The Spy's Son

by Bryan Denson

  The illegals had been highly trained in the English language, countersurveillance, concealing and destroying spy tools, and maintaining their cover professions. They communicated with their SVR handlers in new and old ways, including invisible writing, shortwave radio signals, codes and ciphers (including encrypted Morse code), and the hiding of secret text in ordinary digital photos (spycraft known as “steganography”). They exchanged money and information in dead drops, brush-passes, and in agent-to-agent meetings.

  Putin described the illegals as uncommonly brave. “Just imagine,” he told reporters two weeks after the spy swap. “You need to master a language like your mother tongue. You need to think in it, speak in it. You need to fulfill the task set in the interests of your motherland for many, many years not counting on diplomatic cover, expose yourself and your loved ones to danger.” It was no wonder then that President Medvedev awarded the illegals—at least some of them—Russia’s top government honors. The Kommersant newspaper reported in November 2010 that the illegals were betrayed by a Russian intelligence officer, and Putin later acknowledged this in a televised call-in show. He told viewers that—unlike during the Soviet days—those who betray Russia would not be tracked down and killed.

  “As for the traitors, they will croak all by themselves,” Putin said. “Whatever equivalent of thirty pieces of silver they get, it will get stuck in their throats.”

  The traitor he spoke of was Alexander Poteyev, a colonel in the SVR who may have commenced his betrayals of Russia during a 1999–2000 tour in the United States. Poteyev served as the SVR’s deputy head of Department S, supervising the illegals from Moscow Center. A military court found that Poteyev betrayed his secret agents, their financial information, and their communication methods. He also hindered their operations with poor equipment, requiring them to meet in unsecured spots. This allowed FBI agents to spy on the illegals for years to determine what inroads the SVR sought in the United States. Eventually, the FBI sent in undercover agents, posing as Russian spies, to make contact with them.

  Poteyev was in Russia in early summer 2010, when he learned the FBI was about to arrest the illegals he had betrayed. He dropped everything, fleeing through Belarus, Ukraine, and Germany before flying to the U.S. with a passport in another name. His wife got a farewell text the next day: “Mary, try to take this calmly. I’m leaving not for some time, but forever. I didn’t want to, but I had to. I will start my life from scratch and will try to help the children.”

  Anna Chapman later revealed that she feared she’d been betrayed while meeting with a Russian spy (in fact, an undercover FBI agent) who uttered a code that only Poteyev and her personal handler knew. On June 26, 2010, Chapman had phoned her father, a former KGB man now working in Moscow’s Ministry of Foreign Affairs, telling him of her fears that she’d been found out. The following day, the FBI rolled up Chapman and nine other illegals. Another suspect, identified as Christopher R. Metsos—who delivered pay and expenses to the ­illegals—was arrested in Cyprus. Authorities there allowed Metsos to post bail. He vanished like a ghost, presumably fleeing to Russia.

  The same month the U.S. sent the Russian illegals packing, the FBI opened an investigation of a Houston export company busily supplying Russia’s military and intelligence agencies with shipments of microelectronics and other high-tech gear. The company was the center of a secret and highly illegal procurement network, according to the U.S. government. Arc Electronics Inc. founder Alexander Fishenko, a former Soviet from Kazakhstan, bought parts with an array of military uses—detonation triggers, for instance, and systems for missile guidance, radar, and surveillance. The gear wasn’t available in Russia, federal prosecutors reported, and Arc officials lied to U.S. suppliers about its plans for the parts, saying for instance that the company was producing traffic lights. Federal investigators learned that the Texas outfit served only as an exporter, shipping an estimated $50 million worth of microelectronics and other technologies to Russia. Much of this was acquired by a shady Moscow procurement firm, Apex System LLC, for which Fishenko was a controlling principle. In late 2012, government agents eventually indicted Fishenko and ten other people in the U.S. Fishenko was charged as the mastermind of the illegal procurement network.

  Americans shouldn’t be surprised that Russian spies operate on U.S. soil. They also shouldn’t look past the fact that the U.S. has been caught in recent years running its own spies in Russia. As long as the two countries remain competitors, it’s in their best interests to learn each other’s military, economic, and trade secrets.

