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Monday, January 20, 2014

National Security and American Security

This blog includes a fascinating true spy story by David Wise, published in "The Smithsonian" and reprinted in "The Week". It's a case study on what Americans don't know and, leaping forward, why we need the NSA.

One thing I know about National Security is that I don't know a lot. Nevertheless, I know Americans became lulled into a sense of invulnerability when terrorists attacked New York City and Washington DC on September 11, 2001. In retrospect, the clues were there, but Americans didn't have the capacity to react.

Although the National Security Agency (NSA) is unfortunately a focus of public disdain, Americans must consider an alternative. To let our national security lapse will put all Americans at risk for unknown dangers exceeding the collateral impact of invasion of our privacies.  In fact, our credit cards and online purchasing vendors have copious information about who we are, our demographics, income, socio-economic status and purchasing power. Americans need a National Security Agency to oversee devious agents who are intent on doing our nation irrevocable harm.  

There's overwhelming evidence in American history about times when our nation didn't have reliable covert information. It baffles me to realize the short length of our historical memory.

An excellent article by David Wolfe in The Smithsonian (October 2013) and in the January 17, 2014 "The Week", describe a time in our recent past when the Federal Bureau of Investigation (FBI) spent decades searching its ranks for a Russian KGB agent. 

"The Inside Man" is a true spy story and a lesson in how the world continues to be a very dangerous place where people of unknown motivation are intent on creating chaos.

A tip provided by a double-agent for the KGB set off one of the most self-destructive mole hunts in FBI history

One spring night in 1962 a short, stocky Russian walked into the FBI office in Midtown Manhattan and offered his services as a spy for the United States. Aleksei Kulak, then 39, was working undercover as a science official at the United Nations. He said he was unhappy with his progress at his true employer, the KGB.

Kulak was taking a huge risk simply by entering the FBI office. The building was on East 69th Street at the corner of Third Avenue—just three blocks from the Soviet U.N. mission on Park Avenue at 68th Street, which provided cover for dozens of KGB agents. “Aren’t you worried they may be watching the FBI building?” an FBI agent asked.

“No,” Kulak replied. “All of our people are out covering a meeting with your guy, Dick.”

Your guy, Dick.

The Russian was clearly saying that the KGB had a mole inside the FBI. With those three words, he set off an earthquake inside the bureau that reverberated for decades—and remains unsettled even now.

Kulak became the FBI’s Bureau Source 10, with the code name FEDORA. (Behind his back, agents called him Fatso.) The FBI assigned the code name UNSUB Dick, “UNSUB” being the term for “unknown subject,” to the mole that Kulak said was hidden inside the bureau.

Kulak had scarcely left the FBI building that evening before the bureau launched a mole hunt that “shook the foundations of the bureau,” says David Major, who spent 24 years as an FBI counterintelligence agent and was the first bureau official assigned to the National Security Council in the White House. 

Over the course of three decades, hundreds of agents’ careers fell under the shadow of the investigation. In terms of corrosive effect, Major cites only one comparable event in U.S. intelligence history: the notorious mole hunt James Jesus Angleton conducted within the CIA, which paralyzed the agency’s Soviet operations and destroyed or damaged the careers of as many as 50 loyal CIA officers between 1961 and 1974, when Angleton was fired. “You know how Angleton ripped apart the agency,” Major, who retired from the FBI in 1994, told me. “Well, the same thing happened to the bureau. Dick ripped the bureau apart. But it never became public.”

I first learned of UNSUB Dick while researching my 2002 book, Spy: The Inside Story of How the FBI’s Robert Hanssen Betrayed America. When I approached Major back then about the hunt for Dick, he replied, “You make my hair stand on end when you say that name. How do you know about UNSUB Dick?” and declined to discuss the matter any further. But with the passage of time, Major—and several others—recently agreed to talk about it. 

This article, based on interviews with 30 current or former FBI agents, traces the course and effects of one of the most sensitive investigations in the bureau’s history—and what is, as far as can be determined, the first mole hunt in the history of the FBI

“This was the first,” says R. Patrick Watson, a counterintelligence agent in New York at the time and later a deputy assistant director of the FBI for intelligence operations. “I’m not aware of any prior to Dick.”

