Drug Spies Piracy is the pharmaceutical industry's dirty little secret; fighting back has become its dirty little war. With the stakes this high, there are no rules, no conventions. But that doesn't mean there haven't been prisoners.
(FORTUNE Magazine) – So this is prison, thought Paul Whybrow, almost giddily, as he fell onto a ratty mattress infested with spiders. Another experience in life. Something to tell the grandkids. After all, here he was--a former Scotland Yard detective--on the idyllic Mediterranean island of Cyprus, locked in a dark holding cell inside the infamous central police station in Limassol. The entire room measured just five paces by six. In one corner a pile of old vomit lay undisturbed; on the walls a previous inmate had scrawled something in Arabic--with excrement. The stench was overpowering. Even the stiff blanket that a surly Greek Cypriot guard had given Whybrow was filthy and reeked of urine.
Whybrow could hear the endless chanting of an Iranian inmate in a neighboring cell, as well as the "Greek jabbering" of the guards. He was "fascinated with the whole incarceration theme," he would later admit, and his memory drifted to Midnight Express, the Turkish prison movie he'd seen three times. He thought of all the hardened criminals he had locked up back in England during his 19 years of police work and how none of them had faced such oppressive conditions. He also thought about his partner, Mick Flack, another ex-detective, who at that moment was in a cell of his own inside a different Cyprus lockup. The two men had been arrested on the airport tarmac at 3 A.M. in February 1997--just minutes before their jet lifted off for London. But this will all be sorted out, Whybrow told himself. We'll be on our way home shortly.
An hour ticked away. And then a few more. Whybrow began to feel he'd had enough of his new experience. This was no movie. Little did he and Flack know that they'd be spending 18 days in solitary confinement, followed by nearly seven months in the island's national prison--an ordeal that would all but break Flack. Their crime: An $88 "burglary" of pharmaceutical customs documents, a charge to which they eventually pled guilty as part of a plea bargain. (Now free, they insist they did not commit the break-in.) Ultimately, Flack and Whybrow never really had much of a chance to beat the rap: The pair were branded "industrial spies," caught red-handed trying to undermine the country's tiny economy by stealing drug "recipes."
In fact, their client was Bayer AG, the $30-billion-a-year German drug giant. Bayer had dispatched the men to Cyprus not to steal secrets but to do just the opposite: to gather evidence against the island's top medicine producer, which was thought to be knocking off Bayer's most valuable--and patented--antibiotic, ciprofloxacin. Following the arrests, Bayer officials repeatedly asked Flack, Whybrow, and their wives to keep quiet about whom the men had been working for. In return the company arranged to pay their legal bills through a third party--and held out the promise of a juicy payoff down the road.
Bayer declines to discuss the subject in detail, and a FORTUNE proposal to bring documents to the firm's headquarters in Germany was quickly rejected. In a terse written statement, the company says that it neither authorizes nor approves of any illegal acts done on its behalf by private investigators. "It's very apparent that you have researched the case, probably from some angles better than we have," says a Bayer spokesman, Thomas Reinert, who adds that "expecting angels in this [spy] business is a little bit naive." When told that Flack and Whybrow were sharing everything with FORTUNE because they feel betrayed by Bayer, Reinert snaps: "And we are saying, 'Okay, let them do it. Yeah, let 'em.'"
Bayer's decision to dig in--rather than to attempt to put its position on the record--reveals the magnitude of the stakes involved. The $300-billion-a-year pharmaceutical industry is mired in a hidden war with no boundaries and few rules. It is a war fought from behind mountains of litigation, one that pits the leading multinationals against a growing army of scoundrels who are either counterfeiting medicines outright (a criminal offense in which specific drugs are copied down to the form, color, and brand name) or peddling "bioequivalent" generics that infringe brand-name patents (a civil offense, but just as painful financially for the patent holders).
"Take any of the top 40 drugs," says Steve Smith, Flack and Whybrow's spymaster at Bayer. "All of them are being ripped off by somebody." From Argentina to Egypt to India, from Israel to China to Colombia, drug piracy is booming. Companies in Canada and Mexico are big players; even the Mafia seems to be dipping a toe in the pool. Not that any of that should be surprising, given the explosive growth in pharmaceuticals: Ten years ago a drug that generated $100 million in annual sales was considered a blockbuster; today $1-billion-a-year drugs are commonplace, and "a kilo of an antibiotic can be worth more than a kilo of heroin," says Smith. One estimate holds that up to 8% of drugs sold worldwide are counterfeit. And the U.S. International Trade Commission estimates that patent piracy reduces annual R&D investment in drugs by as much as $900 million each year. But nobody really knows the true scale of the problem.
