persist.” In Salt Lake City, Khashoggi was regarded as a hero for ten years; now he is branded a fraud. “If he is the richest man in the world and he is flying around in a gilded plane,” says Mayor Palmer Depaulis, “why isn’t he paying his debts here?”

As some of Khashoggi’s business interests flagged, his somewhat quixotic interest in diplomacy seemed to rise. He came up with the idea, in 1985, of bringing Palestinians and Israelis together for peace talks through a steering committee of American, Egyptian and Jordanian officials. Later he accompanied Egyptian President Hosni Mubarak and Jordan’s King Hussein when they visited the U.S. in 1985. Khashoggi proposed a $300 billion fund to develop the area, a kind of Marshall Plan that would serve as an incentive for peace negotiations. Late in 1985, using his DC-8, he visited eight heads of state in ten days to push his plan. But ultimately nothing came of it. Khashoggi says he has brokered many political arrangements, like the arms-for-hostages deal, but always for reasons of business. “I am not interested in politics,” he says. “But if it serves my business interest, I’ll play the game.”

To his six children, Khashoggi is not a merchant-statesman, but “Baba.” His four sons and one daughter by his first wife, Soraya, are all students in the U.S. He and his second wife, Lamia, have a son Ali, 7, who lives most of the time at their house in Cannes. Although he considers himself a traditional disciplinarian and keeps his children on a budget, they do have fringe benefits: the older boys have been known to impress their dates with a tour of the family plane.

Khashoggi first met Lamia in Milan when she was a 17-year-old named Laura Biancolini. When she married Khashoggi in 1978, she changed her name and converted to the Muslim faith (as had Soraya). Buxom and statuesque with blue, almond-shaped eyes, she is self-possessed and cool. She dresses according to the Joan Collins Dynasty handbook, complete with diamonds and decolletage. With her, as with her husband, more is definitely more. Her idea of casual is to wear a one-inch ruby-and-diamond ring with matching ruby earrings. Her 40- carat diamond wedding ring covers the lower half of her ring finger. She asserts that size does not matter. “It’s the sentiment that counts,” she says in her accented English.

Khashoggi always seems to be surrounded by a claque of admirers, an entourage of curious and often comical characters. He is gratified by his friendships with the famous and the powerful, and in his office in New York City there are prominently displayed pictures of himself with Ronald Reagan, Henry Kissinger and Pope Paul VI. At Christmas in Marbella, a gaggle of lesser European royalty partook of “A.K.’s” hospitality. Among them was Count Jaime de Mora y Aragon, the brother of the Queen of Belgium, a rakish fellow with a monocle and a waxed mustache who comes across as a blue-blooded Salvador Dali.

But one of the persons who seem closest to Khashoggi is Shri Chandra Swamiji Maharaj — Swamiji, for short. The bearded Hindu guru claims he can see into the future and the minds of mortals. The swami’s brochure, which he gives out to the uninitiated, says “his Holiness has appeared on the scene as our real savior.” On Christmas Eve at Marbella, the white-robed swami glided down the marble steps in the middle of dinner, with his 14 disciples arrayed behind him. In an interview with an Indian magazine, the swami was asked what brought the two men together. “We have many common friends in politics and Hollywood,” the holy man replied.

Khashoggi lives in two cultures. His identity is split between East and West, between the simple white thobe he wears with fellow Arabs and the handmade cashmere jackets he wears with Westerners, between the austere ethos of Mecca and the hedonism of Marbella. “When I am among you,” he says, as if addressing all of the West, “I do as you do so well that practically I am one of you. But when I am in Saudi Arabia, I am a real Saudi Arabian. I obey and preserve the customs and traditions that give Saudi Arabia its identity and moral strength.”

In his attempt to bridge East and West, Khashoggi does make distinctions. His image in the West as the ultimate voluptuary both pleases and annoys him. “People in the West believe they have a higher morality than we do. But in fact we have a higher inner morality. All of us do naughty things from time to time. But when it comes to the really naughty things, we think twice.”

America, however, is still the home of his greatest ambitions. “My dream is to take over an important American company and use it as a base of my operations,” he says as he sits in his Monte Carlo apartment. Khashoggi wants to leave his mark on the world the way he stamps AK on the cufflinks he gives employees for Christmas. But like such ancient figures as Midas and Croesus, he may end up remembered as something more ephemeral, a man known for the way he accumulated and spent his phenomenal fortune.