The Moscow Bug Hunt

By JAY PETERZELL

Caspar Weinberger called it "the worst spy case of the century." As Secretary of Defense in the spring of 1987, he was confronted with evidence that Marine guards at the U.S. embassy in Moscow had not only "fraternized" with Soviet women but also allowed KGB agents to break into the inner sanctum of the embassy -- the code room, from which sensitive messages are sent to Washington.

There on Weinberger's desk was a confession by Corporal Arnold Bracy, a 21- year-old Marine who had been stationed in Moscow the previous year. Bracy's statement convinced virtually the entire Government that there had been a nightmarish security breach. By planting bugs in the embassy's communications equipment, the Kremlin may have compromised CIA operations and gained advance knowledge of U.S. negotiating positions. The scandal led to paralysis, paranoia and recrimination. Electronic communication to and from the Moscow embassy stopped dead. Tons of equipment were torn out of the building and returned to the U.S. for analysis. After a distinguished career, Arthur Hartman, who was U.S. Ambassador to Moscow at the time of the suspected penetration, left the Foreign Service under a cloud. Hundreds of Marines who / had served as embassy guards in East bloc countries were grilled by agents of the Naval Investigative Service; dozens confessed to fraternizing, black- marketeering or other security violations.

But then one case after another fell apart. The Great Marine Spy Scandal had started in December 1986, when another Moscow embassy guard, Sergeant Clayton Lonetree, told a CIA officer that he had given low-grade classified information to the Soviets. And that is where it ended: Lonetree was the only Marine to be prosecuted for espionage. Whatever the reasons for Bracy's confession -- in which he claimed he had helped Lonetree let the KGB into the embassy -- it was later disclosed that he had recanted just minutes after signing it. And Government investigators eventually realized that key parts of Bracy's statement were demonstrably false. All charges against him were dropped for lack of evidence. By late 1987 security officials began to concede, a little sheepishly, that no bugs had yet been found in the equipment removed from the Post Communications Center, or PCC, as the code room is known. (The room is sometimes referred to as the CPU.)

Four months ago, however, the Moscow embassy scandal was back in the headlines: the thrust of the story was that there had been a cover-up within the U.S. Government. That allegation is at the heart of Moscow Station, a book by Ronald Kessler, a former Washington Post reporter. It was excerpted in TIME and is the basis for a television mini-series expected to air next year.

According to Kessler, the National Security Agency did indeed find Soviet bugs in the code room in August 1987. The KGB had replaced key circuit boards in the printers; it had also replaced the power line to the communications center. The reprogrammed circuit boards sent an uncoded copy of the text of all State Department and CIA message traffic to the new power line, which could carry it out of the embassy and into the hands of the KGB.

How did the Soviets get into the communications vault? The Marine guard posted down the hall controlled the only alarm system for the code room, Kessler explained. Since the system did not record the time the alarm went off, the Marine could give the KGB undetected access to the PCC for hours at a time, then lie about what time the system was triggered and claim it was a false alarm.

The damage from this "intelligence debacle" was topped off by a further scandal, said Kessler: the NSA and CIA had concealed their findings from the State Department. And to this day, Kessler contends, they have continued to suppress evidence of the most serious U.S. intelligence breach of the past 25 years.

This dramatic account added one more layer of controversy to a case that has troubled the intelligence community for two years. But as with Bracy's confession, Government investigators have nothing to substantiate it. In yet another twist to the controversy, a highly classified intelligence-community assessment that circulated in the Government several months ago concluded that there is no credible evidence that the Moscow code room was penetrated. Perhaps only the KGB will ever know for sure. But on the basis of more than 60 interviews with diplomatic, intelligence and military officials, including many of those involved in the inquiry, TIME has reconstructed the U.S. intelligence community's own investigation of the Moscow embassy case.

Sherlock Holmes once solved a mystery by noticing that a certain dog had not barked at night. In Moscow the role of the dog that did not bark was played by a series of secret sensors that were hidden inside the embassy -- a crucial fact unknown to the Marine guards. Additional systems protected other sensitive areas. "There was a whole panoply of things around the embassy, none of which showed any evidence of penetration," says a senior security official. "The Soviets might be able to avoid some devices, but not all of them. Nobody is that good." Other key points established by TIME's investigation:

The CIA had a secret device to monitor the time of alarms. If a Marine let someone into the PCC and lied about the time of the CIA alarm, several sources say, this recording device would have exposed the lie.

There was no correlation between the dates of "false alarms" involving the PCC and times when Bracy, Lonetree or any other suspect was on night duty. This was a key reason the prosecution of Bracy was dropped.

Exhaustive analysis of equipment from the Moscow code room found no evidence of bugs. Authoritative officials at the NSA, CIA and State Department -- including sources who saw daily reports of the joint three-agency investigation -- are unanimous on this point.

No unauthorized replacement of the power line to the PCC was found. Moreover, even if the power line had been replaced, the new wire could not carry electronic signals out of the embassy, sources say. Reason: the power line to the PCC is filtered to eliminate all such signals, and monitored to detect any possible radio transmission.

