They helped track down billions of dollars of treasure looted from Kuwait by Saddam Hussein. They finally proved that “God’s Banker”, Roberto Calvi, found hanging under London’s Blackfriars Bridge with bricks in his pockets, was murdered. They were hired by Prince Charles to find the “Princess Di tapes”.
Move over James Bond, this is the real-life fantasy world of the thousands of former cops and spooks, bodyguards, forensic accountants, journalists and criminal lawyers who made up what claims to be “the world’s foremost independent risk consulting company”, Kroll Inc.
Not for nothing did a former executive of the company describe Kroll as “like a private CIA”.
“Of course, there’s lots of boring stuff too – corporate profiles, background checks on employees, data recovery,” says a rival in the business, “But these are the ones that get the adrenaline going.”
In the process, inevitably for a company employing large numbers of former CIA, FBI and Special Forces people, the company has occasionally been accused of misconduct – the bugging scandal in Brazil is just the latest in which Kroll Inc has been embroiled.
Founded in 1972 by a New York assistant district attorney, Jules Kroll, the company expanded aggressively across America and internationally into 60 countries. In Australia, Kroll formed an ongoing partnership with the accountancy firm Ferrier Hodgson.
Its customers were a who’s who of the business world: Ford, Citibank, Hilton hotels, drug company Pfizer and Nestle among them. It has also worked for the US government.
Although its bread and butter work was legal corporate intelligence, such as profiling takeover targets, in countries such as Brazil, and now Iraq, where kidnapping is rampant, Kroll also specialised in “close body work” – bodyguards, protection and ransom.
In May last year, Julius Kroll received an offer he could not refuse. Marsh & McLennan, the New York insurance broker which claims to be the world’s largest, took over Kroll for an eye-popping $US1.9 billion ($2.46 billion), more than $US100 million of which was pocketed by its founder.
Capitalised at $US6 billion, and with 60,000 employees in more than 100 countries – including Australia – Marsh & McLennan was the colossus of the industry, claiming a 40 per cent share of the global market for insurance broking.
But the company saw insurance as a mature market and wanted to expand into the related risk-management industry. No one could have foreseen when the takeover deal was signed in May last year that the sky was about to fall in.
Last October, New York’s crusading district attorney, Eliot Spitzer, filed suit against Marsh & McLennan, accusing the company of having, for years, colluded with big insurance companies to “cheat customers in an elaborate charade of price fixing and bid rigging”.
The three insurers he named were the giants American International Group, Zurich America Insurance Company and Ace Ltd. Adding spice to the story was the relationship between them: AIG was headed by the 79-year-old insurance industry legend Maurice “Hank” Greenberg; his son Jeffrey ran Marsh & McLennan, and; another son, Evan, was boss of Ace.
Spitzer claimed that Marsh & McLennan jacked up insurance premiums – thus increasing its commissions, and the profits of the insurers – with “fake bids, collusion, improper steering of business, payments by insurers to avoid solicitation of competing of competing quotes, and threats against those resisting participation in the fraudulent schemes”.
The company “acted, in short, less like a broker with a fiduciary obligation to its clients than as the linchpin of a racket”, Spitzer said.
Marsh & McLennan’s shares tumbled more than 25 per cent, despite pledging it was “committed to getting all the facts, determining any incidence of improper behaviour and dealing appropriately with any wrongdoing”.
Jeffrey Greenberg was forced to resign. His replacement was a man the company had inherited a few months earlier when it took over Kroll Inc, Michael Cherkasky, who was uniquely placed to steer the company through the scandal which threatened to destroy it.
For 16 years, Cherkasky was a white-collar crime buster for the New York District Attorney’s office; Spitzer, now prosecuting Marsh & McLennan, was his protege. In 1994, Cherkasky joined Kroll – gamekeeper become poacher – working his way up to the chief executive’s office.
Within three months, Cherkasky had overseen a clean-out of Marsh & McLennan’s board, and the sacking of most of the executives deemed accountable for the corruption. In January, he persuaded Spitzer to drop the civil charges against the company by pledging to pay $US850 million to clients around the world – including Australia – that Marsh & McLennan had defrauded.
Criminal charges are still pending against 10 former executives of Marsh & McLennan and the insurance companies. In February, Kathryn Winter, the 50-year-old managing director of Marsh Inc, pleaded guilty to fraud in the Manhattan State Superior Court. She faces up to four years’ jail, depending on how keenly she co-operates with Spitzer’s investigators.
Cherkasky personally apologised to 120 of his biggest clients, and showed thousands of staff the door in a bid to restore the ailing giant to profitability.
He is now engaged on an even greater challenge – to convince outraged clients who had been deserting the company in droves, that Marsh & McLennan is serious about its reforms.
Pub: Sydney Morning Herald
Pub date: Saturday 25 June 2005
Word count: 890
Classification: Labour/Occupations/Consultants Company/Marsh & McLennan Industry/Insurance
Geographic area: USA