Broker, Trader, Lawyer, Spy (14 page)

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.

But Kroll minimizes his firm’s intelligence connections: “For the most part, intelligence services are a one-way street. They will take what you want to give them, but there’s very little coming back the other way.”

B
Y THE STANDARDS
of its industry, Kroll has done a remarkable job of knowing where the legal and ethical lines begin and end. But the firm has had its share of improprieties, scandals, and controversy.
According to one account, as early as 1985, the firm decided to investigate the sex life of Ivan Boesky.
⁸
That invasion of privacy wasn’t going to uncover anything at all to do with Boesky’s alleged insider trading, but uncovering any of Boesky’s sex secrets may have given Kroll’s client, Drexel, valuable leverage over the disgraced arbitrageur.
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In another case, in 1989, Kroll and one of his star operatives clashed with congressional staffers in a dramatic showdown that threatened to destroy the entire company. The confrontation began with the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigation, then headed by the formidable Representative John D. Dingell, who was famous for using his investigative authority to dig into the dealings of companies across the country. The congressman had built up a staff of tenacious investigators that many corporate representatives in Washington viewed instead as ferocious inquisitors. The congressional team was known for firing off “Dingell-grams” to targeted companies, demanding information, documents, and sometimes personal appearances by executives on Capitol Hill.

At the time, Dingell’s staffers had focused on Drexel Burnham Lambert, which had recently agreed to plead guilty to securities charges and pay a $650 million fine. They focused on a sideshow to the main saga, a $2.25 billion class-action lawsuit filed by an attorney in California, William Bertain, against Drexel and another defendant. Kroll was working for Drexel as usual, and its investigators were scrambling to figure out what was going on with the lawsuit. Kroll’s John Gibbons led the West Coast piece of the investigation. Gibbons was a veteran of the U.S. Department of Justice; he had spent a long time there and had risen to serve as chief of the Criminal Division for the Northern District of California. He was a religious family man, who had devoted his life
to law enforcement. But Gibbons’s integrity was on the line when Bertain claimed that Gibbons had lied about who he was working for in the investigation. Bertain alleged that Gibbons said he was working for the congressional staff—not Kroll—in conversations. What’s more, Bertain said he had tape-recorded Gibbons making the false statements.

This was a dangerous moment for Kroll. Dingell was bearing down and the press was lapping up the allegations that a Kroll operative had impersonated a congressional investigator. Corporate clients would flee the firm at the first sign of scandal. “It was pretty scary,” Kroll says. “I saw that my life’s work could have gone up in smoke.” He relocated to Washington, D.C., to lead the fight against the accusations, setting up camp in the Mayflower Hotel.
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This time, though, Kroll saw an opportunity in the growing scandal: in California, it is illegal to tape a conversation if both parties haven’t agreed to it; therefore, the recording that Bertain made of Gibson might itself be illegal. That gave Kroll a way to fight back against the charges.

The drama came to a head in the congressional hearing room. Some members of Congress turned their attention to Bertain, asking him whether his recording was legal or not. Bertain dropped a bombshell: he said he had been told to make the possibly illegal tape by one of Dingell’s own employees, the subcommittee’s staffer Brian McTigue. What’s more, he argued that the staff member’s request made the recording legal, since it cloaked Bertain in the legal immunity of the House of Representatives. This was an astonishing claim, and a legal stretch. Bertain was arguing that a staff aide on Capitol Hill had deputized him as an investigator, allowing him to break California law.

When it was Gibbons’s turn to testify, he refused to speak,
saying that he and his lawyers hadn’t been given enough notice of the existence of a tape to prepare a response. Jules Kroll had a growing sense of unease. A congressional hearing is a freewheeling affair, buffeted by political agendas, subject to media scrutiny, and played out under rules that give enormous discretion to the committee chairman. Kroll felt lost. This was more like a Star Chamber than a public hearing.

Despite Gibbons’s refusal to testify, it was Dingell who was now on the defensive. Had a staff aide really promised immunity to Bertain? Was that even legal? Behind the scenes, the committee members were in an uproar, demanding answers. Dingell’s position got worse when the tape of Gibbons’s conversation was played in the hearing room. It was far from clear that Gibbons had misrepresented himself. At one point on the tape, Bertain asked if Gibbons was working for Congress, and Gibbons replied “Well, not directly.” This wasn’t a slam-dunk case of misrepresentation.

