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

by David E. Hoffman

  Carter triumphed in the 1976 presidential campaign by emphasizing trust to a nation battered by the Vietnam War and the Watergate scandal. He projected a fresh, moralistic approach to government—“I’ll never tell a lie”—and a break with the sordid scandals in Washington. Among them, in Carter’s view, were the disclosures, starting in late 1974, of illegal CIA surveillance of American citizens, including antiwar activists. Three separate investigations of the CIA followed over the next sixteen months, revealing more unsavory operations. When Carter took office in January 1977, the CIA was still reeling from these probes.3 The agency had three directors in four years. The outgoing director, George H. W. Bush, a Republican appointed by President Ford, was affable and well liked at the CIA, and he wanted to remain, but Carter demanded a clean break. Carter at first chose Theodore Sorensen, the Kennedy speechwriter and a Democratic lawyer, to lead the CIA, but Sorensen withdrew when it was disclosed he had once been a conscientious objector and opposition to the nomination mounted in Congress.

  At the time, Turner had become a four-star admiral and was serving as commander in chief of Allied forces in southern Europe. When Turner first got the call to come to Washington, he hoped he was being considered for a military appointment as chief of naval operations or vice-chief. At the White House, Carter greeted Turner warmly in his private office, then asked him to head the CIA.4 Turner was not ready for this and protested that he might be better in a military position. But Turner quickly grasped that Carter had made up his mind. In fact, it was Turner’s military career and reputation for discipline and integrity that appealed to the new president, who had promised to turn a new leaf at the CIA. Turner took the CIA job, but “I walked out in a real daze.”5

  In the early months in office, Turner and Carter were both fascinated by stunning advances in technology, such as the revolutionary KH-11 satellite that transmitted electronic images directly to the ground, rather than using the cumbersome previous method, in which film canisters were ejected from a satellite and captured by airplanes on descent. The KH-11 images could be seen in real time instead of days or weeks later. By coincidence, the first images were received at the CIA just hours before Carter was inaugurated president. The next day, Carter was shown the photographs in the White House Situation Room. “It was a marvelous system,” Turner later recalled, “much like a TV in space that sent back pictures almost instantly.”6 Turner saw the technical side of intelligence collection as the wave of the future. He wanted intelligence that could be delivered when it was needed.

  As CIA director, Turner took home draft National Intelligence Estimates on weekends and marked them up with red pencil. The estimates are the highest product of “finished” intelligence that the CIA provides to decision makers in government, reflecting the results of espionage as well as analysis, and they are usually created and polished by dozens of officials before being disseminated. It was unheard of for a director to take them home and personally edit them. Separately, Turner displayed an independent streak in his thinking about the world and a fondness for analysis of it. He strongly questioned the U.S. military’s gloomy estimates of the expanding Soviet military threat. This deeply irritated the Pentagon, but Turner insisted that aspects of American strength were far superior and should be taken into account. He wanted a genuine balance sheet, not just a catalog of the latest Soviet threats.7

  However, Turner was singularly unprepared for the risky world of running spies. Espionage meant persuading people to betray their country and to steal secrets. Unlike most other agencies in the U.S. government, the CIA’s purpose was to violate the laws of other countries. In the clandestine service, the people who engaged in this practice believed they served a noble cause. Turner never understood them, and they saw him as distant and aloof. Robert Gates, who served for a while as Turner’s executive assistant, recalled that “the cultural and philosophical gap between Turner and the clandestine service was simply too wide to be bridged.”8 Turner said he wanted the CIA to have a higher ethical standard and efficient structure, like a corporation. But people in the clandestine service were put off by his preaching and moralism. Their work was often dirty and ruthless. They also resented how one of Turner’s coterie of assistants, Robert “Rusty” Williams, went poking into private lives, asking about affairs and divorces, which were common in the high-stress world of operations.9 Also, in 1977 Turner eliminated hundreds of positions in the clandestine service. The cuts were overdue—the directorate was overstaffed from the Vietnam War—but Turner was brusque and maladroit in carrying them out. Many old-timers were offended, and resentments ran deep.10 “He was never quite convinced about human intelligence,” recalled a CIA official who worked closely with Turner. “Sometimes it was good, and sometimes it was bad. He thought we got more out of technical intelligence, it was more reliable.”

