Risky Business

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Risky Business
Published By: Impact21
Jeff Stein
March 1, 1997



In Asia’s booming but chaotic economies, more companies are finding it makes sense to have a “quiet American” on the ground. Deep into the guerrilla-held jungles of the Philippines last spring went a lone American agent on a sensitive intelligence mission. Harry B. “Skip” Brandon, a tough former senior FBI intelligence official, had hunted down Middle East terrorists and CIA turncoat Aldrich Ames, but his mission to Mindanao, the armed redoubt of Islamic separatists and Marxist guerrilla groups, was the most dangerous he had ever undertaken.

His client: a North American mining concern. His mission: make a deal with rebel guerrillas to do business on their turf. “You start to realize you’re awfully far from Kansas,” Brandon recalled. “And there’s no cavalry on the way.”

Brandon is just one of the hundreds of ex-CIA, FBI, and military intelligence agents who are cashing in on their experience as government “spooks” for new careers in the burgeoning field of risk analysis, or gathering intelligence and making deals for multinational corporations. “I like to call it risk avoidance,” says Brandon, handing me his new business card in a noisy micro-brewery a few blocks from the White House in Washington, D.C. “It just makes sense to find out what people are thinking before you move into their neighborhood.”

From Singapore to Hanoi

Brandon’s female partner, Gene Smith, who has been a prosecutor and foreign service officer, slides into the booth. Most of her experience had been in Latin America, but she has quickly come up to speed on Asia, particularly Indonesia and Pakistan. Between them, they’ve racked up hundreds of thousands of frequent flier miles in the past year, carrying out corporate information missions from Islamabad to Singapore, Tokyo to Hanoi.

Their clients range from oil, mining, and timber companies to an American concern that wanted to know more about a prospective supplier of computer chips in Singapore. They’re usually pondering multimillion dollar investments, or searching for a supplier. In almost every case, they’ll need a local partner. Smith and Brandon, who once traveled to Asia frequently for the FBI, can carry out the kind of delicate, on-the-ground research neither the U .S. State or Commerce Departments are equipped, or even permitted, to handle for American companies.

Companies can choose to send their own representatives abroad, says Smith, but “they may not know the customs; they don’t have an ongoing relationship. There may be a certain bull-in-the-china-shop aspect, which happens quite often.” Brandon adds, “American companies aren’t really good at going abroad. There’s a lot of, ‘I met that good ol’ boy and he spoke good English.’ That’s what I call the school of, ‘If they speak good English, they’re all right.’”

Scouting “the natives” is not new. Private intelligence services were all the rage during the heyday of the British Empire. Similarly, today risk analysis companies like the upstart Smith Brandon International, or the global companies like Pinkerton and Control Risk, are staffed mostly by ex-government intelligence agents, with a sprinkling of former journalists and private eyes thrown in. “Their expertise varies as greatly as the people they employ,” says Bill Armor of the State Department’s Bureau of Diplomatic Security.

The rates for risk analysis expand like an accordion. Pinkerton ‘s fees, for instance, begin at $500, for a spot country report, rise to $70- $100 an hour for “due diligence” field investigation, and top out at $1,000 a day for a detailed security of a foreign installation. Fees for discreet missions of the sort undertaken by Smith Brandon International start at $1,000-$2,500 a day and can be considerably higher.

What is new is the sheer number of companies going abroad, according to David Lattin, who left Navy Intelligence to join the Washington office of London-based Control Risk. “Before it was just the bigger companies - Gulf, Exxon, Bechtel, and so on. Now there are all these new industries,” from computer makers to companies in search of esoteric minerals, he says, scouring the developing world for investments or manufacturing partners. “It’s a huge learning curve for them.”

Keeping firms out of headlines

“In a nutshell,” says Brandon, “a business that doesn’t know who’s out there, and who they’re dealing with, is inviting a loss.” One of his clients, for example, was about to go into business with a supplier in Singapore. “They were concerned about product defects and law suits, because they were subcontracting for even larger companies,” Brandon recalls. “The company, which had a nice brochure, with a lot of nice things said about the operation, had not been vetted. As it happened I was in Singapore and went right to it, and found it was in a two bedroom apartment, with ‘workers’ sitting around wrapping things for shipment.” His client moved on.