The bureau’s first task was to ensure that it didn’t assign the mission of finding Dick, to Dick himself. 

To reduce that risk, the hunt was given to two trusted senior counterintelligence agents, Joseph J. Hengemuhle and Joseph J. Palguta, who were good friends as well as colleagues. Hengemuhle was “a big, burly guy, over six feet, brash—cuss words were every other word,” recalls Michael J. Waguespack, another seasoned FBI counterspy. “He was the Soviet program in New York.” Hengemuhle would later move to FBI headquarters in Washington, D.C., as Soviet section chief; he retired in 1987 and died in 1989. Palguta, too, loomed large—he was “a big, balding, stocky guy, very intense,” says Watson. “I always thought he was Slavic. You didn’t want to tell him he looked like a Russian—he didn’t like that.” But Palguta had taught himself Russian from Berlitz recordings and was fluent in the language. According to John J. O’Flaherty, another former counterintelligence agent, his accent was convincing enough that he would sometimes pose as a Russian. Palguta worked as a counterspy in New York for 27 years. He retired in 1976 and died in 1988.

Armed with little more than a name—and uncertain whether it was the target’s real name or a KGB code name—Hengemuhle and Palguta set out to catch a mole.

With a thousand agents, New York was the FBI’s largest field office. “There were about six or seven Soviet squads with maybe 20 or 25 people on each,” says an FBI counterintelligence agent assigned to New York at the time. “Some were looking at the U.N., some were looking at Americans the Soviets contacted. Plus, lookout squads and a squad that did surveillance. There were maybe 50 people combined on each squad, so with six or seven squads there were over 300 agents looking at the Soviets—which means everyone on those squads was a potential suspect.” Including FBI agents working against Eastern European targets, the number of logical suspects totaled about 500.

Of course, everyone named Dick had to be investigated. “Dick McCarthy became the first suspect, because of his name,” says Walter C. “Goose” Gutheil, a New York FBI counterintelligence agent for 26 years until he retired in 1978. Richard F. McCarthy, who worked on a squad that targeted the GRU, Soviet military intelligence, assumed the mole hunters investigated him but says they never interviewed him. “I hope I was a suspect—they had to look at people with the first name,” he says. “I had an attitude, if I knew who it was I would have belted him.” Any FBI man who spied for the Russians, he added, would have to be “a psycho.”

About the only other thing the mole hunters knew was that on the night Kulak walked into the FBI office, he said Dick was out meeting with the KGB. That reassured Kulak that he wasn’t talking to the mole, whose identity and appearance he didn’t know, and gave Hengemuhle and Palguta a clue, however slight. They could try to narrow the field of suspects by determining who was on the street at that hour. “You’d want to see who worked that day based on timecards, when did they sign in, what was on their timecard,” says former FBI agent Edwin L. Worthington, who reviewed the files on UNSUB Dick in the mid-1980s as a headquarters official responsible for investigating penetrations of U.S. intelligence.

Although Hengemuhle and Palguta held their mission closely, word got around as they delved into counterintelligence agents’ backgrounds, the cases they handled and their possible vulnerabilities to recruitment by the KGB. 

For security reasons, the mole hunters worked from a windowless back room in the New York FBI office, in an area set apart from the rest of the floor. “It was supposed to be secret, but everyone knew about the search,” Major says. James A. Holt, a counterintelligence agent in New York at the time, says the mole hunt shattered morale: “There was consternation in the New York office because everybody knew they were under the gun, that they were being looked at.”

One reason for the apprehension is that many agents worried that the investigation might uncover other sins that would get them in trouble—a drinking problem, an extramarital affair. An agent who lived through the mole hunt recalled hearing about “one guy who used to go to a bar every morning before he reported to work.”

It also became apparent that the bureau was wiretapping its own men. After James E. Nolan Jr. arrived in New York as a counterintelligence agent in 1964, he needed a place to live and wanted to make a call about an apartment. Under J. Edgar Hoover, the FBI prohibited agents from using bureau phones for personal calls. So Nolan went downstairs to the building’s garage to use the pay phone. He happened to be with another agent who had worked longer in the New York office.

