Palantir, the War on Terror's Secret Weapon

[Eugen Leitl]

http://www.businessweek.com/printer/magazine/palantir-the-vanguard-of-cyberterror-security-11222011.html

Features November 22, 2011, 3:56 PM EST

Palantir, the War on Terror's Secret Weapon

A Silicon Valley startup that collates threats has quietly become
indispensable to the U.S. intelligence community

By Ashlee Vance and Brad Stone

In October, a foreign national named Mike Fikri purchased a one-way plane
ticket from Cairo to Miami, where he rented a condo. Over the previous few
weeks, hebd made a number of large withdrawals from a Russian bank account
and placed repeated calls to a few people in Syria. More recently, he rented
a truck, drove to Orlando, and visited Walt Disney World by himself. As
numerous security videos indicate, he did not frolic at the happiest place on
earth. He spent his day taking pictures of crowded plazas and gate areas.

None of Fikribs individual actions would raise suspicions. Lots of people
rent trucks or have relations in Syria, and no doubt there are harmless
eccentrics out there fascinated by amusement park infrastructure. Taken
together, though, they suggested that Fikri was up to something. And yet,
until about four years ago, his pre-attack prep work would have gone
unnoticed. A CIA analyst might have flagged the plane ticket purchase; an FBI
agent might have seen the bank transfers. But there was nothing to connect
the two. Lucky for counterterror agents, not to mention tourists in Orlando,
the government now has software made by Palantir Technologies, a Silicon
Valley company thatbs become the darling of the intelligence and law
enforcement communities.

The day Fikri drives to Orlando, he gets a speeding ticket, which triggers an
alert in the CIAbs Palantir system. An analyst types Fikribs name into a
search box and up pops a wealth of information pulled from every database at
the governmentbs disposal. Therebs fingerprint and DNA evidence for Fikri
gathered by a CIA operative in Cairo; video of him going to an ATM in Miami;
shots of his rental truckbs license plate at a tollbooth; phone records; and
a map pinpointing his movements across the globe. All this information is
then displayed on a clearly designed graphical interface that looks like
something Tom Cruise would use in a Mission: Impossible movie.

As the CIA analyst starts poking around on Fikribs file inside of Palantir, a
story emerges. A mouse click shows that Fikri has wired money to the people
he had been calling in Syria. Another click brings up CIA field reports on
the Syrians and reveals they have been under investigation for suspicious
behavior and meeting together every day over the past two weeks. Click: The
Syrians bought plane tickets to Miami one day after receiving the money from
Fikri. To aid even the dullest analyst, the software brings up a map that has
a pulsing red light tracing the flow of money from Cairo and Syria to Fikribs
Miami condo. That provides local cops with the last piece of information they
need to move in on their prey before he strikes.

Fikri isnbt realbhebs the John Doe example Palantir uses in product
demonstrations that lay out such hypothetical examples. The demos let the
company show off its technology without revealing the sensitive work of its
clients. Since its founding in 2004, the company has quietly developed an
indispensable tool employed by the U.S. intelligence community in the war on
terrorism. Palantir technology essentially solves the Sept. 11 intelligence
problem. The Digital Revolution dumped oceans of data on the law enforcement
establishment but provided feeble ways to make sense of it. In the months
leading up to the 2001 attacks, the government had all the necessary clues to
stop the al Qaeda perpetrators: They were from countries known to harbor
terrorists, who entered the U.S. on temporary visas, had trained to fly
civilian airliners, and purchased one-way airplane tickets on that terrible
day.

An organization like the CIA or FBI can have thousands of different
databases, each with its own quirks: financial records, DNA samples, sound
samples, video clips, maps, floor plans, human intelligence reports from all
over the world. Gluing all that into a coherent whole can take years. Even if
that system comes together, it will struggle to handle different types of
databsales records on a spreadsheet, say, plus video surveillance images.
What Palantir (pronounced Pal-an-TEER) does, says Avivah Litan, an analyst at
Gartner, is bmake it really easy to mine these big data sets.b The companybs
software pulls off one of the great computer science feats of the era: It
combs through all available databases, identifying related pieces of
information, and puts everything together in one place.

