The Billion Dollar Spy: A True Story of Cold War Espionage and Betrayal

by David E. Hoffman

  The CIA’s sources were still on the outside looking in. “The only way to fulfill our mission was to develop inside sources—spies who could sit beside the policymakers, listen to their debates, and read their mail,” Helms recalled. But the possibility of recruiting and running agents in Moscow who could warn of decisions made by the Soviet leadership “was as improbable as placing resident spies on the planet Mars,” Helms said.9 A comprehensive assessment of the CIA’s intelligence on the Soviet bloc, completed in 1953, was grim. “We have no reliable inside intelligence on thinking in the Kremlin,” it acknowledged. About the military, it added, “Reliable intelligence of the enemy’s long-range plans and intentions is practically non-existent.” The assessment cautioned, “In the event of a surprise attack, we could not hope to obtain any detailed information of the Soviet military intentions.”10 In the early years of the agency, the CIA found it “impossibly difficult to penetrate Stalin’s paranoid police state with agents.”11

  “In those days,” said Helms, “our information about the Soviet Union was very sparse indeed.”12

  For all the difficulties, the CIA scored two breakthroughs in the 1950s and early 1960s. Pyotr Popov and Oleg Penkovsky, both officers of Soviet military intelligence, began to spy for the United States. They were volunteers, not recruited, who came forward separately, spilling secrets to the CIA largely outside Moscow, each demonstrating the immense advantages of a clandestine agent.

  On New Year’s Day 1953 in Vienna, a short and stocky Russian handed an envelope to a U.S. diplomat who was getting into his car in the international zone. At the time, Vienna was under occupation of the American, British, French, and Soviet forces, a city tense with suspicion. The envelope carried a letter, dated December 28, 1952, written in Russian, which said, “I am a Soviet officer. I wish to meet with an American officer with the object of offering certain services.” The letter specified a place and time to meet. Such offers were common in Vienna in those years; a horde of tricksters tried to make money from fabricated intelligence reports. The CIA had trouble sifting them all, but this time the letter seemed real. On the following Saturday evening, the Russian was waiting where he promised to be—standing in the shadows of a doorway, alone, in a hat and bulky overcoat. He was Pyotr Popov, a twenty-nine-year-old major in Soviet military intelligence, the Glavnoye Razvedyvatelnoye Upravleniye, or GRU, a smaller cousin of the KGB. Popov became the CIA’s first and, at the time, most valuable clandestine military source on the inner workings of the Soviet army and security services. He met sixty-six times with the CIA in Vienna between January 1953 and August 1955. His CIA case officer, George Kisevalter, was a rumpled bear of a man, born in Russia to a prominent family in St. Petersburg, who had immigrated to the United States as a young boy. Over time, Popov revealed to Kisevalter that he was the son of peasants, grew up on a dirt floor of a hut, and had not owned a proper pair of leather shoes until he was thirteen years old. He seethed with hatred at what Stalin had done to destroy the Russian peasantry through forced collectivization and famine. His spying was driven by a desire to avenge the injustice inflicted on his parents and his small village near the Volga River. In the CIA safe house in Vienna, Kisevalter kept some magazines spread out, such as Life and Look, but Popov was fascinated by only one, American Farm Journal.13

  The CIA helped Popov forge a key that allowed him to open classified drawers at the GRU rezidentura, or station, in Vienna. Popov fingered the identity of all the Soviet intelligence officers in Vienna, delivered information on a broad array of Warsaw Pact units, and handed Kisevalter gems such as a 1954 Soviet military field service manual for the use of atomic weapons.14 When Popov was reassigned to Moscow in 1955, CIA headquarters sent an officer to the city, undercover, to scout for dead drops, or concealed locations, where Popov could leave messages. But the CIA man performed poorly, was snared in a KGB “honeypot” trap, and was later fired.15 The CIA’s first attempt to establish an outpost in Moscow had ended badly.

