FBI sheds new light on Russian spy ring

Updated at 4:07 p.m. ET

WASHINGTON - FBI surveillance tapes, photos and documents released Monday show members of a ring of Russian sleeper spies secretly exchanging information and money during a counterintelligence probe that lasted about a decade and ended in the biggest spy swap since the Cold War.

(Above, watch Chapman at Macy's)

On another occasion, Chapman is visible in a video setting up her laptop computer at a Barnes and Noble. "Technical coverage indicated that a computer signal began broadcasting at the same time," noted part of a heavily redacted FBI report on the incident, apparently showing an effort by Chapman to communicate with her handlers.

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Other photos and video from the surveillance operation, which the FBI called "Ghost Stories," show some of the 10 other conspirators burying money in a patch of weeds, handing off documents in what looks like a subway tunnel, meeting during a stroll around Columbus Circle or just taking their kids for a walk.

A photo of one spy, Donald Heathfield of Cambridge, Mass., shows him at what appears to be a university graduation ceremony. Heathfield received a degree from Harvard's John F. Kennedy School of Government in 2000. The school revoked the degree a month after the FBI rolled up the spy ring in June 2010.

Called illegals because they took civilian jobs instead of operating inside Russian embassies and military missions, the spies settled into quiet lives in middle-class neighborhoods.

Their long-range assignment from Moscow: burrow deep into U.S. society and cultivate contacts with academics, entrepreneurs and government policymakers on subjects from defense to finance.

While the deep cover agents didn't steal any secrets, an FBI counterintelligence official told The Associated Press they were making progress.

They "were getting very close to penetrating U.S. policymaking circles" through a friend of an unnamed member of President Obama's Cabinet, FBI assistant director for counterintelligence C. Frank Figliuzzi told The Associated Press.

He did not give details, but Russian spy Cynthia Murphy of Montclair, N.J. provided financial planning for a venture capitalist with close ties to Bill and Hillary Clinton.

The investigation's code name, Ghost Stories, was an apparent reference to the ring's efforts to blend invisibly into the fabric of American society. An FBI spokesman said the decision to release the material on Halloween was coincidental.

The linchpin in the case was Col. Alexander Poteyev, a highly placed U.S. mole in Russian foreign intelligence, who betrayed the spy ring even as he ran it. He abruptly fled Moscow just days before the FBI rolled up the deep cover operation on June 27, 2010. Poteyev's role in exposing the illegals program only emerged last June when a Russian military court convicted him in absentia for high treason and desertion.

The U.S. swapped the 10 deep cover agents arrested by federal agents for four Russians imprisoned for spying for the West at a remote corner of a Vienna airport on July 9, in a scene reminiscent of the carefully choreographed exchange of spies at Berlin's Glienicke Bridge during the Cold War.

While freed Soviet spies typically kept a low profile after their return to Moscow, Chapman became a lingerie model, corporate spokeswoman and television personality. Heathfield, whose real name is Andrey Bezrukov, lists himself as an adviser to the president of a major Russian oil company on his LinkedIn account.

President Dmitry Medvedev awarded the 10 freed spies Russia's highest honors at a Kremlin ceremony.

The swap was Washington's idea, raised when U.S. law enforcement officials told Mr. Obama that it was time to start planning the arrests.

The case was brought to a swift conclusion before it could complicate the president's campaign to "reset" U.S. relations with Russia, strained by years of tensions over U.S. foreign policy and the 2008 Russian-Georgian war. All 10 of the captured spies were charged with failing to register as foreign agents.

An 11th suspect, Christopher Metsos, who claimed to be a Canadian citizen and delivered money and equipment to the sleeper agents, vanished after a court in Cyprus freed him on bail. The FBI released surveillance photos of Metsos on Monday.

Attorney General Eric Holder said officials decided to arrest the spies because one was preparing to leave the U.S. and there was concern that "we would not be able to get him back."

Both Holder and Figliuzzi said that the spies represented a real threat to U.S. security.

"This was a massive investigation that spanned the entire field offices of the FBI," Figliuzzi said Monday. "Resources were dedicated in multiple field offices, multiple counter-intelligence squads across the nation and certainly here in Washington at FBI headquarters."But former Soviet intelligence officials now living in the West scratched their heads over what Russia hoped to gain from its ring.

"In my view this whole operation was a waste of human resources, money and just put Russia in a ridiculous situation," said Oleg Kalugin, a former KGB major general who spied against the U.S. during the Soviet era, in an interview earlier this year. He now lives near Washington.

