The Business of Terror

Three years on from 9/11, the terrorist threat persists, a War on Terror is being waged and the troubles in Iraq show few signs of abating. But one person's risk is another's opportunity, and for the private protection and security industry, more anxiety means more business. Harry Wynne-Williams reports. Driving through down-town Basra in high summer is an experience not quickly forgotten. Stagnant pools of sewage simmer in temperatures pushing 50degC. The entire city seems to have been picked to the bone. Even the rubbish, strewn everywhere, has been combed through by desperate fingers. As you slowly expire in an armoured Land-Rover, sweating under your helmet and body armour, the only thing keeping you alert is the fear of a roadside bomb or an incoming rocket-propelled grenade. It hardly seems a land of opportunity, but this is Iraq, a supposed billion-dollar business opportunity for those prepared to take the risks.

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Last Updated: 31 Aug 2010

MT visited southern Iraq this summer to see just how far the private sector was prepared to go in taking an active part at the sharpest end of the War on Terror. With Iraq having just suffered its most violent month since the coalition invasion, the limits were revealing. Private investment was nowhere to be seen in an environment way past the risk threshold of commercial, rather than state, spending. Some of the construction and engineering firms subcontracted for more than $20 billion worth of American-funded reconstruction work had either withdrawn their people or corralled them in their camps. A security manager for a US main contractor admitted that they would never have undertaken their contract if they'd known how difficult security would become.

But, surrounded by unrest and violence, most of the contractors remain, bolstered by the private security firms that underpin the coalition effort, plugging the gaps that the military can't fill. The cost and logistics of persevering are sustained by the US taxpayer, who picks up a tab estimated at $3.9 billion a month.

Security is the big earner in Iraq and there is no shortage of companies - many British - willing to provide it. Indeed, since 9/11, they have undergone a growth and headhunting frenzy reminiscent of the dot.com boom.

Control Risks Group - the largest of the many UK private security outfits in Iraq - has more than 300 staff on the ground there, mostly ex-British services and special forces personnel.

If an engineer needs to visit a site, his journey might require eight security guards and three armoured vehicles, costing upwards of $5,000 a day. The delineations might also seem blurred: MT visited reconstruction projects carried out by the US Army Corps of Engineers, assisted by private-sector contractors wearing military uniforms and protected by armed civilian security guards. 'It's a steady job,' said one, an ex-Royal Green Jacket who wanted to remain nameless. 'We've got a contract to get things done and we get on with it.'

In May, the US army signed a $300 million deal with another British firm, Aegis Defence Systems, to provide security for the Coalition Provisional Authority, its successors and the senior staff of US contractors in Iraq.

Aegis will provide 75 eight-person personal security teams. It is led by Tim Spicer, whose colourful background - including involvement in civil wars in Sierra Leone and Papua New Guinea - has put him under the spotlight of public scrutiny before. Olive Security and Blue Hackle are among many new kids on the block.

The boom has been fuelled by Afghanistan as well as Iraq. As these companies have sought to recruit hundreds of bodyguards, there has been no shortage of ex-military volunteers seeking fees of between £250 and £350 a day.

But it is dangerous work and several guards have been killed. The better employers will provide life insurance of about £250,000.

Back in the relative safety of the UK, we meet the 'King of Risk', Jules Kroll. He heads Kroll Inc, the biggest risk consultancy in the world, with revenues this year exceeding $720 million (he estimates). Since being bought by insurance giant Marsh & McLennan Companies, the firm has grown even bigger.

Kroll, who founded it in 1972, has the reassuring manner of someone well used to dealing with crisis. He notes that the Twin Towers outrage wasn't the only event of the period that changed the outlook of business. 'Since 9/11, there has been a paradigm shift taking place in three areas: 1, terrorism; 2, the Enron phenomenon; and 3, the demise of Arthur Andersen. All those events happened in late 2001 and had a profound effect on governance, on the auditing industry and on attitudes towards terrorism. That shift has been felt in boardrooms all across the world.'

Kroll's firm was engaged to 'harden' the World Trade Center's security and review procedures after the 1993 Al-Qaeda bombing (he believes improved evacuation drills saved many lives in 2001), and his insolvency and investigation practices have run Enron since it went into administration. His new owners, MMC, lost some 300 people in the 9/11 attacks.

MT met Kroll along with seasoned security consultant Alastair Morrison, who runs Kroll's security services division. SAS veteran Morrison was awarded the Military Cross while commanding a squadron during the Dhofar war in Oman in 1971 and got an OBE in 1978 for his part in the Lufthansa aircraft hostage rescue operation in Mogadishu, Somalia. He describes how attitudes towards security have changed over the past three years.

'In the past, the board was conscious of its fiscal responsibilities.

Now it's equally clear on its duty to shareholders in protecting the main assets of the business. Since 9/11, there has been a demand for a much more professional response; decisions are made at the most senior level.'