  In 1956, Popov was transferred to East Germany and resumed spying for the CIA, traveling to West Berlin for meetings with Kisevalter at a safe house. He again proved a remarkably productive agent. His intelligence take included the text of a revealing speech in March 1957 by the Soviet defense minister, Marshal Georgy Zhukov, to troops in Germany about the use of nuclear weapons in war. In 1958, Popov was abruptly recalled to Moscow and interrogated, and his treachery was discovered. However, the KGB kept this under wraps and used Popov to occasionally pass misleading information to the CIA. On September 18, 1959, Popov slipped the CIA a message written in pencil on eight strips of paper and rolled into a cylinder about the size of a cigarette. The message told the CIA what had happened, a courageous last act of defiance by a doomed spy. The message was rushed back to headquarters, where Kisevalter read the penciled Cyrillic on the tiny strips of paper and broke down in sobs. Popov was tried in January 1960 and executed in June by firing squad.

  The second breakthrough began to unfold just two months later in Moscow, on August 12, at about 11:00 p.m.

  Two American student tourists, Eldon Cox and Henry Cobb, strolled across Red Square cobblestones, still wet from a light rain, heading back to their hotel after seeing a performance of the Bolshoi Ballet, when a man came up behind them and pulled at Cobb’s sleeve, holding a cigarette and asking for a light. The man was of medium build, wearing a suit and tie, with reddish hair showing gray at the temples. He asked if they were Americans, and when they said yes, he began to speak rapidly while looking around to make sure they were not being observed. He pressed an envelope into Cox’s hands and pleaded with him to take it immediately to the American embassy. Cox, who spoke Russian, took it to the embassy that night. Inside was a letter. “At the present time,” said the writer, “I have at my disposal very important materials on many subjects of exceptionally great interest and importance to your government.” The writer did not identify himself, but enclosed a hint that he had once been stationed in Ankara, Turkey, for Soviet military intelligence. He gave precise instructions for how to contact him—with messages in a matchbox concealed behind a radiator in the entrance hall of a Moscow building. He included a diagram for the dead drop.16

  The writer of the letter was Oleg Penkovsky, a colonel in the GRU, an imaginative, energetic, and self-confident officer who served with distinction in the artillery during World War II. He was now working at the State Committee for Coordination of Scientific Research Work, a government office that oversaw scientific and technical exchanges with the United States, Great Britain, and Canada and provided cover for Soviet industrial espionage and clandestine acquisition of technology in the West.

  The letter was delivered to the CIA, which was suspicious at first. They knew the Soviets had been deeply embarrassed by the Popov case. Was the letter a trap? A decision was made at headquarters to contact the writer, but at the time the CIA did not have a streetwise operative in Moscow. The U.S. ambassador in Moscow, Llewellyn Thompson, was adamantly opposed to the assignment of any CIA personnel to the embassy. Eventually, in the autumn of 1960, an arrangement was worked out to send a young officer from the Soviet division at headquarters to Moscow, expressly to make contact with Penkovsky. The officer did not speak Russian very well. The CIA gave him a code name: compass. He screwed up, drank heavily, and failed to make contact.17

  Penkovsky was frustrated. He had written his first letter to the Americans in July 1960, and he spent weeks looking for someone to deliver it. “I stalked the American Embassy like a wolf, looking for a reliable foreigner, a patriot,” he recalled.18 After he handed the letter to Cox on Red Square in August, Penkovsky waited and waited for the CIA to respond. He heard nothing. He tried to pass his information through a British businessman, then a Canadian, without success. He was growing desperate.

  Finally, on April 11, 1961, Penkovsky slipped a letter to a British businessman that was addressed to the leaders of the United States and the United Kingdom. The businessma
n, Greville Wynne, shared the letter with the British Secret Intelligence Service, or MI6, which provided the letter to the CIA. The American and British services decided to work together to run Penkovsky as a spy.

