Prosecutors: Russian Spy Ring Suspect Confessed

Updated at 3:57 p.m. EDT

One of the suspects in an alleged spy ring has confessed to federal agents that he worked for Russia's intelligence service, federal prosecutors said Thursday.

The revelation came on a day when several defendants in the case were making court appearances, and prosecutors announced that they had discovered $10,000 in new, hundred dollar bills in the safe-deposit box of two other suspects.

Meanwhile, authorities scoured a Mediterranean island for an alleged co-conspirator who disappearedafter he was granted bail.

Authorities said in a court filing that Juan Lazaro made a lengthy statement after his June 27 arrest in which he discussed some details of the operation, which prosecutors said involved Russian moles living under assumed identities in American suburbs.

Among other things, he admitted that "Juan Lazaro" was not his real name, that wasn't born in Uruguay, as he had long claimed, that his home in Yonkers had been paid for by Russian intelligence, and that his wife, the Peruvian journalist Vicky Pelaez, had passed letters to the "Service" on his behalf.

He also told investigators that even though he loved his son, "he would not violate his loyalty to the 'Service' even for his son," three assistant U.S. attorneys wrote in a court memo.

Russian Spy Suspects Set for U.S. Bail Hearings

Prosecutors submitted the information to underscore evidence that they said was so strong that U.S. Magistrate Judge Ronald L. Ellis should deny bail for Lazaro, Pelaez, and two suspects who had been living in New Jersey, Richard and Cynthia Murphy.

Federal prosectors also revealed that they had searched a safe-deposit box belonging to the Murphys this week, and found eight unmarked envelopes stuffed with "apparently new $100 bills."

The lawyer for another suspect told a judge Thursday that his client was innocent.

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Donald Heathfield and his wife, Tracey Lee Ann Foley, of Cambridge, Mass., appeared in federal court in Boston on Thursday for a bail hearing. A judge granted a delay until July 16 to give their new lawyers time to prepare.

Heathfield's lawyer, Peter Krupp, said afterward the evidence revealed so far against his client is "extremely thin."

"It essentially suggests that they successfully infiltrated neighborhoods, cocktail parties and the PTA," he said. "My client looks forward to facing the charges."

As they entered the court in handcuffs and leg shackles, the couple smiled at their sons, a teenager and a college student. The boys waved to their parents.

A magistrate judge in Alexandria, Va., postponed a hearing for three other people accused of being foreign agents, Michael Zottoli, Patricia Mills and Mikhail Semenko. It has been rescheduled for Friday.

Hearings also were set for additional defendants in New York, including Lazaro, Pelaez and Richard and Cynthia Murphy.

Police on Thursday searched airports, ports and yacht marinas to find an 11th person who was arrested in Cyprus but disappeared after a judge there freed him on $32,500 bail. The man, who had gone by the name Christopher Metsos, failed to show up Wednesday for a required meeting with police.

Authorities also examined surveillance video from crossing points on the war-divided island, fearing the suspect might have slipped into the breakaway north, a diplomatic no-man's-land that's recognized only by Turkey and has no extradition treaties.

Not due in court Thursday was Russian beauty Anna Chapman, the alleged spy whose heavy presence on the Internet and New York party scene has made her a tabloid sensation. She was previously ordered held without bail.

Eight of the suspects were accused by prosecutors of being foreign-born, husband-and-wife teams who were supposed to be Americanizing themselves and gradually developing ties to policymaking circles in the U.S.

Most were living under assumed identities, according to the FBI. Their true names and citizenship remain unknown, but several are suspected of being Russians by birth.

Heathfield claimed to be a Canadian but was using a birth certificate of a deceased Canadian boy, agents said in a court filing. His wife, Foley, purported to be from Canada, too, but investigators said they searched a family safe deposit box found photographs taken of her when she was in her 20s that had been developed by a Soviet film company.

Lazaro had said he was born in Uraguay and was a citizen of Peru; he was secretly recorded by the FBI talking about a childhood in Siberia, according to court documents.

Two, Chapman and Semenko, were Russians who didn't attempt to hide their national origin, FBI agents said, but they had a similar mission: blend in, network and learn what they could.

Britain's Foreign Secretary William Hague said the U.K. was investigating whether Foley might have used a forged British passport. The British spy agency MI5 also is investigating the extent to which Foley and Chapman had links to London, and will likely seek to find out whether either attempted to recruit British officials as informants.

There is evidence that at least some of the alleged agents had success cultivating contacts in the business, academic and political worlds.

The criminal complaint alleges that either Heathfield or Foley sent messages to Moscow talking about turnover at the CIA that was supposedly "received in private conversation" with a former congressional aide. Other messages described Heathfield establishing contact with a former high ranking U.S. national security official, and with a U.S. researcher who worked on bunker-busting nuclear warheads.

Moscow thanked Cynthia Murphy for having passed along "very useful" information about the global gold market and instructed her to strengthen ties with students and professors at Columbia University's business school, where she was getting a degree, according to the FBI.

Among other things, the Russians wanted "detailed personal data and character traits w. preliminary conclusions about their potential to be recruited by Service," according to one intercepted message.

Clare Lopez, senior fellow at the Center for Security Policy and a professor at the Centre for Counterintelligence and Security and a former operations officer for the CIA, said the alleged plotters might have someday been able to produce valuable information, if left in place long enough.

"Their value is not just in acquiring classified information," she said. "There's a lot that goes on that's not simply stealing secrets and sending them back to Moscow."

Metsos was charged with supplying funds to the other members of the ring.

Cypriot Justice Minister Loucas Louca on Thursday admitted that a judge's decision to release him on bail "may have been mistaken" and said authorities were examining leads on his possible whereabouts.

"We have some information and we hope that we will arrest him soon," Louca told reporters, without elaborating.

Cyprus has for decades been a hotbed of espionage intrigue as spies converge on the eastern Mediterranean island at the crossroads of Europe, Africa and Asia.

More recently, former CIA agent Harold Nicholson, in prison for espionage, recruited his 24-year-old son Nathaniel to meet with Russian agents in cities around the world from 2006 to 2008 to collect money owed by his former handlers. One of those cities was the Cypriot capital, Nicosia.