For decades pharmaceutical companies have cultivated an image of obsessive purity to instill confidence in consumers, whose lives often depend on them. But behind that vision of white-gloved chemists with their test tubes and microscopes stands a legion of secret agents like Flack and Whybrow, complete with black gloves and binoculars.
"The pharmaceutical companies don't like to admit they have a problem," says Stuart Harvey, an investigator who once worked with Flack and Whybrow and now runs his own firm, Global Intelligence Services. "If they do, the public will lose confidence in them. They don't want to expose themselves to bad publicity." Still, the battle is no less fierce for being invisible, says William Callahan, an ex-prosecutor who runs Unitel, a New York agency that conducts probes for the drug industry: "The attitude of the drug giants is, 'Whatever it costs, just do it. Just burn everything to the ground. Destroy the enemy.'"
It is impossible to say where final responsibility falls for the illicit or even illegal spying that seems to have been rife at Bayer and many other firms. Plausible deniability for senior executives is built into the culture just as surely as espionage is factored into their budgets. But there is no doubt that, for a four-year period starting in 1993, Flack and Whybrow were on the frontline of the offensive for Bayer and other companies. Those years were packed with allegations of betrayal, blackmail, and plots to frame enemies; with phone taps, break-ins, gunfire, and escapes over factory walls. These two men are, in short, no heroes. Their story is as morally unsatisfying as it is harrowing. But then again, there seems to be a question of responsibility--or shirked responsibility--at its heart. Put in the best possible light, Bayer failed to adequately supervise Smith, Flack, and Whybrow. At worst, the company had them do its dirty work, then left them twisting in the wind.
In retrospect, the teaming of Mick Flack with Paul Whybrow was a recipe for disaster. On the surface, however, you couldn't ask for finer credentials. The son of a simple bobby on the beat, Flack rose through the ranks of the City of London police, where he eventually commanded a squad of 120 detectives in the 1980s and built a reputation for nailing many of the toughest bank robbers in the country. Similarly, Whybrow, who began life as a South London car dealer, has earned an office wall full of commendations as an undercover detective with "the highest integrity and a proven track record," according to Tom Dickinson, who recently retired as the head of criminal investigations for the City of London police. Indeed, Dickinson says Whybrow was the best undercover fraud investigator he ever worked with in his 30-year career. (Whybrow was so good he eventually became the first fraud detective in the history of the London police force to be invited to work undercover for Scotland Yard.)
But each man had his dark side. Flack was known as an aggressive bruiser who drank excessively and was forever losing his cool--not above giving suspects a "livener" (beating) if he felt they deserved it. "I would tackle anything and anybody," he says. "That was my reputation. They don't want detectives like me anymore. Our style of policing went down the tubes in the late 1980s." Both detectives admit to occasionally using what Whybrow calls "heavy penciling," police jargon for "beefing up the evidence to help the case along," he says. "It's the law of the jungle. Mick was a master at it." Flack allows that there is "a thin line between being a copper and being a criminal. Of course we took shortcuts, but I swear on my baby's life, I have never endeavored to convict someone who I knew didn't commit the crime."
Flack's accounts of his police interrogation methods are chilling. "Back in those days you could interrogate guys as long as you wanted," he boasts. "We'd never allow a lawyer present; now it's mandatory. I'd come in hard to build up the atmosphere, to instill the utmost fear into that man's body. We'd bang them up at the local police station for three days without talking to them. It loosens them up." Flack smiles sadly as he ponders the irony of his words. In Cyprus, the tables would be turned against him.
For Flack and Whybrow, the road to Cyprus began in London, the headquarters for Carratu International, then the premier investigative agency for the pharmaceutical industry. Whybrow was headhunted by the firm immediately on retiring from the police force in 1993; Flack joined eight months later. Steve Smith, their new boss and Carratu's deputy chief executive, was an ex-Royal Marine with expensive suits, a Jaguar, and a reputation for delivering superb results to his clients--the world's largest drug companies.
Between 1993 and the time they formed their own investigative partnership in late 1995, Flack and Whybrow performed dozens of undercover missions at Carratu for Bayer, Bristol-Myers Squibb (BMS), Pfizer, Roche, and prior to their merger, Glaxo and Wellcome. In a series of interviews both Smith and Paul Carratu, the agency's chief, insist that they are unaware of any illegal covert work having been performed by the firm. "Flack and Whybrow were the soldiers in the war against the [patent] infringers," says Smith today. "They performed well and with a great deal of courage. They could think on their feet without compromising themselves or the case. But every bit of work they did, as far as I know, was done within the rules of the law."
