Broker, Trader, Lawyer, Spy

by Eamon Javers

  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.

  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.

  MIKE BAKER 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 c
hest 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!”