As Nolan started to pick up the phone, his colleague whispered: “Don’t use that one.” And then he told Nolan about the hunt for UNSUB Dick. Nolan, who years later became a deputy assistant director of the FBI, concluded that if the bureau was tapping the pay phone in the garage, it probably would not stop there—or overlook the agents’ office phones.

David Major learned about UNSUB Dick while he was assigned to the FBI’s Newark office in 1972. “I was doing a stakeout on a kidnapping,” he says. “We were doing the stakeout on the Bayonne Bridge. I was with an agent who had previously worked in the New York office. It was 2 or 3 in the morning, and the agent started telling me about the case. He got very emotional, because as a result of the case he was transferred to Newark. I was told by this agent that a significant number were transferred out of New York because of the search for UNSUB Dick. 

Later I was told of another agent on the West Coast who had been transferred for the same reason.” Those transfers—away from access to the bureau’s Soviet counterintelligence operations—were made “to be on the safe side,” he says.

Meanwhile, the investigation seemed to be getting no closer to its target. Then in 1964 or ’65 a second KGB agent, Valentin Lysov, alleged that the FBI had been penetrated, but again offered no details. The mole hunters decided to try something new—a “dangle” operation, in which they would send an FBI agent posing as a turncoat to offer his services to the KGB, in the hope that any conversations that resulted would elicit some clues to the identity of UNSUB Dick.

A former FBI counterintelligence agent explained how the dangle worked: “A watcher for us, a street agent, walked into the apartment of Boris Ivanov, the KGB rezident in New York. Ivanov slammed the door, but not before our agent said he would meet them at such-and-such time and place.”

In fact, a KGB counterintelligence agent showed up at the appointed time and place. “We ran the operation for six months; there were three or four meetings,” the ex-counterintelligence agent says. “We hoped their questions might lead us to Dick, the questions they asked and the questions they did not ask—because that would imply they had a source already in those areas. That might give us a clue to the identity of Dick. If the KGB asked for more information about something that perhaps Dick was involved in, that might also point to Dick.” But the KGB “never asked the right questions,” and the operation proved fruitless.

With so many agents to investigate, there seemed to be no end to the mole hunt. “It went on for years,” a former head of the Soviet section at FBI headquarters says. “It drove us crazy."

As the investigation persisted, it magnified a question that had arisen the moment Aleksei Kulak presented himself to the FBI: Was he a true “agent in place” for the FBI, or a double agent planted by the KGB? If he was a double agent, could his warning about UNSUB Dick be trusted? Some FBI agents argued that Kulak was simply playing mind games with the bureau, that Dick was a phantom. Like the hunt for UNSUB Dick, the argument about Kulak went on for decades, compounding the mistrust in the New York office and tensions within headquarters. One former counterintelligence agent, an assistant chief of the Soviet section at headquarters, says he periodically changed his mind. “I certainly had access and read through the FEDORA file. When I retired in 1988, it was 92 volumes,” he says. “I believe that the information from FEDORA was probably good. There were those, myself included, who sometimes questioned Bureau Source 10’s bona fides. Depends on which side of the bed I got up.”

Kulak, the source of all this turmoil, had arrived in New York on November 28, 1961, only a few months before he turned up at the FBI office with his alarming news about Dick. Kulak’s cover was his job as a consultant to a U.N. committee on the effects of nuclear radiation (he had a doctorate in chemistry), but his real mission was to collect scientific and technical secrets for the KGB. In February 1963, he changed his cover job, working as a science attaché at the Soviet mission to the U.N., and went back to Moscow in 1967. He returned to the Soviet mission in New York in 1971 and stayed six more years before going home for good. All told, he fed information to the FBI for ten years.

He would periodically meet secretly with FBI agents, and the videotaped record of these sessions shows a bottle of Scotch on the table. Kulak drank heavily, and apparently the bottle was considered a necessary lubricant for the debriefings.

“The information he gave over the years was for the most part good—very good on the identity of other KGB officers,” says a former senior FBI official, a counterintelligence agent in New York at the time. Kulak, he says, identified every KGB man in New York, plus many of their sources. “There were those who said he drank so much nobody would ever have picked him to be a plant,” this agent says. “There’s much to be said for that. My belief is he was probably genuine. That does not mean he was always truthful.”

