Broker, Trader, Lawyer, Spy (2 page)

It was a huge intelligence haul for Diligence, which used it to stir up problems for IPOC. Diligence shared much of the material with its client, the lobbying firm Barbour Griffith and Rogers. It sent other information to a former Soviet military intelligence officer for help in understanding the Russian angles. It passed a copy of the draft report on to a former FBI agent, Tom Locke, in
the hope that the FBI might take an interest in IPOC. Locke, a legendary figure who had been in charge during the first weeks of the FBI’s mammoth investigation in the wake of the 9/11 attacks, forwarded the report to Chip Burrus, the deputy assistant director of the Criminal Investigative Division of the FBI.

Day and Diligence took elaborate precautions to make sure Enright wasn’t himself a plant or a corporate spy. In this business, one can never be too paranoid. Who knew what schemes the opposing spies were working on? After every meeting, operatives from Diligence followed Enright to his next destination. And when he left his meetings with Enright, Day followed a process spies call “dry cleaning,” designed to detect whether he himself was being followed. He walked a prescribed route through several narrow choke points. That way, Diligence’s employees in preset lookout positions could identify anyone who might have been tailing Nick Day.

Day knew that there were a lot of spies on contract in the battle between Alfa and IPOC. His firm worked alongside allies at other private spy firms who were hired to work other angles of the complicated case. And Day had created a detailed dossier on the long list of spy firms that he believed were working on IPOC’s side of the battle, and that might at any moment be targeting his own operation.

But the most dangerous threat to any spying operation doesn’t come from outside. It comes from within. On the morning of October 18, 2005, an anonymous package turned up at the front door of the offices of KPMG in Montvale, New Jersey. Inside were detailed internal business records from Diligence, including e-mails and other documents, which made it clear to managers at KPMG that their firm had experienced a terrible leak, and Diligence—a firm they had never heard of before—had access to KPMG’s innermost secrets. To this day, it is impossible to say for sure who tipped off KPMG. But Nick Day suspected a recently fired employee who had access to scores of Diligence operations, including the documents dropped at KPMG.

M
IKE
B
AKER SETTLES
into a plush armchair by the bar at the Four Seasons Hotel in Manhattan with the nimbleness of a man who has spent much of his life slipping into and out of quick conferences in posh hotels like this around the world. With spiky hair and boyish good looks just beginning to show the signs of age, at forty-eight this veteran CIA man could pass for the actor Kevin Bacon. As if to enhance his Hollywood image, Baker is wearing a black suit and white shirt unbuttoned to the point where a tuft of graying chest hair is just visible.

Mike Baker cofounded Diligence with Nick Day, and he’s here to explain how the firm got its start. With a smile, he promises a boring interview.

Baker was born in England to American parents. With a father in the military, he traveled the world at an early age. In 1982, he joined the CIA, becoming a covert operative. Baker says his own exploits paralleled the priorities of the CIA during the following decades: counterinsurgency operations, counternarcotics, and counterterrorism. He loved it—the people, the travel, the operations. And he won’t share any of the details. “I’m just one of those people who believe that you keep your yap shut,” Baker says apologetically.

He does say that his nearly two decades as a spy taught him how the world works. “You peek behind the curtain, and you realize that there’s not a one-world government, and the CIA is not out to hose the average American,” Baker says. Although he worries that most people harbor conspiracy theories about the CIA, Baker depicts it as much like any other government bureaucracy—always shifting direction to please its civilian masters in Washington. “We have the most open, transparent intel service in the world. And people don’t believe it.”

In the early 1980s, Baker explains, the CIA was “old school,” the kind of place people joined to spend an entire career. But as has
happened in other areas of American and world business, the idea of a job for life was replaced by a series of jobs in which employees pick up skills at one stop that they’ll use at the next, more lucrative, stop. Baker saw a new generation of recruits come into the CIA with a different attitude. For them, the CIA would be a stopover on their way to another career. That trend was happening in other western intelligence services, too—and after the Soviet Union collapsed in the early 1990s, a flood of KGB veterans entered the global job market.

