Center for International Policy
August 25, 2009
by Tom Barry
Contracts with the Department of Homeland Security (DHS) are spewing billions of dollars into private industry, largely to companies that also rely on Pentagon military contracts. In this new variation of the military-industrial complex a new revolving door is now in full swing.
Tom Ridge and Michael Chertoff, the two Republican stalwarts who served as the first two Department of Homeland Security secretaries, are now busy attracting defense, homeland security, and intelligence contracts in the country's rapidly expanding high-tech security complex.
Tom Ridge, former Pennsylvania governor who was appointed by President Bush to direct the newly created DHS, has parlayed his government service into a lucrative career in business since he stepped down as DHS chief in November 2004. Soon after leaving DHS, Tom Ridge became president and CEO of Ridge Global, a global strategic consulting firm. He also has joined numerous corporate boards and advisory groups, including major military and homeland security contractors. (See Box: Ridge's Post-DHS Security Businesses).
Chertoff Group Covers Homeland Security
Michael Chertoff, former secretary of the DHS, has taken his portfolio over to the private sector. Homeland security is business—an estimated $200 billion in annual revenues—and the newly formed Chertoff Group is seeking a major stake in this booming industry.
As the latest homeland security consulting firm, Chertoff Group will be competing with two other security companies formed by top Republican Party figures: Ashcroft Group founded by former Attorney General John Ashcroft; and Guiliani Group, formed by former New York City mayor and presidential candidate Rudolf Guiliani. Although not specifically focused on homeland security, Ridge Global, formed by the first DHS secretary Tom Ridge, also has a piece of the expanding global security industry.
Chertoff Group describes itself as "a security and risk management advisory firm that counsels corporate and government clients addressing threats related to terrorism, fraud, cyber security, border protection, and supply chain security."
The Chertoff Group has a leg up on its competitors. The revolving door between government and industry has brought a half-dozen former high government officials of the Bush administration into the Chertoff Group.
Not only does it count on the political and business connections of Chertoff, the new firm has a roster of five other former government officials that can translate government experience and inside information into lucrative industry contracts.
Chertoff boasts, "Among the six of us we pretty much have all of those things in DHS, in DOD, and the Department of Justice, law enforcement, and finally, in the intelligence community. So we have pretty much every element of homeland security covered."
The Faces of the New Homeland Security Complex
Chertoff's associates who will be covering all the elements of homeland security business include figures with long experience in intelligence, industry contracting, and international banking.
Chad Sweet, Chertoff's chief-of-staff at DHS, cofounded the Chertoff Group and will direct the firm's operations. According to his company profile, Sweet worked at DHS "to restructure and optimize the flow of information between the CIA, FBI, and other members of the national security community and DHS. Mr. Sweet also supported the Secretary during numerous operations to detect, disrupt, and respond to terrorist plots both in the United States and overseas."
Before joining DHS, Sweet was a vice president at Morgan Stanley and then at Goldman Sachs, with a special focus on international investments. Sweet came to Wall Street after "having helped to fight the threat of Communism" at the CIA, where he was in the agency's Directorate of Operations.
In his new position, Sweet "utilizes his unique background in intelligence, homeland security, and investment banking to provide M&A advice to companies wishing to expand within the defense, aerospace, and security industries, and to help private capital groups evaluate investment opportunities within the sector."
Other principals at Chertoff Group are also former government heavies, including former CIA director (2005-2009) Michael Hayden, who also directed the National Security Agency (NSA, 1999-2005); DHS deputy Paul Schneider (who prior to his position at DHS was head of acquisitions for NSA and the U.S. Navy); Ret. Admiral Jay Cohen, who was DHS director of science and technology and previously the Navy's technology chief, and Charlie Allen, who was the intelligence chief at DHS and, according to Michael Chertoff, "pretty much head of everything you could be for the CIA and head of national collections."
The New Business of Homeland Security
DHS' private contracting provides one look at the new homeland security business. In large part, it's an offshoot of the military contracting industry. DHS's top 10 contractors, for example, include Boeing (ranking first), General Dynamics, SAIC, L-3 Communications, and Lockheed-Martin.