In David Major’s view, Kulak was “one of the most important sources the FBI had” and “the very first KGB officer that had ever been worked by the FBI.” He adds: “The KGB would never send a staff officer as a false defector. What happens if he really defects?” Other FBI veterans say Kulak was a true volunteer to the bureau. “It’s so hard to dangle someone; you have to give up something,” Edwin Worthington notes. “And to give up the identities of all the KGB people in New York was huge. He gave up way too much information. They [the KGB] wouldn’t have allowed it.”

“We put people in jail on the basis of information provided by FEDORA,” another former FBI counterintelligence agent says. Kulak, according to this agent, “said Dick had given the KGB our surveillance codes”—secret codes FBI lookouts used to communicate when Soviet agents were on the move, and in what direction. “The code sheets were changed on a daily basis,” this agent says, but “the Russians had the capability to monitor our broadcasts.” Kulak “was specific enough about the codes so it was clear the KGB had them.” Given the nature and volume of information he produced over ten years, Hoover believed that FEDORA was an authentic FBI source.

Against the information Kulak provided, however, the mole hunters had to consider the possibility that he was really acting for the KGB. “The KGB was aware you can cause the FBI to chase its tail,” says Paul D. Moore, a retired longtime analyst for the bureau.

The CIA, too, was unsettled on the question of Kulak’s bona fides. James Angleton, the counterintelligence chief, never believed he was genuine, but then Angleton placed his faith in only one Russian defector, who persuaded him that the Sino-Soviet split that emerged in the 1960s was all a plot to deceive the West. That idea was widely regarded as nutty then and has been soundly discredited since. After Angleton was fired, his successors concluded that Kulak was a legitimate source, and two CIA counterintelligence specialists assigned to review his FBI files agreed.

But others who have doubted that Kulak was working for the United States point out that when he returned to Moscow in 1976 he was not executed—unlike the GRU officer Dmitri Fedorovich Polyakov, who provided valuable information to the CIA and the FBI for 18 years until the CIA mole Aldrich Ames betrayed him in the 1980s. Kulak survived his homecoming, they note, even though American media reports had hinted that the FBI had a KGB source in New York. In a 1978 book, Legend: The Secret World of Lee Harvey Oswald, author Edward Jay Epstein went so far as to publish the code name FEDORA and describe him as a KGB officer working undercover at the U.N. and specializing in “science and technology.” Before leaving New York for the last time, Kulak had agreed to provide information to the CIA in Moscow, and did so, leaving material in a dead drop there. But with his cover all but blown by the book, the agency, fearing for his safety, offered to exfiltrate him—to spirit him out of Moscow. He declined and said he would be fine. He was never arrested, and the agency eventually received word that he died of natural causes in the early 1980s.

Oleg Kalugin, a major general in the KGB who became an outspoken critic of the agency and moved to the United States in 1995, said in an interview that the Soviets “suspected [Kulak], but they did not have enough evidence” to justify going after him, especially given his meritorious record during World War II. “He was a Hero of the USSR,” Kalugin says, referring to a Soviet award roughly equivalent to the Congressional Medal of Honor. The medal, Kalugin and others said, gave Kulak a kind of cloak of immunity.

On the question of whether the KGB had a mole in the FBI, Kalugin says yes, it did. Kalugin worked in New York undercover for the KGB for five years starting in 1958. At first, in a series of interviews, he told me he was “vaguely familiar with the case. I did not have access to that case. I simply knew of the existence of a guy in the bureau. But he did provide genuine information. There was such a person as Dick.” Later, however, Kalugin said he had actually paid the FBI agent for his services to the KGB, more than once and in person. “I paid Dick, but I didn’t know his true name,” Kalugin says. He did not say how much he paid.

The FBI paid Kulak $100,000 over 15 years, but he may have had more than money on his mind. One agent says Kulak worried constantly that UNSUB Dick would find out that he was spying for the FBI and tell the KGB about him. “That’s why he dimed him out,” the FBI man said. Kulak, he said, “kept telling the bureau to find him.”