Flack, Whybrow, and several other former Carratu employees insist otherwise, however. One former police officer, who worked briefly for Carratu in 1997 and requested anonymity, says he left the firm not long after he was instructed by a Carratu official to break into a pharmaceutical factory in Italy: "I left the police force with an exemplary record," he says, "and that's the way I intend to keep it."
For their parts, Flack and Whybrow concede that bending or skirting the law was all but routine. By day, dressed in business suits, they posed as "procurement agents" seeking drug samples from suspect manufacturers; the samples would then be analyzed to see whether patents had been violated. By night the really dangerous work began: The pair would don dark clothes and leap over factory walls--taking photographs, rummaging through garbage bins, ripping labels off containers, and sometimes even entering the plants themselves. On one occasion, they were chased by a pack of rottweilers. Whybrow says he and Stuart Harvey have even fed sedatives--stuffed in chunks of meat--to guard dogs, and dodged gunshots from watchmen who'd taken them by surprise. Standard equipment on these runs included black latex gloves, mini-bolt cutters, a set of police radios bought on the black market, and a black foldable ladder for going over walls and barbed wire. And if, as Whybrow says, "you came up against a door, you might have to shoulder it...or use a jimmy, a piece of wood, or an old piece of metal."
On one occasion, in Switzerland, Whybrow says Smith provided the name of a "local agent" whom they hired to break into a factory office belonging to Siegfried CMS, a Swiss sister company to Ganes Chemicals, one of the largest independent producers of raw drug ingredients in the U.S. (Smith denies any knowledge of the break-in.) Similarly, FORTUNE has also obtained copies of two reports that Flack had written to Smith in 1996, referring to a Spanish drug company called Uquifa, a subsidiary of Holliday Chemicals, then a publicly traded firm in England. A passage in one of Flack's reports describes how he and Whybrow stole a "laminated plan/chart of the entire manufacturing site." Another suggests that a proposed break-in at Uquifa was discussed by all three men: "With reference to our meeting at your offices...[we] agree with the suggestion put forward by yourself [Smith] that local agents should be used in all cases where sites...would be required to be entered out of hours with a view to the removal of documents." When FORTUNE asked whether he recalls reading the reports, Smith says curtly, "Yes, officer."
Over time, as the drug giants had become more persistent--and more predictable in their methods--their targets began to wise up. By the mid-1990s, it was getting harder to trick them into providing product samples to "procurement agents" nobody had ever heard of. So the Carratu team cooked up a solution, code-named "Project Nemesis." In October 1994 they sent a letter to the patent lawyers at nearly a dozen of the world's leading drug firms, inviting them to a top-secret conference at a hotel along the Thames. The purpose of the daylong meeting was to establish a joint slush fund for gathering dirt on common enemies. The first target: Spain's largest drug producer, Chemo-Iberica, "one of the biggest infringers in the world," according to Traci Medford-Rosow, a patent attorney for Pfizer who attended the session: "Chemo is just one of many different pieces on this huge amorphous spider-looking thing--a whole infrastructure of holding companies. It's unbelievable." (Research at Carratu and Bayer revealed that Chemo's web of holding companies stretches from Liechtenstein and the Netherland Antilles to Aruba, Panama, Uruguay, and the British Virgin Islands. Chemo refutes this description and denies infringing patents.)
In a speech to the assembled group, Smith explained that Carratu would form a trading company whose ultimate goal would be to buy medicines Chemo was producing that had already been patented by the drug giants; the purchases would then be developed as evidence in infringement suits against Chemo. At the meeting, officials from Pfizer, BMS, and Bayer were gung-ho for Nemesis. (In the war against infringers, Bayer was "probably the most aggressive company of all," observes Paul Carratu.) But Merck and Glaxo were lukewarm about the plan, while firms such as Astra, the Swedish drug giant, were extremely reluctant. One of the concerns centered on antitrust violations. Specifically, if Chemo ultimately prevailed in the civil courts--and the firm was already building a good track record with low-level Spanish judges--the drug giants could be accused of illegally plotting to destroy a competitor. "We live in mortal fear of anything that would not be perceived as kosher under the antitrust laws," says patent attorney Charles Lipsey, whose clients include Eli Lilly and SmithKline Beecham. "And that puts a natural limit on the willingness of competitors to cooperate with each other."
