The Spy Who Billed Me

Offshore Corporations: Not just fun in the surf & sand

Reasons to create an offshore corporation, particularly when you're in the private military or espionage business are very complex.  BillW asked about this in the comments on yesterday's post:   

are we to assume that the only reason for them to go off-shore is to be able to conduct these operation on U.S. soil as well?

I started writing this response in the comments section, but it seemed like something that deserved a post of its own. 

There are a lot of reasons to go offshore, taxes, liability and oversight--(think of Halliburton's recently announced move to Dubai).  For a private military corporation and possibility a private intel corporation, there's the  dimension of avoiding their services falling under ITAR  (the US laws governing the export of military services) which would complicate and delay sales and very likely preclude some business all together. It's tough to make good on your promises to rapidly deploy to meet the security needs of a client anywhere in the world at the moment they need you when you have to wait on State Department paper-pushers to grant you an export license, assuming one would be granted 

With the restrictions upon a domestic corporation, offshore entities would be free to conduct the kind of activities that Special Forces and spies do:  destabilize governments, sabotage facilities, identify and train insurgents, etc.   

To further answer BillW's question, an offshore entity has nothing to do with ability to operate on US soil.  If an offshore corporation operates in the US it has to register as a foreign entity, a classification Greystone has, and its US operations have to abide by US law and I'm sure they do. The two other corporations discussed in yesterday's piece, Blackwater USA and Total Intelligence are US-based firms, legally operating in this country. Their operations have to conform to US law and there's absolutely no reason to believe they don't and that that intent of the management is anything other than to abide by US laws, though the interpretation of certain laws might at times get a little loose, that happens with most companies and it is just business, nothing sinister, (unless of course you're from the camp that believes all business is sinister.)

Now there was the issue of Blackwater boys running around the French Quarter with their M4s immediately after Katrina, but BW did quickly cobble together Department of Homeland Security and local state contracts.  (And several new ones, including one from California.)  And some of the guys I know who were in New Orleans did at least have licenses to bear arms in neighboring Texas...

Back to the topic, the export of military services, equipment and technology is highly regulated. The question is: do intelligence services, which have generally been considered civilian in this country, fall under the military services category and require State Department licensing?  My read is they don't and it's clear that this Administration is not going to try to broadly interpret the law and include  them.  I doubt this is even intentional--it's such a new issue, it's probably not on anyone's radar at the moment.  And it's a very gray area. 

Now if I were Total Intel, I'd be positioning myself for the future for a possibly of a change in administrations and a more zealous State that might try to expand the definition to include their services. I'd create an offshore shell to route contracts through as needed and I'd want to make damn sure it couldn't be punctured by the US government-- as in disallowed as a foreign entity and suddenly finding its behavior subject to scrutiny under a host of US regs (and tax laws).   The TI guys are very smart and I'm sure they're already taking these steps.

I'm not so sure Greystone, Ltd. has done this judiciously enough, although BW does seem to have excellent legal teams, but they really need an ex-Agency guy skilled at the creation of proprietary and devised facilities. Things like the use of the Moyock NC PO Box as Greystone's address on promo materials are potential red flags, depending upon how they've set things up.  Personally, I'd be nervous and would consider setting up a new Greystone "affiliate" that never sees these shores.   What happens offshore, should stay offshore.  Or is that Vegas?

How do you best make sure you've set up an offshore companies correctly and you have done nothing to compromise it?   Setting these things up  used to be a specialty in the Agency and tough to find on the open market.  (Granted, there are plenty of sleazy lawyers willing to help set up shells for tax evaders, but we're talking a very different level here.)

The solution is go pro.  Rent a spy.  These services are now available in the private sector.  (Note to my Abraxas Corp friends: consulting opportunity--standard referral fee due.)  And while we're talking referral fees, it seems ExxonMobil was very interested in yesterday's post about the "1001 Uses of a Mini CIA and Offshore SEAL Unit."  So Total Intel and Greystone, any business arising from that, just send my usual fees to my Barbados affiliate, The Spy Who Referred Me, complete with its own Barbados bricks, mortar & steel drum address (Mail Boxes are Us, Man, pictured here)  Or you can wire the fee to my Barbados checking account or work out an other arrangement with my  local manager who wouldn't think of using my American address on promotional materials...

