by Eamon Javers
In 1983, Posner and a colleague were indicted in the Southern District of Florida for their roles in the tax scam. Posner fought the charges for years, but he pleaded no contest in 1987. He was forced to donate $3 million to homeless causes and was assigned 5,000 hours of community service, including serving meals in a Miami shelter.3 Posner’s legal troubles would go from bad to worse. Soon he was entangled with the infamous Wall Street swindlers Ivan Boesky and Michael Milken. Jules Kroll had defeated one of the era’s greatest corporate raiders. He was building a reputation for success just as the corporate takeover boom of the 1980s was set to begin.
JULES KROLL NOW had a vision for the future. Almost on cue, opportunity presented itself. The investment house Drexel Burnham Lambert underwent a damaging episode. The firm had taken the lead in underwriting a $25 million debt offering for a charter airline company, Flight Transportation, in 1982. Just a few weeks later, the FBI announced that Flight Transportation was a sham company—an airline without airplanes. Law enforcement officers rounded up the top executives. That Drexel had missed this obvious scam was embarrassing to its chief executive officer, Fred Joseph. He vowed that Drexel would never again be taken by surprise by such criminality. “Fred Joseph was appalled,” Kroll remembers. “He said, ‘we’re going to check out everyone we underwrite in a way that has never been done before.’” Kroll got the contract to do the spadework. It was his firm’s entrée into high-level Wall Street wheeling and dealing, and it was an opening to a huge new market.
“That’s when ‘Kroll’ became a generic name on Wall Street,” he says. From then on, firms on the verge of a huge transaction would hire Kroll to dig into the backgrounds of the people sitting on the other end of the conference table. Solomon Smith Barney hired Kroll. Other big names followed. Fred Joseph made Kroll, setting up a firm that began with one man to become a business earning hundreds of millions of dollars a year. And Joseph wasn’t shy about trumpeting his new investigative firm in the press, telling one reporter, “Kroll signals red flags, like the time we were told a company used underworld connections to solve some labor problems. We decided not to do the financing.”4
But there was one problem: Fred Joseph’s firm, Drexel Burnham Lambert, was increasingly dependent on the junk bond trader Michael Milken, who was based in Los Angeles. And in all the time Kroll worked for Fred Joseph and Drexel, its veteran law enforcement sleuths never figured out that their big client was running what amounted to, in many respects, a criminal enterprise based on insider trading in the junk bond market. Milken turned out to be one of Wall Street’s worst crooks. Kroll didn’t catch him, or even have a clue that fraud on such a vast scale was going on inside the prized client’s office. It was all the more embarrassing because Drexel had hired Kroll to do internal investigations of people the firm’s top executives suspected of insider trading. Those were limited, narrowly defined investigations. Drexel didn’t hire Kroll for a systemic analysis of its own business. For the most part, Drexel hired Kroll’s detectives to look out, not to look in. Kroll would continue to work for Drexel until the day the firm went bankrupt in February 1990.
To this day, Jules Kroll has a difficult time reconciling the two sides of his most important client. Fred Joseph presided over one of the most spectacular corruption implosions on Wall Street during the 1980s, and he was barred from ever serving as a CEO on Wall Street again. Drexel pleaded guilty to six felony charges and paid $650 million in fines in 1988. But Kroll sees only the good side of his old friend: “Fred is a very dear personal friend of mine,” he says. “Fred Joseph is a very, very, straight shooter.” In Kroll’s eyes, Joseph was simply another victim of Milken’s scheming. “Fred was riding a tiger, and Michael Milken was a genius.”
The late 1980s were a boom time for Jules Kroll, and his firm continued to expand its services. Kroll sent an undercover operative into the mailroom of the Wall Street law firm Davis Polk and Wardwell to help investigate a cocaine dealer suspected of selling drugs to employees. Kroll conducted a search of an advertising agency’s offices to find files that went missing when several key employees departed to start up a competing firm. Kroll helped the magazine Business Week implement new internal security procedures when it became clear that someone was trading stocks mentioned in its weekly column “Inside Wall Street” before the issues hit the newsstands.
