Broker, Trader, Lawyer, Spy

Prologue

Chapter One
Code Name: Yucca

Part I:
From Bogus Island to Deep Chocolate

Chapter Two
A High and Honorable Calling

Chapter Three
For the Money

Chapter Four
The Man Is Gone

Chapter Five
Thug Busters

Chapter Six
The Chocolate War

Part II:
Techniques, Technologies, and Talent

Chapter Seven
Tactical Behavior Assessment

Chapter Eight
The Eddie Murphy Strategy

Chapter Nine
Nick No-Name

Chapter Ten
They’re All Kind of Crazy

Chapter Eleven
Is This a Great Country, or What?

Epilogue
In from the Cold

Acknowledgments

Notes

Searchable Terms

About the Author

Credits

Copyright

About the Publisher

The first time I met a spy was in January 2007.

I had been a reporter in Washington, D.C., for more than twelve years by that time, and I’d met congressmen, senators, ambassadors, and a president of the United States. I wrote about good guys, meeting with officials from the American Red Cross, police forces, and religious orders. And I wrote about bad guys, visiting a federal prison to interview a convicted embezzler and chatting with the infamous lobbyist Jack Abramoff at his restaurant on Pennsylvania Avenue. I thought I’d seen pretty much everything the nation’s capital had to offer a reporter. But I’d never met a spy.

So I was excited as I walked up Connecticut Avenue toward Dupont Circle on that chilly afternoon. I quickened my pace, past Burberry, Brooks Brothers, and the other luxury stores that front the broad avenue. I stepped into the boxy, nondescript corporate office building that held the office of the man I was going to meet: Nick Day.

Day was in his late thirties, only a few years older than I was, but he was already a veteran of the British counterintelligence and security service MI5. He was the CEO of Diligence, LLC, a globe-spanning firm that sold intelligence services to private-sector clients. His cofounder at the firm was a fourteen-year veteran of the CIA. They had connections at the top of British and American business and intelligence, and they worked for some of the richest people in the world.

I’d spent nearly five months gathering information on Diligence at that point, and I’d been astonished at what I’d found. Day and his employees had run a months-long covert undercover operation designed to penetrate the offices of KPMG, the global accounting giant. They’d done it on behalf of a Washington lobbying firm that was in turn working for a company controlled by one of Russia’s most powerful oligarchs. And they’d gotten caught.

I didn’t know what to expect. I’d never been to Langley, so I imagined that a spy headquarters would look something like a cross between the laboratory of James Bond’s “Q” and Batman’s cave. But when I arrived on Day’s floor, I walked into a reception area that looked much more like the offices of a 1990s dot-com company than a Hollywood set. Day’s receptionist offered me coffee, and soon Nick Day himself came striding out from the back office. He was of medium build, with dark hair and rolled-up shirtsleeves that revealed hairy forearms. He was charming and friendly, and didn’t seem the least bit fazed by the mess his company was in. I figured he’d seen worse. He led me past a row of analysts hunched over computer screens to an office that was cluttered with brown boxes. It looked as though he’d been packing files.

Day gave me a brief on-the-record interview in which he explained his company’s role in the world economy. Spies, he said, are sometimes the only people who can solve a company’s problems. That was intriguing enough, but I soon learned that Diligence wasn’t the only company in the corporate espionage business. There are probably hundreds of firms like it around the world. Corporations, financial institutions, and wealthy individuals can hire intelligence contractors in Britain, America, Europe, Asia, and the Middle East.

In Washington alone, I discovered, potential clients have a wide menu of options to choose from. They can hire firms staffed by ex-FBI agents, ex-CIA officers, or ex–Secret Service employees. They can hire ex-British MI5 officers like Day at Diligence. There’s even a spy firm made up of ex-Soviet KGB and military
intelligence officers. It’s located in suburban Virginia, not too far from CIA headquarters, and I had coffee with the owner. We went to Starbucks.

