How the Secrets Moved East

April 1, 1997

The Moscow avenue called Rublovsky Chosse is a street that knows how to keep its secrets. It meanders through the most exclusive suburb of the Russian capital, past the tall green fences shrouding the sprawling, forested estates where, in years past, powerful Soviet officials lived in regal splendor.

The street also has private little wooded pockets. In the early 1980s, Vladimir Vetrov, a paunchy, well-dressed man in his late 40s, used to park there with his mistress, Ludmilla. Vetrov had a huge secret, and, in November 1982, it almost came out. Behind the car’s steamed-up windows, an argument began raging. The voice of Ludmilla sounded accusatory, then terror-stricken. Vetrov had pulled a knife and was trying to kill her.

A man walking nearby heard Ludmilla’s screams. He rapped on the car window. Vetrov leaped out and plunged the knife into him. As the dying passerby slumped to the ground, Vetrov fled. Later, he returned, to the astonishment of police, who promptly arrested him. They were shocked to learn that the killer was a KGB colonel with a sensitive job in the First Chief Directorate, which handles foreign intelligence.

In truth, Vetrov’s work was far more sensitive than even the KGB link suggested (though his mistress had guessed the truth). For 18 months or more, he had been a mole within the KGB, a double agent secretly working for French intelligence. Vetrov had in fact given the West its first detailed look at the most lucrative spy scheme in the long history of the Cold War.

Using teams of specially trained scientists and engineers, the USSR had mounted a systematic economic espionage campaign of epic proportions. It was spending $1.4 billion per year on salaries and bribes to obtain secrets of thousands of NATO weapons systems and related civilian technology. The systems had cost taxpayers hundreds of billions and taken years to develop. About 60 percent of this technology had been stolen from the US.

Vetrov’s papers also provided the West with the names of hundreds of Soviet agents and the spies that they were running in dozens of countries. For the first time, NATO strategists were able to obtain an accurate picture of what the Soviets didn’t have.

Phenomenal Success

Western leaders had known for years that some thievery was going on, but the scale and phenomenal success of the effort—as seen from documents supplied by Vetrov—went far beyond anything they had imagined. “The West is financing two military budgets: their own and that of their adversary,” wrote one French official after studying Vetrov’s papers. Even “more absurd,” he noted, was that Soviet spies were getting the information largely from open sources. The West, especially the US, was wide open to people who knew what they were looking for. Weapon secrets were being stolen and copied before they were officially deemed secrets.

French intelligence gave the Vetrov case the code name “Farewell” and quickly revealed its secret to the intelligence officials of the Reagan Administration, who instantly recognized its value. The conservative new Administration was grappling with a bureaucracy in Washington that had for years dismissed Soviet economic espionage as inconsequential, and here was evidence that they were wrong.

Reagan officials argued that they now knew how the Soviet economy, with all of its glaring faults, managed to match US technology so quickly: The KGB had been systematically stealing information from US research and development programs. “The assimilation of Western technology is so broad that the US and other Western nations are thus subsidizing the Soviet military buildup,” concluded one government report.

All of this happened a decade ago. Vladimir Vetrov is dead, and the secrets he delivered are locked in the CIA’s vaults, but that does not mean that the story is over. The multiple pathways to steal US technology that the Soviets pioneered and that Vetrov exposed are still in use. For hostile intelligence agencies, the case of Farewell is an appealing roadmap. Some former Pentagon officials are convinced that Iraq’s acquisition of US weapons-related technology in the late 1980s was based on the same training and even the same espionage “shopping lists” used early in the decade.

Other US officials believe that the next enemy who uses these techniques may not necessarily be a major power. One who agrees is Kenneth DeGraffenreid, a former Defense Intelligence Agency analyst who had pored over the Vetrov files as director of Intelligence Programs for the National Security Council. In earlier eras, DeGraffenreid notes, nations needed industrial bases and a sizable body of engineers and scientists to develop high-tech weapons. Now, it may be that a country that merely has money can do it, “if they went to school on the US,” said DeGraffenreid.