Now Dingell was on the defensive. Had a rogue staffer on his committee made promises of dubious legality? And was the smoking-gun evidence as hot as it was said to be? Dingell saw his position weakening, and he decided to act to prevent any more damage. He removed McTigue from his job and canceled the remainder of the hearings into the Kroll matter. He apologized to the other members of Congress on the committee, and issued a statement exonerating Gibbons. “One conclusion I’m able to draw from your testimony is that you were acting in good faith,” Dingell said to Gibbons. “I do not believe that any further inquiry into your conduct is warranted.”

For Kroll it was as close to a total victory as the firm was likely to get. Jules Kroll dismantled his command center at the Mayflower Hotel and returned to New York. He’s still angry about the incident. Dingell’s accusations, he says, were “an outrageous thing to do. These were trumped-up charges.” In the end, he says, Kroll’s investigators were told that Dingell’s staffers had hoped the whole
incident would pressure Kroll to turn over the material it had gathered in its files about Ivan Boesky. But no pressure was necessary, he insists. “We would have given it to them.”

If anything, Gibbons remains even angrier than Kroll about the way Congress treated him: “Dingell, as far as I’m concerned, is an evil bastard,” Gibbons says. Told that the aging Dingell gets around Capitol Hill today in a wheelchair, Gibbons responds, “Good. And I hope he’s in pain, too.”

Gibbons remained with Kroll until 1991, when he left to start his own company, which is now known as Spectrum OSO Asia and conducts due-diligence investigations on behalf of banks, insurance companies, and hedge funds. Gibbons became part of an enormous diaspora of talent from Kroll, as investigators inculcated in Kroll’s techniques and business culture began to leave the firm to form competing outfits of their own. There are dozens of firms around the world that have roots in Kroll’s offices. By the time Jules Kroll retired from the firm that bears his name in 2008, he had become the Johnny Appleseed of corporate intelligence firms.

The year 2009, though, began for Kroll as grimly as it did for many in the private intelligence business. The economic crash of 2008 caused business of every kind to slow down, hitting private investigators hard as a result. But even worse for Kroll than the sour economy was the embarrassing disclosure that the company had been working for Allen Stanford, who was accused of running a $7 billion Ponzi scheme and whose empire, the Stanford Financial Group, stretched from Texas to the Caribbean island of Antigua. Writing in the magazine
Vanity Fair
, Bryan Burrough revealed that Stanford hired Kroll to cement his reputation with potential investors. One former FBI agent told Burrough, “Kroll was essentially running a propaganda campaign in defense of Stanford’s good name. They beat on me many times: ‘Hey, you got this all wrong, he’s not a money-launderer, he’s a great guy, leave him alone.’”
⁹

It was a blow to the reputation for independence that Kroll had
carefully crafted over the previous decades. Worse, this publicity was followed by news, first reported in the industry newsletter
Intelligence Online
, that Kroll was facing a lawsuit as a result of its work for the shadowy Caribbean financier.
¹⁰
A client—the Foundation for Electrical Construction, Inc.—sued Kroll for gross negligence in the U.S. district court in Florida. The client alleged that it hired Kroll to investigate the Stanford International bank in Antigua and warn of any red flags or concerns about Stanford’s business practices. According to the lawsuit, Kroll completely missed Stanford’s alleged fraud, despite giving assurances of a thorough investigation. And the suit says Kroll never informed its new client that the Kroll official who signed the contract was himself a former consultant to Stanford. That, said the suit, was a conflict of interest Kroll should have disclosed. As a result of Kroll’s “gross negligence,” the foundation said, it lost more than $6 million in investments with Stanford.

For its part, Kroll denies any wrongdoing and says it was hired only to do limited due diligence on a contract that paid the relatively modest sum of $15,000. “Kroll’s report made clear in its very last sentence that ‘given the nature of the bank and the fact that it is less stringently regulated, it is inherently a greater risk,’” says a spokesman for the company. “Kroll did not make any recommendations regarding [the client’s] investment. Kroll takes very seriously its responsibilities to its clients and upholds the highest standards of integrity in its work.”