Baker says that not all those who quit the CIA left for the money. Many of his contemporaries quit in the late 1990s because they thought the CIA had become too risk averse. It was a far cry from the CIA that just ten years earlier had been running a massive secret war against the Soviets in Afghanistan, and managing other, smaller, anticommunist operations around the globe. After the Berlin wall came down, ennui plagued the spies and their bosses at Langley:
What are we fighting for now?

In 1998, Baker went in search of something else to do. Living in London at the time, he met Nick Day through a mutual friend. Day, the son of a mathematics professor at Oxford University, had never gone to a university himself, instead opting for the military straight out of high school and then going into the British counterintelligence and security service MI5. The two men had a lot in common: Day, too, had just left the intelligence world and was looking for a place in the private sector. Over a long dinner, the two young spies got along like old friends. Soon, Baker and Day went to work together at a private intelligence firm called Maxima.

After their years in the CIA and MI5, Baker and Day had problem-solving skills, investigative talents, and street smarts that would prove to be extremely lucrative in the corporate setting. Most important, they were more aggressive than people who’d spent their careers inside the corporate cocoon. They—and the other spies then leaving government service for the private sector—approached business questions in a different way.

Say an investment firm wanted to know whether there were any problems with the rollout of a new product coming from a drug company—call it “BigPharma, Inc.” The investment firm would want to know when the product would be launched, whether there were any problems with the science behind the product, and whether the executives thought it would be a blockbuster. Traditional Wall Street investment analysts would be limited to standard ways of getting information: checking corporate filings, debriefing industry experts, conducting conference calls with management, and the like.

Spies think differently. To find out what was going on with BigPharma, they might roll out a host of intelligence techniques. In a variation on the technique used to case the KPMG office in Bermuda, they might call the biggest hotel near the pharmaceutical company’s headquarters, posing as potential customers, and check the dates when the hotel’s ballroom might be available for an event. Which dates were free? Was the ballroom booked for a specific evening? Turning on the charm, they’d ask who had reserved it—was it the nearby pharmaceutical company? Could the pharmaceutical company be planning a party to celebrate the launch of a new product?
What’s that date again?

Then they might want to know what potential problems existed with the product. It’s easy to set up an account with a job seekers’ Web site like Monster.com. Posing as a potential employer, spies can set the software to show all the résumés available from people hoping to leave BigPharma. They can track how many employees of BigPharma put their résumés up on Monster.com every day. Over time, they can plot the results on a chart, and see when the number of people wanting to leave the company spikes. Are the employees looking to leave coming from the legal department? Or sales? If so, there might be a problem in that area.

To find out, the next step is to set up a dummy executive recruiting firm, and call the people who’ve put their résumés on the site, and offer interviews. Employees can be surprisingly candid
about their own company when they think they’re interviewing for a job. They’re being duped, of course, and there is no job being offered. But in the meantime, information about BigPharma changes hands.

This information exchange can run up against insider-trading laws, which prohibit trading securities based on material, nonpublic information. But many spies say that’s not much of a problem: the employees talking to the fake executive recruiters are sometimes unaware of how much they’re passing along. And later, while still employed by the company, they’re unlikely to admit their disloyalty. What’s more, the interviews are two or three steps removed from the Wall Street trader who buys or sells on the basis of the information. The trader himself may have no idea where the information came from.

Another way a spy can use a dummy corporation is to set up a fake documentary film company and call BigPharma’s CEO for an interview. Many documentary films are produced by obscure firms and don’t see the light of day for months, or even years, after filming. Both aspects of the process are handy for a spy: BigPharma’s media relations people won’t be surprised to be contacted by a small firm they’ve never heard of before. They might agree to the interview, and allow the phony film crew on company grounds, where the spies can film everything within camera range—labs, sales offices, documents, and more. And when the CEO sits for an interview, the makeup, bright lights, and flattering interviewer might put him off his guard. With cameras rolling, he may give far more information than he’d ever wanted to about the new product and its rollout date. Months later, the company’s media representatives will have moved on to other projects, and may not stop to wonder why they never heard of that documentary film again.

