Aftermath

by James Rickards

  It was my first time at the Fontainebleau. The hotel had loomed large in my imagination for over forty years, since I saw the opening scenes of the classic 1964 James Bond film, Goldfinger. In those scenes, Bond, played by Sean Connery, breaks up a card-cheating operation being conducted at the hotel by Goldfinger. The sequence made a lasting impression. I decided I should stay at the Fontainebleau someday just for fun. In 2009, I got my chance. The Fontainebleau was the place to see and be seen in Miami Beach that winter.

  After my keynote address, I went back to my room to relax and enjoy the view. The red message light on my bedside phone was blinking. I retrieved the message and returned the call.

  The male caller had a deep voice and a distinct European accent. He said, “I saw your presentation this morning. Very interesting. The parts about financial warfare were new to me. I’d like to meet you to discuss these topics further. I may have some consulting opportunities for you also.” Geopolitical consulting was one of my pursuits at the time, along with intelligence work and public speaking. It seemed worth finding out what this caller had in mind.

  “Okay, thanks. I’m just here for the day. I could meet at three in the lobby bar. We’ll chat about it then,” I said. There were several bars in the hotel. I gave him my cell phone number so he could locate me. I planned to hit the lobby bar anyway, so meeting the caller there was not inconvenient. I don’t usually drink on workdays, but it seemed a shame to stay at the Fontainebleau and not visit the bar to absorb the ambience.

  “Thanks,” the caller replied. “I’ll be with my associate. We’ll see you then.” Click.

  I arrived at 2:45 at the bar in Gotham Steak, a lobby restaurant since closed, so I could enjoy a drink before my visitors arrived. I ordered my usual Mount Gay Rum and tonic with lime. Then I relaxed and took in the scene.

  My visitors found me easily enough; the bar was mostly empty that time of day, and they knew me from my presentation. They walked over to my table and introduced themselves but didn’t sit down. I looked at them and couldn’t believe what I saw.

  The man was stout, swarthy, and short, about five foot four, wearing a suit and shirt with no tie. His associate was a woman, a head taller in high heels, with straight black hair and a long silk dress that displayed her décolletage. She was Asiatic, not especially Han; more central Asian.

  I thought to myself, “This is unbelievable. It’s Boris and Natasha.”

  Growing up in the early 1960s I was a devoted fan of a TV series called The Rocky and Bullwinkle Show. The show was originally broadcast by ABC after American Bandstand in the late afternoon. That was my break time between classwork and homework. I was usually glued to the screen.

  Among the recurring characters on the show were a pair of Russian-like spies named Boris Badenov and Natasha Fatale, who reported to a dictator named Fearless Leader. The show was popular at the height of the Cold War during the post-Sputnik hysteria about Russia overtaking the West. Boris and Natasha may have been caricatures, yet they seemed the epitome of nefarious, scheming Russian agents despite their comedic incompetence. My interlocutors were dead ringers but for the absence of Boris’s black trilby and moustache. I was staring at cartoon spies in real life.

  I asked if they wanted a drink. Boris said, “No,” they wouldn’t be long and preferred to stand. He came straight to the point.

  “Your presentation this morning showed a lot of knowledge about financial warfare and sanctions on Iran, Russia, and North Korea. You’re clearly an expert. I have clients who would pay a lot of money to meet with you. They’d like to know what you know.”

  “Big money,” added Natasha for emphasis.

  “Who are these clients? Where are they located?” I asked.

  “They’re in Russia,” Boris said, without being more specific. “You’d have to travel there to meet with them.”

  “Big money,” repeated Natasha. Perhaps she was concerned I hadn’t heard her the first time.

  At the time of this encounter, I was deeply involved planning the Pentagon’s first-ever financial war game. This was scheduled for March 2009, and was to be conducted with participation from the military, CIA, Treasury, Fed, and a host of think-tank denizens and subject-matter experts at the top secret Applied Physics Laboratory near Washington, D.C. By January 2009, the game design team was well along in forming financial scenarios to be played out in the war game. These scenarios inevitably involved Russia.