Still, Kroll’s ties to Allen Stanford show the deep and hidden web of connections underlying the global private intelligence industry. Somehow, a firm that had paid so much attention to its public image in its formative years wound up working for a man known in the media as the “pirate of the Caribbean.”

The town of Vevey, Switzerland, is tucked between the Swiss Alps and the blue water of Lake Geneva. Famous for panoramic views of mountains and lake waters stretching to the nearby French border, the lakeside community is suffused with literary history—Henry James set his novel
Daisy Miller
here, and the writers Victor Hugo, Jean-Jacques Rousseau, and Fyodor Dostoyevsky all called the village home at times. Today it is best known for a company that was founded here in 1866: Nestlé, the $100 billion global chocolate and food conglomerate.

Lake Geneva’s shoreline forms one border of Nestlé’s corporate compound. The office complex, which is topped by the white cross of the Swiss national flag and shaped like a double-headed letter Y, has views of the soaring mountains, the lake, and the picturesque town nearby.

On March 4, 1998, there was a hint of an early spring rain in the cloudy skies over Vevey. Inside the enormous compound, Nestlé’s chairman, Dr. Helmut Maucher, read a fax that had just come in from his fiercest corporate rival, the billionaire American candy titan Forrest E. Mars, Jr. To understand the fax, you need to know something about the competition between Nestlé and Mars. Certain corporate rivalries go beyond mere market share and quarterly
results: the competing companies are locked in a struggle that’s more a grudge match than business as usual. That’s the way it was with Nestlé and Mars. Any market share gained by either one of the giants seemed to come out of the hide of the other. The rivalry spanned the globe, encompassing—among other products—packaged meals, pet food, and, most of all, chocolate candy.

That afternoon’s fax came at a delicate time for Nestlé. It had just announced a planned $1 billion takeover of the Spillers pet food business from a British company, Dalgety.
¹
The huge deal would give Nestlé a boost in the pet food sector, adding well-known British brands such as Choosy cat food and Bonzo dog food, which would make excellent complements to Nestlé’s existing Friskies pet food business. Along with the brands would come thirteen pet food factories, located throughout Europe.

Maucher, a German, was then seventy-one years old. His high forehead was topped by a curl of wispy graying hair, giving him a look of classic, restrained European business elegance. Earlier in the day, he’d had an angry telephone conversation with Forrest Mars’s brother, John, who was a billionaire in his own right and formed the other half of the third generation of family members to run the Mars company. During their talk, Maucher hotly voiced his concerns about Mars: The Americans were encouraging the Food and Drug Administration (FDA) in Washington to take action against new Nestlé products. They were gathering information on Nestlé and its activities. Worst of all, they had “declared war” against Nestlé, Maucher charged. He demanded to know whether or not Mars would move to block the billion-dollar acquisition of Spillers. It was a reasonable question: the deal was a direct threat to Mars’s own pet food brands: Whiskas for cats and Pedigree for dogs.

In his two-page faxed reply, Forrest Mars said he and his brother were “flabbergasted by your statements of this morning.” He tried to allay Maucher’s concerns one by one. Most important, Mars signaled that he would not try to block the pet food deal: “We have no
intentions of objecting to that via any of the legalities that you must go through. We will, of course, answer any questions that we are legally required to do, but do not intend to object to this merger.”

Of Maucher’s complaint regarding the FDA, Mars wrote: “Again, I reiterate that we did not cause you problems with the FDA.” On the issue of gathering information: “We do collect information and read various reports available to us, not only about Nestlé, but all our major competitors. When a major competitor does something significant that changes the competitive scene, we immediately review all worldwide information, as I am sure you do with us and your other competitors. There seems to us to be nothing illegal or uncompetitive about this as all of it is published information and various amounts [of it] are obviously hearsay.” Most important, he insisted, Mars had never “declared war” on Nestlé.

As he put the fax down, Maucher must have known that much of what Forrest Mars had written was a lie. Maucher was no fool. He had fought his way up the corporate ranks for decades, rising to become the first non-Swiss executive to head Nestlé. The year before, he’d given up the title of chief executive officer, but he still clung to the role of chairman of the board. He knew that for the past several months Mars had been secretly stirring up trouble for Nestlé at the FDA—and that these efforts had succeeded in shutting down production of a profitable new chocolate product. He would have known that Mars’s competitive intelligence efforts went well beyond reading published information. And whether or not Forrest Mars—comfortable in his office in a Virginia suburb just outside Washington, D.C.—wanted to acknowledge it or not, Maucher knew that Mars and Nestlé
were
at war.