  Russia’s incursions on U.S. soil should have sounded a national warning bell about Moscow’s reach and its strategy to reclaim a berth on the global stage, according to Michelle Van Cleave, who served as National Counterintelligence Executive under President George W. Bush. Instead, she told me, pundits and would-be experts took to the airwaves to poke fun at Anna Chapman and the gang, describing them as little more than hapless spies playing Bond. Not only was that characterization erroneous, Van Cleave said, but it exposed a national naïveté about Russia’s efforts to undermine the U.S.

  “It clearly revealed a tip-of-the-iceberg investment by the Russians into building infrastructures within the United States—outside of traditional embassy platforms—to enable its intelligence operations,” she said. Van Cleave believes there are at least as many Russian spies operating on U.S. soil today as during the height of the Cold War. “And there may well be more.” If this sounds like a continuation of the Cold War, she points out, welcome to the party.

  “I think Putin’s been rather forthcoming about his own views and objectives, sort of capsulized by his statement a couple years back that the collapse of the former Soviet Union was the greatest geopolitical tragedy of the twentieth century,” Van Cleave said. “When you measure that statement against a couple of world wars during that century, you begin to appreciate the magnitude of what he’s saying.” Van Cleave believes Putin’s objectives are clear: to return Russia to global power by neutralizing former Soviet states, consolidating power, and undermining the West’s global influence.

  Putin is a true believer in espionage as the front end of that spear, and he’s been quoted as saying that one deceptive man can beat armies. On his watch, Russian spies have more freedom to romp against the West than the U.S.S.R. ever allowed. Van Cleave notes that Russia’s security and intelligence apparatus, parented by Putin, faces none of the encumbrances once imposed by the Communist Party. As a result, Putin’s government has become virtually indistinguishable from its spy services, allowing organized crime to permeate Russia’s industries. “So,” Van Cleave said, “the the power and autonomy of the new KGB—the security service, the intelligence services—are even broader than [in] days gone by.”

  What surprised Van Cleave was the haste of the 2010 spy exchange. “Nothing wrong with spy swaps; there’s a time-honored tradition,” she said. “But we only had them for two weeks. Normally you’d take your time after ten years[of] having these people under surveillance. The bureau was eager to get their hands on them to find out what they could about their operations. And yet, after two weeks, you got almost no time to debrief them or pursue follow-up lines of inquiry.”

  It may never be clear why the U.S. so hastily expelled the Russian spies. Perhaps they were getting too close. But the FBI’s position is that its agents let the illegals run with a lot of line before reeling them in, part of a calculated strategy to get the upper hand on Russia’s foreign spy service. Robert Anderson Jr., who served as assistant director of the FBI’s Counterintelligence Division at the conclusion of the Ghost Stories investigation, described the case as a big win for the U.S.

  “I think we got back much more than they got,” he said. “For numerous years, we owned every facet of their lives. From that, we could watch how that service would run them, operate them, pay them, communicate with them.” Ghost Stories gave the U.S valuable insights on Moscow Center’s in
tentions, and how it might run future spy operations against the West. The SVR unwittingly handed over its methods and sources. “And that,” Anderson said, “allows us to go out and look for others like this that we may not know are there.”

  The FBI’s Portland-based investigation of Jim and Nathan offered another portal into the SVR’s methods and sources. It demonstrated Moscow’s ongoing devotion to U.S. spies caught betraying their country for Russia—at least for those, like Jim, who might still be able to help them.

  From his office in the Hoover Building, Anderson supervised the espionage investigation of the Nicholsons. Briefed every few days on the case—sometimes by video feeds in highly secure rooms—Anderson came to think of Jim as cunning, self-centered, self-righteous, and evil. He felt sorry for Nathan, who had been worked over by a master manipulator.

  “If you can do that to your own family, and your own son,” he said, “the sky’s the limit for your employer and the United States government.”

