The poor guy had no idea what he was getting himself into.
When KPMGâs accountant Guy Enright stepped into the Italian restaurant Little Venice in sunny downtown Hamilton, Bermuda, in the spring of 2005, all he knew was that he was there for a lunch meeting with a man who called himself Nick Hamilton.
To set up the lunch, Hamilton had called Enrightâs cell phone days earlier, while the accountant was in London attending a KPMG meeting on conflict-of-interest rules. This is going to sound really weird, but Iâve got something sensitive to talk to you about. Could you come to the restaurant alone? Hamilton had told Enright he wanted to discuss important matters, and left the accountant with a vague impression that he was with one or another of the British intelligence services.
There was no way for Enright to know that Hamilton was not at all who he suggested he was. He couldnât know that several clandestine operatives were right now following him from his office at KPMG Financial Advisory Services to the restaurant, working in an efficient tag-team relay to ensure that Enright wouldnât spot anything unusual. And Enright certainly didnât notice that, among the crowd of well-dressed international businesspeople and tourists dining at Little Venice, one woman watched as he took his seat. She, too, was working for Hamilton, and she was there to make sure Enright didnât have backup of his own.
Enright did not. He was way out of his league. The British-born executive was just like millions of other mid-level white collar workers around the world. What did he know about espionage? But his position as a senior manager in corporate recovery gave him access to documents for which a wealthy client might pay millions of dollars. Might lie for. Might steal, if necessary. And that client hired the man who called himself Nick Hamilton. Hamiltonâs team was a mix of American CIA veterans, former officers of the British MI5 security service, and young, adventure-seeking American college graduates.
They were corporate spies.
Over the next several months, the spies executed an extraordinary plan they code-named âProject Yucca.â The covert operation, as elaborate as it became, was just one piece of a global struggle between two corporate behemoths with Russian ties. The spies were working on behalf of Alfa Group Consortium, which is one of Russiaâs biggest privately owned financial-industrial conglomerates, its vast holdings ranging from oil and gas to commercial and investment banking, insurance, and telecommunications. At the time Guy Enright showed up for lunch in Bermuda, Alfa Group was in a furious dispute with a mysterious Bermuda-based entity called IPOC International Growth Fund. The fight centered on which company was the rightful owner of $250 million worth of stock in a Russian telecommunications firm called MegaFon.
But the battle was much more than just a legal tussle between companies: it was a personal grudge match between two of Russiaâs most powerful men, and it had deep implications for the relationship between the government and the private sector in Russia. And the convoluted battle showed the world how the struggle for power inside Russia could spill over into courtroomsâand board roomsâthroughout the global economy. On one side was Mikhail Fridman, one of the youngest Russian oligarchs, who is said to be worth more than $20 billion. Fridman controls Alfa Group, and he was at loggerheads with Leonid Reiman, a former Soviet Army officer who served in Russiaâs government under Putin as minister of communications. Fridman and Alfa were convinced that Reiman was the real owner of IPOC, and that the companyâs attempt to control the MegaFon shares was a conflict of interest with Reimanâs government position. IPOC, meanwhile, maintained that it was owned by a Danish lawyer, Jeffrey Galmond, who just happened to be Reimanâs attorney. With powerful, and angry, men set against each other, it seemed that almost anything could happen. A former high-ranking American official involved in the affair told a reporter looking into the saga: âBe careful on this one. People get killed over stuff like this in Russia.â
The goal of the spy operation Project Yucca, then, was to help Alfa untangle the intricate global legal structure of IPOC.1 At the time, the accounting firm KPMG was conducting an investigation on behalf of the government of Bermuda into exactly that question. Alfaâs spies desperately wanted access to the investigationâwhat nuggets of new information had it uncovered about Alfaâs bitter rival? Thatâs why the spies targeted Guy Enright: they wanted him to turn over confidential documents at the heart of the investigation.
The spiesâveterans of western intelligence services now working in the private sector on behalf of a Russian oligarchâdeveloped a cynical plan: they would appeal to Enrightâs patriotism as a British subject. They convinced Enright that they were working for the crown. They mentioned the sinister dealings of the Russian mafia. And before long, Enright would find himself entering the secret world of spies, hiding confidential documents under rocks in a Bermuda field for Hamilton and his team to retrieve, terrified of being caught, and believing all the while that he was helping his country.
He wouldnât find out until much later that it was all a lie.