Depending where you fall on the spectrum between civil liberties absolutism
and homeland security lockdown, Palantirbs technology is either creepy or
heroic. Judging by the companybs growth, opinion in Washington and elsewhere
has veered toward the latter. Palantir has built a customer list that
includes the U.S. Defense Dept., CIA, FBI, Army, Marines, Air Force, the
police departments of New York and Los Angeles, and a growing number of
financial institutions trying to detect bank fraud. These deals have turned
the company into one of the quietest success stories in Silicon Valleybitbs
on track to hit $250 million in sales this yearband a candidate for an
initial public offering. Palantir has been used to find suspects in a case
involving the murder of a U.S. Immigration and Customs Enforcement special
agent, and to uncover bombing networks in Syria, Afghanistan, and Pakistan.
bItbs like plugging into the Matrix,b says a Special Forces member stationed
in Afghanistan who requested anonymity out of security concerns. bThe first
time I saw it, I was like, bHoly crap. Holy crap. Holy crap.b b

Palantirbs engineers fill the former headquarters of Facebook along
University Avenue in the heart of Palo Altobs main commercial district. Over
the past few years, Palantir has expanded to four other nearby buildings as
well. Its security peoplebwho wear black gloves and Secret Service-style
earpiecesboften pop out of the office to grab their lunch, making downtown
Palo Alto feel, at times, a bit like Langley.

Inside the offices, sweeping hand-drawn murals fill the walls, depicting
tributes to Care Bears and the TV show Futurama. On one floor, a wooden swing
hangs from the ceiling by metal chains, while Lord of the Rings knickknacks
sit on desks. T-shirts with cutesy cartoon characters are everywhere, since
the engineers design one for each new version of their software. Of late,
theybve run out of Care Bears to put on the shirts and moved on to My Little
Ponies.

The origins of Palantir go back to PayPal, the online payments pioneer
founded in 1998. A hit with consumers and businesses, PayPal also attracted
criminals who used the service for money laundering and fraud. By 2000,
PayPal looked like bit was just going to go out of businessb because of the
cost of keeping up with the bad guys, says Peter Thiel, a PayPal co-founder.

The antifraud tools of the time could not keep up with the crooks. PayPalbs
engineers would train computers to look out for suspicious transfersba number
of large transactions between U.S. and Russian accounts, for exampleband then
have human analysts review each flagged deal. But each time PayPal cottoned
to a new ploy, the criminals changed tactics. The computers would miss these
shifts, and the humans were overwhelmed by the explosion of transactions the
company handled.

PayPalbs computer scientists set to work building a software system that
would treat each transaction as part of a pattern rather than just an entry
in a database. They devised ways to get information about a personbs
computer, the other people he did business with, and how all this fit into
the history of transactions. These techniques let human analysts see networks
of suspicious accounts and pick up on patterns missed by the computers.
PayPal could start freezing dodgy payments before they were processed. bIt
saved hundreds of millions of dollars,b says Bob McGrew, a former PayPal
engineer and the current director of engineering at Palantir.

After EBay acquired PayPal in 2002, Thiel left to start a hedge fund, Clarium
Capital Management. He and Joe Lonsdale, a Clarium executive whobd been a
PayPal intern, decided to turn PayPalbs fraud detection into a business by
building a data analysis system that married artificial intelligence software
with human skills. Washington, they guessed, would be a natural place to
begin selling such technology. bWe were watching the government spend tens of
billions on information systems that were just horrible,b Lonsdale says.
bSilicon Valley had gotten to be a lot more advanced than government
contractors, because the government doesnbt have access to the best
engineers.b

Thiel, Lonsdale, and a couple of former colleagues officially incorporated
Palantir in 2004. Thiel originally wanted to hire a chief executive officer
from Washington who could navigate the Byzantine halls of the
military-industrial complex. His co-founders resisted and eventually asked
Alex Karp, an American money manager living in Europe who had been helping
raise money for Clarium, to join as temporary CEO.