He added, “It’s not like the information is locked in a safe. It isn’t. It’s a more difficult problem as time goes on. How do you know when to lock things up?”

The Soviet collection effort began right at the top with a unit called VPK, or the Military Industrial Commission, which was placed just under the Politburo. It drew up vast “shopping lists” of needed Western items and used at least six different entities to get them. They included the KGB, the GRU (the Main Intelligence Directorate of the Soviet General Staff), and spy agencies of various satellite countries, such as Bulgaria, Romania, Czechoslovakia, and East Germany.

Many Are Called

There were many willing hands to do the work. It has been estimated that at any given time during the 1980s at least 1,000 of the 2,800 registered Eastern bloc diplomats were intelligence agents. The bulk of this enormous group was engaged in science and technology espionage.

Members of Russia’s prestigious Academy of Sciences were also assigned to steal. Alexei Brudno, a mathematician and computer software specialist, remembers that the system was effective. Usually, only scientists who agreed to participate in KGB thievery schemes received permission to travel abroad. Western scientists, eager for the contact, often shared papers with Russian peers that they wouldn’t give to their NATO colleagues, especially those who worked for competitor nations or companies. Upon returning, a Soviet scientist was carefully debriefed by a panel of KGB experts. Often they didn’t bother to introduce themselves. They were only interested in the haul.

The most inventive and powerful element of this collection effort was Vetrov’s own section, the KGB’s “Line X.”

Line X took shape in the 1930s after successful KGB thefts of German technology. It had a product: other people’s research papers, blueprints, devices, and machinery. Stealing them, the KGB discovered, was one crime that paid. KGB defectors say Line X officials repeatedly boasted that Line X not only covered its own costs; the value of what it brought in sometimes exceeded the annual budget of the entire KGB.

The KGB in general tried to recruit agents from the best universities, but Line X itself fed on the cream of graduating scientists and engineers—men like Vetrov, who had initially set out on a career designing automobiles.

Once he was recruited, Vetrov turned out to be an enthusiastic counterspy, handing over vast amounts of information to France. As a result, the French, in the months that followed his defection-in-place, were able to send to Washington a large roomful of documents showing how the KGB’s technology thieves operated in the US. Their techniques included bribery of sources in US corporations; piecing together weapon secrets from open files in government agencies, such as NASA; and development of contacts in major US universities—the most heavily used being Massachusetts Institute of Technology—to fill in the gaps on the VPK’s wish lists.

The Farewell material, acquired by Washington in the summer of 1981, had to be closely held because Vetrov was still producing. It was kept in the CIA library under the code name “Kudo.” Only a handful of officials were allowed to read the blue-bordered documents, which signified a compartmented level of classification well above “top secret.”

The Bank Shot

The documents told a tale of intelligence collection on a gargantuan scale. When it couldn’t get the right hardware or weapon blueprints in the US, Line X often found that the same items could be acquired from US allies in Europe or Japan, where small bribes worked wonders. “You pay some engineer maybe $100,000 for something that costs $5 million. It’s even more profitable than gambling,” recalled Stanislav Levchenko, a KGB officer in Tokyo during the late 1970s.

When Levchenko was serving in Tokyo, Japan was already reaping the benefit of its own campaign to collect technology from the US. The Soviets went to great lengths to cultivate Japanese collectors of US technology and found they cared little about what happened to it once it arrived in Tokyo. “Japan, Inc.,” functioned as an enormous intelligence machine, but it had almost nothing in the way of counterintelligence, allowing Line X to flourish in Tokyo. Levchenko recalls that, every two weeks, the 25 Line X operators in Japan would produce and send to Moscow a ton of samples and documents.

The result was that years of American sweat, money, blind alleys, and other frustrations were deftly avoided once US plans reached the Soviet laboratory. Soviet scientists often joked that much of what they did amounted to “translations from the American.”

