45. Outsourcing Part II: Privately Operated Intelligence

The privatization of government functions, like the air-waves, the post office, water, and health care has disturbed me for decades and was at the core of my book, Dollars or Democracy (2004). However, I never even considered the privatization of portions of the national intelligence services. Now it turns out that spying on anyone and everyone for profit is something that unaccountable, privately owned corporations have been doing for years.

At the forefront of these high technology outsourcers who were getting large contracts from the National Security Agency (NSA) was a secretive intelligence group called Booz Allen Hamilton. (BAH). This elusive outfit, which was concerned with the improvement of surveillance equipment, also served as a guide and training ground for the Intelligence Community’s revolving door interchange of high ranking government positions. My curiosity was aroused by how BAH managed to achieve this special position in Washington’s restricted intelligence community.

Booz Allen Hamilton (BAH) was founded in Chicago one hundred years ago by three businessmen who gave the firm its name. In 1940, after almost three decades of consulting for such major companies as Goodyear Tire and Montgomery Ward, its management contractors were called in to help the vast restructuring of the US Navy after the Japanese attack on Pearl Harbor. As patriotic contractors, BAH prided themselves for soon having a representative in each of the Navy’s many wartime departments. This infiltration of contractors was to set the pace for its future defense work in intelligence and national security.

As the cold war intensified after WWII, BAH became increasingly involved in intelligence matters. It hired a dazzling board of former CIA and security officials forging strong links with the intelligence community and its military defense clients. The company gradually involved itself in virtually every aspect of intelligence gathering.

By the summer of 2001 it had become an important external consultant of the National Security Agency (NSA) with its advisory role in the integration of internal communications systems called Project Groundbreaker. This position enabled BAH to capture a flood of intelligence contracts in the aftermath of the 9/11 attacks. Christopher Ling, a BAH vice-president said later that “An entire analytic production system geared to detect large-scale cold war adversarial capabilities was suddenly required to transform.” The budgets for outsourcing grew dramatically in the Bush administration which felt it essential to reshape the NSA’s covert communications capabilities without attracting the attention of the media or the public.

BAH’s strategic role also changed. A CIA operative, Joan Dempsey, said : “I like to call Booz Allen the shadow intelligence community” because it has “more former secretaries of this and directors of that” than any government department. On its website BAH described its intelligence work as integral to its broadening expertise in information technology: “Whether dealing with homeland security, peacekeeping operations, or the battlefield, success depends on its ability to collect, safeguard, store, distribute, fuse, and share information.” BAH did not mention its equally important ability to cover up, hide, or even on occasion, to distort.

The more security was outsourced the more difficult accountability became for those overseeing intelligence in the US Congress. Increasingly BAH had become crucial in advising top officials on how to integrate the 16 agencies within the American Intelligence Community (IC). Questions began to arise from members of Congress about who was really in charge of any given operation: The head of the government Agency or Department, the managers of operations, the contractors or the highly trained and skilled workers/operatives? Rep. Henry Waxman (D-CA) chairman of the House committee on Government Oversight, charged in 2007 that BAH had a significant conflict of interest over its contract to oversee an $8 billion initiative to Secure America’s borders with Mexico and Canada by means of a “virtual fence” of cameras, radar, satellite observation and sensors that would transmit imagery and data to border patrol agents. At the hearing, Rep. Waxman pointed out that although 98 people had been hired to oversee the contract, “the problem is that 65 of these people don’t work for the government, they work for the contractor (BAH). You’re relying on them to do the function that the government ordinarily would do.” The Department of Homeland Security official responded by asserting that BAH had been hired for advice not oversight.

Early in 2007 BAH also began to work on the Cryptographic Modernization Program, one of the most important intelligence initiatives of the final years of the Bush administration. By the end of 2007 BAH, owned and run by a group of 300 vice-presidents, had become a key adviser and prime contractor to all of the major U.S. intelligence agencies. Most of these BAH executives had deep experience in the intelligence community and had even begun to serve as a training cadre for senior positions when they got back to government.

These board members all gathered at company headquarters in McLean Virginia in the late autumn of 2007 for an extraordinary two day meeting at which the vice presidents signed off on a “new strategic direction” which involved separating BAH’s commercial and government units into two separate private companies. It therefore came as something of a surprise, after its efforts to shed its image as an equity firm specialized in defense, to learn that the Carlyle Group, a flourishing private investment firm, had bought a majority stake in the intelligence branch of the now divided Booz Allen Hamilton firm for $2.5 billion. The Carlyle unit retained the name of Booz Allen Hamilton and each of its Vice-Presidents was reportedly rewarded with the equivalent of more than a million dollars in cash, shares, or dividends.

Carlyle, which had been launched barely two decades earlier by four enterprising fund raisers, had already gained status as an asset management firm specialized in acquiring businesses related to the defense industry. Using its powerful political as well as economic connections, Carlyle completed the acquisition and resale of various military electronic systems in the early 1990s. Its most notable defense industry investment came in 1997 with the $850 million acquisition of United Defense Industries which it then sold in stages until April 2004 when it started to downplay its focus on defense industry investment which, in effect, had been turning secretive government work into private profit..

BAH today is part of the internationally diversified Carlyle group where it continues to make large profits of close to $3 billion in government intelligence contracts it lands every year. The strategically created toxic brew of secrecy surrounding the intertwined activities of BAH, Carlyle and the National Security Agency were exposed by the intelligence revelations of Snowden a year ago.1

As evidence of BAH’s close relationship with US administrations, Obama’s chief intelligence official James R. Clapper Jr. is a former Booz Allen executive. The executive who held that position in the Bush administration, John M McConnell, now works again as a director of Carlyle’s BAH.2

When buyout firms like Carlyle, which now has close to $200 billion in assets and offices in more than 30 countries, combine with a firm like BAH, the enforcement of tax reporting requirements inevitably becomes more opaque. The opportunities of executives to create offshore tax avoidance schemes also are easier. Their loyalty to their shareholders exceeds what they might owe to the nation. When private companies like Carlyle’s BAH become a substitute for genuine checks and balances on the government’s surveillance activities, a nation’s security is compromised. When profit becomes the driving force behind its intelligence communications, a nation’s security is further compromised. There are those who may contend that capitalism itself is all about profits and that the basic security of the economy – and consequently of the nation – depends on profits. This raises basic questions about what has happened to our values under capitalism and, indeed, challenges our priorities regarding our genuine desires for security.3


1Andrews, Burrough and Ellison “The Snowden Saga” Vanity Fair, May 2014, p. 111

2Many of the facts in this article were cross-checked on the internet. Hours after I entered the name of James R. Clapper Jr. my computer went into an unexplained spin causing material to be displaced and drafts of this blog to be deleted from my Microsoft file. A chance accident or surveillance?

3Yorick Blumenfeld, Dollars or Democracy,2004, pp. 165, 222


One thought on “45. Outsourcing Part II: Privately Operated Intelligence

  1. . . . reads (uncomfortably) like a good thriller . . . too close for comfort I’m sure. Yorick, it’s a pity not more people (in journalism) see what you do . . . although it would be a challenge for others to even come close to your levels of insight. keep writing – please!

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