All along, Kroll was concerned about appearances. For years, he had resisted using the terms “investigation” or “detective.” Those were low-rent labels, associated with toughs who wore fedoras and trench coats and hung around in dark alleys. Kroll had higher ambitions. He wanted to be seen as a social and professional peer of lawyers and accountants. Unlike Robert Dolan Peloquin and the corporate spies at Intertel, Kroll had high corporate aspirations. His was not a company that would be content to work for mad billionaires and sleazy casino operators. Although he made it into some of America’s most exclusive corporate boardrooms, Kroll was never quite able to shake off the private-eye image. “No matter what we do,” he complained, “people want to put a fedora and a trench coat on us.”
In a way, though, Kroll himself reinforced the image—if unconsciously. A big man, with a bald head and, in the 1980s, ever-present suspenders and cigar, he was in many ways the physical embodiment of Dashiell Hammett’s hard-boiled detectives of an earlier era. And when the New York Times came calling in 1985, Kroll embraced the chance to let the wider world know he had arrived. The Times reporter Fred R. Bleakley interviewed Kroll for a profile, “Wall Street’s Private Eye,” which ran on March 4, 1985. Bleakley detailed Kroll’s history, methods, and growing popularity on Wall Street:
Mr. Kroll relies on a team of 50 full-time professionals who include a bevy of former FBI and law enforcement officers, business executives, lawyers, Ph.D.’s skilled in research and several former investigative reporters. In addition to a research library of business directories and electronic data banks, the firm has on call more than 300 detective agencies, specialized industry consultants, accountants and lawyers in the United States and around the world. One of these “subcontractors,” he said, is the former Israeli Ambassador to Mexico who was chief of police in Tel Aviv at one time.
The article was accompanied by a picture of Kroll, with suspenders and cigar, looking every inch the private detective of legend. His reputation was made. One of his rivals says the publication of the article in the Times marked the beginning of a new era in the investigative business. Corporate investigators would now be seen as respectable players in the business community, on par with the lawyers and accountants that Jules Kroll hoped to match. Clients poured in his door. Before long, Kroll had detailed files on players across Wall Street. Like Pinkerton’s 100 years before, Kroll’s files became so valuable that access to the information in them was often reason enough for companies to hire his firm. Kroll had reinvented an industry, and dozens of competitors would spring up to imitate him.
One other large investigative firm was gathering steam at the time, too: Investigative Group International, which was based in Washington, D.C., and was headed by a former Watergate investigator, Terry Lenzner. Lenzner had started his firm in 1984, and before long he had abandoned the old Pinkerton code of conduct, becoming ever more deeply involved in political spying. That move would make Lenzner the keeper of the most sensitive secrets of President Bill Clinton, and earn him the enmity of Republicans, many in the press, and some civil libertarians.
BUT EVEN AS a wider industry began to become aware of the opportunities in the new investigative business Kroll was perfecting, Kroll himself was focusing on ever larger targets. His next big break arrived in 1985, when an old friend called with a request. The friend was Stephen Solarz, a congressman from New York who chaired the House Foreign Affairs Subcommittee on Asia and the Pacific. Solarz had campaigned for Kroll during his unsuccessful political race in 1971, and the two men had stayed in touch as Solarz’s career prospered. Solarz was now in touch with a group of Philippine expatriates living in t
he United States. They were horrified by the way Ferdinand Marcos was running their home country. These expatriates had been doing some investigating of their own, tracking down assets that they said Marcos had stolen from the people of the Philippines for his personal use. Solarz wanted Kroll to look into it. How much money did Marcos have, really, and where was it?
Kroll turned his team loose on the project, and he agreed not to charge Congress for his services. The case was significant: owing to Kroll’s reputation and personal friendship with the congressman, his firm was now getting a call that otherwise could have gone to any number of federal investigative agencies. Kroll was sticking his nose into the government’s tent.