  Nine days later, Penkovsky came to London as head of a six-man Soviet trade delegation shopping for Western technology—steel, radar, communications, and concrete-processing techniques. It was a tense time; the CIA’s Bay of Pigs invasion in Cuba had just failed. On arrival, Wynne met Penkovsky at the airport, and Penkovsky immediately handed an envelope to him. It included descriptions and diagrams of the latest Soviet missiles and launchers. Later that evening, Penkovsky left his room at the sprawling Mount Royal Hotel on Oxford Street in London and walked to room 360. He knocked on the door, wearing a business suit, white shirt, and tie. When he entered the room, he was greeted by two British and two American intelligence officers. “You know now that you are in good hands,” a rumpled, heavyset American reassured Penkovsky. He was Kisevalter. Penkovsky replied, “I have thought about this for a long time.”

  In the conversations that followed, Penkovsky told the American and British officers that his career as a Soviet intelligence officer had gone off the rails, and he was bitter. His father died when he was only four months old, and his mother had told him it was from typhus. But papers had been found about a year earlier showing that his father had served as a first lieutenant in the White Army, fighting against the Bolsheviks, which threw Penkovsky’s loyalty into doubt. He was accused of covering it up. An assignment to India fell through, and he was shunted aside. He loathed the KGB.

  On two extended visits to London, first in April and May and then in July and August, and one trip to Paris in September and October 1961, Penkovsky spoke to the British and American intelligence officers for 140 hours in smoke-filled hotel rooms, which produced twelve hundred pages of transcripts. Penkovsky also delivered 111 rolls of exposed film. In Moscow, he used a tiny Minox commercial camera to photograph more than five thousand pages of secret documents, almost all of them about the Soviet military and taken from the GRU and military libraries. Penkovsky was filled with zeal and took risks, once photographing a top secret report right off the desk of a colonel who had momentarily stepped out of his Moscow office.

  Not all the conversations with the American and British officers went smoothly. In one of the early sessions at the Mount Royal Hotel, Penkovsky presented a bizarre plan to hold Moscow and the entire Soviet leadership hostage. He wanted to deploy twenty-nine small nuclear weapons in random fashion throughout Moscow in suitcases or garbage cans. The United States was to provide the weapons, instruct him on welding them into the bottom of garbage cans, and provide him with a detonator. With difficulty, he was talked out of the fantasy.19

  But Penkovsky took his espionage mission seriously and demonstrated to the CIA how a single clandestine agent could produce volumes of material. When asked if he could obtain copies of the Soviet General Staff journal Military Thought and urged to look for the secret version, Penkovsky asked if the CIA also wanted the top secret version. The CIA didn’t know there was one. Penkovsky provided almost every copy of the journal, in which Soviet generals debated concepts of war in the nuclear age.20 His reports provided critical insights into Soviet intentions during the 1961 Berlin blockade, informed the West for the first time about the existence of the all-important Military Industrial Commission, which made decisions about weapons systems, and provided key technical details of the R-12 medium-range missiles that the Soviet Union sent to Cuba in the fall of 1962, especially the range of the missiles and time required to make them operational. Penkovsky’s intelligence, code-named ironbark and chickadee, was a key ingredient in decision making as President Kennedy stood up to Khrushchev during the Cuban missile crisis.21 Penkovsky’s information on the Soviet medium-range missiles was included in the President’s Daily Brief in the third week of October 1962. Additionally, Penkovsky’s information, along with the first reports from the new Corona spy satellite, debunked the myth that the Soviet Union was churning out intercontinental ballistic missiles like sausages, as Khrushchev had boasted. The “missile gap” didn’t exist.

  Penkovsky was, at the time, the most productive agent ever run by the United States in the Soviet Union.22 The CIA and MI6 agreed to pay him $1,000 a month for intelligence worth millions.23 After the meetings in the hotel rooms in London and Paris, the operation moved into a second phase in which Penkovsky was run in Moscow. The British businessman Wynne, who visited the Soviet Union periodically, met with Penkovsky, collecting intelligence and passing it to MI6. But Penkovsky was eager to deal directly with the American and British intelligence services in Moscow.