  Sheridan, Oregon, late summer 2010

  Jim had spent more than twenty months in the hole, where rain occasionally seeped into the hallways, occasionally leaving the floor of his cell a swampy mess. Those who occupied the solitary unit had taken to stuffing towels under their doors to fight against the seepage. Jim was eventually moved to a dry cell, but he remained bitter about having been left in such cold, damp confinement. It gave him one more reason to despise the U.S. government.

  He mailed a letter to Star on September 4.

  “I didn’t tell you why I’ve decided to go to trial yet, I don’t think,” he wrote. “I want you to know. Everything I write is scrutinized by multiple readers looking for just anything to use against me. That’s fine. As you know they twist things completely out of context sometimes . . . to support whatever pet theory they want to use against me. So, it really doesn’t matter what I say—they’ll piece the words together anyway. I said that because I want to state clearly that Nathan is not responsible for any of the mess he and I are suffering through (and indirectly the rest of our family). I am responsible for bringing this unholy wrath upon us and I alone.”

  Jim let his daughter know that neither he nor Sam Kauffman believed the government’s charges would stick against him or Nathan. But he wanted Star to understand that prosecutors had indicted Nathan because of him.

  For a moment, it looked as if Jim might be falling on his sword to save his boy. He had made a feint at this once before. About a month after his arrest, he sent word to Scott Jensen that he wanted to talk things over. The FBI man had driven out to the prison, listened to Jim’s pitch, and carried it back to prosecutors in Portland. Jim had told Jensen that he hoped to protect his son from criminal charges. But it seemed clear to the veteran FBI man that Jim—still in the dark about just how much investigators knew about their scheme—was more interested in fishing for details than striking a plea bargain that would save Nathan. Jensen offered Jim another chance to cowboy up and spare his kid from culpability for his father’s crimes. But Jim didn’t bite. Holsinger and Knight, unmoved by Jim’s entreaty, indicted him and Nathan a few days later.

  “Nathan is going to be used by the prosecution to testify against me,” Jim wrote to Star. “He has no choice. Not only is this something he must do, I want him to. If for some reason the jury decides to find me guilty of anything, at least Nathan will not be punished overly severely. . . . The government will only be happy if I have to spend the rest of my life in prison. . . . That part is pure political vengeance on the part of someone in government. That’s why I and Sam believe I should go to trial.”

  If only Nathan felt the same way. He wanted Jim to plead guilty so that he had a fighting chance of getting out of prison alive. Nathan was certain that a jury would convict his dad of multiple felonies, and that he was powerless to stop him from stampeding to trial. He was forbidden from reaching out to the old man—even through lawyers—to persuade Jim to throw in the towel. This was maddening to Nathan. He worried that if his father rolled the dice in front of a jury and lost, he’d probably die behind bars. Nathan knew this would leave them both shattered. He also knew that if Jim went away for life, it might destroy his relationship with Jeremi and Star.

  “I doubt there’s anyone still in the government who knows some of the explosives they seem to be playing with,” Jim wrote in his letter to Star. “One must be careful walking through a minefield. At least I know where the mines are. So, that’s all. You know me and you know my heart. If I didn’t have you kids I would have given up long ago. You keep me going—give me a reason, as Grandma said of me, to live. Prison is not life. So I fight to live because of you. I love you, honey. I’m not giving up on God. But as usual, he’s cutting it close. Love Always, Daddy. P.S. This is my 630th day in solitary confinement.”

  In the final days of summer, Kauffman dug deeper to defend Jim.

  He added heavyweight lawyer Robert C. Weaver Jr., one of GSB’s owners, as his co-counsel. Earlier in his career, Weaver served as a federal prosecutor, making his bones as the man who brought down cult leader Bhagwan Shree Rajneesh, whose followers carried out the only mass bioterrorism attack on U.S. soil, slipping salmonella into the salad bars of ten restaurants in Oregon’s Wasco County. As a defense lawyer, Weaver represented figure skater Tonya Harding, who played a role in the notorious knee-whacking of skating rival Nancy Kerrigan before the 1994 Winter Olympics. More recently, he represented several NBA players on the Portland Trail Blazers, whose criminal scrapes and hard partying off the basketball court earned them the nickname “Jail Blazers.”