To overcome those misgivings, Smith (and Nemesis) needed some quick results. He dispatched Stuart Harvey to Barcelona to take up residency, open bank accounts, and form a trading firm called Anglo Catalan Pharmaceutica. The operation was so top-secret that Harvey technically "resigned" from Carratu and was even thrown a going-away party by fellow spooks who were purposely kept in the dark. "The multinationals trusted Carratu completely, and this was seen as the next step," says Harvey. "It was a revolutionary concept."
What the patent lawyers probably didn't know was that an illegal scheme was also being hatched at Carratu to help entice them into joining Nemesis. A subcontractor was hired to bug the fax lines at a Spanish freight company used by Chemo to move drugs around the world. This was supposed to enable the investigators to intercept Chemo's fax traffic on a computer in Carratu's London office, where they could then repackage the data for their clients--a very flashy bit of information gathering. But when Paul Carratu, Steve Smith, and his comrades gathered around the monitor for the big show, they saw nothing but gobbledygook on the screen. Smith insists that the gathering in London was nothing more than a "demonstration" that "didn't bloody work." But Flack and Harvey insist it was not a demonstration. They say the bugs were actually installed in the freight company's offices.
Unfortunately for Carratu, Nemesis died an early death. Harvey's cover was blown when Chemo got its hands on a copy of a confidential Carratu report that a shortsighted client--French pharmaceutical giant Roussel-Uclaf--had filed into evidence in an unrelated civil case. Moreover, Nemesis lost its leader when Smith was suddenly fired in April 1995 for plotting to dethrone Paul Carratu from his own family-owned company.
Smith, who denies plotting against Carratu, fell to pieces after losing his job, according to Flack and Whybrow. They say they found him crumpled on a bench, shaking and sobbing, at a rest stop near a motorway. "He was prone to depths of despair and depression," says Flack. "We felt he might end up suicidal." Smith rejects both characterizations, but concedes that Flack lent him money and Whybrow lent him a car. Four months later, Bayer came through with the best gift of all: a job running its in-house investigations unit in Germany. When Smith promised his buddies a huge chunk of the work, Flack and Whybrow formed a partnership they called Temple Associates. "I'm sorry to hear that you are going," wrote Paul Carratu in a letter to Flack in November 1995. "I must also remind you of the clause in your contract relating to confidentiality and solicitation of clients."
Charles Lipsey, the patent lawyer, admits that "It's difficult to perceive who's winning [the war]." And if counterfeiting, patent infringing, and the threat of antitrust suits weren't already enough to throw the multinationals on the defensive, Lipsey says that in the past five years, generic producers have become increasingly adept at mounting legal challenges to established, big-money patents. "A clever lawyer can at least make an argument that there's some deficiency in a patent, because the law is complex and the facts are complex," he explains. "These suits are now being used not to gain access to the marketplace but to generate cash from a coerced settlement with the brand-name manufacturer." In other words, creating successful litigation is as much a part of the game as creating actual products.
One man who has elevated the patent challenge to an art form is Barry Sherman, CEO of generic drugmaker Apotex--the biggest pharmaceutical company in Canada--and the largest stockholder in Barr Laboratories, one of the top generic houses in the U.S. Echoing Lipsey, critics say that part of Barr's and Apotex's business strategy is to get involved in lawsuits and extract settlements. Indeed, Barr's CEO, a former trial attorney, once said that "the battle over intellectual property rights is at the core of our business" and that over half the company's revenues have come from the settlement of suits.
"While we and other research-based companies choose to innovate," says Sidney Taurel, CEO of Eli Lilly, "they [Sherman and his ilk] basically choose to litigate. I consider their legal expenses a little bit like our R&D expenses."
But litigating isn't Sherman's only talent. In 1995 he was nailed for importing a generic version of Prozac--the antidepression cure-all patented by Lilly--directly to U.S. customers through a mail-order system involving a Bahamian front company. The scheme was done without FDA approval and led to Apotex's signing a plea agreement with the feds. By that time, other drug companies had come forward with similar complaints about Sherman. The word was that Sherman was knocking off ciprofloxacin, Bayer's antibiotic, in Mexico, as well as Merck's cholesterol-reducing lovostatin, in China. "Sherman was a thorn in the side for most multinationals, and Smith was prepared to do anything to bring about his demise," says Flack. "Sherman would tie up the multinationals for years in litigation, while he was carrying on producing drugs and making millions. Smith had been chasing him for years. He hated Sherman. Sherman was like Adolf Hitler to him."
