WASHINGTON — Adnan Khashoggi, the Saudi Arabian arms dealer once reputed to be the "richest man in the world," was deeply in debt and pressed by creditors and unpaid employees when he became a key intermediary facilitating U.S. weapons sales to Iran, sources told The Times on Monday.
By the time the arms deals began in 1985, according to these accounts, Khashoggi was besieged with claims for unpaid jet fuel, bounced payroll checks and overdue loans in what associates describe as his "cash flow problem."
"He owns very little. Everything is mortgaged--except his wife," said a London business associate who calls Khashoggi "the great un-billionaire."
Profit Stand Questioned
In addition, the London businessman and others familiar with Khashoggi's financial condition question Khashoggi's contention that he took no profits when he assumed the role of an arms middleman with Iran. Khashoggi has said that he simply wanted to help foster "peace in the area."
"He's an arms dealer. That's how he makes his money," said Roland W. (Tiny) Rowland, chief executive of Lonrho, a London-based trading and mining conglomerate, and a long-time associate of Khashoggi. "Why would an arms dealer do an arms deal for nothing?"
Khashoggi said last week in an ABC television interview that he expected to profit in the future from the rebuilding of war-torn countries "if peace between Iraq and Iran does come." He said also that he is still owed $10 million by the Iranians. Efforts by The Times to reach Khashoggi have been unsuccessful.
The picture emerging from interviews with Khashoggi associates is one of a man struggling to protect his well-cultivated image as an international magnate even as he failed for months to pay the maids at his penthouse apartment in New York.
At one point in 1985, the crew of his yacht Nabila passed word to Khashoggi aides that they were going to cruise the harbors of the Riviera coast displaying placards complaining that Khashoggi owed them back pay.
'A Total Disaster'
"It was a desperate time; 1985 was a total disaster for Adnan," one former Khashoggi executive recalled.
"Adnan was having a hard time getting loans," the former employee said. "We were being sued for $180,000 because the jet fuel bill for the (Khashoggi-owned) DC-8 hadn't been paid. The (Boeing) 727 was grounded because something wasn't paid. He wasn't paying anyone. And, when he wrote checks, sometimes they were no good."
Some hotels reportedly no longer lodge the Khashoggi entourage without receiving payment in advance. And friends of a Khashoggi attorney said that the lawyer refused to handle a pending legal matter for the Saudi businessman until he was prepaid for his services.
Sued in Salt Lake City
Khashoggi's financial difficulties are also reflected in mounting legal actions. For example:
--In Salt Lake City, the lenders who financed Khashoggi's Triad Center, an ambitious redevelopment project, are suing for $61 million over collapse of the unfinished project. Khashoggi aides said the project was losing $1 million a month in 1985. In all, more than $150 million in litigation is pending against Triad America, Khashoggi's Utah-based development company.
According to court records in an investor's suit, Triad transferred $40 million to a company formed to develop oil in Sudan. But that project never materialized. A former Khashoggi executive told The Times that the money went to "pay pressing expenses."
--In New York and London, a company wholly owned by the Philippine government is suing Khashoggi over the disappearance of $3.5 million invested in an ill-fated joint venture that was dissolved last March.
Fund Conversion Alleged
Instead of returning the investment, the suit alleges, Khashoggi was responsible for a scheme to "convert those funds to his own use and to transfer them to a hiding place in Riyadh, Saudi Arabia."
--In Marbella, Spain, 60 servants at Khashoggi's sprawling estate settled a 90-day strike last week after getting $67,000 in overdue wages.
Late last month, according to a report published in the Middle East Economic Digest, Khashoggi was forced to borrow $22.7 million from the National Commercial Bank of Jidda in Saudi Arabia to pay down a $32-million debt to a Paris-based bank.
Lonrho's Rowland, who also owns a number of gambling casinos in Britain, said Khashoggi owes him "several millions of dollars" from loans and gambling debts.
Nonetheless, Rowland said, Khashoggi and Iranian middleman Manucher Ghorbanifar asked him to invest $15 million to finance an April arms shipment to Iran. He said they came to see him in London on April 8 and stayed late into the night.
Wanted Cash in a Hurry
"He was in a hurry to get the cash," Rowland said in a telephone interview. "It was about 3 a.m., but they wanted me to transfer the funds right then to Ghorbanifar's Credit Suisse bank account in Geneva." He said he refused.
"Khashoggi doesn't have a billion dollars--he never did," said a former business associate. "He lives on his reputation. Everyone is willing to extend credit to 'the richest man in the world.' "
If Khashoggi's financial condition does not improve, he may have more cash flow difficulties ahead. His 285-foot yacht Nabila--named after his daughter and featuring a helicopter on the fifth deck, impressionist paintings hanging in the salon, a disco and a theater--is also heavily mortgaged.
Khashoggi faces a March, 1987, deadline for a $50-million balloon payment on the yacht loan. If he cannot pay, the ship will become the property of the lender--the Sultan of Brunei.