Also prominent among DHS contractors are information systems and computer technology firms, such as IBM, Accenture, Unisys, Booz Allen Hamilton, and Siemens. Also figuring prominently among the top DHS contractors is Wackenhut, a more traditional security industry that provides custodial services for the Border Patrol and Immigration and Customs Enforcement (ICE).
Intelligence contractors represent another booming business in the new homeland security industry. According to an estimate by the Defense Intelligence Agency, as much as 70% of new intelligence operations by the federal government's intelligence apparatus, including NSA, are contracted out to private businesses.
The expanding homeland security industry also includes biotech, electronic surveillance, and cyber security firms—all of which are likely prospective clients of the Chertoff Group.
Fresh from DHS, Chertoff says that the Chertoff Group provides an especially well-informed perspective of the character and direction of the new homeland security industry.
HSToday, a new homeland security industry magazine, interviewed Chertoff shortly after he founded the new firm and observed that part of Chertoff's "new mission is to better define homeland security for the private sector and thereby increase investment opportunities."
Chertoff concurred with the HSToday editor's description of the firm's mission and went on to expound on the emerging definition and dimensions of the homeland security industry. Chertoff noted that there exists much confusion about what homeland security really is.
Having emerged directly from government the Chertoff Group has, says Chertoff, "a clear vision of what homeland security is." Here is his clarification, "It's not the same as defense, it's not the same as law enforcement, although it partakes of elements of those, as well as things that are neither."
Homeland security, Chertoff explained, is a blend of the military and the police/first responder sectors. He observed that there is a great need in the private sector "to fill the gap and cover a system of homeland security in a way that is end-to-end that is not covered by the defense community or the law enforcement community."
Chertoff asserted that there are "many great opportunities" for investment and "many great technologies" to apply to homeland security needs. Chertoff Group, he said, can fill the gap, define the opportunities, and pick the best technologies. Furthermore:
"As many of the principal architects of homeland security and the doctrine, we [Chertoff Group] have a pretty good feel for how to look at problems end-to-end and then to anticipate problems where there may be technologies that fit into that problem solution …. So, working with investors, defense contractors, and others who either want to organically grow into homeland security or want to make acquisitions, I think we've got a really unique value and perspective that we can add in terms of how things fit in terms of an overarching strategy."
"What sets the Chertoff Group apart," says Chertoff Group, "is the breadth of our industry knowledge, the depth of our experience, and the extent of our close contacts with industry leaders worldwide."
Ridge's Post-DHS Security Businesses
Ridge Global, headed by former DHS Secretary Tom Ridge, "provides strategic consulting services that advance the security and economic interests of businesses and governments worldwide." It offers "a team of talented professionals, drawn from high-level posts," with expertise in risk management, global trade security, event security, crisis management and communications, and technology innovation.
In 2006 Ridge Global entered into a $480,000 contract with Albania to help the country "develop an overall homeland defense strategy. According an AP report, Ridge's "main priority" was "to help Albania meet its goal of joining NATO in 2008." It wasn't until after the media outed Ridge's relationship with Albania that the former DHS chief filed the required foreign lobbyist report with the Justice Department in 2008—two years after the one-year contract with Albania had ended.
On August 7 Critical Mission Support Services (CMSS) announced that it contracted Ridge Global to help the company develop its "security strategy and international business plan." CMSS says it specializes in "providing governments and organizations around the world with mission critical services," including de-mining, logistics/procurement, security, and IT communications.
In addition to tending to global security needs at Ridge Global, Ridge also is president of Thomas Ridge, LLC.
Aside from developing his own security consulting business, Ridge after leaving DHS joined the corporate boards of Vonage, Hershey, Home Depot, and Exelon (the country's largest nuclear plant operator, including the infamous Three Mile Island reactor). In April 2005 Ridge also joined the board of Savi Technology, described as the primary technology provider for wireless cargo-monitoring for DOD. It is a wholly owned subsidiary of Lockheed Martin.