  The approach by Boris and Natasha was clearly a recruitment. They knew I knew a lot more about financial warfare than I was able to disclose in my public remarks. Their clients back in Russia were willing to pay me to share those secrets. Boris and Natasha made no bones about their proposition. It was money for secrets delivered to Russians, as simple as that. I knew I would report them to CIA counterintelligence, but decided to string them along to collect all the information I could.

  “Well, I’ll need to think about that,” I said to Boris. “I can’t give you an answer today. Do you have a business card, or some way to reach you?”

  He reached in his pocket and handed me his card. As if to complete the caricature, the card was printed on red paper, the color most closely associated with Russia.

  “Thanks, I’ll be in touch,” I said.

  “Thank you for meeting us. Our client would really like to meet you. We’ll wait to hear.”

  I half expected Natasha to say “big money” one last time, but they both left the bar; that was the end of the rendezvous.

  All CIA assets are required to report contacts with foreigners immediately. The extensive paperwork associated with maintaining a security clearance makes the status slightly less glamorous than it may seem to outsiders. Still, the reporting requirements serve a purpose and are taken seriously. I put details of the encounter in a foreign contacts report, including physical descriptions, and dropped the red business card off with my security officer. That was that. Now it was in the hands of counterintelligence officers.

  I never heard more; no follow-ups or postreport interviews. That didn’t trouble me; it was all part of the compartmentalization that one learns to live with inside the intelligence community. One thought did gnaw at me, though. What if Boris and Natasha were not Russian agents? What if they were actors sent by U.S. counterintelligence to test my loyalty? This is not as bizarre as it sounds given the sensitivity of some of my work, and my unusually public profile. If so, I passed the audition. Welcome to the wilderness of mirrors.

  CIA headquarters structures and ancillary buildings are surrounded by several hundred acres of trees and a tracery of trails used by staff for morning and lunch-hour jogging or a walk in the woods. A college campus atmosphere was precisely the goal of legendary spy Allen Dulles, the CIA’s director from 1953 to 1961, who spearheaded the move of CIA headquarters from its original location at 2430 E Street in Washington, D.C.’s west end to its current McLean, Virginia, locale. Dulles wanted the best of both worlds—a bucolic setting without nosy officials from other agencies nearby, yet close enough to the White House so that the CIA director could be in the Oval Office within minutes if needed.

  Within this expanse of woods and trails, sculptures and museums, and glass offices, there exists one architectural anomaly. It’s a white, three-story, wood-frame farmhouse on the CIA campus rarely entered by more than a handful of agency personnel, even those with the highest security clearances. It’s a building that predates the CIA by decades, part of an estate that witnessed the Revolutionary War, the Civil War, and every major turning point in U.S. history since. The formal name of the structure is the Scattergood-Thorne residence, known to CIA insiders as Scattergoods.

  I spent many days at Scattergoods over a seven-year stretch from 2006 to 2013. I was not there to greet visiting intelligence chiefs or for ceremonial occasions. While most CIA officers barely knew the house existed, and even fewer had been inside, a group I organized made the house our main venue for some of the most politically sensitive work ever conducted by t
he CIA. This work involved a government bureau few Americans have ever heard of—a body called CFIUS.

  The Dirty Dozen

  In my years of intelligence work for the U.S. government, I rarely met such quizzical looks as when I mentioned my involvement with CFIUS (pronounced “SIFI-us”). Of course, the name sounds funny. Wits would ask, “Does it itch or burn?” No one I encountered outside the intelligence community had ever heard of it.

  CFIUS is an acronym for Committee on Foreign Investment in the United States. The committee was created under Executive Order 11858, issued by President Gerald Ford on May 7, 1975. Interestingly, Ford’s executive order cited the Gold Reserve Act of 1934 as one of the bases for the committee’s legal authority. Reference to the Gold Reserve Act was used because CFIUS operations were funded with the U.S. government’s insider trading profits from FDR’s 1933 gold confiscation.