Sherman, pointing to his $80 million R&D budget, denies violating any patents. But Smith, acting on Bayer's behalf, was certainly convinced: "Smith wanted us to infiltrate the company," says Whybrow, "put a half kilo of coke in [Sherman's] trunk, and get him stopped by a police contact we have [in Canada]." Flack says that another option Smith suggested was setting Sherman up in a sex sting with an underage partner. Smith tells FORTUNE that if he made any of these comments, it was in the context of "joking over a pint of beer." But Flack says his boss was "deadly serious" and "desperate," and that he and Whybrow were fully prepared to carry out the frame-ups. "I was well paid by Bayer to seek out Barry Sherman's demise," says Flack, "and if that's what it took, then so be it."
By late 1996, Flack and Whybrow were on the verge of putting a mole right in Sherman's plant. But in February 1997, Smith took the pair off the Sherman case temporarily and dispatched them to Cyprus. The Temple boys' lives were about to go off a cliff.
The Cypriot equivalent of Barry Sherman is one Dr. Andreas Pittas, who runs the island's largest drug producer, Medochemie, as well as a federation of its top industrial bosses. Pittas is "powerful, well connected, and feared," according to a Western diplomat in the region. Since 1993 at least five multinationals have obtained court injunctions to stop Pittas from infringing their products. In one case Pittas even plagiarized the consumer pamphlets that were inserted with one of his drugs--"Medostatin," a clone of Merck's lovostatin--making it seem as if Medochemie had conducted clinical tests actually done by Merck. In a frosty interview at his headquarters, Pittas says he doesn't recall the Merck case, but assures FORTUNE that "it was nothing." Moreover, any violations of patents by Medochemie were mere "coincidences," says Pittas, his back to a wall of plaques applauding his contributions to the country's economy.
But Pittas' primary contribution on Cyprus, it seems, has been to build its reputation as "the island of piracy." Achilleas Demetriades, a local lawyer who last year helped to get a drug-patent bill passed in Parliament that should bring Cyprus in line with the European Community, describes the process as "war, total war." Cypriot drugmakers fought the bill for seven long years, says Demetriades: "The argument of the local generic-drug producers was that the bill would destroy their industry, which to me was a blatant admission that they were pirating."
In late 1996, Flack received a tip from an old informant on Cyprus--a ship surveyor named Lefteris "Lefty" Paneras--warning that Pittas was importing bulk ciprofloxacin from India and then exporting formulated tablets throughout Europe. If Lefty was right, Pittas was violating a court injunction Bayer had been granted against Medochemie, thanks to some earlier teamwork by Flack and Whybrow during their Carratu days. (In 1995 the men had flown to Cyprus, where they posed as procurement agents and tried to trick Pittas into doing some drug deals. Pittas was hostile and suspicious of the men, and he walked away. But before they left the island, Lefty had introduced Flack and Whybrow to an airport freight employee who allegedly let the men rummage through his files. As a result they discovered import records for Medochemie that helped lead to the injunction.)
It was the new tip from Lefty that drew the duo away from their Sherman sting and back toward Cyprus, with Bayer agreeing to foot the bill. Before leaving London they joined Smith, along with their respective wives and girlfriends, for an expensive Christmas meal at an Italian restaurant near Temple's offices. Flack drove his new blue Mercedes to the gathering; Whybrow showed up in his new canary-yellow Audi. Life was never sweeter. "Here's to 1997," said Smith, raising his glass of Dom Perignon. Says Whybrow today: "You never know what's around the corner, my friend."
Two months later, on a cold February night, Flack and Whybrow were in a Hertz rental car, cruising along Franklin Roosevelt Street in Limassol, a seaport on the southern coast of Cyprus. At roughly 9 P.M. they pulled up behind a deserted building, entered through a front door, and climbed a flight of stairs to a customs clearance office that handled the freight paperwork for Pittas. Within minutes they were heading downstairs with thousands of documents--given to them, or so they claim, by a contact of Lefty's who appeared to be the proprietor of the place. On the way out they say they noticed a hole in the window on the front door, as well as a pile of broken glass on the floor.
As luck would have it, the men were spotted by a local resident as they got into their car and sped off. The witness called the police with the car's license number, which was quickly traced to Hertz. Meanwhile, Flack and Whybrow stopped briefly at their hotel to sift through the documents. On their way to the airport, they dumped most of the papers by the side of the road. They kept 289 documents that related to Medochemie and other local pharmaceutical firms.