The wake-up call for senior management led at first to a knee-jerk focus on the physical safety of their assets and people, followed by the realisation that terrorism needed to be considered widely in business planning. Richard Fenning, chief operating officer at Control Risks Group, has 27 years' experience in advising clients on security. He explains how this applies when planning a foreign venture. 'The spectrum widens. It's not about building a bigger fence but about planning, figuring out your tolerance for risk, how to structure your investment vehicle, brand it, market it, how you interact with the local community, government, customers - a range of issues determine what your security profile is going to be.'

Terrorism needs to be kept in context, Fenning argues. 'Shell has a long tradition of operating in some of the most potentially dangerous parts of the world, yet the issue of how it handled its oil reserves got it into some of the worst trouble it has ever been in.'

But he and Morrison both see the Madrid bombings as ominous for business.

Having so effectively influenced the Spanish electorate, terrorists could next seek to swing a company's shareholders with a shrewdly targeted atrocity.

Is such an attack likely? 'Yes,' says Morrison. 'I definitely think it is going to happen.'

He again cites the case of Shell. 'They faced enough problems regarding their reserves, then a damaging report from Nigeria. Terrorists could have worked out that one little push could have had Shell out of Nigeria.'

Developments in the security and risk consultancy business reflect the changing market. After 9/11 Kroll shrewdly acquired businesses in mass background and credit checking and in insolvency management, adding two timely investments to its security and investigations businesses. Its acquisition by MMC shows how, in Kroll's words, 'risk is a very big pie'. The world's biggest insurance broker concluded that Kroll's risk mitigation services complemented its own, and paid about four times Kroll's previous year's revenue in cash.

Control Risks Group has also seen sales rise steadily, to nearly £46 million for year-end 2003. Fenning stresses that CRG's growth is not just from terrorism-related work, but earnings from North America and Europe have increased by around 35% since 9/11.

Traditional management consultants such as the Boston Consulting Group are re-spraying their services with the gloss of risk management, chasing lucrative US government pro- curement deals arising from the War on Terror.

Even the CIA may get the private-sector touch as consultants vie for the job of overhauling it.

Compliance is big business too. A global maritime security initiative requiring compliance measures on all shipping and ports by July gave more work to the consultants. Suppliers have benefited from increased defence and internal security procurement by governments around the world.

Morrison and Fenning both comment that a security vacuum has overextended their role and that regulation is needed. As leaders in a growth industry that has already faced accusations of harbouring a cowboy element, their need to demonstrate corporate integrity is as great as that of their clients.

Fenning ruefully observes that the last effort to regulate his industry in the UK 'lumped us together with nightclub bouncers and wheel-clampers'.

But there's a lot more to worry about in Iraq than dancefloor brawls and illegal parking.

PEACE-KEEPER INTERNATIONAL - LICENSED WEAPONS AND EQUIPMENT SUPPLIERS

Turning over $17.5 million from scratch in six months is an impressive business achievement by any standards. David Harris claims to have done so by feeding the insatiable demand for personal protection equipment from companies and agencies active in Iraq, Afghanistan and other hotspots.

Both Harris and the former co-director with whom he set up the company last Christmas Eve have Special Forces backgrounds. They saw the opportunities in supplying reliable equipment to organisations working in peace-keeping and post-conflict reconstruction. The 10,000 or so private security personnel working in Iraq alone at the time provided a ready market - their employers were desperate for body armour, armoured vehicles and weapons.

The directors quickly made a strategic decision to produce all equipment to their own specifications, and Harris attributes much of Peace-Keeper's success to this. 'We ensured that everything we sold was fully compliant to the threat faced by those using it,' he says. With demand so high, not all suppliers are so scrupulous. Being close to Prestwick International Airport has helped too: 'I can have a batch of kit in Baghdad within 72 hours.'

Importing and exporting weapons and specialist equipment involves a good deal of red tape, which Harris had to master quickly. 'I spend a lot of my time explaining regulations to my clients, and I've just had to revise all my import licences for Iraq to recognise the new sovereign authority there.' Such regulations and the practical challenges of reaching his clients are the only impediments to a constant demand. He has sold more than $3 million worth of body armour this year and has another $7.5 million of weapons contracts pending. But he also has to respond quickly to new demands.

The high number of roadside bomb attacks in Iraq has led to clients seeking electronic counter-measure equipment to jam the signals that initiate the bombs. 'Jammers can cost $190,000 each, but we are selling MOD-specification ones for $50,000.'

A global shortage of ballistic steel for armouring vehicles has created another market. 'Most of the world's steel is being consumed by China, so I have had to buy some back from them,' says Harris. 'I've got a container of 8mm ballistic steel on its way to Kuwait as we speak.'

He is frank about his place in a multi-million dollar phenomenon. 'We are a parasite on the market,' he says, but stresses that his business is fully licensed and discerning about who or what it supplies. And he foresees plenty more business ahead.

HARDSTAFF TRAFFIC BARRIER SERVICES - CONCRETE BARRIER SUPPLIERS

Anyone passing London's Houses of Parliament or the American embassy will notice that these buildings now sit behind an ugly ring of concrete barriers, which are intended to repel a vehicle-borne bomb. On state occasions, further lines of these barriers appear, stencilled on the side with the name Hardstaff and a Nottingham phone number.