The list of items “translated from the American” was vast. Russian documents stolen or photocopied by Vetrov estimated that 5,000 Soviet military systems benefitted from stolen Western research each year. The CIA later toted up a list that ran from the space shuttle and cruise missile guidance systems to advanced components from all of the later US fighters, nuclear submarines, laser-guided artillery, and high-speed computers. Soviet engineers didn’t even bother to research such mundane but useful things as cold-rolled steel armor for their ships; they had the US formulas.

Equipment from General Electric, Boeing, Lockheed, Rockwell International, and McDonnell Douglas topped Line X’s shopping list, while MIT, Harvard, the University of Michigan, California Institute of Technology, and Princeton were the Soviet scientists’ favorite hunting grounds for ideas.

One official, Maynard C. Anderson, then director of Security Plans in the Office of the Secretary of Defense, found the Vetrov files amazing. Through the magic of economic espionage, as he later put it, parts of US industry had become “a Soviet national asset.”

Moving Targets

While the US expected its heavy investments in high-technology weaponry to give it many years’ worth of military advantages over the Russians, Anderson found Line X’s thefts were cutting that lead in half. “What you had as a result of our slowness [to develop] and the loss of this technology was that American industry was building weapons against a threat that was really no longer valid. By the time we had produced a system, they had already developed countermeasures.”

Then came that night in November 1982 when contact with Farewell suddenly went dead. What had happened? No one in the West had a clue. Soviet authorities had hastily investigated the case and prosecuted Vetrov as a common criminal. Ludmilla survived her wounds and testified against him (though she did not mention her suspicions about his intelligence work). Vetrov got 15 years for murder and was sent to a prison labor camp in remote Irkutsk.

It took Soviet authorities some months to figure out that the man they had locked up for a crime of passion was the Soviet equivalent of Aldrich H. Ames, the CIA mole in the employ of Moscow, who single-handedly rolled up dozens of American espionage operations in the late 1980s. In fall 1983, when the KGB finally put the pieces together (with help from Ludmilla), it sent for Vetrov.

The mole was brought back from Irkutsk and placed in an isolation cell in the KGB’s Lefortovo Prison in Moscow. Following an interrogation, he signed a confession to having spied for the French. Former KGB officers say that he was executed, most likely in late 1983.

By then, many of the nation’s technological horses had been stolen, but former Reagan officials said that getting government, academic, and industrial leaders to close the barn door proved maddeningly difficult.

Within the government, the prevailing view was that Soviet industry was so inferior and Soviet bureaucracy so cumbersome that US innovation would always leave them at least a generation behind in the arms race. This was patently untrue. Vetrov’s documents showed that some of Russia’s copycat weapons, such as the Soviet Navy’s Kirov-class cruiser, were being launched sooner than the US systems from which they were copied.

The FBI, DeGraffenreid recalls, concluded that the losses were being overstated. The CIA worried that if Soviet students, scientists, and diplomats were expelled from the US, American agents would get reduced access in Moscow, although at that point much of the Soviet Union was off limits to them anyway.

Even within the Department of Defense, technology experts argued that putting further curbs on openness would slow the flow of technological advances and thus hinder new weapon systems. “It was a very hard case to make at the Pentagon,” said Steve Bryen, then in charge of Technology Security Policy for DoD.

Bryen recalls one fight with officials at Nellis AFB, Nev., where he found several Soviet “students” were conducting research projects on a supercomputer, a machine useful for designing nuclear weapons and plotting missile trajectories. “We finally got them to stop it,” said Bryen, “but can you imagine such craziness?”

The US academic community was skeptical, to say the least, of efforts to clamp down on Soviet access. Bryen recalls having many wrangles with officials at the National Academy of Sciences. “Nobody on the Russian side ever traveled over here without being tasked [to collect something],” he said, “but their argument was that good ties with Russian scientists will lead to a more peaceful role.” US industry argued against placing rules on working with individual foreigners.