  Within weeks of his meeting with Marti Peterson in the Oval Office, Turner’s suspicions deepened that something was wrong with the Moscow station.

  On the evening of August 26, 1977, Dick Combs, a political officer, was working late in the U.S. embassy in Moscow, writing a report. His office was on the same floor—the seventh—as the CIA station. A marine guard burst into the office and asked Combs, “Do you smell smoke?” Combs had been puffing on a pipe and did not, aside from his own. But he soon realized a fire was spreading across the eighth floor, just above him. It started after hours when a transformer ignited in the economics section. The embassy had been a firetrap for years. A recent refurbishment used paneling that was highly flammable, and the marine guards were unable to stop the flames with fire extinguishers. The Moscow fire department did not arrive immediately, and the first firemen on the scene seemed poorly trained, with outdated equipment and leaky hoses. The ambassador, Malcolm Toon, rushed to the building from a diplomatic dinner, still in black tie, and was on the street below, while the deputy chief of mission, Jack Matlock, hustled to the ninth floor. Matlock loved books and tried to save his library as the fire worsened. Later, more experienced firemen arrived, some of them KGB officers, certainly aware that the CIA’s Moscow station was in the building, hoping to scoop up sensitive documents or enter classified areas. At one point when it looked as if the entire building might be consumed in fire, the ambassador gave orders to find the CIA station chief, Hathaway, and order him to leave. A staffer found Hathaway guarding the station on the seventh floor, dressed in a London Fog raincoat, his face smudged with soot, blocking the way for any KGB “firemen” who might try to break in. He refused to budge, despite the ambassador’s order.11

  How did the fire start? At headquarters, the CIA knew that the Soviets routinely bombarded the U.S. embassy in Moscow with microwave signals. Turner brought this up constantly, saying he was worried about the “beams” at the embassy. Separately, after the fire, Turner wondered if the KGB could have deliberately caused the spark that started it, if not using the “beams,” then some other way. What was going on in Moscow? First, the loss of Ogorodnik. Now a mysterious fire and KGB “firemen.”

  Still more trouble followed. In September, the Moscow station lost another agent, Anatoly Filatov, a colonel in Soviet military intelligence who had begun working for the CIA while stationed in Algiers in earlier years. Filatov was swapping a package with a CIA case officer, a “car toss,” or quick exchange as two vehicles pulled alongside each other. The KGB was lying in wait. They arrested Filatov, and the CIA case officer and his wife were expelled.12

  Turner was shaken. Was the KGB listening to their communications? Had they penetrated the Moscow station? Was there a mole somewhere? When a system wasn’t working, Turner felt, the correct response was to fix it. Now he wanted to do the same at the CIA. He took an extraordinary step. He ordered a freeze on CIA operations in Moscow—a total stand-down. The Moscow station was told not to run any agents, not to carry out any operational acts.

  The stand-down was unlike anything the Soviet division had experienced before. Turner insisted it
would continue until the division could guarantee there would be no further compromises. This left many officers in the clandestine service bewildered. Did Turner not grasp the basics of espionage operations? The case officers and their agents were never free from risk. They could never guarantee there would be no more compromises.13

  In Moscow, Hathaway was furious; Turner’s action seemed incomprehensible. It ran against everything Hathaway stood for—against his sense of mission and desire for aggressive espionage operations. Instead of running agents, Hathaway’s case officers were forced to sit on their hands. Hathaway kept them busy as best he could, looking for new dead drop sites and making maps, preparing for the day they could resume running spies.14

  Meanwhile, the station began to lose intelligence sources, and one of them was the valuable volunteer from the early 1960s, Alexei Kulak, the KGB scientific and technical officer code-named fedora by the FBI. A war hero in the Soviet Union who joined the KGB and was assigned to New York, Kulak walked into the FBI field office in New York in March 1962 and volunteered to work for the United States for cash. He was overweight, a heavy drinker who loved big meals. Kulak served two tours in the United States and in those years was considered an authentic agent by the FBI, but by the mid-1970s they began to lose confidence in him and suspected he was controlled by the KGB.15 In 1976, Kulak was preparing to return to Moscow, probably never to return to the United States. Hathaway, then getting ready to take the reins as chief of the Moscow station, went to New York City to personally recruit Kulak for the CIA. The meeting, in a hotel room, was filled with tension, as an FBI man berated Kulak and Hathaway struggled to win his confidence. Hathaway won out, and Kulak agreed to work for the CIA once he returned to Moscow. He left the United States equipped with dead drop and signal sites. His CIA crypt was ckkayo.