Kroll focused on four buildings in New York City owned secretly by Marcos through American cutouts: 200 Madison Avenue, the Herald Center at Herald Square, the Crown Building at 730 Fifth Avenue, and 40 Wall Street. All told, the properties were worth as much as $300 million. At first, the American property managers would not acknowledge having anything to do with the Marcos family. But Solarz was armed with Kroll’s evidence, and he hauled them before his congressional subcommittee in May 1986. They confessed to the connection in a dramatic hearing, detailing meetings with Marcos at resorts to discuss business deals, and even to a dinner in 1981 at Sign of the Dove restaurant in New York—a dinner during which Imelda Marcos, who would become infamous for the astounding number of shoes she collected, showed them her Swiss bank account statement to verify her personal fortune of $120 million.
“Solarz was the hero of the day,” Kroll says. But Kroll benefited from the spectacle, too. Kroll was now a global force, perceived as able to stand up to dictators and win. Soon Kroll would be drawn into other high-profile global asset searches. The firm worked for the Russian Republic, trying to track assets that were pilfered and taken out of the country after the breakup of the Soviet Union; made efforts to find the fortune of the brutal Haitian dictator Jean-Claude “Baby Doc” Duvalier; and, most famously, undertook a globe-spanning search for Saddam Hussein’s billions after the first Gulf War.
Just two months after the Iraqi dictator Saddam Hussein invaded Kuwait in 1990, the Kuwaiti government decided it needed help as it mounted an intelligence effort against him. How much money did Hussein have? Where was it hidden? To find out, the Kuwaitis hired Kroll.
The investigators unraveled much of a convoluted international shell game used by Hussein and his family to hide assets: some stolen from the Iraqi people and others filched through an elaborate system of kickbacks for government contracts. Kroll told 60 Minutes that Saddam and his family had pocketed 5 percent of Iraq’s $200 billion in oil sales over the previous ten years. The investigation, reporters noted, relied on interviews with Iraqi expatriates and searches of global media accounts. It turned up embarrassing Iraqi connections with several western companies. One of the most revealing money trails Kroll followed was that of Barzan al-Takriti, who was a half brother of Hussein and at one point had headed Iraq’s feared security police force. In 1979, Barzan set up a company, Montana Management, Inc., which he registered in Panama. Two years later, the company began buying stock in Hachette, a French publishing company that owned several American magazines, including Car and Driver. By the eve of the first Gulf War, the Iraqi ownership stake had grown to include nearly 9 percent of the company. Whenever they were asked, lawyers for Montana declined to reveal the owners of the company, arguing that such details weren’t required public information under French law. But once the true ownership was revealed, Newsweek magazine speculated that the French stock could simply be an investment. After all, a stake so small would hardly give Hussein editorial control over the editorial content of Hachette’s array of magazines. But Newsweek also offered another, tantalizing, possible explanation for Saddam’s interest in Hachette:
Others have noted the coincidence that Hachette is controlled by Jean-Luc Lagardère, who also controls the French arms company, Matra. Some have speculated that Iraq thought it could influence Matra’s arms sales to Iraq through Hachette holdings. Hachette denies knowing of a Saddam connection, and is prepared to buy back the stake if hidden ties emerge.5
Newsweek, impressed by Kroll’s revelations, dubbed the firm the “thug busters.”
Those thug busters were again walking the beat in early 1992, when Russia’s newly empowered leader Boris Yeltsin hired Kroll to track down the billions of dollars’ worth of national assets that had gone missing after the collapse of communism. The Russians estimated that they’d lost between $6 billion and $8 billion in 1991, as communist apparatchiks siphoned money out of the imploding Soviet empire into personal bank accounts around the world. The Russians wanted the money back, and they decided Kroll was the man for the job.6
Kroll assigned fifteen agents to the Russian project, including a former intelligence agent for the U.S. Treasury Department and the CIA’s former station chief in Kuwait. The firm reportedly billed $1,500 per agent per day. The Russians paid cash. “We’re going to be visiting and seeking records from Russia’s major suppliers,” Kroll told the New York Times that year, “particularly in the food area and in oil-field equipment. And we’ll also be looking at major foreign importers, again mostly of commodities. Outside Russia, commodities trading is highly computerized; records exist.”7 The record trail led Kroll to exotic locales like Cyprus and Monte Carlo, where many of the Russian assets had been hidden.