In an unusual, on-the-record statement, the CIA has said that "the intelligence community in its investigation could not substantiate any unauthorized penetration" of the code room. The National Security Agency endorsed that conclusion in a letter to TIME. "No information was, or is being, withheld" from the State Department, the NSA said.

The U.S. had spent two years and tens of millions of dollars investigating the scenario in Bracy's confession -- and come up with nothing. The Government had been right to take the case seriously. Bracy had been sent home from Moscow after reporting that he had become entangled with a Soviet woman who was trying to recruit him as a KGB spy. Perhaps things had gone further than anyone suspected. A number of people involved in the investigation are still tormented by Bracy's 1987 confession: No one, they say, would admit to espionage if he was not guilty.

There are, however, other possible explanations for Bracy's statement. Bracy may have had a guilty conscience: he had left Moscow under a cloud. Some intelligence experts believe he may have gone so far as to meet a KGB officer or provide some information before his abrupt departure from the Soviet Union. Another possibility: Navy investigators leaned hard on Bracy to provide any evidence he had against Lonetree. Says Bracy: "If it was going to relieve the pressure, get me away from those guys, that's what I was going to do." Indeed, the statement Bracy signed declares that he merely helped his fellow Marine let the KGB into the embassy. Recalls a security officer: "Bracy thought he was a hero that day. It was all helping prosecute this Marine ((Lonetree)) who had turned bad." Since there is no way to look into Bracy's heart, his statement will remain an imponderable loose end in the Moscow embassy case.

One thing is clear, though: the intensity, scope and expense of the Government's reaction to Bracy's March 1987 statement would have been far different if the stage had not been set by a series of interagency disputes about security in Moscow.

The most acrimonious of these had begun in the early 1980s with a push by the FBI to reduce the number of Soviet diplomats in the U.S. The State Department had resisted the bureau's initiative on the ground that the Soviets would retaliate by cutting the number of local Soviet employees allowed at the U.S. embassy in Moscow. That led to bitter disputes about the espionage threat posed by these local employees and about other security issues. By 1985 low- level warfare had broken out between Ambassador Hartman and security officials in Washington. "There was bad blood; there's no question about that," recalls a diplomat who served at the embassy. The 1987 Marine spy scandal appeared to vindicate the security experts' warnings. What's more, several other espionage cases involving the CIA and the military had made the U.S. Government painfully aware of its vulnerability on this score.

For other reasons, the twelve intelligence experts who rushed to Moscow in the wake of Bracy's confession were also predisposed to believe the Soviets had got into the code room. In late 1983 French intelligence had told the NSA that a Soviet bug had been found in a coding machine at the French embassy in Moscow. The French warned that the Soviets might also have bugged communications at the U.S. embassy.

The NSA seized on this tip as a chance to expand its responsibility for the security of uncoded communications at U.S. embassies, a traditional CIA and State Department domain. "Basically, NSA did an end run around ((director of Central Intelligence William)) Casey," says a senior security official. The NSA went straight to the White House, and persuaded President Reagan to let it replace all U.S. communications equipment in Moscow. In the spring of 1984 Operation Gunman discovered Soviet bugs in 17 embassy typewriters. "NSA's stock rose tremendously after that," recalls a former senior technical security expert.

One NSA official involved in GUNMAN concluded that since some of the typewriter bugs were battery powered, the Soviets must have had a way of getting into secure areas of the embassy to replace these batteries. Remaining in Moscow to figure out how this might be done, this official wrote a report warning that a Soviet Spider-Man was scaling the embassy wall at night, squeezing through a tiny window and making his way to the code room. He also warned that the Soviets had enlarged the flues built into the embassy walls, and that KGB technicians were using them to climb up to the secure floors. The report declared -- categorically -- that the KGB was penetrating the PCC. Returning to Washington, the NSA superspook eventually briefed President Reagan. The President was "very concerned," says a former official who attended the briefing.

The superspook's colleagues were more concerned about his judgment. A joint CIA-State Department team dispatched to Moscow in response to his report found that the problems he had identified did not exist. The suspect window had been nailed shut, and 20 years of Russian bird droppings had accumulated on it. An examination of the walls quickly showed that the flues had not been enlarged. Still, the White House would not forget this early, grim warning that the KGB had burrowed into the heart of the Moscow embassy.

Meanwhile, U.S. counterspies thought they could checkmate the bugging system the Soviets appeared to be installing in the new U.S. embassy being built in Moscow. Instead, the U.S. had fallen far behind. Construction had stopped in mid-1985, when American security experts admitted they might not be able to find all the Soviet bugs. The sophistication of the overall system made the Americans realize they had underrated the Soviets; they weren't even sure how the various electronic parts they had found worked together. The Bracy confession landed in this explosive environment like a lighted match in a munitions dump. "There was a hysteria about it," says a recently retired official. "There had been a series of underestimations of what the Soviets could do. So when someone comes in and dramatically overestimates, anyone who criticizes that is put in the same category as those who underestimated it in the past."