COMPLEX LOGISTICS WENT into setting up the lunch at Little Venice in Bermuda. The man posing as Nick Hamilton was Nick Day, the charming, dark-haired, thirty-eight-year-old cofounder of the private intelligence firm Diligence, LLC, based in Washington, D.C. Years earlier, Day had started his career in the British military as part of the Special Boat Service (SBS), which operates much like the U.S. Navy SEALs. For years, the SBS motto was: âNot by strength, by guile.â
His firm, Diligence, uses guile, too. And it uses the strength of an advisory board that includes some of the biggest names in global intelligence, business, and politics. Diligence boasts of its advisers on both sides of the Atlantic, including Michael Howard, a former leader of the Conservative party in Britain; Ed Mathias, the managing director of the mammoth American private equity firm Carlyle Group; and, most prominently, William Webster, a former director of both the CIA and the FBI.
Diligenceâs operations in Bermuda took place just a few months before the events of a far more prominent case of corporate espionage: the spying scandal at Hewlett-Packard (HP). Executives of HP hired agents to obtain illicit phone records of its board members and rummage through the household trash of reporters covering the company. The revelation of that bit of dirty trickery generated headlines worldwide, sparked confrontational congressional hearings, and prompted felony charges (which were later dropped) against Patricia Dunn, the companyâs chairman at the time. But lost in all the media furor over the HP spying scandal was the undeniable fact that pilfering phone records and digging through dumpsters are among the most benign tactics in the corporate espionage playbook. Espionage gets much, much dirtier than that.
The scam Nick Day ran on Guy Enright in Bermuda was just one of 100 or more operations Diligence has launched since its founding in 2000 by Day and a fellow thirtysomething intelligence vet, Mike Baker, who had been a CIA officer for fourteen years. In this case, Diligence didnât work directly for Alfa Group. Instead, it worked for one of Washingtonâs most prominent and well-connected lobbying firms, Barbour Griffith and Rogers. This lobbying firm paid Diligence $25,000 per month, plus expenses and, in at least one case, a bonus for obtaining a key document. The lobbyists, in turn, were working for Russiaâs largest privately owned bank: Alfa Bank, a subsidiary of Alfa Group Consortium.
The transcontinental struggle between the two Russian heavies was a bonanza for corporate spies, who were reaping hundreds of thousands of dollars in fees working for either IPOC or Alfa. But that meant Diligence had to move carefullyâwith so many spies on the case it would be hard to find sources, and harder still to determine each personâs true motives. First, a team of Washington operatives from Diligence reconnoitered at the KPMG offices, trying to establish who inside the firm would have access to the key documents.
Many employees at Diligence believed they were on the right side in this battle. They felt that IPOC was the bad guy, nothing more than a convoluted set of shell companies and dummy entities that allowed Leonid Reiman to grab control of MegaFon. They couldnât wait to expose what they saw as Reimanâs wrongdoing.
The mission would be tricky, but Nick Day, as always, brimmed over with confidence. âWe have a good chance of success on this project,â Day wrote in an internal memo at Diligence. âWe are doing it in a way which gives plausible deniability, and therefore virtually no chance of discovery.â Other, similar Diligence operations had been successful, Day noted.
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 KPMGâs 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. Youâre 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 âmale in his mid-20s who is somewhat boredâŚhas a propensity to party hard, needs cash, enjoys risk, likes sports, likes women, is disrespectful of his managers, fiddles his expenses, but is patriotic.â The memo described the second personality type as âa 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.â
Enright, the British-born accountant, didnât 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 didnât 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-lookingâbut fakeâquestionnaire with a British government seal at the top and asked for information about Enrightâs parents, his professional background, any criminal history, and his political activities. Enright provided the details dutifully.
It was what spies call a âfalse-flagâ 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 personâs motivations against him or her. Andâbest of all for a spyâthe payoffs donât even have to be real. You donât have to sleep with people to manipulate them with sex. You donât have to bribe them to fire them up with dreams of money. And you donât even have to be who you say you are. Thatâs why Nick Day noted in his memo that he was looking for someone âpatriotic.â 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, Dayâstill posing as Hamiltonâtold 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: Whatâs 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 queenâs 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 Enrightâs scenic twenty-minute daily commute and placed a plastic container under it, creating what spies call a âdead-drop site.â 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 firmâs 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 KPMGâs 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 FBIâs 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 wasnât 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 âdry cleaning,â designed to detect whether he himself was being followed. He walked a prescribed route through several narrow choke points. That way, Diligenceâs 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 IPOCâs side of the battle, and that might at any moment be targeting his own operation.
But the most dangerous threat to any spying operation doesnât 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 Diligenceâa firm they had never heard of beforeâhad access to KPMGâs 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 chest hair is just visible.
Mike Baker cofounded Diligence with Nick Day, and heâs 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 itâthe people, the travel, the operations. And he wonât share any of the details. âIâm just one of those people who believe that you keep your yap shut,â Baker says apologetically.
He does say that his nearly two decades as a spy taught him how the world work...