But Kroll ran into roadblock after roadblock. Among the most frustrating problems was that the Russian government assigned several former Russian intelligence officers to work alongside Kroll on the investigation. None of these officers would give Kroll their real names. They made it clear that they didn’t like and didn’t trust Kroll. The Americans concluded that the Russian officers were there not to help investigate the communists’ money laundering but to block the investigation from the inside. “We were interested in uncovering information, and they were interested in obfuscating,” Kroll says. “It didn’t make for a good arrangement.”
Russian politics made the situation worse. Yeltsin’s government was investigating money laundering that Kroll concluded in many cases had been undertaken by Russian intelligence leaders. But to stay in power, Yeltsin’s fragile democratic government depended on the former Soviet intelligence apparatus. Within six months, the investigation became untenable, and Kroll ended its work on the case. The firm turned over some of its leads to the Kremlin, but the American investigators were never sure what became of the information they passed along.
Although the former Russian officials were clearly uncomfortable with American investigators trolling through their finances, both the Kuwaiti and the Russian investigations dovetailed with the intelligence interests of the United States. America had already gone to war against Saddam Hussein once, and would do so again in the next decade. American officials had every incentive to learn how Hussein financed his regime, and where its weak points might be. It was the same in Russia: the CIA had been in a clandestine battle with the Soviet Union. As that nation dissolved, the CIA needed to keep watch on how the power and money centers were fragmenting. At the same time, Kroll was becoming closer and closer to U.S. intelligence, by hiring a number of prominent veteran CIA officers.
All that raises an important question: how much did Kroll work with American intelligence? Much like Pinkerton’s more than a century earlier, Kroll’s operatives were now conducting intelligence operations that benefited Washington in a time of crisis. Since the interests were so aligned, some observers began to wonder where Kroll ended and the U.S. intelligence community began. Indeed, one corporate intelligence professional with a long history in the industry has a pet theory about Kroll. It wasn’t Kroll’s efforts that helped U.S. intelligence, this person argues; it was U.S. intelligence that helped Kroll. The professional says that the accomplishments claimed by Kroll—tracing assets through a complicated series of international financial shells—can’t be done by the private sector. But the global wiretapping abilities
of the National Security Agency and the CIA’s ability to track international banking transactions are just the types of tools that would have been invaluable in tracking global financial assets. Perhaps Kroll was secretly helped by American officials who wanted the information to become public, and wanted their own fingerprints kept far away from the disclosure. “What they’re claiming to have done just isn’t possible,” the professional says. “There’s no way they can do that without some intelligence help.”
Was Kroll used as a front by an American intelligence community that didn’t want to reveal the extent of its own capabilities? Kroll wouldn’t like the word “front,” but he acknowledges that his investigators routinely sought out the help of intelligence agencies—foreign and domestic. “We would frequently approach the relevant intelligence agencies to see if it was in their interest to cooperate with us,” says Kroll. “More frequently, we received that cooperation from foreign intelligence services than we did from U.S. intelligence.”
Kroll is wary of getting into specifics, but he offers one example in which his firm was hired by a foreign government to investigate a former head of state. Kroll asked the government to put out the word publicly that his firm was on the case. Private intelligence operatives have a long tradition: they always talk to “walk-ins,” or people who seek them out to deliver information. Most of those leads come up empty, because the walk-ins are ill informed, or even crazy, but sometimes the key evidence in a case walks in the front door. That’s what happened to Kroll during the investigation of the head of state. Soon after word got out that Kroll was on the case, the firm got a feeler from a law firm in a foreign country. The law firm had detailed information on the case, and offered it to Kroll’s team. The information was an intelligence bonanza: corrupt contracts, dollar amounts of bribes, and details of financial transactions. “We had reason to believe that it came from an intelligence agency,” Kroll says. Kroll concluded that the law firm was just a cutout for an intelligence agency to pass along the documents.