I had stumbled across an entire hidden industry of spies for hire, and I was captivated.

For me, the industry I’d found represented a chance to cover something new. This was a heck of a lot more interesting than a congressional hearing, a lobbying fight, or even a corruption scandal. I began calling the spies, to see if they’d talk to me. To my surprise, most of them were happy to open up about their business—if not always on the record. I met with corporate intelligence operatives in Washington, New York, London, and Berlin, many of them veterans of the world’s most elite military forces and intelligence services. I studied the history of the corporate espionage industry and learned that private-sector spying had long been intertwined with the government’s own intelligence operations.

The result of that research is this book. In writing it, though, I struggled to answer the most important question about corporate spying: is it right or wrong? To be clear, corporate spying doesn’t necessarily involve anything illegal or even unethical. To call people spies simply means that they use intelligence techniques or are veterans of government intelligence services.

The question of right and wrong, though, has haunted private intelligence operatives and their clients since the dawn of the industry in the 1850s. In fact, Allan Pinkerton, the man acknowledged to be the inventor of the private intelligence business, set down the first industry code of conduct in the mid-nineteenth century in order to ensure that such work would remain the “high and honorable” calling he felt certain it was. Pinkerton outlined basic rules for his agents. They would not work for defendants in criminal cases, and they would not investigate jurors, public officials, or union members. They would not work for a political party against its opposition, they would not work for “vice crusaders,” and they would work only for flat fees, not for a percentage of the spoils.
Moreover, they would never investigate the “morals of a woman” nor would they handle divorces or other cases of a “scandalous nature.”

As the 1860s dawned, that was the bright ethical line of the private intelligence industry. But the line didn’t hold. Many of Pinkerton’s modern-day counterparts routinely violate every one of his gentlemanly commandments. The ethical line vanished so quickly, in fact, that Pinkerton’s own agency became known as one of the best union-busting tools of America’s corporate elite. By then, Pinkerton’s sons controlled the company he had founded. Sons don’t bear the sins of their fathers, it’s true. But history teaches that sons don’t always bear their virtues, either.

As the world’s economies intertwine and different value systems collide, the ethical lines are shifting again. In London, corporate surveillance practitioners grumble about their eastern European competition. The British spies—who tail executives, eavesdrop on conversations, and obtain damaging information about their targets—complain that the eastern Europeans go too far. One British operative told me that she’d never spy on a target while he was with his children. To her, tailing an executive to his son’s soccer game feels unseemly. She won’t do it. But she acknowledges that there are others who will.

The way things are going in the private spy business worries some intelligence professionals. As one experienced industry operative told me, “We’re just one scandal away from a government crackdown.” He meant that with so much unsavory conduct going on, the industry is bound to explode into public view. The veteran CIA officer John Brennan, a deputy national security adviser in the White House, is another concerned observer. “The problem is that you do things in the service of your country that are just not appropriate to do in the private sector,” Brennan told me in the months before he was tapped for his White House role by President Barack Obama. “I hope they’ve brought their ethics with them.” At the time, Brennan was between government jobs, and sitting in a bland
office at the suburban Virginia company where he worked, which is called The Analysis Corporation. It, too, is a private intelligence firm, although it sells its services to the government, not to the private sector.

Even as it remains a largely hidden industry, the private spying business is becoming an integral part of the way companies do business around the world. The past several years have made it abundantly clear that there are far more hidden, and dangerous, secrets at work in the global economy than even many sophisticated businesspeople once thought. For nervous financiers and executives, ramping up private intelligence capability is an understandable response to the confusing and sometimes deadly situations that surround them. The global economy is a paranoid place.

What will a world shaped by that kind of corporate paranoia look like? To understand, we first need to see the private spies in the field.

Our story begins on a warm afternoon on the island of Bermuda.

The poor guy had no idea what he was getting himself into.

When KPMG’s accountant Guy Enright stepped into the Italian restaurant Little Venice in sunny downtown Hamilton, Bermuda, in the spring of 2005, all he knew was that he was there for a lunch meeting with a man who called himself Nick Hamilton.