  The CIA was not ready. Ever since the disaster of compass, a replacement officer had been in training, but the replacement pulled out at the last minute, leaving the CIA empty-handed at a critical juncture. “We had an increasingly desperate and very valuable agent out there and no one in a position to contact him,” recalled a CIA officer who was involved at the time.24 The agency also still lacked suitable spy gear for the operation.25

  While the Americans had played the preeminent role in the meetings in London and Paris hotel rooms, the British came to dominate the operation in Moscow. According to the CIA officer, “MI6 was able to do what we could not—devise and carry out a cover operational plan for the case.” The British chose Janet Chisholm, wife of the MI6 station chief, to be Penkovsky’s case officer. She met with Penkovsky a dozen or so times, at British embassy receptions and a cocktail party, at the nearly empty delicatessen shop of the Praga restaurant, at a secondhand shop, in a park, and in apartment building foyers, often under difficult conditions, with her three children in tow. Penkovsky passed film cassettes concealed in a box of chocolates for the children. He seemed frenetic and driven; the CIA worried that he was meeting too often with Mrs. Chisholm. When the CIA finally deployed a trained officer to Moscow at the end of June 1962 to work on the Penkovsky case, the officer’s work was short-lived. Penkovsky was last seen by the CIA at a U.S. embassy reception on September 5, 1962, and then disappeared.26

  He fell under suspicion by the KGB, which had put Mrs. Chisholm under surveillance. They had drilled a pinhole in the ceiling of his apartment study and put a camera there to monitor him. Another KGB camera in a nearby building photographed him in his apartment. A search discovered the Minox camera, as well as methods for encrypting messages, and a radio receiver he had been given for clandestine communications from the West. Penkovsky was arrested in September or October 1962. He was tried publicly and convicted of espionage, then executed on May 16, 1963.27

  At almost the same time that Penkovsky was talking to the American and British officers in the hotel rooms, two more Soviet officers volunteered to become spies for the United States, both outside the Soviet Union. In 1961, Dmitri Polyakov, a Soviet military intelligence officer assigned to the United Nations, offered his cooperation in New York and became an agent whom the FBI gave the code name tophat. Then, in 1962, Alexei Kulak, a KGB scientific and technical officer, volunteered in New York to the FBI in exchange for cash. He became the FBI’s agent fedora. Both tophat and fedora were important and valuable assets for the CIA and the FBI at different times in the 1960s and 1970s, but they were largely handled beyond the Soviet borders. In the back alleys of the world, it was possible for the CIA to recruit agents and spies, and to exploit volunteers, but not yet in the very center of the Soviet Union, on the streets of Moscow.

  After the loss of Penkovsky, the CIA entered a long, unproductive period in Moscow. A major cause for this was the overwhelming influence of James Angleton, the counterintelligence chief at headquarters. He threw the CIA into a state of high paranoia and operational paralysis. A tall, thin, quirky man, gentle to friends and inscrutable to others, Angleton cut a distinctive figure in owlish eyeglasses, dark suits, and wide-brimmed hats. He lorded over his own autonomous office, keeping his files locked and separate from the rest of the C
IA, sitting at a desk piled with dossiers and shrouded in blue haze from chain-smoking. He enjoyed two hobbies, growing orchids and twisting elaborate flies for trout fishing. Over twenty years as the CIA’s chief of counterintelligence, from 1954 to 1974, Angleton created an extraordinary mystique about himself and his work. Secretive, suspicious, and tenacious, he became obsessed with the belief the KGB had successfully manipulated the CIA in a vast “master plan” of deception. He often spoke of a “wilderness of mirrors,” a phrase he borrowed from T. S. Eliot’s 1920 poem “Gerontion,” to describe the layers of duplicity and distrust that he believed were being used by the KGB to mislead the West. In 1966, Angleton wrote that an “integrated and purposeful Socialist Bloc” had sought to spread false stories of “splits, evolution, power struggles, economic disasters [and] good and bad Communism” to a confused West. Once this program of strategic deception had succeeded, the Soviet Union would pick off the Western democracies, one by one. Only the counterintelligence experts, he said, could stave off disaster. Angleton’s suspicions permeated the culture and fabric of the CIA’s Soviet operations division during the 1960s, with disastrous results. Two directors of the CIA, Allen Dulles and Helms, let Angleton have his way. Angleton felt that no one and no information from the Soviet KGB could be trusted. If no one could be trusted, there could be no spies.28