Homeland Safety Against Counterterrorism Liability
Ridge recently got a new gig as senior adviser to the San Francisco-based Building Protection Systems Inc. (BPSI), where he will have the responsibility of advising the corporation on the marketing of its Building Sentry One product line. BPSI's Sentry One products are among the thousands of newly manufactured systems and technologies developed in the aftermath of the Sept. 11 terrorist attacks, forming a major part of a new DHS/DOD industry complex underwritten by government contracts and grants.
BPSI, now advised by Ridge, recently announced that its Sentry One toxin detection technology has received the DHS stamp of approval. According to BPSI, Sentry One is the "first complete building protection system which has also received full Safety Act designation from the Department of Homeland Security for protecting buildings and public gathering places from an airborne chemical or radiological targeted terrorist attack or accidental release."
What does this Safety Act designation signify? Fundamentally, it means that Sentry One is protected by the Support Anti-Terrorism by Fostering Effective Technologies Act of 2002 (Safety Act), which was rushed through Congress after the Sept. 11 attacks to spur industry investment in counterterrorism and security technology.
According to DHS, the Safety Act is intended to "encourage the development and deployment of new and innovative anti-terrorism products and services." This government liability protection also covers software and other intellectual property.
It fosters this development not through government contracts but through government guarantees—shielding technology providers from liability lawsuits in the event of product failure during a terrorist attack.
The Safety Act Consultants firm explains the Safety Act this way:
"The SAFETY Act is a little known and often misunderstood Federal Law enacted in
2002 as a part of the Homeland Security Act. This law grants unprecedented statutory immunities, liability caps; affirmative defenses for things used to identify, protect against, stop, mitigate, respond to, or recover from, a terrorist event. These can include products, technologies, services, facilities, designs, advice, actions, software, hardware, or other methods, procedures, or strategies used in helping prevent, respond to, or recover from a physical terrorism [sic] or e-terrorism act.
BPSI's Mike Welden, referring to the Safety Act approval, said: "This elevated designation is another example of the expert validation that BPSI's systems keep earning. We are absolutely pleased that the DHS has issued BPSI technology full designation. It is a clear indication of the trust in our technology that lives will be saved during certain acts of terrorism and as a result our customers will truly benefit from the extended SAFETY Act liability protections."
On July 30, 2009 DHS bestowed its Safety Act designation on the 300th anti-terrorism technology.
Chertoff Group Gets Down to Business
In a nod to the key role of Bush administration figures in the new security company, Chertoff Group states that it "provides business leaders and local government officials with the same kind of high-level, strategic thinking and diligent execution that have kept the American homeland and its people safe since 9/11."
According to its website, the Chertoff Group approaches the business from three angles: risk-management and security services, crisis management, and mergers & acquisitions (M&A).
The group's risk-management and security services division aims to cover everything from global strategy, border protection, infrastructure protection, biometrics, global commerce, disaster preparedness, information assurance, intelligence, counterterrorism, and chemical, biological, radiological, and nuclear security. The firm promises to "guide you to the best sources for trained personnel and security technology."
One of the firm's first contracts involves a cyber security client, according to a Wall Street Journal article. Chertoff Group has also secured a contract with BioNeutral Group, which hopes to commercialize a chemical-based technology that will neutralize toxins.
"We are excited to engage former Secretary Chertoff and his firm to assist us in our endeavors; presenting our proprietary technology to the various markets including health, defense, and bio security," commented Stephen J. Browand, president and CEO of BioNeutral. "It is a privilege to have such an elite group represent our company and we are confident that they will play a significant role in the successful strategic introduction of our life saving technology."
Strategic Partnership with "PR Firm from Hell"
Chertoff Group, founded by former DHS Secretary Michael Chertoff, has formed a "strategic partnership" with the controversial public-relations firm Burson-Marsteller to carry out the crisis-management part of its homeland security business.
"No one knows crisis communications better than the team at Burson-Marsteller," states the Chertoff Group, and the partnership will "combine our extensive crisis management expertise with their broad crisis communications skills."