Intelligence hands point to Indonesia as an example of much worse things that can go wrong. Freeport-McMoran, a Louisiana-based mining company, ignored local tensions with a vast excavation in Irian Jaya, and protests ensued. When the Indonesian Army started busting heads, the company unwittingly became a rallying point for the Free Papua Movement - and the subject of a long investigative series in the New Orleans Times-Picayune. Stockholders were not pleased.

Many a CEO, meanwhile, must have gone to bed with jitters following the nightmare of Kathie Lee Gifford. The talk show host’s famous smile was wiped off her face with front page headlines that she was employing children to make her clothing in Central America. She was quickly engulfed in a cleverly orchestrated protest campaign and congressional hearings. Similar reactions have dogged companies accused of using prison labor in China or unfairly exploiting labor elsewhere.

How to raise standards

“They’re concerned about it,” Smith says of her clients. With one client considering an investment abroad, “We had to tell the execs maybe it was the wrong country for them. They could not correct it, they could not impose U .S. restrictions on the locals, that this is the way it was going to be run-they were going to use child labor.”

There are other ways to deal with it, adds her partner, Brandon. “We don’t advise our clients to go in and tell the president of the country that we won’t come here unless you stop using children. But what you can do, though, is go in and say we’re going to establish this plant, we’re only going to hire a certain kind of person and we’ll provide certain benefits, etc. So you’re setting certain norms and standards that are acceptable to you.” If a client is vulnerable to charges of harming the environment, he simply advises, “change it.”

“It’s important that companies have a ‘moral license’ from local inhabitants to operate,” stresses Sandy Markwick, a senior analyst with Control Risk. Winning over “the locals,” says Lattin, inoculated one corporate client from a “revolutionary war tax” demanded by Marxist rebels in “a southeast Asian country.” Paying off the rebels places a company precariously between the government and the insurgents, says Mike Ackerman, an ex-CIA operative based in Miami. “It’s very dicey,” he sighs. “You ‘re almost damned if you do and damned if you don’t.”

The oil-soaked regions of the former Soviet Union, meanwhile, have been a nightmare for foreign companies which have to navigate between the demands of the Russian mafia and Muslim separatists. They want a cut - or else, complains Lattin, whose company has been hired to assess and deal with such security labyrinths. “Often the only solution is to develop a bigger and better fly swatter,” says Lattin, such as “hiring your favorite former KGB general’s security company to handle it.”

In the Philippines, however, it’s unanimously agreed that some companies long ago gave into the bribe demands of the rebels in Mindanao. Interestingly, such payments aren’t illegal under the U.S. Foreign Corrupt Practices Act, which forbids bribes to foreign government officials, but not rebels or such “parastatal officials” as regional warlords. “It’s a complicated area of the law,” says Nicole Healy, a Justice Department attorney. “If you ‘re paying protection money (to a nongovernment person) so they don’t kill you, it’s not covered by statute.” Nor is paying “taxes” to guerrillas in, say, the Philippines.

On the other hand, “if you pay a government official for a mining concession, it’s covered” and you can be prosecuted in the United States. The pivotal distinction is whether you are trying to drum up business or are “a victim” of a threat, says Healy.

Official bribes, “other expenses”

As a practical matter, of course, bribes are the price of business in most of Asia - all the more reason for a company to have its own agent on the ground, meeting in tea rooms and private homes, discreetly investigating the companies and personnel a U .S. investor is considering putting money into, the risk analysts argue.

Bribes are common in Asia. Vietnam, for example, is notorious for its official corruption. “Because you’re going to be working with state-controlled companies, it’s a very delicate thing,” warns Smith. Bribes are often disguised as “other expenses that they may accrue,” adds her partner, who warns: “Be careful. Your enemies will rat on you in a minute.”

“There’s going to be winking going on,” says Smith, “but you have to have the facts at your disposal about who you’re dealing with.” And once you’ve carefully selected your partner in a co-venture, the only option available may be, “Don’t ask, don’t tell.”