  The original committee consisted of the secretary of state, secretary of the treasury, secretary of defense, secretary of commerce, and several White House officials. The committee has expanded greatly since 1975, and now includes the secretary of homeland security, secretary of energy, and the attorney general.

  CFIUS is the gatekeeper that decides whether sensitive foreign acquisitions of U.S. target companies are allowed to go forward. The committee tries to strike a balance between benign foreign investment, which the United States encourages, and malign penetrations of critical infrastructure. Broadly speaking, critical infrastructure includes telecommunications, internet, and cloud computing, the electric grid, hydroelectric plants, finance, transportation, ports and waterways, defense and space, and natural resources; in short, any network that keeps America safe and keeps the lights on. CFIUS guards against foreign penetration of these sectors by adversaries.

  The intelligence community is not a member of CFIUS. Instead, the IC is tasked by CFIUS with determining if a potential foreign acquisition of a U.S. company is a threat to U.S. national security based on the identity and intentions of the buyer. The IC gathers intelligence on possible connections of the foreign acquirer with a criminal cartel or with the military or intelligence apparatus of a U.S. rival.

  There is a dynamic tension in CFIUS decisions. On the one hand, the United States maintains an open economy and welcomes foreign investment. Some of the best-known brands in the United States are manufactured by foreign companies such as SONY and Samsung. Lenovo, which makes a laptop computer formerly called ThinkPad, is based in China, but acquired its laptop business from IBM. German-engineered BMW automobiles are made in plants in South Carolina. Foreign investment in the United States brings jobs, technology, and growth to the U.S. economy. Still, the United States has corporate crown jewels, enterprises that no foreign investor is allowed to touch without strict scrutiny from a national security perspective.

  If a Russian firm with Kremlin connections bought NASDAQ, it could program order entry systems to flood the market with fake sell orders on Apple, Amazon, Facebook, and other American business icons. This could trigger a crash and destroy Americans’ savings in a market meltdown worse than the panic of 2008. Russia would wipe out more wealth with a rigged stock market than with a well-placed nuclear bomb. A Russian acquisition of NASDAQ would certainly be refused by CFIUS. Still, many CFIUS cases are more opaque and less obvious. Raw intelligence needs to be gathered and the dots connected.

  To do this, IC members including the CIA and DIA use case officers, secret agents, and technical means to penetrate layers of legal obfuscation that bad actors use to disguise their role. This may involve risky operations in IC designated denied areas such as Moscow, Beijing, and Tehran. Once the intelligence collections are made, the raw reports are delivered to analysts at CIA headquarters in Langley. The analysts connect the dots by comparing collections with other sources of information, including data gathered by technical means, of which the human collectors may be unaware.

  The entire file is turned into a big picture mosaic that IC senior management uses to assess whether the buyer is a threat. Often the result is not black or white, but may still raise concerns for CFIUS to consider. That assessment is delivered to the Treasury on behalf of CFIUS. After further consideration by the full committee, CFIUS makes a final recommendation to the White House. The Treasury Department acts as the coordinator and home agency for CFIUS, but it does not have the last word; the White House does. Consensus among the member agencies is usually achieved. In cases where there is no consensus, the matter is passed up the chain for a final decision by the president.

  My involvement with CFIUS began in 2006, shortly after the infamous Dubai Ports fiasco. That was a deal in which a Middle-Eastern company planned to buy the operator of the largest port facilities in the United States, including those in New York, Philadelphia, Miami, Baltimore, and New Orleans. The ports handled imports and exports of a significant part of U.S. food and energy supplies, as well as cruise ship operations. These ports constituted some of America’s most sensitive critical infrastructure. Prior to the proposed deal, the ports were owned by the Peninsular and Oriental Steam Navigation Company, P&O, a British firm, clearly from a friendly jurisdiction.

  The proposed buyer, DP World, is owned by the Emirate of Dubai, part of the United Arab Emirates, or UAE, controlled by Dubai’s ruler, Sheikh Mohammed bin Rashid Al Maktoum. Despite its location in a rough neighborhood, the UAE is assessed by the intelligence community to be a good friend of the United States. The UAE has been an active ally of the United States in fighting terrorism, ISIS, and the ruthless Assad regime in Syria.