It was an unlikely match. Before joining Palantir, Karp had spent years
studying in Germany under JC<rgen Habermas, the most prominent living
representative of the Frankfurt School, the group of neo-Marxist philosophers
and sociologists. After getting a PhD in philosophy from the University of
Frankfurtbhe also has a degree from Stanford Law SchoolbKarp drifted from
academia and dabbled in stocks. He proved so good at it that, with the
backing of a handful of European billionaires, he set up a money management
firm called the Caedmon Group. His intellect, and ability to solve a Rubikbs
Cube in under a minute, commands an awed reverence around the Palantir
offices, where hebs known as Dr. Karp.

In the early days, Palantir struggled to sell its message and budding
technology to investors. Big-name venture capital firms such as Kleiner
Perkins Caufield & Byers, Sequoia Capital, and Greylock Partners all passed.
Lonsdale says one investor, whom he wonbt name, actually started laughing on
the phone at Karpbs nonbusiness academic credentials. Overlooked by the
moneyed institutions on Sand Hill Road, Thiel put up the original funds
before enticing In-Q-Tel, the investment arm of the CIA, to invest as well.
Karp says the reason VC firms bpassed was that enterprise technology was not
hot. And the government was, and still is, anti-hot.b

Michael E. Leiter, the former head of the National Counterterrorism Center,
recalls being skeptical when Karp arrived to sell Palantirbs system to the
NCTC, created by President George W. Bush after the attacks. bTherebs Karp
with his hair and his outfitbhe doesnbt look like me or the other people that
work for me,b he says. But Leiter soon discovered that Palantirbs software
cost a fraction of competing products and actually worked. Palantir not only
made the connections between the data sets but also drew inferences based on
the clues and empowered the analysts. Leiter is now a Palantir consultant.

At 44, Karp has a thin, sinewy physiquebthe result of a strict
1,200-calorie-a-day dietband an angular face that gives way to curly brown,
mad-scientist hair. On a November visit at Palantirbs headquarters, hebs
wearing purple pants and a blue and orange athletic shirt. As he does every
day, he walked to work. bI never learned to drive because I was busy reading,
doing things, and talking to people,b he says. bAnd Ibm coordinated enough to
bike, but the problem is that I will start dreaming about the business and
run into a tree.b

During the era of social networks, online games, and Web coupons, Karp and
his engineers have hit on a grander mission. bOur primary motivation,b Karp
says, bis executing against the worldbs most important problems in this
country and allied countries.b Thatbs an unusual pitch in Silicon Valley,
where companies tend to want as little to do with Washington as possible and
many of the best engineers flaunt their counterculture leanings.

Palantirbs name refers to the bseeing stonesb in Lord of the Rings that
provide a window into other parts of Middle-earth. Theybre magical tools
created by elves that can serve both good and evil. Bad wizards use them to
keep in touch with the overlord in Mordor; good wizards can peer into them to
check up on the peaceful, innocent Hobbits of the Shire. As Karp explains
with a straight face, his companybs grand, patriotic mission is to bprotect
the Shire.b

Most of Palantirbs government work remains classified, but information on
some cases has trickled out. In April 2010, security researchers in Canada
used Palantirbs software to crack a spy operation dubbed Shadow Network that
had, among other things, broken into the Indian Defense Ministry and
infiltrated the Dalai Lamabs e-mail account. Palantir has also been used to
unravel child abuse and abduction cases. Palantir bgives us the ability to do
the kind of link-and-pattern analysis we need to build cases, identify
perpetrators, and rescue children,b says Ernie Allen, CEO of the National
Center for Missing and Exploited Children. The software recently helped NCMEC
analysts link an attempted abduction with previous reports of the suspect to
the centerbs separate cyber-tip lineband plot that activity on a map. bWe did
it within 30 seconds,b Allen says. bIt is absolutely a godsend for us.b

In Afghanistan, U.S. Special Operations Forces use Palantir to plan assaults.
They type a villagebs name into the system and a map of the village appears,
detailing the locations of all reported shooting skirmishes and IED, or
improvised explosive device, incidents. Using the timeline function, the
soldiers can see where the most recent attacks originated and plot their
takeover of the village accordingly. The Marines have spent years gathering
fingerprint and DNA evidence from IEDs and tried to match that against a
database of similar information collected from villagers. By the time the
analysis results came back, the bombers would be long gone. Now field
operatives are uploading the samples from villagers into Palantir and turning
up matches from past attacks on the spot, says Samuel Reading, a former
Marine who works in Afghanistan for NEK Advanced Securities Group, a U.S.
military contractor. bItbs the combination of every analytical tool you could
ever dream of,b Reading says. bYou will know every single bad guy in your
area.b