  Kauffman filed a court notice to let the government know he planned to disclose classified information at trial, including details of Jim’s days in the CIA, his interactions with Russian spies, and the circumstances of his 1990s espionage. Kauffman’s motion noted that at trial he intended to cross-examine FBI or CIA officials and potentially some of their Russian counterparts. He also gave notice that he planned to ask questions in open court about Nathan’s first contact with the Russians, and whether Nathan was under investigation before the FBI tailed him on the night of the murder mystery dinner train. Kauffman’s filing came under the Classified Information Procedures Act, a 1980 law known as CIPA. The law was intended to prevent willy-nilly public disclosure of U.S. secrets.

  Holsinger and Knight objected immediately to Kauffman’s notice, responding in their own filing that Jim apparently wanted to divulge information that would damage national security. Their objection pointed out that CIPA doesn’t permit defendants to surprise courts with classified evidence and that Judge Brown shouldn’t allow the former CIA man to threaten the court with the legal equivalent of blackmail, known as “graymail.”

  Prosecutors figured Jim was threatening them as leverage for a generous plea bargain. They knew that the CIA’s lawyers and their own legal superiors at Justice Department headquarters had no stomach for a trial that might give Jim a platform to divulge U.S. secrets in open court. But if Jim thought he had the government by the short and curlies, he was mistaken. Holsinger and Knight, doing the heavy legal lifting in Portland’s U.S. Attorney’s Office, were itching to take Jim to trial. They knew that winning a conviction in Portland, before a jury culled from a region teeming with government skeptics, would mark a career highlight.

  Judge Brown set Jim’s jury trial for two weeks commencing on November 8, 2010.

  On October 1, Kauffman and Weaver filed a trial memo that served as a blueprint for Jim’s defense strategy: “The charges in this case stem from an ill-conceived, but ultimately successful, plan by Mr. Nicholson and his son Nathaniel Nicholson (Nathan) to obtain financial assistance for the three Nicholson children.” The defense wrote that it would dispute little about the facts of Nathan’s travels around the world. “Nevertheless,” they wrote, “Mr. Nicholson is not guilty of the charged crimes. Simply put, it is not illegal for someone to ask a foreign government for financial assistance, even if
that person has previously been convicted of espionage. Nor is it illegal for someone to bring cash into the United States from a foreign country, even if it is brought in covertly.” The government, they wrote, had gone to great lengths and spent untold dollars to investigate and prosecute the Nicholsons—but they’d committed no crime.

  So there it was. Jim’s lawyers had pinned his hopes on the novel notion that accepting money—even from the Russian spy service that owed Jim for his espionage—was nothing more than a gift of financial assistance for the Nicholson kids. The defense didn’t believe it was money laundering. This appeared to be a legal sleight of hand, and was unlikely to pass a jury’s sniff test. But there was more: The defense wanted Judge Brown to exclude testimony about Jim’s 1997 conviction for espionage and his attempts to sneak documents out of the prison before Nathan came along.

  Prosecutors had framed their case around Jim’s prior espionage, which they maintained was the foundation for his repeated efforts to smuggle messages to the Russians. They had spent hours prepping former prisoners for trial. Steven Meyers was prepared to testify that Jim used him in an effort to talk his brother Randall and his paralegal friend to sneak messages out of the prison. Phil Quackenbush would tell the court he covertly carried out a thick document for Jim. Nathan would testify that he couriered multiple messages between Fedotov and his dad, and Rochford would explain why a retired spy like Fedotov was called in to handle Jim’s boy.

  The government planned to introduce a jarring pile of exhibits at trial, including the photo of Jim wearing the “KGB is for me” T-shirt, his arrest photo on the tarmac at Dulles, and the certificates of completion he earned in prison for Beginning Russian and Russian II. They would play for the court dozens of phone calls between Jim and his kids, and they would introduce piles of correspondence, Nathan’s travel records, and surveillance videos. As a coup de grâce, they would trot out Roch­ford, who would paint a portrait of Fedotov—under a backdrop of Cold War spy dramas and political intrigue—as a spymaster still intent on harming U.S. security by learning the identity of the Russian mole who’d helped betray Jim.