1001 Uses for a mini-CIA and offshore Rent-A-SEALs

So what can really be done with a mini-CIA and an offshore SEAL unit?  I've been asking myself that question since the late January announcement of the creation of the private intel firm, Total Intel, particularly because it is marketing itself to Fortune 500 companies.  The questions becomes more interesting in light of the private spy shop's two strategic affiliates, Blackwater USA and Blackwater's Barbados-registered affiliate, Greystone, Ltd. Total Intel represents some of the best and brightest the CIA has produced and Blackwater commands a formidable group of tier-one Special Forces operators.  Simply put, these together these companies rival and possibly surpass the capabilities of intelligence services of most nations--and I'm not talking Third World.  Such capacity for covert operations has never before been in private hands--and for rent. 

Uses for a company such as Greystone are obvious and barely obscured by the company:  protective security details, training in raids, sabotage missions, "large scale event support" (read: traditional mercenary work).    The offerings of a private intel company are not so obvious, but services would most likely include risk analysis, competitor analysis, hostile takeover assistance, labor relations assistance including the incitement of labor unrest for competitors, product/brand sabotage, assistance in dealing with hostile non-governmental organizations (i.e. environmental organizations), support in dealing with unfriendly governments, etc.  Now when we combine the two services, the possibilities become, well, pretty much like those of the CIA.  Well within the reach are services such as:

• de-stabilization of governments hostile to a firm's business;
• identification, training and support of an armed insurgency, including separatist movements claiming sovereignty over a mineral-rich region; and
• planning and execution of sabotage of a competitor's foreign facilities.

In no way am I saying that Total Intel, Greystone and Blackwater are offering these services, but rather I am exploring the potential synergy of the CIA's former top case officers and Special Activities Division operators combined with the best in Special Forces.  They've done this type of work for their former US government employers, so why not for their corporate ones?

Let's take a hypothetical scenario and examine the potential a little closer.  When I think about good uses for such brains and brawn, oil and Venezuela come to mind.  In late 2005 the Venezuelan government gave Exxon an ultimatum that it had to form a joint venture with the national oil company (it eventually did.)  The state petroleum company has been very uncooperative, to put it mildly, and has caused the shut down of Exxon fields.  Let's just say it's not a comfortable place for Exxon to do business. 

If I were sitting in the Houston boardroom of a company that has seen governments come and go, I know what I'd be thinking:  get rid of Chavez or at least make his life hell.   And with over $100 million profits daily, I'd have the cash to buy the expertise that I needed.  And that expertise that is now on the open market.

I'd hire spies to identify potential insurgency groups to support and to create the needed cutouts to conceal my involvement.  (Which is what Chiquita should have done instead of using its own guys to pay the terrorists and ship them the arms.  Amateurs.  Supporting insurgencies are best left to the pros.) 

Once my spies have identified insurgent group(s) and potential leaders, I'd work with a private military organization that could:

assist in training indigenous resources in developing a capability to conduct defensive and offensive small group operations, including firearm training requirements. Off-the-shelf standard field operations packages consist of 30 days of training to support raid, reconnaissance, and small unit tactics.

I wouldn't stop at an insurgency.  I'd also use the spies for various psyops against the leadership and hire an espionage firm to identify potential targets within the military leadership and Chavez inner circles that could be compromised and used to seed suspicions and distrust among the inner circle.  If my spies got lucky, they might even make Chavez believe a coup was imminent and his paranoia could spark a leadership purge.  Then there's always economic sabotage, inciting union unrest..the possibilities go on and on.

Would a Fortune 500 company do something like this? 

We saw a few weeks ago that Chiquita was willing to give millions to terrorist organizations to further their business interests.  The Organization of American States report has alleged that Banadex, the former Chiquita subsidiary that funded the terrorists, also trafficked in arms on terrorists' behalf. 

Funding the de-stabilization of a declared enemy of the US is far less a sin than funding right-wing terrorists.  In fact, some might see it as a service to the country.  It wouldn't be out of line with US interests.

In the old days, a corporation had to spend millions lobbying select Senators and Congressman and the White House to move the US intelligence apparatus to support such activities in line with its corporate interests.  Now they can cut out the middle man. 