Just minutes before takeoff, a police car pulled up alongside the plane. Whybrow was removed from his seat. Flack had been detained at the car rental counter. Their grim odyssey had begun.
They were isolated in cells in separate jails, then shackled and hauled into court the following afternoon. When they arrived at the courthouse, they noticed an army of reporters and TV cameras. "It was like the fucking Oscars," recalls Whybrow. "We thought something really important must be happening, and then we realized they were there for us!"
The investigators insist they weren't given a lawyer, but only an interpreter who spoke pidgin English. They volunteered to surrender their passports and remain on the island in a hotel, but were instead remanded for eight days in solitary confinement. That was followed by another eight-day remand before they were even charged with a crime.
Looking to break his new guests, Phylaktis Roumbas, the Cypriot police detective running the case, made their conditions unbearable. "I don't want them to sleep," he says he instructed some neighboring inmates, who proceeded to howl and scream all night long in the hope of getting better treatment for themselves. The cells were "pretty rough," admits Roumbas today with a smile. "I chose the right ones for them. It was like hell down there." The food was minimal and virtually inedible, and both Flack and Whybrow say they were rarely permitted to wash, eat, or change clothes. "You'd scream and bang on the door if you wanted to piss," recalls Whybrow, who says he often resorted to using an empty soda bottle.
Within days of the arrest, Bayer's Smith telephoned the inmates' families in England. "He said that I have to clear out their offices," recalls Mandy Birch, Flack's common-law wife. "He said the police might come, and that I should not mention to anyone that they were working for Bayer." Smith denies this. But an officer from Interpol, the international police agency, did knock on Birch's door. She refused to provide access to her husband's office and claimed not to know his client's identity. "I was lying to a police officer, and that was not in my nature," she says bitterly. "In the end, I had to be guided by Steve Smith. I trusted him."
Meanwhile, back in Cyprus, Whybrow was told by a jail guard that his London lawyer wanted to see him. Whybrow didn't even know he had one, and was mystified as he was whisked into a prison office. Inside, Neil Russell, a prominent London solicitor, whispered that he'd been sent by "the B people" and that all the legal costs would be covered. "Neil, you've got to get us out of here!" Whybrow begged. "You've been to prisons in England, and so have I. You have no concept of what this is like. When I step back through that door, I cease to exist. It's like stepping back through the Dark Ages."
Russell told Whybrow and Flack that it was important to keep Bayer's name out of the case--a request he later repeated in meetings with the inmates' wives. As Mandy Birch recalls: "Neil made it quite clear that we had to tell everyone that we had hired him and that we were paying him." In fact, Bayer secretly paid those fees through a conduit--a London investigative outfit called CDR International--that it retained to help control the Cyprus crisis. (CDR was purchased last year by Armor Holdings, a publicly traded security firm based in the U.S.)
As the case evolved over the next few months, it became clear that Cypriot authorities were going for the jugular, while Pittas was using this abominable case of "industrial espionage" to whip the local media into a nationalistic lather. Flack and Whybrow were charged with burglary, as well as conspiracy--charges that could have landed them in prison for as long as seven years under the country's penal code. And their failure to come clean and name Bayer was only making matters worse. At one early point, Flack greeted Whybrow in court with a handshake that included a tiny ball of paper. "That's the cover story," he whispered. The men were now in sync: A Cypriot pharmaceutical dealer named George Charalambos had engaged them in London to gather information about Medochemie. Unfortunately, the police in Cyprus never really believed the ruse. And that made it tough for them to swallow another aspect of Flack and Whybrow's story that they insist really is true: that they'd done nothing illegal to obtain the documents in the first place.
Just exactly what happened that night--and why--is impossible to establish. Flack and Whybrow are adamant that they have never personally burglarized any locked offices during any of their missions, and that the window at the Cyprus office was broken by someone bent on setting them up. "If Paul and I wanted to break into those premises, we would have used local people and paid them accordingly," says Flack. "Why would I put myself at risk there?"
They suspect Lefty Paneras was working as a double agent for Pittas, who had every reason to want revenge--and plenty of power to exact it--for the damage Flack and Whybrow had inflicted during their previous trip to Cyprus. Even Detective Roumbas, who arrested Lefty and interrogated him for several days, says, "I believe Paneras is the third man, but I couldn't prove it." Both Lefty and Pittas disavow any involvement in a setup or the alleged burglary.