  In early July 1977, he filled a dead drop in Moscow for the first time, and the contents were startling. Kulak provided a handwritten list of Soviet officials in the United States who were attempting to steal scientific and technical secrets. Even more promising, he said in the fall he would provide “lists of all Soviet officials and scientists worldwide involved in the collection of U.S. scientific and technical information,” as well as five- and ten-year plans of the KGB’s scientific and technical directorate. This would be a gold mine, a KGB blueprint ten years into the future on one of the biggest issues of the day, Soviet theft of Western technology.

  Right on schedule in the autumn, Kulak signaled for the dead drop. But at this point, Turner’s stand-down was in effect, and the Moscow station did not respond. Kulak signaled a second time. The station did nothing. Hathaway was forced to watch as a valuable source was frittered away. The Kulak operation withered.16

  The man who had first approached Fulton at the gas station was standing on a street corner near a market in Moscow on December 10, 1977, looking at the license plates on every car, searching for the prefix D-04 that signified an American diplomat’s vehicle.

  More than a year earlier, he had heard an astonishing news report while listening to a Voice of America broadcast on a shortwave radio in his apartment. He learned that a Soviet air force pilot, Victor Belenko, flew his MiG-25 interceptor from a Soviet air base in the Far East to a civilian airport in Japan and defected. It was a daring escape from the Soviet Union, and Belenko was granted asylum in the United States. As a defector, Belenko provided the Americans with an intelligence windfall, surprising new details about the feared and mysterious Soviet interceptor, designed to chase and shoot down the high-flying SR-71 “Blackbird” U.S. reconnaissance jet. In Japan, Belenko’s plane was disassembled by a U.S. and Japanese team, which yielded still more secrets, especially regarding the interceptor’s radar and avionics.17

  The Russian man on the street corner carried a letter in his pocket. Since January, he had been trying to contact the CIA by spotting cars used by the Americans. Starting with his approach to Fulton at the gas station, he had made four approaches, but all were ignored or rebuffed. Then he went on a long work trip out of town and lost track of his quarry. Now he was searching again for the Americans.

  At the market, he spotted a car with the plates. An embassy employee got out of the car. The Russian man quickly walked up to him, handed him the letter, and pleaded that it be delivered to the responsible U.S. official.

  The embassy employee who received the letter at the market was the majordomo of Spaso House, a portly man who managed the U.S. ambassador’s residence in Moscow. When he brought the letter to the CIA’s Moscow station, Hathaway opened it and found two typewritten pages of intelligence about radars for Soviet military aircraft.

  In the letter, the man described how, after Belenko’s defection, orders came down to modify the radar in the MiG-25. He then wrote something that seized Hathaway’s attention. The man said he had access to development of a “look-down, shoot-down” radar system. He also said he could provide schematics for a radar that was becoming the basic unit for interceptors like the ultrafast MiG-25.

  Again, he provided some scenarios for a possible contact and said he would be waiting for it on January 9, 1978, in the New Year.

  He wanted “to do what Belenko did,” he wrote. But he still did not say who he was.

  The next morning, Hathaway went to visit a friend who was a defense attaché in the embassy.

  “What the hell is look-down, shoot-down radar?” Hathaway asked, getting right to the point.

  The friend replied, “Are you kidding? That’s one of the most important damn things in the world!”18

  Such a radar would allow Soviet aircraft at a higher altitude to spot low-flying planes or missiles against the contours of the earth. At the time, it was believed the Soviet warplanes lacked the capability; the MiG-25 flown by Belenko did not have it. Moreover, Soviet ground-based radars also couldn’t see targets at low altitude, and the United States had spent years preparing to exploit this vulnerability, either with low-altitude bombers or with advanced cruise missiles to fly under the Soviet radars.