The chocolate war had already been raging for months.

How Maucher probably came to know all that information about Mars is the most intriguing part of the story. Even as he vociferously objected to Mars’s alleged information gathering, Maucher’s company had deployed its own intelligence assets in the chocolate war. It was one of the most sophisticated efforts of its
time, bringing together veterans of the Secret Service, the CIA, and American law enforcement to obtain copies of internal Mars documents, place Mars executives under surveillance, and unmask the identities of Mars’s own secret operatives.

To understand this story, we have to leave the placid Swiss lake behind and travel thousands of miles to another body of water—Chesapeake Bay—and to another town: Easton, Maryland, which today holds some of the last remaining secrets of that war.

E
ASTON IS SITUATED
on Maryland’s Eastern Shore, an enormous peninsula that separates Chesapeake Bay from the Atlantic Ocean. About a ninety-minute drive from Washington, D.C., the Eastern Shore is an elegant weekend getaway for the capital’s moneyed elite. Former vice president Dick Cheney and former secretary of defense Donald Rumsfeld both own multimillion-dollar properties in the small Eastern Shore town of Saint Michaels. Many other Washington insiders—politicians, agency heads, lawyers, and lobbyists—spend weekends in the small waterfront towns that dot the pastoral Eastern Shore landscape.

Though connected to the mainland by the 4.3-mile Chesapeake Bay Bridge, the Eastern Shore is still its own world. Indeed, the Maryland portions of this landmass have tried to secede from the state on several occasions. Long cut off from the outside world, the region thrived on agriculture and fishing. Oysters, crabs, and corn dominated the economy for hundreds of years. Today, tourism, sailing, and real estate speculation are included in the economic mix, but many parts of the area remain remarkably unchanged since the nineteenth century.

In short, this is a strange place to find the remnants of a once successful and secretive international corporate spying operation. But here they are. Beckett Brown International was a spy firm begun in the early 1990s by a small group of veterans of the Secret Service. The firm’s clients included the multibillion-dollar Carlyle
Group, the Gallo wine company, Wal-Mart, and the cosmetics company Mary Kay. And over time, it spied on Greenpeace and other environmental activists, gun-control groups, and companies large and small.

There are dozens of firms like Beckett Brown around the world, but their activities are typically shrouded in secrecy. They tend to bind their employees to ironclad nondisclosure agreements, hide their work through a convoluted series of contractors and subcontractors, and argue that their activities are subject to attorney-client privilege. Documents revealing their operations rarely surface in public, even when they’re involved in contentious court proceedings. But Beckett Brown is different. Because the founders of this firm eventually became bitter professional and personal rivals, the company collapsed. The corporate wreckage contains a treasure trove of documents that offer a rare glimpse inside a spy firm in action.

Crossing into the Eastern Shore from Washington over the Bay Bridge, a visitor travels down Route 50, passing the Kent Narrows and the town of Wye Mills before entering Easton. Along the side of the road, past an Applebee’s but not as far as the Denny’s, sits a rental facility called Bay Tree Storage. Inside one of its metal-lined storage units, in cardboard boxes precariously stacked from floor to ceiling, are the last remaining business records of Beckett Brown International.

Sitting next to those boxes, sorting documents by hand, is John Dodd, the man who put up most of the money to launch Beckett Brown in 1995. Dressed in a faded blue striped polo shirt, jeans, and a Florida Gators 2006 National Champions baseball cap, Dodd perches on a folding chair alongside a card table. He opens a worn briefcase to reach for documents, tapes, and supporting evidence. Dodd launches into a long tale, explaining how a company he partly owned deployed undercover operatives into gun-control groups, spied on Greenpeace, and gathered intelligence on Mars, all without his knowledge.

Even as he lays out the details of years of diving in Dumpsters,
intercepting phone records, conducting physical surveillance, and engaging in other spy tactics, Dodd insists he was appalled when he found out what had been going on at his company.