But over time, the mole hunt faded. Palguta’s retirement in 1976, while Kulak was still in New York, left Hengemuhle as the sole active member of the original team. By the time Hengemuhle retired, in 1987, other priorities took precedence. In 1985, the FBI was busy making arrests in what became known as the Year of the Spy, rounding up John A. Walker, the head of a Navy spy ring, Jonathan J. Pollard, the Navy analyst who spied for Israel, and Ronald W. Pelton, a former employee of the National Security Agency who passed secret information to the Soviets.

By then the first FBI mole had been discovered—Richard Miller of the Los Angeles office had been arrested in 1984, convicted of spying for the Soviets and sentenced to life in prison. In 1996, Earl Edwin Pitts became the second; he was sent away for 27 years. (Hanssen, the most notorious Soviet mole in the FBI, was not caught until 2001; he was sentenced to life.) But even though the trail to UNSUB Dick had grown cold, the FBI wasn’t about to forget about the case.

In the mid-1980s, an analyst named Robert H. King concluded that he had identified UNSUB Dick. King had worked at the CIA before he joined the FBI in 1980. He and his FBI colleague James P. Milburn specialized in detecting penetrations of the bureau.

King had the benefit of two pieces of information learned through Kulak on his second tour. First, that the KGB had a source who had retired from the FBI and lived in Queens, a bedroom borough of New York favored by a multitude of FBI agents who could not afford the rents in Manhattan. And second, the initial of that source’s last name was the Cyrillic letter G, which was also his KGB code name. King wondered whether the KGB source in Queens was UNSUB Dick.

Painstakingly, he checked the name of every FBI agent who lived in Queens in the 1960s—and found that one of them had been flagged in a routine inspection of the New York office. The agent worked not in counterintelligence, but on internal security and investigations of the Communist Party. He was a poor performer, and he had a host of other problems, including alcohol abuse, which could have made him a target for recruitment by the KGB. He had retired on a medical disability around 1964, when he was in his mid-30s.

King, who speaks Russian, transliterated the Cyrillic letter into a Roman one—and got no match with the ex-agent’s last initial. Then he realized that a Roman letter transliterated into Cyrillic may re-transliterate into a different Roman letter. King tried it, and he got a match. After almost a quarter of a century, the FBI had its first viable suspect.

An FBI agent was sent to Queens to interview the suspect. He denied he was a spy. King and Milburn interviewed him again, and he denied it again. Two seasoned FBI counterintelligence agents interviewed him a third time; one was inclined to believe the man’s denials and the other was not.

King remained certain that he had found UNSUB Dick at last—and his belief is seemingly supported by the files of the KGB. In 1973, Oleg Kalugin was in Moscow, serving as chief of KGB worldwide foreign counterintelligence. Out of curiosity, he reviewed several files about his years as a young spy in New York. “There was one file on our man in the FBI,” Kalugin told me. “He was retired and living in Queens.” That man, he says, was the mole Kulak had warned about, the one the FBI had dubbed UNSUB Dick. In his 1994 memoir, The First Directorate, Kalugin wrote of sending KGB agents in New York to visit him and ask for more information, which he declined to provide.

“I already gave you guys all I know,” the man said, Kalugin told me. But he said he couldn’t remember the man’s real name or his KGB code name.

Without a confession by the suspect, the FBI did not officially accept King’s view and took no legal action against the ex-agent. “Espionage is a very difficult crime to prove,” Patrick Watson notes. “Unless a suspect confesses or is caught in the act of passing information to a foreign power, an arrest and prosecution are unlikely.” To prosecute this case, the bureau would have had to disclose Kulak’s identity—which was not publicly known at the time—and the information he provided. “The problem is many times you are relying on sources that can’t be presented in a courtroom,” Watson says.

To this day, the FBI is maintaining its silence on UNSUB Dick. In response to several requests for comment, a bureau spokesman said none would be forthcoming, and that “the assistant director for counterintelligence will not confirm or deny such a case.”

David Wise's report is compelling historical reading.....but anyone who believes this kind of covert skulduggery is an activity of the past, must still believe in tooth fairies.

Which is exactly why the NSA is essential to American security.

I don't know what I don't know, but I do know enough to respect past behavior as a reliable prognosticator of the future.

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