Lazaro used his cover as a photographer to travel and carry out missions for the KGB. It gave him the ability to meet politicians and businessmen. These were people who might be recruited to become “agents of influence” for the Soviet Union—such an agent did not necessarily provide secrets but instead offered the ability to alter the course of events, small or large, to suit Moscow’s needs—perhaps a journalist spreading information or a businessman laundering money or a politician making decisions. Russian reports, whose accuracy is hard to judge, suggest his marriage to Pelaez was genuine (although possibly with KGB approval), and her move to the United States provided an opportunity for him to move his work there, a decision sanctioned by the KGB leadership. FBI officials, though, wonder if Lazaro’s target may always have been to go to the United States.
After they moved to the United States, the couple settled in New York and in a house on Clifton Avenue in Yonkers. Pelaez became a US citizen, Lazaro a legal resident. Pelaez resumed her career as a journalist, working first as a reporter and then a columnist for a New York–based Spanish-language newspaper. Her political views were left-wing. She saw herself as standing up to the powerful and speaking for the oppressed and was a critic of American foreign policy, especially in Latin America. In 1993, Juan Jr. was born. He would go on to be a talented pianist who earned a scholarship to a Manhattan arts school. He would play Chopin and Beethoven to audiences, his eyes closed as he seemed absorbed by the music. At a concert in Peru, his proud father was interviewed by an education consultant about how he raised a musical prodigy.
Lazaro was a teaching assistant at the New School in Manhattan from 1993 (eventually earning a doctorate). Later he would be hired as an adjunct professor at Baruch College to teach a class on Latin America and the Caribbean. Like his wife, he seems to have done surprisingly little to hide his politics. Students remember his strident denunciations of US foreign policy. He praised Hugo Chávez, the populist left-wing leader of Venezuela, and attacked the invasion of Iraq as driven by corporate profit seeking.
What did Pelaez know of her husband’s identity and spy work? She always maintained she was not a spy and did not know her husband was a Russian illegal. The evidence produced by the FBI, though, suggests she was involved in clandestine behavior. From at least 2000, the FBI was on to the pair. A bugged conversation in the house on February 20, 2002, suggested Pelaez had just returned from Latin America and the couple talked about money she had brought back. A year later, they discussed whether they would have $72,500 or $76,000 after accounting for their expenses following another trip. The bug picked up a conversation on April 17, 2002, in which Lazaro described his childhood to Pelaez. At one point he said, “We moved to Siberia … as soon as the war started.” If he had been born in Uruguay, why was he brought up in Siberia? It is possible she thought his Latin American communist parents had lived in Russia. Or perhaps, as some FBI officials think, she knew more than she was letting on.
The trips to South America had another purpose as well as collecting money. They were a way of passing covert messages to Russian officials. And they were using one of the most old-fashioned pieces of spy tradecraft. In January 2003, shortly before a trip Pelaez was taking, the bugs in their house captured a conversation between her and Lazaro. He explained he was going to write in “invisible” and she was going to “pass them all of that in a book.”
Invisible ink goes back hundreds of years but was still being used by Lazaro to send some of his intelligence reports. The FBI would find pads of papers embedded with specially treated chemicals in their house. An illegal would write a normal-sounding letter to a fictitious friend. Then they would take a sheet of contact paper—almost like carbon paper—and place it over the letter and use a pencil to add a message onto the letter that could not be seen. They would have to carefully destroy the extra papers and mail the letter off to a foreign address—perhaps in Colombia or Austria—or deliver it by hand (as Pelaez seems to have been doing). A Line N officer would receive it and send it to Moscow, where the paper was developed and message decrypted. The whole process was time consuming and slow. But in the digital age, it can be particularly useful since it leaves no electronic trail for investigators to follow.
Communications back to home base are the most difficult and risky part of any spy’s work. The whole point of anyone operating undercover is that there should be as little as possible to tie them to their real controllers. If any evidence of contact is discovered, it is highly incriminating. But at the same time, instructions need to flow one way and intelligence back the other. Throughout history there have been many ways spies have sought to manage this process and minimize the risk, from face-to-face meetings to carrier pigeons. In order to preserve their secrecy, illegals were supposed to communicate directly with Moscow Center rather than through officers operating out of the SVR residency in their embassy.
Lazaro was the oldest of the illegals active in the United States. He had been trained in an era long before the internet or digital communications and so used the most old-fashioned techniques—like invisible ink and mailing letters. One counterintelligence official likens illegals to satellites launched out into space. They are sent out with what is state-of-the-art technology at the time, but they then have to keep using that for decades while they operate. Bringing them back home for training on an entirely new system is not something that can easily be done since it would take so long as to potentially jeopardize their cover. In this way, Juan Lazaro’s communications techniques were the most dated of the group, since he had been launched back in the Cold War, pre-digital, pre-internet era. “He was old school,” says one FBI officer.