 

------------------------

Note:  My Total Intel readers can correct me if I'm wrong, but in studying US State Department regulations, services from a private espionage firm, such as TI, do not seem to be covered under International Traffic in Arms Regulations (ITAR), the US laws restricting the export of military equipment, technology and services.  Private spy shops are such a relatively new phenomenon, the export of intelligence services seems to have fallen between the bureaucratic cracks.  If this is correct, the such spy corporations have no need to create offshore entities to freely sell their services globally.

Response from Greystone, Ltd.

The Director of Greystone, Ltd., Chris Burgess, contacted me regarding the previous post,  "101 Uses of an Offshore Special Forces Unit."  He wrote to clarify and made no requests for changes.  In the interest of fairness, I'm publishing his comments and an apology and I did make some changes to the post in question.  He writes: 

[Y]ou assert that Greystone will market services "U.S. interests be damned."  Beyond the fact that our compliance with U.S. export regulations precludes this possibility, Greystone is firmly committed to supporting U.S. interests and only provides support to friendly foreign-nation clients.

I"ll fall on my Ka-Bar on this one.  I was wrong to have written "U.S. interests be damned" and I have deleted it from the post.  This was too flippant.  The parent company, Blackwater, has been very careful to act only within US interests.  Those who I know who have worked for it are very patriotic and that aside, the firm has over a half-billion dollars of USG contracts riding on not crossing this line.  That's Blackwater.  Now with Greystone, I have every reason to believe that what their Director writes is true.  The finer point, which I was thinking when I wrote the quip, was about how easy it is to stumble over US interests in grey areas where it is not so clearly defined and it is evolving.  This is a much more complex issue that deserves more serious treatment.  My apologies to Greystone.

Mr. Burgess also writes:

Your March 6, 2007 blog entry asserts that Greystone is not subject to U.S. export and sanctions restrictions.  To the contrary, Greystone is subject to DDTC jurisdiction and regulation, pursuant to Part 120 of the International Traffic in Arms Regulations (ITAR), by virtue of the fact that it employs U.S. citizens.  In point of fact, the relevant management entity is a U.S.-registered exporter, and required licensing is sought prior to performance of any regulated contract.

This is very interesting.  My question is what contracts are regulated. I was aware of Greystone employing Third Country Nationals, but not US citizens.  It is not clear to me if the employ of citizens reclassifies an organization under CFR Part 120.15 and 120.16.  I welcome emails or comments from readers with specialized expertise.  I am researching:

(1.) under what conditions are contracts of a foreign person, as defined by the DDTC, subject to DDTC?
(2.) how does the employment of US citizens affect the classification of a corporation that is otherwise classified as a foreign person under the DDTC?

What I have been able to determine conclusively, is that  Blackwater needs to raise its minimum job requirements for its open position for an export compliance officer.  This stuff is dense.  A high school diploma and less than a year's experience is not adequate preparation to sift through the regs I'm slogging through right now and to perform the duties listed in the current job posting. 

High school and less than a year's experience would be the educational and experience level I would look for in someone I had to have around to point to at RFP time, but wanted to be able to steamroll as needed.  It's the background level in a paraprofessional that you want when you want to be able to control those PITA positions that can drive you nuts like QA and safety.  However, to be done correctly, IMHO, such a position requires a professional with a law degree.

101 Uses of an Offshore Special Forces Unit

The world's largest private army, Blackwater USA, has quietly created an affiliate that the press has largely ignored and I've been content to forget about it as well--until last week's post on the use of offshore corporations by private spy companies started me thinking about how the industry could use offshore shell corporations.  So when I was reading Jeremy Scahill's interesting new book, BLACKWATER, a fact that Scahill uncovered jumped out at me:  Greystone is an offshore corporation incorporated in Barbados.

As an offshore corporation, Greystone offers Blackwater multiple advantages and the largest could be a workaround for US restrictions upon the export of military services. [To be fair, please see comments by the Greystone, Ltd.'s Director in a separate post.]  Through its Greystone shell, Blackwater could offer its Special Forces and Special Operations services to any individual, country or corporation that can afford it. Or as they put it:

Greystone is an international security services company that offers your country or organization a complete solution to your most pressing security needs.