It turns out that government-trained spies have all sorts of skills that are handy in the corporate arena, including surveillance, undercover operations, and the ability to blend in on the streets of a foreign country. Spies sell their services to investment firms,
companies checking up on their competitors, lawyers engaged in high-stakes litigation, corporate raiders trying to buy companies, and more.

Setting up shop in London, Baker was the only American among a crowd of former Scotland Yard investigators, former customs inspectors, and former intelligence agents like Day, all of whom were now in the private sector. Maxima’s CEO played an avuncular role, schooling the two younger men on how to run a business. But after a few years, Baker and Day began to grow restless. Both men wanted to earn money—far more than their salaries at the time—and they knew that the only way to do that was to own their own firm. At the end of 2000, they quit Maxima to launch a new intelligence outfit: Diligence.

At first, Baker and Day scrambled to buy mobile phones and generate clients. They didn’t have any start-up capital, but Baker recruited a former CIA colleague and Latin American specialist who had some family money to put into the nascent company. The little firm grew, soon hiring a hardworking researcher and a Russian investigator.

A few months after launching the firm, Day and Baker flew to Washington, D.C., trolling for high-powered lobbying and financial clients. Working their international intelligence contacts, they landed a meeting with the former U.S. ambassador to Germany, Richard Burt, who was then affiliated with the influential Republican lobbying firm Barbour Griffith and Rogers. Nursing a severe migraine headache that morning, Baker had to drag himself to a meeting at the firm’s elegant headquarters on Pennsylvania Avenue. At the time, Barbour Griffith and Rogers represented some of the biggest companies in the world in scores of different industries, including Delta Airlines, GlaxoSmithKline, and Lockheed Martin. The automotive giant DaimlerChrysler alone was paying the firm $200,000 per year to steer it through the intricate Washington byways. Microsoft paid the firm more than $500,000 in fees that year.

Even so, Baker and Day cut the meeting short. They didn’t see how the lobbying business, which was all about influencing the American government, meshed with what they were offering: global clandestine intelligence operations for corporate clients.

But Rick Burt did.

A few months later, Burt called Diligence, telling Day and Baker that his American lobbying firm wanted to buy a piece of their British spy firm. In his own career, Burt had seen how government experience could lead to lucrative business opportunities in lobbying and international finance. He’d gone from being a national security correspondent for the
New York Times
in the 1970s to a post at the State Department, leading to an appointment as ambassador to the Federal Republic of Germany from 1985 to 1989. One person who has known him for a long time says that Burt’s career was helped tremendously by his second marriage, to Nancy Reagan’s social secretary, Gayle Burt. Burt sat a few chairs away from President Ronald Reagan on June 12, 1987, as Reagan delivered a famous speech in Berlin: “Mr. Gorbachev, tear down this wall!”

At the end of the Reagan administration, Burt became the chief U.S. negotiator in the Strategic Arms Reduction Talks (START) with the former Soviet Union, and then decamped for the private sector and a partnership at the consulting firm McKinsey and Company.

Barbour Griffith and Rogers invested in Diligence. Suddenly, the little shop became an intercontinental firm. Burt stepped in as Diligence’s chairman, although he kept his office at Barbour Griffith and Rogers. Burt’s connections provided an entrée to the top of Washington society, but that access came at a cost. His abrasive style was legendary in Washington, and his verbal blunders caused some heartache for the growing company, which needed all the goodwill it could get. On occasion, for example, Burt would burst into rages at the lobbying firm. One person familiar with him says, “Rick Burt could be a very nasty piece of work.”