But if Flack and Whybrow deny breaking into Medochemie's offices, they do admit to scaling the company's fence in 1995 to have a look around the outer grounds. And as we've seen, the pair have proven themselves willing to cross the line on numerous occasions, as several former colleagues told FORTUNE. "I've known Mick and Paul a long time, and we trust each other," says one ex-police detective who insisted on anonymity. (He estimates that 90% of his pharmaceutical missions involved scaling factory walls at night, often with Flack and Whybrow, on behalf of the multinationals.) But asked if he thought the Temple duo had committed the Cyprus break-in, he responds, "Why not? We've done it before. That is our business."
On one level, it is certainly Bayer's business as well. For some missions Smith reported directly to Bayer's then general counsel. At other times he worked closely with Bernd Kroeger, a top patent lawyer at the company. Just how much those two executives knew or wanted to know about the investigators' methods is not clear. "Smith knew the intimate details of everything," says Whybrow. "He would always ask, 'What happened next? What happened next?' He lived the experiences through us. What he shared with Bernd we simply don't know."
What we do know is that Bayer made no move whatsoever to reveal its involvement in the case to Cypriot authorities. The company did, after all, have a prior injunction against Pittas on the grounds that Medochemie had infringed Bayer patents--and its other outside investigators at CDR concluded in their own probe of the Cyprus mess that it was quite possible the Temple boys had been set up by Medochemie. It would have been easy to argue that Flack and Whybrow were on the island to ensure that the injunction was being followed, that they were not rogue agents engaged in espionage but the authorized representatives of a company looking to protect interests that even Cypress' own courts had recognized. It is difficult to imagine that stance wouldn't have softened the blow against them.
Instead, Bayer exposed Flack and Whybrow to the harshest possible treatment. While keeping the pair silent with the promise of a handsome payoff, Bayer did everything it could to insulate itself from them, minimizing its exposure to potential litigation by Pittas. As a happy side effect of its silence, the firm also managed to avoid any admission of a piracy problem that could have eroded the confidence of consumers--or investors.
By May 1997, Flack and Whybrow were enjoying their third month of Cypriot hospitality. They were now sharing a cell inside the island's only national prison, in Nicosia, the capital city. The place was another house of horrors, where the ex-detectives were thrown in with murderers, rapists, and terrorists. Each day brought new highlights: a Turkish prisoner allegedly beaten black and blue by the guards; another inmate setting fire to his cell; a third wildly slashing his body and then swallowing the razor. One 79-year-old Cypriot was serving an 18-month sentence for killing his wife with a pitchfork. Another local thug had raped a girl, buried the body, and then dug her up the next day for a second round. "He was treated like a trustee," claims Flack. "He'd have coffee and tea with the guards. They loved him."
One night Flack and Whybrow exploded at one another, arguing over their case strategy. "I was all for exposing Bayer, and Paul wasn't," says Flack. "I said, 'We've got to look out for ourselves.'" In the end Bayer lawyer Russell helped craft a deal in which the men pled guilty to burglary in return for the conspiracy charge's being dropped. Nicos Clerides, a well-known local attorney paid by Bayer to handle their case, flew to Germany in June to give a briefing to certain Bayer executives and lawyers, whom he declines to name. Given that the stolen documents had been valued by the court at a mere $88 and that Flack and Whybrow had already spent several months in the can, Nicos was certain they would only have to pay a simple fine: "In my 20 years as a Cypriot lawyer," he told them just prior to their sentencing, "I've never known anyone getting more prison than you've already served for such a small burglary. You'll be going home."
One of Clerides' second cousins, Petros Clerides, just happened to be the prosecutor in the case. (Glafkos Clerides, another second cousin, has long been the nation's President.) According to Nicos, Petros admitted to some colleagues that Pittas tried to use his influence to guarantee harsh treatment for Flack and Whybrow. Petros denies that. But not long afterward, citing potential losses to the local drug industry and the need for a deterrent to others, a panel of three Limassol judges sentenced the two men to a total of 18 months in prison.
The stiffness of the sentence was a shock even to Detective Roumbas, who, for all his initial ferocity, seems to have been genuinely interested in pursuing justice rather than a vendetta. Today Roumbas says he was hardly flattered when, after the sentencing, he received a call from a Medochemie executive promising that Pittas would contact the President of Cyprus to commend the detective for his fine work. That cozy atmosphere dissipated, however, when Roumbas tried to pursue fresh leads that he believes could have exposed Pittas' piratical tendencies. The detective was swiftly booted to a new post as a uniformed cop in the mountains above Limassol, where he has worked since. "They called me from headquarters and said the case is closed," says Roumbas. "After that I lost my job. They never said why."