Palantir has found takers for its data mining system closer to home, too.
Wall Street has been particularly receptive. Every year, the company holds a
conference to promote its technology, and the headcount swelled from about 50
people at past events to 1,000 at the most recent event in October. bI saw
bankers there that donbt go to any other conferences,b says Gartnerbs Litan.
The banks have set Palantirbs technology loose on their transaction
databases, looking for fraudsters, trading insights, and even new ways to
price mortgages. Guy Chiarello, chief information officer for JPMorgan Chase,
says Palantirbs technology turns bdata landfills into gold mines.b The bank
has a Palantir system for fraud detection and plans to use the technology to
better tailor marketing campaigns to consumers. bGoogle unlocked the Internet
with its search engine,b Chiarello says. bI think Palantir is on the way to
doing a similar thing inside the walls of corporate data.b

One of the worldbs largest banks has used Palantir software to break up a
popular scam called BustOut. Criminals will steal or purchase access to
thousands of peoplebs online identities, break into their bank and
credit-card accounts, then spend weeks watching. Once they spot a potential
victim purchasing a plane ticket or heading out on a holiday, they siphon
money out of the accounts as fast as they can while the mark is in transit.
The criminals hide their trails by anonymizing their computing activity and
disabling alert systems in the bank and credit-card accounts. When the bank
picks up on a few compromised accounts, it uses Palantir to uncover the
network of thousands of other accounts that have to be tapped.

A Palantir deal can run between $5 million and $100 million. The company asks
for 20 percent of that money up front and the rest only if the customer is
satisfied at the end of the project. Typically, itbs competing against the
likes of Raytheon, Lockheed Martin, Northrop Grumman, and IBM, along with a
scattering of less prominent data mining startups. bWe can be up and running
in a bank in eight weeks,b Karp says. bYou will be getting results right away
instead of waiting two to three years with our competitors.b

Palantir has been doubling headcount every year to keep up with business. To
get a job at the company, an applicant must pass a gauntlet of brain teasers.
An example: You have 25 horses and can race them in heats of 5. You know the
order the horses finished in, but not their times. How many heats are
necessary to find the fastest? First and second? First, second, and third?
(Answers: six, seven, and seven.) If candidates are able to prove themselves
as what Karp calls ba software artist,b theybre hired. The company gives new
arrivals some reading material, including a guide to improvisational acting,
a lecture by the entrepreneur Steve Blank on Silicon Valleybs secret history
with the military, and the book The Looming Tower: Al-Qaeda and the Road to
9/11. Theybre also rewarded with a low wage by Silicon Valley standards:
Palantir caps salaries at $127,000.

Instead of traditional salespeople, Palantir has what it calls forward
deployed engineers. These are the sometimes awkward computer scientists most
companies avoid putting in front of customers. Karp figures that engineers
will always tell the truth about the pros and cons of a product, know how to
solve problems, and build up a strong reputation with customers over time.
bIf your life or your economic future is on the line,b he says, band there is
one company where people are maybe kind of suffering from Aspergerbs
syndrome, but they have always been accurate, you end up trusting them.b

The director of these forward deployed engineers is Shyam Sankar, a Palantir
veteran. In his corner office therebs a Shamu stuffed animal, an antique
Afghan rifle hanging overhead, and a 150-year-old bed frame decorated with a
wild, multicolored comforter. The bed comes in handy during an annual
team-building exercise: For one week, employees live in the Palantir offices;
the bedless make shantytown houses out of cardboard boxes. Sankar celebrates
Palantirbs mix of office frivolity and low salaries. bWe will feed you,
clothe you, let you have slumber parties, and nourish your soul,b he says.
bBut this is not a place to come to get cash compensation.b