And yet it was the technical investigation that eventually convinced officials that there was no evidence of a devastating communications breach in Moscow. In the wake of Bracy's statement, an interagency team led by the CIA began shipping suspect equipment back to Washington. Machinery was returned to the U.S., taken apart and painstakingly studied under a program code-named Operation Merit. Most of the equipment went to a CIA facility in Virginia; communications gear was sent first to NSA headquarters at Fort Meade, Md., then joined the rest of the freight at the CIA warehouse.

In the early months of the investigation, a number of smoking guns were found in this equipment. But one by one they turned out to be innocuous. The first was a circuit board that had been replaced but not sprayed with a special plastic that "tagged" it as an authorized repair. American officials were afraid the KGB had installed this circuit board to reroute uncoded U.S. message traffic. But the device was tested by NSA experts, who found that it did nothing improper. Security officials later discovered that some State % Department technicians had never been told about the secret tagging program and had not used the spray.

Another smoking gun was found attached to the machine that decoded incoming State Department messages; a suspicious-looking wire led through the shielded side of the box that enclosed the equipment to prevent signals from escaping. "When they found it, the NSA technicians thought they had something really exciting," says a senior expert with a chuckle. It turned out that a communications officer had installed the device; it was a buzzer that alerted him whenever cables came in for processing. The rig was thoroughly tested by the NSA and found harmless.

Next, investigators looked into whether the Soviets had been able to penetrate the PCC electronically without setting foot inside, either by drilling a hole or by placing a device on the outside wall of the code room. "If they could touch it, they could penetrate it," says former official. "At least, that's what our guys say we can do. Our best offensive and defensive guys spent a lot of time looking at this. They concluded it was not a problem."

The last possibility was that KGB agents had entered the code room and installed some kind of device. One of the Marines posted just down the hall could have let the Soviets into the embassy. He might also have been able to help the KGB learn the combination to the vaultlike front door of the PCC. But once inside, Soviet operatives would have been faced with several locked doors, one of which led to the CIA's area: that would have been the target. Inside that room was a subvault that housed the CIA's printers, communications and coding machines.

U.S. investigators determined that it would take KGB safecrackers one to four hours to crack each lock inside the code room. Opening the CIA vault would trigger another set of sensors that would ring at the Marine post. It would also be recorded by a device that counted the number of times the door was opened and closed. This counter was displayed inside a tamperproof box: if a KGB spy tried to open it and change the number, he would destroy certain indicators inside the device. Having destroyed them, he would not be able to examine them in order to duplicate and replace them. Sources say the CIA had also installed an "event recorder" in its area that recorded the time when the main CIA alarm went off. Finally, there were covert "traps" on both the CIA and State Department communications equipment designed to indicate any tampering.

It was easy enough to determine that those devices reflected no evidence of penetration. The alarms for the main State Department vault and the CIA area had never gone off on the same night -- as would be expected if someone had entered the PCC, walked through the main room and entered the CIA subvault. Although there were some anomalies in the records for various monitors (for example, the door counter sometimes registered twice if the door was slammed hard), these never matched up with one another in any meaningful way.

Under normal circumstances, investigators might have stopped there and at least re-examined Bracy's confession. When they did so later, they discovered that Bracy was wrong about how some alarms worked. In the spring of 1987, however, investigators were convinced that Bracy's confession was authentic. They saw the Moscow case much the way a detective might see a locked-room mystery in which the only occupant of a sealed chamber has been murdered. "We assumed it had happened," recalls one leader of the embassy investigation. "So there must have been a way."

It is an elemental assumption in the intelligence game that no security system is foolproof. U.S. investigators reasoned that if the KGB's best technical experts had access to the PCC repeatedly for several hours at a time, they might be able to devise ways to spoof or bypass one device after another. Eventually, they might make it all the way to the equipment inside the State Department and CIA communications vaults without being detected. But, says an official directly involved in this analysis, "I never saw a scenario that was credible." Declares another source: "If there had been a penetration, it would have been detected."

But it was Clayton Lonetree, the Marine who started the whole fuss, who inadvertently laid the PCC-penetration theory to rest. In August 1987 Lonetree was sentenced to 30 years in prison on espionage charges. In exchange for a five-year reduction in his sentence, he agreed to talk. His debriefing began in October 1987 and continued for four months. He took repeated polygraph tests. A dozen military and intelligence officers watched him through a one- way window. By the time the interrogation was over, everyone involved was convinced that Lonetree had been telling the truth when, contrary to Bracy's confession, he said he had never let Soviets into the embassy or involved Bracy in any espionage activities. More important, investigators concluded, ; even if Bracy had been a spy, without Lonetree's cooperation he could not have given the Soviets enough access to the code room to allow them to bug it and leave no trace.

"I'm sure the Soviets have enjoyed watching us do this to ourselves," muses a security officer involved with the case. In fact, the greatest benefit to the KGB from the whole affair may have been the spectacle of the U.S. Government tearing itself apart over what turned out to be a phantom.