(Pittas' influence on the island was duly noted by FORTUNE's photographer, who parked his rental car near the industrialist's home in Limassol on a recent afternoon. Within minutes--before he'd even gotten out of the car--hostile cops had surrounded the photographer and hustled him off to the same facility where Whybrow had spent 18 days in solitary confinement. There he was treated to a threatening lecture about how "Mr. Pittas" should be treated in future. He was released after diplomatic intervention.)
Faced with his extended prison term, Whybrow gradually became withdrawn and even stopped communicating with his friend. But prison was worse for Flack, who all but stopped eating and eventually lost nearly 70 pounds. Against prison rules, Flack started a diary that his lawyers smuggled out for him. It reads like a chronicle of a descent into temporary madness. "I'm just gutted and rapidly losing any sense of hope of going home shortly," he wrote at one point. "If this persists I know I shall react violently...I am...totally disconnected from the real world. I am not right." By August, the handwriting in Flack's diary had grown shaky: "Bayer should be brought into the limelight now. We should have fought the charges from the start....I actually feel as if I'm losing my grip." One day he collapsed and was hauled into the prison hospital. He had low blood pressure, a black eye, and a deep gash on his head. "I think if he'd spent any longer there, they'd have sent him home in a coffin," says Mandy Birch. "He'd lost all of his fight. He was skin and bones."
In late September 1997, after a total of more than seven months in lockup, Flack and Whybrow were brought before a panel of Supreme Court judges in Cyprus, who freed them immediately. In the high court's view the earlier judgment had been "manifestly excessive," driven by an improper consideration of vague potential losses to the country's drug industry. One week after returning home to England, the men were invited to the London offices of a Bayer lawyer. "Our suits didn't fit us," recalls Whybrow. "We looked like we had just come out of Belsen [the concentration camp]."
At this point things began to degenerate. Charges began to fly back and forth. In one phone conversation (which Whybrow recorded, despite assuring Smith he wasn't), Smith begged Whybrow not to resort to "blackmail" or to do anything that could hurt the Bayer man's career. "We want to help you," Smith said. "It's not me that put you there [in prison]. It's not the company that put you there. It's somebody else." In yet another twist to this tangled tale, Smith believed the men had been set up not by Pittas, but by a rival investigative firm looking to take over a new antipiracy initiative then under construction by the drug giants. But this news only infuriated Flack and Whynow even further. "He had information that could have secured our release," Flack believes. "And by withholding that evidence he had perverted the course of justice." Smith now says the evidence was too "speculative" to step forward.
In any event, the spies made their position crystal clear to Smith and Bayer's lawyers: They wanted a big check, or they'd talk to the press.
For the purposes of damage control, in November 1997, Bayer moved Smith onto the payroll of CDR. One month later, Bayer drew up a written offer that would have provided Flack, Whybrow, and their wives with a total of about $80,000--$182 apiece for each day the men spent in captivity--in return for their files and continued silence. Flack and Whybrow declined.
By last December, two months after FORTUNE began researching this story, Smith had left CDR and moved quietly into the English countryside, where he now operates a 17th-century inn and pub. Since then, Bayer's negotiations with Flack and Whybrow have been on and off.
Meanwhile, like characters in a bad Tom Clancy novel, everyone is now trying to get the other guys to turn. Barry Sherman's Apotex is trying to get Flack and Whybrow to snitch on Bayer. Investigators at Kroll Associates, which has long done work for Chemo-Iberica, the target of Smith's defunct Nemesis operation, have met with ex-Carratu operative Stuart Harvey, hoping to get him to share details of the work he did against their client. ("What I know is worth a lot of money to Chemo, but I'm a bit loath to sit in bed with the enemy," says Harvey.) And then there's Chemo's general counsel from New York, Ezequiel Camerini. He knows Flack and Whybrow have documents--including his hotel phone records--that could implicate Bayer in illicit spying activity and translate directly into a coerced settlement. "If he gives us $10,000 each, he can have the lot," says Whybrow, who seems ready to take his payoff wherever he finds it. "But he wants us in the witness dock." As Camerini concedes: "We did discuss the possibility of us doing something in terms of suing Bayer, or suing Smith, or suing Carratu, or suing everybody."
Of course, now that Flack and Whybrow are singing, none of this stuff may ever be sorted out. The multinationals "are losing their enthusiasm for investigations," says Paul Carratu. "When investigators start talking to the press, it makes the clients nervous. The pirates are loving it."
For Bayer, that's got to be a bitter pill.