Infiltration of KPMG Draws Waxman Probe

Congressman Henry Waxman wants details on an operation conducted by corporate-intel firm Diligence to get info from the accounting giant

In the wake of a BusinessWeek article on corporate espionage, Rep. Henry Waxman (D-Calif.), who chairs the chief investigative committee of the House of Representatives, is asking for more information. On Mar. 12 Waxman sent a letter to Gordon Dobie, an attorney at the law firm Winston & Strawn, asking for documents related to Diligence, a Washington corporate-intelligence firm. On Feb. 26, BusinessWeek revealed the details of an espionage operation—code-named Project Yucca—run by Diligence in 2005 (see, 2/26/07, "Spies, Lies and KPMG").

In that case, Diligence's CEO, Nick Day, impersonated an MI5 intelligence agent in order to convince an accountant at KPMG Financial Advisory Services in Bermuda to leak internal KPMG information. Diligence was trying to get the inside track on KPMG's Bermuda government-prompted investigation of IPOC International Growth Fund Ltd. Diligence was working for the Washington lobbying firm Barbour Griffith && Rogers, which in turn was working for a subsidiary of IPOC's business rival, the Russian Alfa Group Consortium.

Diligence Defends Actions

In the spring of 2005, Day approached KPMG accountant Guy Enright in Hamilton, Bermuda, and led Enright to believe that he was an intelligence agent for the British government. Soon, Enright was leaking internal KPMG documents to Diligence—going so far as to hide documents under a rock at a predetermined "dead drop" site in Bermuda. For its part, Diligence ran the operation like a full-blown government intelligence mission, complete with psychological profiles, covert surveillance, and fake identities. In order to be sure that Diligence itself was not compromised, the firm used sophisticated counterintelligence techniques, including following a process known as "dry cleaning" designed to make sure Diligence employees themselves weren't being followed by walking through preset "choke points" to check for tails.

Now Waxman, whose committee has broad oversight jurisdiction, is demanding "any information and documents" relating to this situation that IPOC's law firm Winston & Strawn has in its possession. Waxman did not set a deadline for the information or say whether he'll hold hearings on the matter. Committee spokeswoman Karen Lightfoot described the Waxman missive as "a preliminary letter designed to gather information."

Diligence did not receive a request for information from Waxman, but the firm is likely to reach out to the committee on its own. Diligence and others have contended that IPOC is an illegal front for Russian money laundering. Says firm CEO Day, "this is a frivolous case, and we would welcome the opportunity to talk to Chairman Waxman and explain our investigation into Russian money-laundering organizations and the Russian mafia."

Edward MacMahon, a lawyer representing Barbour Griffith & Rogers, says the firm "has done nothing wrong," adding, "IPOC is a money-laundering organization run for the benefit of a corrupt Russian official. If that is what Waxman is looking for, I'm sure that the lawyers for Winston & Strawn can give him all of the information about who runs IPOC, the source of their funds, and their businesses." Contacted on the afternoon of Mar. 14, Dobie's office said he was traveling and could not be reached.

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