To set up the lunch, Hamilton had called Enright’s cell phone days earlier, while the accountant was in London attending a KPMG meeting on conflict-of-interest rules.
This is going to sound really weird, but I’ve got something sensitive to talk to you about. Could you come to the restaurant alone?
Hamilton had told Enright he wanted to discuss important matters, and left the accountant with a vague impression that he was with one or another of the British intelligence services.

There was no way for Enright to know that Hamilton was not at all who he suggested he was. He couldn’t know that several clandestine operatives were right now following him from his office at KPMG Financial Advisory Services to the restaurant, working in an efficient tag-team relay to ensure that Enright wouldn’t spot anything unusual. And Enright certainly didn’t notice that, among the crowd of well-dressed international businesspeople and tourists dining at Little Venice, one woman watched as he took his seat.
She, too, was working for Hamilton, and she was there to make sure Enright didn’t have backup of his own.

Enright did not. He was way out of his league. The British-born executive was just like millions of other mid-level white collar workers around the world. What did he know about espionage? But his position as a senior manager in corporate recovery gave him access to documents for which a wealthy client might pay millions of dollars. Might lie for. Might steal, if necessary. And that client hired the man who called himself Nick Hamilton. Hamilton’s team was a mix of American CIA veterans, former officers of the British MI5 security service, and young, adventure-seeking American college graduates.

They were corporate spies.

Over the next several months, the spies executed an extraordinary plan they code-named “Project Yucca.” The covert operation, as elaborate as it became, was just one piece of a global struggle between two corporate behemoths with Russian ties. The spies were working on behalf of Alfa Group Consortium, which is one of Russia’s biggest privately owned financial-industrial conglomerates, its vast holdings ranging from oil and gas to commercial and investment banking, insurance, and telecommunications. At the time Guy Enright showed up for lunch in Bermuda, Alfa Group was in a furious dispute with a mysterious Bermuda-based entity called IPOC International Growth Fund. The fight centered on which company was the rightful owner of $250 million worth of stock in a Russian telecommunications firm called MegaFon.

But the battle was much more than just a legal tussle between companies: it was a personal grudge match between two of Russia’s most powerful men, and it had deep implications for the relationship between the government and the private sector in Russia. And the convoluted battle showed the world how the struggle for power inside Russia could spill over into courtrooms—and board rooms—throughout the global economy. On one side was Mikhail
Fridman, one of the youngest Russian oligarchs, who is said to be worth more than $20 billion. Fridman controls Alfa Group, and he was at loggerheads with Leonid Reiman, a former Soviet Army officer who served in Russia’s government under Putin as minister of communications. Fridman and Alfa were convinced that Reiman was the real owner of IPOC, and that the company’s attempt to control the MegaFon shares was a conflict of interest with Reiman’s government position. IPOC, meanwhile, maintained that it was owned by a Danish lawyer, Jeffrey Galmond, who just happened to be Reiman’s attorney. With powerful, and angry, men set against each other, it seemed that almost anything could happen. A former high-ranking American official involved in the affair told a reporter looking into the saga: “Be careful on this one. People get killed over stuff like this in Russia.”
*

The goal of the spy operation Project Yucca, then, was to help Alfa untangle the intricate global legal structure of IPOC.
¹
At the time, the accounting firm KPMG was conducting an investigation on behalf of the government of Bermuda into exactly that question. Alfa’s spies desperately wanted access to the investigation—what nuggets of new information had it uncovered about Alfa’s bitter rival? That’s why the spies targeted Guy Enright: they wanted him to turn over confidential documents at the heart of the investigation.

The spies—veterans of western intelligence services now working in the private sector on behalf of a Russian oligarch—developed a cynical plan: they would appeal to Enright’s patriotism as
a British subject. They convinced Enright that they were working for the crown. They mentioned the sinister dealings of the Russian mafia. And before long, Enright would find himself entering the secret world of spies, hiding confidential documents under rocks in a Bermuda field for Hamilton and his team to retrieve, terrified of being caught, and believing all the while that he was helping his country.