No doubt that Burson-Marsteller has extensive experience in what the industry calls "crisis communications"—spinning a business, government, or product failure so as to minimize damage to a company's bottom line or a government's global reputation.
Burson-Marsteller, now headed by Hillary Clinton's presidential campaign pollster and strategist Mark Penn, has been called "the PR firm from Hell" by MSNBC's Rachel Madow, because of the firm's long track record in representing companies involved in major disasters. Says Madow (March 5, 2009), "When Evil needs public relations, Evil has Burson-Marsteller on speed-dial."
According to the Guardian in London, "The world's biggest PR company was employed by the Nigerian government to discredit reports of genocide during the Biafran war, the Argentine junta after the disappearance of 35,000 civilians, and the Indonesian government after the massacres in East Timor. It also worked to improve the image of the late Romanian president Nicolae Ceausescu and the Saudi royal family."
A recent corporate client of this "communications crisis" firm is AIG, the investment firm bailed out by the U.S. government with $163 billion of taxpayer revenues.
In the past Burson-Marsteller has provided communications remedies: after the Three Mile Island partial nuclear meltdown; for Union Carbide after the Bhopal gas leak that killed up to 15,000 people in India; and for British Petroleum after the sinking of the Torrey Canyon oil tanker. More recently, it has represented tobacco firms, European biotech industries that produce genetically modified food, and, according to Madow, for the Blackwater security services firm after reports of murders of civilians by its government-paid mercenaries in Iraq.
Chertoff Group is also going directly to the heart of the industry with its M&A division. "For deals in the security industry," the Chertoff Group says it "offers unparalleled subject matter expertise and contacts to give you the competitive advantage."
"We have overseen billions of dollars of technology development and acquisition for the Department of Defense, the Department of Homeland Security, the Department of Justice, the National Security Agency, and the CIA. We have keen insight into which new technologies are likely to transform the landscape, and our experience allows us to predict which ones may be headed for obsolescence."
The firm sees a bounty of opportunities for consolidation in the new but "highly fragmented" homeland security industry. It promises clients to "help leverage economies of scale" and to "monitor and manage target companies during periods of transition," reminding security companies that "it pays to know what we know before you decide on a merger or acquisition."
Pumping Up Homeland Security Business
Not relying solely on its industry contracts, the Chertoff Group is also benefiting from a trail of media interviews and media events that bring the firm's principals to the attention of prospective clients.
Chertoff and his DHS predecessor Tom Ridge, along with their entry into the homeland security industry, are releasing new homeland security books in September.
Ridge's new book is titled The Test of Our Times: America Under Siege ... and How We Can Be Safe Again. Michael Chertoff's new book, Homeland Security: Assessing First Five Years, will also likely help promote the Chertoff Group within the homeland security industry.
In his book, Chertoff argues that the Bush administration effectively secured the country because there haven't been any terrorist attacks on the homeland since Sept. 11—an assessment that the Chertoff Group regularly uses to sell itself.
But in the new book Chertoff occasionally exhibits a foreign policy perspective that appears dangerously aligned with the neoconservatives that drove the Bush administration's Middle East and counterterrorism policies. He predicts, for example, that the anti-Israeli Lebanese opposition group Hezbollah could surpass al-Qaeda as the most serious terrorist threat to the United States. Chertoff alleges Hezbollah is better equipped, better trained, and better politically positioned than Osama bin Laden's al-Qaeda.
"Having operated for more than a quarter-century, (Hezbollah) has developed capabilities that al-Qaeda can only dream of, including large quantities of missiles and highly sophisticated explosives," writes Chertoff.
Alarmism about Hezbollah, whose principal grievance is with Israel, is a common denominator of neoconservative ideology. Although not closely identified with the neoconservatives, Chertoff is firmly rooted in right-wing thinking, particularly with respect to terrorism and the role of the judiciary. Chertoff is also closely associated with the right-wing Federalist Society.