  DP World knew the deal was sensitive from a U.S. national security perspective and approached CFIUS in October 2005 for clearance. United States Coast Guard Intelligence, the relevant IC agency with regard to port security, raised concerns. DP World addressed those concerns through a process called mitigation, in which concessions are made with regard to governance, compartmentalization, and transparency to alleviate government concerns. Based on a mitigation agreement, CFIUS and the White House green-lighted the deal. Stockholders of P&O approved the port sale to DP World in February 2006.

  What came next was a political blow-up bigger than Krakatoa.

  When a rival port operator saw the public deal announcement, they hired lobbyists to persuade Senator Chuck Schumer to oppose it. Schumer leapt at the chance and denounced the deal in borderline racist terms, referring to an “Arab” takeover, ignoring the difference between regional friends like Dubai and regional enemies. Schumer did this while grandstanding at a press conference with families of 9/11 victims. The frenzy of opposition was bipartisan; Dennis Hastert, a Republican, planned legislation to block the acquisition by DP World. Democratic senators Hillary Clinton of New York and Robert Menendez of New Jersey joined Schumer in his opposition to DP World and planned their own legislation opposing it. In the face of this rank politicization of a nonthreatening ports acquisition, President George W. Bush doubled down on his support. On February 22, 2006, the White House threatened to veto any legislation that would stop the deal.

  At the height of this political firestorm, DP World hired former president Bill Clinton as their CFIUS adviser. This created the curious spectacle of Bill Clinton helping the deal while Hillary Clinton opposed it. The Clintons were working both sides of the street.

  Left out of the media and political frenzy was the fact that as part of its mitigation, Dubai secretly agreed to allow the CIA to position assets in other DP World port facilities. These postings would constitute an invaluable source of intelligence from ports in Africa, the Middle East, and South Asia otherwise difficult to access. By blowing up the deal, Schumer and Hillary Clinton were damaging the IC’s ability to help keep America safe.

  DP World went ahead with the acquisition of the P&O ports in late February 2006, but in the face of the political fiasco, immediately agreed to sell the contested U.S. port operations to an acceptable operator. Once that agreement was made, Congress withdrew its threat to nullify the deal. In December 2006,
DP World fulfilled its pledge by selling the U.S. port operations to a division of the U.S. insurance giant AIG.

  This fiasco was a major embarrassment for CFIUS and the White House. In terms of national security considerations, the supporters of the deal had done everything right. The U.S. Coast Guard assessed the risks. DP World offered mitigation. The United States would have all the oversight and transparency it needed to insure the ports were operated safely. The intelligence upside from Dubai’s cooperation in other areas was considerable. Still CFIUS had shown a blind spot when it came to outside perceptions. An alarm sounded inside the national security community about the need to avoid humiliations in future.

  In response, the intelligence community turned to Major General John R. Landry, a highly decorated West Point and Harvard graduate with warfighting experience from Vietnam to Desert Storm. General Landry had the position of national intelligence officer (NIO) for military affairs, a position he held from 1993 until his retirement in 2013. The NIO-military reports to the director of the National Intelligence Council, and is the highest-ranking intelligence official charged with assessing military matters. General Landry wasn’t a logical choice for CFIUS damage control because his brief was military, not economic. Still, he possessed an invaluable trait—he was known at Langley as a “can-do” officer who did not suffer fools. Landry cut through red tape and completed critical tasks faster than typical bureaucrats. CFIUS needed a quick fix, and Landry was the ideal choice to lead the way.

  In May 2006, just weeks after the Dubai Ports deal disaster, one of my CIA points of contact asked if I could meet with General Landry as quickly as possible. I agreed and arranged to be at headquarters within days. On arrival, I was ushered into General Landry’s office. He was short, muscular, handsome in a tough-guy way, with silver-hair and the blunt, bulldog-type demeanor one expects from a fighting general.