  Hathaway was frustrated by the stand-down and by Turner’s fears. “What the hell is wrong with headquarters?” he asked. “They have lost their mind! What are we going to do, sit on our ass?”

  While he had a healthy respect for the KGB, Hathaway knew they weren’t perfect, and he felt confident the CIA could run agents in Moscow. “You have to understand, everyone in the station, to a man, knew exactly, we can operate against these people,” he said. Hathaway felt Turner wasn’t getting good advice. He insisted that Turner send his close aide, Williams, to Moscow. Once he arrived, Hathaway took him out on a surveillance detection run, to see the KGB’s methods firsthand—methods that were sloppy, even if the surveillance was pervasive. Hathaway and Williams listened to the KGB radio transmissions with the small CIA scanners. “We hit a red light, and we could hear pomidor! Tomato! They were dumb enough to yell ‘red light,’ ” Hathaway recalled. He sent Williams back to Langley with a plea: let the Moscow station come back to life. Williams seemed to get the point. But Turner was unmoved, and there was no change in the stand-down.

  After delivering the note in December 1977 about “look-down, shoot-down” radar, the man at the gas station was given a CIA code name, cksphere.

  Hathaway pressed headquarters to examine the information cksphere had provided. From the notes earlier in the year and in December, Hathaway saw the man was an engineer at a top secret military research laboratory.

  In an internal memo on December 29, headquarters responded with an evaluation. At this point, it was critical to decide: Did the engineer have anything really important to offer? The headquarters evaluation was equivocal:

  The subject matter of Source’s reporting, airborne radio location stations, i.e. radars, is extremely important. When he talks about a radar that “can work against the background of the earth,” he is talking about a “look-down, shoot-down” radar. We know that the Soviets do not have a particula
rly effective look-down, shoot-down radar and that they are working very hard to solve this problem. An effective look-down, shoot-down would pose a serious threat to both the B-52 bomber and the cruise missile and information on Soviet state-of-the-art in this field is responsive to very high priority intelligence requirements. His offer to provide schematics and sketches of current systems would be of considerable assistance to the analysts.

  But the evaluation concluded,

  The information provided by cksphere is of intelligence value but its possession by the U.S. Government does not do grave damage to the USSR.19

  Hathaway was stunned. How could headquarters miss the obvious fact that the engineer’s information would indeed do grave damage to the Soviet Union? On January 3, 1978, just six days before the planned meeting, Hathaway sent his own argument to headquarters:

  If cksphere’s information on the current state of Soviet look-down, shoot-down radar is accurate, the development of an effective LDSD radar must be a very high priority Soviet goal in view of the cruise missile threat. Should the Soviets develop an effective LDSD radar, would detailed information on it be considered in the category of “grave damage to the USSR”? Would detailed information on it enable the US to counter its effectiveness? In other words, assuming cksphere is who he says he is, and is in a position to monitor Soviet attempts to develop an effective radar, would it be worth the risk of a PNG?20

  The last line about a “PNG” referred to the risk of a case officer’s being expelled or declared persona non grata, as had happened to Peterson.

  Hathaway believed the information from cksphere was far too valuable for a KGB dangle. They wouldn’t waste military secrets that way. In preparation for a meeting on January 9, Hathaway’s team sent a detailed scenario to headquarters, seeking approval to meet cksphere. They proposed a face-to-face walk, to ask the engineer who he was, what he wanted, and whether he had more information to provide. In particular, the station wanted to ask him about a weapons system mentioned in the December note. The engineer had indicated he could obtain schematics for a Soviet radar package code-named ametist or “amethyst,” that he had described as becoming the basic unit for interceptor aircraft like the MiG-25. They would also press him for more about look-down, shoot-down radar. Depending on how long that might take, they would set up a schedule for future meetings, with four possible sites designated at thirty-day intervals. The engineer would be encouraged to stuff envelopes through the window of a car, as he had done before.21