Chertoff is also speaking publicly about the government's cyber security programs and intelligence gathering systems. During an August 7 presentation at the Potomac Officers Club in Washington, Chertoff promoted the deployment of Einstein III, the latest phase of a web-traffic monitoring system sponsored by DHS to detect and deter cyber attacks. The Obama administration has authorized the deployment of the latest phase of the program, which will screen government traffic on private networks and will be managed by the NSA.
Cyber security is perhaps the most lucrative source of homeland security business, which may explain the Chertoff Group's interest in the Einstein project. Among the reported private partners awarded contracts for the Einstein system (which was allocated $600 million in 2007-2008) are AT&T, which is the lead partner with NSA, L3 Communications, General Dynamics, Sprint, Qwest, MCI, and Verizon.
The first two phases of the Einstein monitoring program didn't measure up to government expectations. Nonetheless, the Obama administration is set to launch the latest version of the cyber security system—amid widespread privacy concerns resulting in large part because of NSA's unauthorized monitoring of private communications during the Bush administration.
Explaining the third iteration of the system, Chertoff told the Washington Post:
"Intrusion detection is like a cop with a radar gun on a highway who catches you speeding or drunk and phones ahead to somebody at the other end … Einstein III is a cop who actually arrests you and pulls you off the road when he sees you driving drunk."
While Einstein I and II were more protective than proactive, Einstein III rather than looking for predetermined indicators of cyber attack is empowered to look at the content of emails and possibly signatures including personally identifiable data. Millions of emails that pass through government agencies as well as any person logging on to a government website would set off Einstein III.
Aside from privacy concerns, the effectiveness of such electronic surveillance in improving homeland security has been questioned by a wide range of critics, including congressional members and employees of NSA and DHS. Jesselyn Radack, homeland security director of the Government Accountability Project, calls for the administration to abandon the program, calling it "NSA's cyber overkill."
Outsourcing's New Hold on National Security
The homeland security business not only involves protecting communications and information systems from intrusions and attacks, it also entails extracting intelligence from monitored electronic communications. The Chertoff Group will likely serve these two sides of the intelligence/security business.
On August 20 Michael Chertoff and Michael Hayden, along with former CIA Director of Operations Jack DeVine (now president of the Arkin Group international crisis management group), led a discussion panel at the National Press Club on the privatization of intelligence. Neither Chertoff nor Hayden was identified in the NPC news release about the event as private contractors themselves who benefit financially from intelligence outsourcing.
Not surprisingly, all three former government officials who currently are in the private sector strongly supported intelligence and DHS outsourcing. Chertoff explained that the outsourcing of immigrant detention to the private sector was the largest component of DHS private contracting, which makes good sense because of the long time-lag in building federal facilities and because of the variable flow of immigrants. It would be "foolish," he said, to build an immigrant prison in western Arizona and then have empty beds if the immigrant flow switched to the southeastern United States.
Hayden described the CIA as a "blended team" of government employees and contractors, noting that "we used contractors as an integral part of our workforce."
Tim Shorrock, author of Spies for Hire: The Secret World of Intelligence Outsourcing, says that "private contractors are operating in the most sensitive areas of intelligence." According to Shorrock, "with the post-September 11 hikes in intelligence spending, spying for hire has become an industry worth nearly $50 billion a year." With the Chertoff Group's close ties to the CIA and NSA, this huge intelligence outsourcing budget will likely form an important part of the firm's revenue stream.
The homeland security industry is emerging as the country's fastest growing government-industry complex. It's an industry where Chertoff and an array of ex-Bush administration officials are playing leading roles.
While the full extent of the influence and power of the new homeland security complex has yet to be determined, it is worrisome to consider that the complex's leading architects are former government officials responsible for the USA Patriot Act, the border wall boondoggle, massive unauthorized domestic surveillance, and disastrous intelligence scandals of the Bush years.
The increased outsourcing of homeland security and intelligence operations also raises pressing concerns about who is truly in charge of our security—industry or government. But with security being viewed as a new profit sector, our national interests and security will likely lose out to the interests of investors and security consultants like Ridge, Hayden, and Chertoff.http://americas.irc-online.org/am/6382