I
N
1994, D
ODD
had been enjoying the resort atmosphere of Chesapeake Bay, and spending some of his time in the bars of Easton. His family had sold its regional beer distributorship for millions of dollars several years earlier, and Dodd hadn’t needed to work full-time since then.

In Easton, he met Richard Beckett, a local businessman who ran a small executive search firm, helping corporate clients find and place executives in high-level jobs. Beckett, as it turned out, was friendly with several law enforcement officers, current and former Secret Service agents, and a veteran officer of the Maryland state police.

Over beers, Beckett told Dodd that he’d come up with a plan for an exciting new business. Using their skills and connections from the Secret Service, the Maryland police, and the corporate world, the group would form a security company to provide protective services for executives at several of America’s largest companies.

All they needed, he said, was an investor.

John Dodd was hardly a wheeler-dealer. He was just a guy who’d inherited a beer company, sold it, and grown rich; and he didn’t know the first thing about running a security business. Still, he was intrigued. He was also impressed by Beckett’s team members when he met them several weeks later. The men took Dodd to see the Secret Service headquarters building in Washington. They introduced him to Daniel D’Aniello, a founding partner of the $80 billion private equity firm Carlyle Group. At a meeting at the firm’s spacious offices on Pennsylvania Avenue, D’Aniello sang Beckett’s praises:
This is a great idea. I might even invest in this company myself
. In the elevator as he was leaving,
Dodd spotted the former secretary of defense and former CIA deputy director Frank Carlucci—now a partner at Carlyle. Dodd was starstruck.

At Easton’s Sidetrack Saloon and McGarvey’s Saloon and Oyster Bar in nearby Annapolis, the group pulled together a detailed business plan for the new company. Opportunities were everywhere for a company staffed by veterans of the Secret Service and the Maryland state police—Steve Forbes’s presidential campaign, then in its infancy, was a prime prospect as a client for protective services. And CSX Corporation, the railroad giant, might need help reviewing its security plans for its enormous real estate holdings.

But they had to act fast. One member, Joe Masonis, was under pressure to tell the Secret Service whether he’d be staying or going. The opportunities could go to another firm.

Under that time pressure, Dodd agreed to put up $120,000 in start-up funding, and the company was officially started as Beckett Brown International
*
in August 1995. His total investment in the firm, he says, would eventually grow to about $700,000.

B
Y THE SPRING
of 1996, the new company had begun to get traction. Beckett Brown hooked up with Nichols Dezenhall, a little-known Washington public relations firm that began to feed it business. The PR outfit specialized in crisis communications, the delicate art of helping companies in the midst of various corporate disasters: scandals, lawsuits, environmental catastrophes, and the like. As a result, this firm was in close contact with companies whose executives were desperate for solutions. At the same time, Beckett Brown began adding big-name intelligence veterans to its ranks. It hired Vincent Cannistraro, a former chief of the CIA’s
Counterterrorism Center, as a consultant.
*
It also added David Bresett, a former chief of the Secret Service’s foreign intelligence branch, who had been a key liaison officer with the CIA while he was in government service. But it was the relationship with Nichols Dezenhall that kept Beckett Brown afloat as it struggled through its first year.

Nichols Dezenhall, having just landed its own first big project for Nestlé, put Beckett Brown to work for this lucrative client: Nestlé wanted all the information it could get on Mars.

The assignment wouldn’t be easy. Even though Mars is a global giant that produces well-known products such as Snickers and M&Ms, it has a secretive corporate culture and remains privately held by the reclusive founders, the Mars family. There’s no sign outside the company’s headquarters building at 6885 Elm Street in McLean, Virginia. All a passerby sees is what looks like a brick two-story suburban office building. The parking lot is unremarkable, and there’s no indication on the front door that you’re entering the offices of a global conglomerate; there are just white letters on tinted glass: “No Soliciting.” (Even the Central Intelligence Agency, which is situated two miles down the road, has a prominent sign visible to street traffic.) The e-mail addresses of Mars employees are cloaked, too. If you are e-mailing an executive at the company, you don’t send the message to [email protected]; you send it to an address ending with the [email protected]. That makes it much harder for outsiders to figure out how to get in touch with key Mars personnel.
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