He wouldn’t find out until much later that it was all a lie.

C
OMPLEX LOGISTICS WENT
into setting up the lunch at Little Venice in Bermuda. The man posing as Nick Hamilton was Nick Day, the charming, dark-haired, thirty-eight-year-old cofounder of the private intelligence firm Diligence, LLC, based in Washington, D.C. Years earlier, Day had started his career in the British military as part of the Special Boat Service (SBS), which operates much like the U.S. Navy SEALs. For years, the SBS motto was: “Not by strength, by guile.”

His firm, Diligence, uses guile, too. And it uses the strength of an advisory board that includes some of the biggest names in global intelligence, business, and politics. Diligence boasts of its advisers on both sides of the Atlantic, including Michael Howard, a former leader of the Conservative party in Britain; Ed Mathias, the managing director of the mammoth American private equity firm Carlyle Group; and, most prominently, William Webster, a former director of both the CIA and the FBI.

Diligence’s operations in Bermuda took place just a few months before the events of a far more prominent case of corporate espionage: the spying scandal at Hewlett-Packard (HP). Executives of HP hired agents to obtain illicit phone records of its board members and rummage through the household trash of reporters covering the company. The revelation of that bit of dirty trickery generated headlines worldwide, sparked confrontational congressional hearings, and prompted felony charges (which were later dropped)
against Patricia Dunn, the company’s chairman at the time. But lost in all the media furor over the HP spying scandal was the undeniable fact that pilfering phone records and digging through dumpsters are among the most benign tactics in the corporate espionage playbook. Espionage gets much, much dirtier than that.

The scam Nick Day ran on Guy Enright in Bermuda was just one of 100 or more operations Diligence has launched since its founding in 2000 by Day and a fellow thirtysomething intelligence vet, Mike Baker, who had been a CIA officer for fourteen years. In this case, Diligence didn’t work directly for Alfa Group. Instead, it worked for one of Washington’s most prominent and well-connected lobbying firms, Barbour Griffith and Rogers. This lobbying firm paid Diligence $25,000 per month, plus expenses and, in at least one case, a bonus for obtaining a key document. The lobbyists, in turn, were working for Russia’s largest privately owned bank: Alfa Bank, a subsidiary of Alfa Group Consortium.

The transcontinental struggle between the two Russian heavies was a bonanza for corporate spies, who were reaping hundreds of thousands of dollars in fees working for either IPOC or Alfa. But that meant Diligence had to move carefully—with so many spies on the case it would be hard to find sources, and harder still to determine each person’s true motives. First, a team of Washington operatives from Diligence reconnoitered at the KPMG offices, trying to establish who inside the firm would have access to the key documents.

Many employees at Diligence believed they were on the right side in this battle. They felt that IPOC was the bad guy, nothing more than a convoluted set of shell companies and dummy entities that allowed Leonid Reiman to grab control of MegaFon. They couldn’t wait to expose what they saw as Reiman’s wrongdoing.
*

The mission would be tricky, but Nick Day, as always, brimmed over with confidence. “We have a good chance of success on this project,” Day wrote in an internal memo at Diligence. “We are doing it in a way which gives plausible deniability, and therefore virtually no chance of discovery.” Other, similar Diligence operations had been successful, Day noted.

Staffers at Diligence began to work the phones, pretending to be organizers of a corporate conference on accounting soon to be held in Bermuda. To keep the story straight, they talked with local hotels to find out room rates and the prices for renting a conference center, gathering convincing details to drop into later conversations. They flew to Bermuda, and treated KPMG’s secretaries to rounds of drinks at local bars, probing them for information about who the key executives at KPMG were.