Like many of the young engineers, Sankar recounts a personal tale that
explains his patriotic zeal. When he was young, his parents moved from India
to Nigeria, where Sankarbs father ran a pharmaceutical plant. One night,
burglars broke into their home, pistol-whipped his dad, and stole some
valuables. After that traumatic event, the family moved to Florida and
started over, selling T-shirts to theme parks. bTo come to a place and not
have to worry about such bad things instilled a sense of being grateful to
America,b Sankar says. bI know it sounds corny, but the idea here is to save
the Shire.b

Karp acknowledges that to outsiders, Palantirbs Middle-earth-meets-National
Security Agency culture can seem a bit much. bOne of my investors asked me,
bIs this a company or a cult?b b he says. bWell, I donbt seem to be living
like a cult leader.b Then he begins a discourse on how Palantirbs unusual
ways serve the business. bI tend to think the critiques are true,b Karp says.
bTo make something work, it cannot be about the money. I would like to
believe we have built a culture that is about a higher purpose that takes the
form of a company. I think the deep character anomalies of the company are
the reasons why the numbers are so strong.b

Using Palantir technology, the FBI can now instantly compile thorough
dossiers on U.S. citizens, tying together surveillance video outside a
drugstore with credit-card transactions, cell-phone call records, e-mails,
airplane travel records, and Web search information. Christopher Soghoian, a
graduate fellow at the Center for Applied Cybersecurity in the School of
Informatics and Computing at Indiana University, worries that Palantir will
make these agencies ever hungrier consumers of every piece of personal data.
bI donbt think Palantir the firm is evil,b he says. bI think their clients
could be using it for evil things.b

Soghoian points out that Palantirbs senior legal adviser, Bryan Cunningham,
authored an amicus brief three years ago supporting the Bush Administrationbs
position in the infamous warrantless wiretapping case and defended its
monitoring domestic communication without search warrants. Another event that
got critics exercised: A Palantir engineer, exposed by the hacker collective
Anonymous earlier this year for participating in a plot to break into the PCs
of WikiLeaks supporters, was quietly rehired by the company after being
placed on leave.

Karp stresses that Palantir has developed some of the most sophisticated
privacy protection technology on the market. Its software creates audit
trails, detailing who has seen certain pieces of information and what theybve
done with it. Palantir also has a permission system to make sure that workers
in agencies using its software can access only the data that their clearance
levels allow. bIn the pre-Palantir days, analysts could go into file cabinets
and read whatever they want,b says former NCTC director Leiter. bNobody had
any idea what they had seen.b Soghoian scoffs at the privacy-protecting
features Palantir builds into its software. bIf you donbt think the NSA can
disable the piece of auditing functionality, you have to be kidding me,b he
says. bThey can do whatever they want, so itbs ridiculous to assume that this
audit trail is sufficient.b

Thiel, who sits on the board and is an avowed libertarian, says civil
liberties advocates should welcome Palantir. bWe cannot afford to have
another 9/11 event in the U.S. or anything bigger than that,b he says. bThat
day opened the doors to all sorts of crazy abuses and draconian policies.b In
his view, the best way to avoid such scenarios in the future would be to
provide the government the most cutting-edge technology possible and build in
policing systems to make sure investigators use it lawfully.

After Washington and Wall Street, Karp says the company may turn its
attention to health care, retail, insurance, and biotech. The thinking is
that Palantirbs technology can illuminate health insurance scams just as well
as it might be able to trace the origin of a virus outbreak. Despite all this
opportunity, and revenue that is tripling every year, Karp insists that
Palantir will remain grounded. An IPO, while not out of the question,
bdilutes nonmonetary motivation,b he says.

One higher purpose in the coming year will be rescuing strapped companies and
government bodies from the brink of financial ruin. Karp lists fraud,
Internet security issues, Europebs financial woes, and privacy concerns as
possible drivers for Palantirbs business. For anyone in peril, the message is
clear: Give us a signal and a forward deployed engineer will be at your
doorstep. bThere are some people out there that donbt think to pick up the
phone and call us,b Karp says. bBy next year, many of those people will.b

Vance is a technology writer for Bloomberg Businessweek. Stone is a senior
writer for Bloomberg Businessweek.