Vietnam, like the opening of China 20 years ago, requires patience from foreign investors and entrepreneurs, the risk analysts caution. “A well-prepared investor who...is not looking for a quick hit and is prepared to make a real commitment can do well,” says Brandon, who visited Hanoi last year, “and that is what we would advise our clients. Vietnam is not a place where a person’s going to go in and make some quick money and come back out.” The situation may be just the reverse in Hong Kong, when Beijing drops the curtain on a century and a half of British rule this summer. “A good risk?” Brandon asks. “Personally, my feeling is that it’s not a bad business risk. The question mark comes if you’re looking at a long-term investment. If you’ve got to commit to seven to ten years out, I’m not sure anyone knows the answer to that.” He laughs. “I’m not even sure if the government of mainland China really knows.”

The picture elsewhere in Asia looks murky to foreign investors, too. Myanmar’s (Burma) “political problems seem to overwhelm any potential investment” for now, believes Brandon, although “once there’s a government acceptable to the world, that’s got to be a good place just because of the natural resources, particularly in the north.” Indonesia is unpredictable because “the question is, how many years does Suharto have left,” observes Smith. South Korea is roiled by labor unrest and “stress,” she notes, caused by the unresolved divorce from its northern sister. On the other hand, Thailand is “booming,” and Singapore is so easy to do business in that some American executives joke about it as “Asia for beginners.”

Unreliable record-keeping

Nevertheless, executives should keep in mind that Asian companies have far different standards for record-keeping and accounting. Reading the Wall Street Journal, or calling the Commerce Department for help, just won’t hack it. A “due diligence” investigation of a local partner, the sine qua non of doing business in most countries, will require leg work.

And many U .S. companies now know that, says Lattin. “They’re learning that a proper risk analysis is well worth the effort. Many have gotten burnt” by not doing careful groundwork first. In the past five years he’s had to rush off to negotiate some 50 emergencies - executive kidnappings, threats to life, extortion, war tax demands by active insurgencies, and extortions by threatening to tamper with products.

The Fortune 500, he states, has been slow to get the message. “Interestingly enough,” he adds, “it’s the medium to small companies that tend to say we don’t know what we’re doing and we need some help.”

That’s where experienced sleuths like Brandon come in. He had been a Navy swift boat commander in Vietnam before joining the FBI, but he’d never been on the kind of nerve-jangling mission that took him into the jungles of Mindanao last spring. It began in Davao City. Brandon spent days seeding the bars, hotels and offices of human rights lawyers with messages that he’d like to meet with rebel commanders. Finally, late one night, the knock came on his hotel room door.

Brandon hopped into a small Toyota truck with his “escort,” who drove him out of the city for a full day’s drive deep into the country-side, passing through obvious rebel check points along the way. Finally, well past midnight the next night, they arrived in a jungle clearing and, as instructed, turned off the engine. Hours passed as they sat in the darkness. At last, when dawn came, the gray shapes of guerrilla soldiers appeared on the periphery, two score in all, automatic rifles and bazookas in their hands.

“We heard the hum of motorcycles and the regional military commander arrived,” Brandon says. He was a former university professor, and the two men spent the day talking politics, philosophy - and finally, business. On behalf of his mining client, Brandon offered him “schools, hospitals, that their dependents be able to use the facilities, stuff like that. They asked about their soldiers [using the facilities] and I said no, because the government wouldn’t permit it.”

He asked if we’d have armed troops,” as some multinational corporations do, Brandon says. “We said we’d have armed guards to protect us, to protect the property, but we’ll not have a private army.” In the end, the commandant said he’d have to consult with his “council.”

Things had gone well, but Brandon was aware he was still completely under the control of the guerrillas. Just as he announced he had to leave, he got a scare. “I said I had a plane to catch to Hanoi - they liked that - and the commander took me firmly by the arm and said, ‘I’d really like you to spend more time with us.’ He must have seen the startled look in my eyes, because he laughed and said, ‘No-no-no, I don’t mean that.’”

Negotiating with guerrillas

The communist and former communist-hunter had bonded, Brandon thought, the essence of a successful negotiation. “He said, ‘You’ve come out to talk to us. You’ve listened to us. And I’ve enjoyed it. Next time, you come out and spend two or three days with us, and you’ll get to know us.’”

“Finally I asked him, Commander, why did you come to talk with me?’ And he said, ‘Because we’ve never had a white man come to talk with us. I was just curious. I wanted to meet the white man who would come talk to us.”

They shook hands. Brandon’s client began operations there last fall.

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