Still posing as event organizers, they began calling senior-level KPMG accountants in Bermuda. They told the flattered accountants that they were organizing a major conference, and they were looking for speakers.
You’re such an expert. What would you say in your speech to our attendees? What a fascinating job you have! Tell me about it.
They were looking for people who would have access to documents regarding the investigation of IPOC. But not just anyone who had access to the papers would work as a source. The experienced hands at Diligence knew that only certain personality types might go along with the scheme they had in mind.

The intelligence firm was looking for people who fit one of two personality profiles, according to a Project Yucca planning memo. One personality type was a “male in his mid-20s who is somewhat bored…has a propensity to party hard, needs cash, enjoys risk, likes sports, likes women, is disrespectful of his managers, fiddles his expenses, but is patriotic.” The memo described the second personality type as “a young female who is insecure, overweight, bitchy, not honest. Someone who spends money on her looks, clothes, gadgets. Has no boyfriend, and only superficial friends. Has a strong relationship with her mother.”

Enright, the British-born accountant, didn’t quite fit either of these psychological profiles, but the firm settled on him as the likeliest leaker.

Enright was oblivious of all this preparation. He didn’t notice the operatives following him to the restaurant, or the spy in the dining room. And he was intrigued by what he heard from the man he knew only as Nick Hamilton. Day never said exactly who he was working for, but he hoped Enright would think he was probing KPMG to find out if IPOC had connections to the Russian mafia. After all, as a veteran of MI5, Nick Day knew exactly how real intelligence officers approach potential sources.

Day said that Enright would have to undergo a background check by the British government to ensure that he was up to the task. Day produced an official-looking—but fake—questionnaire with a British government seal at the top and asked for information about Enright’s parents, his professional background, any criminal history, and his political activities. Enright provided the details dutifully.

It was what spies call a “false-flag” recruitment. To get someone to turn over secret information, a spy needs to figure out what motivates that person. Money? Sex? Patriotism? From there, spies create situations in which they can use the person’s motivations against him or her. And—best of all for a spy—the payoffs don’t even have to be real. You don’t have to sleep with people to manipulate them with sex. You don’t have to bribe them to fire them up with dreams of money. And you don’t even have to be who you say you are. That’s why Nick Day noted in his memo that he was looking for someone “patriotic.” Guy Enright was a useful source: he loved his country. And Nick Day used that to make a fool of him.

Two weeks later, over beers at a bar, Day—still posing as Hamilton—told Enright war stories from his days in the Special Boat Service and began his charming seduction. After a couple of rounds, his questions got more specific:
What’s the atmosphere like in your office? What do you know about the investigation of IPOC?
The documents from the investigation could prove crucial to the
queen’s intelligence on dangerous Russian elements. Enright was no longer just an anonymous accountant. He was in a sensitive, and important, position: by the time Nick Day was done with him, Enright must have thought he was James Bond himself.

Soon, Enright was depositing confidential audit documents in plastic containers at drop-off points designated by Diligence. He turned over transcripts of interviews KPMG had conducted in the investigation of IPOC, and drafts of internal reports KPMG was preparing about the matter. Day picked out a rock in a field along Enright’s scenic twenty-minute daily commute and placed a plastic container under it, creating what spies call a “dead-drop site.” At appointed times, Enright slipped new material into the container, which Day later retrieved. This arrangement kept the two from being seen with one another, and from being photographed by any spies who might be working for the other side.

At one point, Enright left documents in the storage compartment of his moped, which he parked at his home. Enright told Day where he hid the keys to the moped, and when Enright left for a trip, employees from Diligence came by to collect the papers.

Diligence got hold of some of the accounting firm’s most secret materials pertaining to its investigation of IPOC. It obtained a draft of a report to the minister of finance in Bermuda, dated March 24, 2005. Now Diligence knew what KPMG’s investigators were thinking about the mysterious Russian company, and what conclusions the final report would probably make. In the secret global struggle between the two corporate behemoths, it was a coup. Diligence also got transcripts of confidential interviews with key figures at IPOC.