New Management

The Soviet Union is gone, but there are strong signs that intelligence operations continue under new management. Victor Yasminn, a former Soviet political dissident who has conducted a 12-year study of the KGB, believes the spies of the old regime split up roughly into three fragments: One-third remained in their old jobs in the new, slimmed-down state spy agencies; one-third went into the private security business; and one-third went into business for themselves as entrepreneurs, bankers, and wheeler-dealers.

Some of the new KGB-derived companies began rich and well connected. The spy agency had thousands of “file companies” or well-capitalized fronts overseas that had been used to buy or steal foreign technology.

However, the distinctions between businessman, spy, and crook are not nearly as tidy as they may sound because, in Moscow, the new lines can be rubbery, sometimes even nonexistent. Some of the new businessmen still function as spies—moonlighting as members of reserve units of Russia’s new External Intelligence Service, the Sluzhba Vneshnei Razvedki, or SVR.

Adm. William O. Studeman, USN (Ret.), former deputy head of the CIA, said the situation is strange. “We see companies that are, on the one hand, legitimate and, on the other, intelligence fronts,” he said. “And, on the third hand, they are elements of organized crime—all simultaneously.”

Deadly games continue. Some good examples surfaced in what the KGB once referred to as its “sister services”—the Eastern bloc spy agencies that often did Moscow’s dirtiest work.

In late 1990, the job of digging through the layers of Bulgaria’s spy agencies fell to Dimitar Loudjev, a stocky, perpetually tired-looking history professor who had helped form the first democratic political party in Sofia. As the newly installed minister of State Security, Loudjev found and fired thousands of spies, but more could always be found when he overturned the next rock.

Going Into Business

In late 1991, when he was appointed Defense Minister, Loudjev discovered a large network of Bulgarian companies operating overseas. They were set up at the request of the KGB in the late 1980s to steal technology from the West. He followed convoluted trails of government money that led to banks in Liechtenstein, Switzerland, and Austria. There were more than 200 of these companies. Packed with experts and offshore funds, many of them went directly into private business, later reappearing in Sofia as Bulgarian representatives for large Western companies.

The privatization of the former Soviet bloc’s espionage apparatus has created a grand specter that will haunt East-West business and political dealings for years, perhaps decades, to come. There was nothing quite like the KGB, whose sprawling apparatus conducted foreign espionage, provided internal security, performed military and police counterintelligence functions, operated the world’s largest eavesdropping agency, protected Communist Party leaders and their hoard of gold, ran scientific laboratories and psychiatric torture clinics, and safeguarded nuclear weapons.

Eastern bloc nations produced enormous quantities of files on informants and agents, all of which have passed into the hands of new authorities in the wake of the Communist collapse of the 1990s. However, the KGB’s huge network of helpers remains hidden and, probably, continues to be of use to Russian authorities.

The KGB’s ranks always included the best and the brightest—men and women who had been allowed to travel abroad and who had the language skills and the manners that would appeal to a Western company. To survive in the new Moscow, Western businesses desperately needed to trust somebody. They needed muscle to ward off extortion attempts, investigators who could spot fraud and criminals, and reliable technicians who knew how to sweep offices for bugs. Thus, a huge new market beckoned, and the ex-KGB members responded in droves. By the mid-1990s, about 8,000 private guard and security services were registered in Russia, with some 30,000 employees.

The emergence of this strange situation raises interesting questions for Western companies hoping to tap the new markets in Russia. J. Michael Waller, a Washington analyst who has written a book on the evolution of the KGB, warns US companies to be wary and hints that the old game will go on.

“American businesses have to understand,” he said, “that, while it’s necessary to hire ex-KGB for the short term, it’s possible that the same people who are advising you are the ones who are stealing proprietary information to sell to the negotiators on the other side or people who plant agents within your company for the long term.”