According to the shell company's initial website:

Greystone is prepared to deploy assets and materials forward to assist in training indigenous resources in developing a capability to conduct defensive and offensive small group operations, including firearm training requirements. Off-the-shelf standard field operations packages consist of 30 days of training to support raid, reconnaissance, and small unit tactics.

Translation: not only can we train your country's Special Forces, we can train groups for raids and sabotage missions, should your company or country decide to create an insurgency to destabilize an unfriendly government.

In addition to its training services, its mobile security teams are prepared to provide:

Physical static and mobile security operations including static compound security, large-scale event support, and sensitive facilities protection,

<snip>
Maritime training, security, and ride-along services in high-threat environments

Translation:  we'll go to war for you or with you.

Blackwater has reportedly developed a gunship variant of a CASA-212 for use by Greystone.  Its new 767s are most likely intended to fly for Greystone missions. And the purpose of its new training facility in the Philippines is becoming much clearer:  it's not a jungle training facility for US troops, but an offshore training facility for troops that could not get visas to enter the US.  It seems that Blackwater is using Greystone to hire Third Country Nationals who are much cheaper than US former military personnel:

We believe in and specialize in creating layered security packages that use personnel from numerous nationalities...The synergistic advantages of combining locals, third country nationals and Expats far outweigh any additional required effort.

Translation:  Cheap, Third World grunts, working under American officers.  American BW trigger-pullers, your jobs are being outsourced.

Greystone was launched with strong international interest and limited corporate interest.  Representatives from over two dozen countries attended its inauguration, along with executives from ExxonMobil, Morgan Stanley and UBS Investment Bank.

As a major US defense contractor, Blackwater more or less abides by US export licensing requirements.  At the moment Blackwater is searching for a new export compliance officer, although their standards of a high school degree with less than a year's experience for the 91k-142,000 job dealing with some of the government's most complex export requirements does raise questions about just how seriously they take the position.  (It took about three sentences of the State Department guidelines for my eyes to cross and keep in mind I spent years in grad school reading commie propaganda in the original Russian and German.)  Nonetheless, Blackwater USA plays by US law or at least its American entities do.

If it is indeed recognized as a foreign person under ITAR, Part 120, Greystone doesn't have to worry about State Department export licenses, sanctions or taxes for that matter.  It's free to openly market its services and it can respond quickly, without the long delays for the State Department to determine if the deployment was within US interests.

Greystone, Ltd. is officially an affiliate of Blackwater, not a subsidiary.  Its real ownership is obscured, but obviously Erik Prince and the Prince Group are behind it and its true relationship with Blackwater was not as hidden in its earliest days.  Its early promotional literature gave its address as a PO Box in Moyock, NC, home of Blackwater USA and on its first website, the "employment" button was even hyperlinked to Blackwater's website.  The"affiliate status" most likely means that an arrangement exists whereby Greystone pays Blackwater a percentage of gross profits as some form of "management fee" for various consulting services and most likely pays Blackwater other fees for leasing equipment, aircraft, facilities, etc.  This would allow them to bring the revenues back into the US, revenues from activities that would be prohibited for an US registered firm.

Blackwater has long proclaimed itself a security company, denying that it was a mercenary firm, with its founder Erik Prince wrapping himself in the American flag.  One things is clear:  Like its predecessors--Sandline, Executive Outcomes and the White Company, Greystone is an army without a flag.   

-----------

Coming soon, Part II:  1001 Uses of a Mini-CIA Combined with an Offshore Special Forces Unit

And FYI, you can also find out more about Jeremy Scahill's book, BLACKWATER, at www.Blackwaterbook.com.

What Can You Do With a Rent-A-Spy?

Posts across the blogosphere have worried about the creation of Total Intel, the new for-hire, mini-CIA.  Concerns have ranged from questioning if the company could be used to spy domestically on American citizens, to fears that private intelligence corporations have replaced Nazis as the new bad guys.  On the extreme far-right, one believer, who doesn't trust Total Intel or Blackwater, writes that such organizations do have potential because they "could be the salvation of a Christian country when anti-Christ has already taken over as the government –like now." Uh, gotcha.

I hate to disappoint, but the founders of Total Intel are no bad guys.  They're heroes, particularly Cofer Black.  Had the Bush Administration listened to him, 9/11 would most likely have been averted. They've all served their country with distinction.