Alexander Vassiliev, a former KGB officer and journalist who has written extensively about Soviet spying in America, said the illegals were supposed to act as talent spotters and scouts, identifying Americans in positions of power who might be recruited to spill secrets for financial reasons or through blackmail.

Spies with the protection of diplomatic credentials would handle the more delicate task of recruiting and handling the agents.

Moscow's ultimate aim, Vassiliev said, was probably to cultivate a source who could provide day-by-day intelligence on what the president's inner circle was thinking and planning in response to the latest international crisis. But he said there was no evidence the Kremlin made any progress toward that goal.

"How are you going to recruit someone like that, on what basis? That's quite a successful person. Why should he spy for the Russians? I can't see any reason."

Vassiliev said Russia's intelligence services seem unable to shake their Soviet-era habits. "The current practice of the Russian espionage agency is based on the practices which existed before 1945," said Vassiliev, who now lives in London. "It's so outdated."

The 10 Russian illegals included:

• Chapman, the daughter of a Russian diplomat, who worked as a real estate agent in New York City. After she was caught, photos of the redhead's social life and travels were splashed all over the tabloids. Following her return to Russia, Chapman worked as a model, became the celebrity face of a Moscow bank and joined the leadership of the youth wing of the main pro-Kremlin party.
• Vicky Pelaez and Juan Lazaro, of Yonkers, N.Y. He briefly taught a class on Latin American and Caribbean politics at Baruch College. She wrote pieces highly critical of U.S. policy in Latin America as a columnist for one of the United States' best-known Spanish-language newspapers, El Diario La Prensa.
• Michael Zottoli and Patricia Mills of Arlington, Va. He had worked at a telecommunications firm. The couple raised a young son and toddler in their high-rise apartment.
• Richard and Cynthia Murphy of Montclair, N.J. He mostly stayed home with their two pre-teen children while she worked for a lower Manhattan-based accounting firm that offered tax advice. As part of her job, she provided financial planning for a venture capitalist with close ties to Bill and Hillary Clinton.
• Donald Howard Heathfield and Tracey Lee Ann Foley of Cambridge, Mass. He worked in sales for an international management consulting firm and peddled strategic planning software to U.S. corporations, and graduated from the John F. Kennedy School of Government. She was a real estate agent.
• Mikhail Semenko of Arlington, Va., who spoke Russian, English, Spanish, Chinese and Portuguese. He worked at the Travel All Russia travel agency, where co-workers described him as "clumsy" and "quirky."

In return for the return of the illegals, Moscow freed four Russians after they signed statements admitting to spying for the U.S. or Britain.

The U.S. spies included Alexander Zaporozhsky, a former colonel and deputy chief of Russian foreign intelligence's American section, who had retired in 1997 and moved to suburban Baltimore in 2001. He was arrested after he returned to Moscow for what he thought was a reunion with KGB colleagues and was sentenced in 2003 to 18 years in prison for espionage.

Zaporozhsky may have provided information leading to the capture of Robert Hansen and Aldrich Ames, two of the most damaging spies ever caught in the U.S.

Gennady Vasilenko, a former KGB officer who worked in Washington and Latin America, was accused by Hansen of spying for the U.S. He was arrested in Havana in 1988, but released from Moscow's notorious Lefortovo prison after six months for lack of evidence. But suspicions lingered, and Vasilenko was arrested again in 2006 in Moscow and sentenced to three years in prison for illegal weapons possession and resistance to authorities.

Vasilenko now has a home in Leesburg, Va. He declined the Associated Press' request for an interview.

Arms control researcher Igor Sutyagin worked for what may have been a British-based CIA front, and he denies being a spy, saying he didn't pass along any information that wasn't available through open sources. He told reporters he signed a confession out of concern he would otherwise ruin the swap for the others — and for fear of abuse and misery in the three years remaining in his prison term.The fourth was Sergei Skripal, a former colonel for Russian military intelligence, the GRU. He was sentenced in 2006 to 13 years in prison for passing the names of other Russian agents to British intelligence. Skripal, now about 60, is said to be suffering from diabetes. Both Skripal and Sutyagin went to Britain following their release.

U.S. officials have not commented on the Poteyev case.

Russian Prime Minister Vladimir Putin, who was a KGB foreign intelligence officer during the Soviet era, lashed out at Poteyev last December.

"Those people sacrificed their lives to serve the Motherland, and there happened to be an animal who betrayed them," he said. "How will he live with it all his life, how will he look his children in the eye? Swine!"