Fifteen years ago, Emin Gadzhiyev was a Soviet KGB case officer tracking NATO operations in Turkey, Robert Strang was a United States narcotics agent tracing drug money, and Fred Rustmann was a CIA case officer running intelligence missions between Thailand and Laos.

     Today they are all helping Wall Street decide whether to invest in US companies and in emerging markets around the world. Wall Street banks and investors are seeking out former spies and law enforcement officials to help them do extensive background checks on individuals and companies seeking funds.

     The KGB, the United States Drug Enforcement Administration, the Central Intelligence Agency, British intelligence, the US Federal Bureau of Investigation and Internal Revenue Service—all are sources of talent for nervous Wall Street insiders.

     “The reason the industry has grown this decade is because of the end of the Cold War,” said Rustmann, a 24-year veteran of the CIA and chairman of West Palm Beach, Florida-based CTC International Group Inc. Gadzhiyev and six former CIA officers are on CTC’s payroll.

     Firms such as Robert Strang’s New York-based Strang Hayes Consulting help investors investigate a company and its management prior to buying its bonds or stock.

     The practice of conducting extensive background checks has increased as investors have stepped up investments overseas.

     Investors “are waking up to the fact that they made serious mistakes in emerging markets,” said Robert Johnston, chief political risk analyst at Maryland-based Parvus Group. “They made investments in which they did not understand their partners," Johnston said. "They did not do adequate due diligence." 

     Former Cold War spies offer not only the ability to gather information in emerging markets but also the networks they developed when they were on a government’s payroll.

     “We get to know people overseas when we work there. We are paid to liaise with these people…These contacts are very useful for a United States company which wants to establish itself overseas,” Rustmann said.

     “Our contacts overseas and domestically are very important,” said Strang, whose firm includes former federal agents and government prosecutors. “You need international contacts and the only way to get these contacts is to have a background in this business.”

     “A higher proportion of our assignments are overseas,” Ernest Brod, executive managing director of New York-based Kroll Associates.

     The need to check up on private firms and their managers is not restricted to emerging markets; US companies and their management teams are also the subject of extensive checks.

     Two portfolio managers with U.S. life insurers, who asked to remain anonymous, said they employ private investigators regularly before investing in a young company’s securities.

     The manager of a large US buyout fund that makes investments totaling hundreds of millions of dollars said extra background checks are a necessity. For example, a Strang Hayes investigation found that the No. 2 executive of a firm looking for financial backing had been convicted of dealing cocaine.

     “He was the most buttoned-down, straight-and-narrow kind of a guy…that was one (deal) we quickly walked away from,” said the manager, who asked to remain anonymous.

     At least one United States-based rating agency employs private investigators to help with background checks when it rates a company’s securities. Richard Gugliada, a managing director at Standard & Poor’s Corp, said the firm used investigators to check up on managers in young private companies that are first-time issuers of certain types of securities. “S&P has used them in the past on rare occasions for background checks on senior management,” Gugliada said.

     Firms such as Strang Hayes and Kroll Associates have also been retained for background checks on behalf of banks. Strang, who says his firm can come up with “due diligence” about a US company or its management team within two weeks, said red flags for lenders include undisclosed bankruptcies and fraud. He sifts through state and federal court documents and uses industry sources in the search for such problems.

     Brod said officials as a now-defunct Wall Street brokerage found out background checks are a must after they did an initial public offering for a specialty airline only to discover that its fleet was actually a single plane repainted in various American cities to hoodwink bankers.

     “Bank underwriters need to be sure that (issuers of stock) don’t have a track record of defrauding investors,” he said. Investigators’ work often involves confirming that a firm’s assets are real including checking to see that a real estate financing involves actual property. Investigators are also brought in to see if an overseas firm’s management has ties to local organized crime.

     “We’ll make sure the company is real…and we’ll look at the people behind the company. We will make inquiries with the local authorities,” Brod said. This new match between Wall Street and former Cold War spies has provided inspiration for writers of thrillers such as John Le Carre, whose upcoming novel Single & Single offers a glimpse of banks managing money for organized crime groups in the former Soviet Union.