In theory and in the future when it is no longer managed by US government veterans who are very loyal to this country, such a corporation could be a threat, but not when it's in these hands.  However, the creation of Total Intel does raise the obvious question:  what would a Fortune 500 company do if it could hire its own mini-CIA, complete with its own DO?  Or to put it in layman's terms, how would a big company use, not  just a bunch of geeky analysts, but real hardcore spies?  And how could such an organization function without incurring substantial liability for that Fortune 500 company that hired them?

Last year's Hewlett-Packard case comes to mind, in which the HP chairwoman allegedly hired private investigators who tricked the phone company into handing over confidential records and mined databases to help her determine the source of an ongoing leak to the press that could only be coming from another board member.  The violation of privacy of the HP board members was brought to the attention of the California Attorney General who filed both criminal charges and a civil suit which HP settled $14.5 million.  Criminal charges are still pending.  Now the HP case seems more like run-of-the-mill, gumshoe work, with a little electronic dumpster diving thrown in.  It's hardly what I would expect from some of the nation's best spies who would probably prefer to "have flies walking across their eyeballs" in some remote land, rather than do such pedestrian, mind-numbing private-dick work.

A recent adventure of the private spy shop, Diligence, gives provides us a much better glimpse into the type of international intrigue and intel coups real spies can pull off for a client.  Businessweek has excellent investigation into a Diligence false-flag op that acquired a confidential audit from the large accounting firm, KPMG on behalf of its client, a major Washington lobbying firm, Barbour, Griffith & Rogers, who allegedly contracted for Diligence's services on behalf of its Russian clients, Alfa Group Consortium.  Alfa was vying with a Bermuda-based investment fund, IPOC, for control of a Russian Telcom company, MegaFon. 

Washington lobbyists, Russian takeovers and offshore investment companies, now this is starting to sound like the James Bond world we all know and love...

Businessweek obtained an internal Diligence memo:

"We are doing it in a way which gives plausible deniability, and therefore virtually no chance of discovery." Similar Diligence operations, the memo noted, had been successful before.

Plausible deniability.  Cool.  Spy Cool.

"Operation Yucca," as Diligence dubbed it, began with some phone chats with KPMG secretaries, with the Diligence guys claiming they were organizing a conference on the island.  They acquired enough intel to select the target for their false-flag op:

Enright soon got a call from Diligence's Nick Day, posing as Nick Hamilton, according to a person familiar with the situation. The two agreed to meet for lunch near the KPMG offices in Hamilton, Bermuda. At lunch, Day, who is dark-haired and has a warm smile, said the assignment he had in mind for Enright was top secret and involved Britain's national security.

Her Majesty's Service.  I'm sensing a Hollywood deal here...

And now, a display of the tradecraft without which no serious spy story would be complete:  the dead drop.

Day picked out a rock in a field along Enright's 20-minute daily commute from his home in Elbow Beach and placed a plastic container under the rock, creating what spies call a dead drop site.

Yeah, baby!

The Diligence team practiced clean tradecraft.  It employed basic counter-intelligence tactics to ensure that their agent was not a double-agent.  They surveilled him and also made sure rendezvous spots were not being watched.  And in the end, they presented the poor bloke a Rolex as a memento of appreciation for Her Majesty's Service.

It all would've worked beautifully, just like the other Diligent operations referenced in the Diligent memo, except, it seems, Diligent had its own counter-intelligence problem.  Someone dropped off internal Diligent documents and a copy of the audit report to KPMG's New Jersey offices. 

Predictably, KPMG sued Diligence and settled out of court, reportedly for $1.7 million.  A suit against Diligence and Barbour Griffith & Rogers by the offshore corporation IPOC is still pending.

Now, back to one of my original questions, as to how a Fortune 500 company could avoid substantial liability when hiring a private espionage corporation for black work.  Both the HP and Diligent cases illustrate that the civil liability can be substantial.  However, I'm thinking the solution might be offering potential clients a full package, complete with an offshore cutout to contract for espionage services, so the real identity of the client is protected.  So forget the strategic partnership with the BW knuckle-draggers and give Hollis a call.  The skilled-hands and 5500 years of experience of Abraxas might be able to help out...and then there are always foreign lobbying firms and others to use as the middleman.