Mark Lord, contracts director at Hardstaff Traffic Barrier Services, explains how the company got the job. 'Hardstaff is historically a haulage firm, but we have been manufacturing and installing these barriers for about five years now. We mainly supply and instal them to provide protection at roadworks and on construction sites.' In the aftermath of 9/11, however, government agencies carried an urgent review of the physical security of key buildings and Hardstaff was contracted to supply its barriers. Fitting operations are co-ordinated by the Metropolitan Police.

'We get the call before most occasions like the State opening of Parliament or President Bush's State visit. That used 15 of my guys and 12 lorries, but we had them in and out within three days.' Security-related contracts account for less than 10% of Hardstaff's business but the number has climbed steadily over the past three years. Adds Lord: 'We're getting more security work from private companies now, either protecting their buildings or blocking access to sites.'

He is fairly relaxed when MT rings him later to tell him that MI5 has just decreed that his security barriers could become 'lethal projectiles' in the event of a bomb. The review has taken place alongside a £5 million overhaul of security measures at the Palace of Westminster. He explains that his barriers, developed for traffic use by the Highways agency about 15 years ago, are intended to prevent any vehicle carrying a bomb from getting close enough to do the worst damage. At 2.5 tonnes apiece, they should be up to this task but Lord ackowledges that, with a big enough bomb, any solid object can become part of the problem.

If the authorities decide to replace Hardstaff's barriers, Lord's team will descend with their trucks and hydraulic grabs and the barriers will disappear as quickly as they appeared.

JANKEL GROUP - ARMOURED VEHICLE SPECIALISTS

Andrew Jankel, 36, took over the family firm, based at a Surrey farm, two years ago, shortly after 9/11. Founded by his engineer father Robert in the 1950s as a maker of hand-built sports cars such as the Panther, the company moved into armouring vehicles in the '80s as an extension of its coach-building expertise.

By the mid-80s about 80% of its vehicle were stretched and armoured luxury limousines for a VIP market led by the oil-rich Middle East states. The rest were lower-profile armoured vehicles built for government agencies such as the MoD. Over the next decade the balance reversed. 'We saw money tightening in the Gulf and security become more of a concern with the post-Cold War shakedown,' says Jankel. 'The limousine market declined as clients sought security with a lower profile.'

This change in emphasis led the company to produce its own range of dedicated armoured vehicles, along with armoured versions of others. As the client base shifted to NGOs, governments, blue-chips and press agencies, it had to adapt from bespoke, money-no-object service to competitive tendering and compliance.

At the time of 9/11, the company was setting up a joint venture with the Jordanian government to build a manufacturing plant. That gave Jankel a base in the Middle East, which it has fully exploited in supplying armoured Toyota Land Cruisers to Iraq.

Demand remains strong at home, too. Jankel has just been awarded a contract to supply and maintain 13 Guardian multi-role armoured vehicles to the Metropolitan Police, some of which are already in service at Heathrow.

And with 'homeland security' spending in the US at its highest level ever, the company is now chasing the market for similar vehicles there.

'We could have been out of business by now if we'd remained just another coach-builder,' says Jankel. Instead he turned over £3.9 million last year, with growth of around 40% in the past five years and work in progress up 300%.

TECHNOLOGY THAT KEEPS AN EYE ON THE INTRUDER

Home Secretary David Blunkett leads the nation into a brave new world with his passionate advocacy of a national identity card to thwart organised crime and terrorists. The key to this and related schemes for passports is biometrics: matching a person's unique physical characteristics stored on a secure record that they carry with another held at the point of access. The industry phrase is 'true access technology'.

This technology has been hot stuff for some years now, but the security concerns of governments have given the industry new impetus. It's big business: Home Office estimates for the cost of implementing a national identity card are between £1.3 and £3.1 billion. In the meantime, the department is pushing ahead with trials in this area.

Sagem SA was recently awarded a five-year contract to trial an iris-recognition system at five major UK airports, using a projected one million volunteers taken from foreign nationals with residency or work permits. Another French firm, Atos Origin, is carrying out a trial of 10,000 volunteers for the Passport Office to gauge the relative merits of thumbprints, iris scanning or facial recognition systems. Its fees are undisclosed on the grounds of commercial confidentiality, but the resources involved even in these small-scale trials and the limited number of players in the market must make them substantial.

The market goes far beyond governments. Although Sagem declares that biometrics and access technology sales account for only 10% of total sales at present, the market 'will continue to grow significantly', it says, citing the private sector as the fastest growing. This fits in with the growing realisation in boardrooms around the world that potential ruin by malicious acts can take many forms. Protecting shareholders' assets by using the best technology available has become as significant as making profits or getting the books right. Explains one consultant: 'When biometrics allows you to know that the right hand is putting the right key in the lock, this kind of security should not be a grudge purchase.'

But biometrics is still at the teething stage. The frequent-traveller guinea pigs opting for the iris scanners at UK airports will do so on the promise of quicker passage through passport control. Too bad when the chap wearing contact lenses has to remove them or the lady with the luscious eyelashes just can't seem to achieve a satisfactory scan.

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