The bug in Pelaez and Lazaro’s house also picked up an odd irregular clicking sound on a number of occasions. This, the FBI realized, was linked to the receipt of coded radio messages coming in from Moscow Center. On November 23, 2002, a bug captured Lazaro reading out loud as he composed a lengthy radiogram to Moscow Center about the conflict in Chechnya. Radiograms are coded bursts of data that can be picked up by a commercial radio receiver. This is a classic decades-old communications technique for illegals—still used to this day and which leaves no digital trail.
Twice a week illegals tuned in and then used a one-time pad of seemingly random numbers that were then added to or subtracted from the digits in a message. The papers then had to be disposed of. One option was to fold them tight (like an accordion) and place them on something metal to burn them; another was to soak the paper in water and then rub it with your fingers until it broke up and flush what was left down the toilet. Illegals would spend hours hunched over their notepad, carefully transposing letters and numbers. But all that work was for a reason. As long as only the sender and recipient have the same one-time pad and use it properly, then such a message is impossible to crack even by the most advanced supercomputer. And so, as the investigation began, the FBI’s frustration was that it lacked insight into what was being communicated. But eventually they would get their break, thanks to a discovery at the home of another family of illegals. And that would transform the investigation.
8
Breaking and Entering
IT WAS THE middle of the night and the apartment in Hoboken, New Jersey, was dark. Derek Pieper was waiting nervously outside. His job was to be the lookout. The family who lived there in 2005 was on vacation but he had to make sure no nosy neighbors turned up unexpectedly while his colleagues turned over the place. Inside, Maria Ricci and her small team, dressed in black, were hard at work. The team was small because the two-bedroom apartment was. They did not want to literally fall over each other and knock something over. The atmosphere was tense, as it always was. They had to work fast but carefully. Everything would have to be put back exactly where it was. An FBI covert search looks an awful lot like a high-end burglary. But, apart from being legally authorized, the difference was that the aim was not to take anything away that might be missed. The team inside worked their way through the apartment methodically—the couple’s clothing, the toys that belonged to the two girls who shared a room. Then they made their way to the TV in the family room. It sat on a large cabinet. In the cabinet were lots of shoe boxes. Inside one were pictures of family trips. The father of the family liked to take photos and there were plenty more like that. Another box had the school report cards for the two girls who lived in the apartment. The reports were glowing. But one box was different. Inside was a phone, notebooks, and floppy disks. It looked interesting but at the time no one on the team could have known that the contents of that box would transform the investigation into the illegals.
The apartment belonged to the Murphy family. Richard Murphy was supposedly born in Philadelphia. His wife, Cynthia Hopkins, known as Cindy, was from New York. Richard had a round face and was slightly pudgy. He could get grumpy. Cindy was thinner, stylish, with short dark hair. She could appear dour but could turn on a smile when she needed to. They were another pair of illegals, but with different cover than Heathfield and Foley. They arrived in the second half of the 1990s posing as citizens born in America. Doing this had required using fake birth certificates to back up their story. The quality of these certificates, the FBI would later note half-admiringly, was high-class. “They were incredible,” says one agent. Using a fake certificate in America relied on the fact that birth certificates were different in each state and varied from year to year, so an official would almost never spot anything amiss unless they were already suspicious. Additionally, there was no central database to check. But even if they were brilliant fakes, they were still fakes, which meant this couple’s backstory was weaker than Heathfield and Foley’s. When the FBI searched a Manhattan safety deposit box belonging to Richard Murphy, they photographed his birth certificate. They contacted the Philadelphia Bureau of Vital Statistics, who said no record could be found for either Murphy or his supposed father.
Richard Murphy studied international affairs part-time at the New School in New York from 2002 to 2005, a chance to build cover and contacts. In a strange coincidence, his adviser on the faculty was the great-granddaughter of former Soviet leader Nikita Khrushchev. She was puzzled by the young man with an Irish name but a Russian accent. “You know when you meet your countryman even if this countryman speaks a different language and pretends not to be your countryman,” she later said. She found it odd that he never tried to speak Russian to her or ask about her family. As a result, she decided she would not ask about his. Perhaps he was someone who wanted to put his Russian past behind him, she thought. “He was a little dour I must say. He was not always happy, which is a bit Russian because, you know, misery is what we do best.”
The couple moved into the small Hoboken apartment in 2003 with their two daughters, Katie and Lisa. Neighbors suspected nothing. One family, who also had two young kids, got to know them well. Cindy would cook up a lasagna and cakes—once making cookies shaped like the Statue of Liberty. The two families would barbecue together out on the back patio and go ice-skating and hiking together. Richard and Cindy seemed to enjoy each other’s company but were not very “touch-feely,” the other couple thought. An FBI team watching their every move would get to know the couple and the state of their marriage much better than the neighbors, though.
The illegals investigation was tightly held within the FBI. It began with the New York field office because that was where Poteyev had been recruited. But once it became clear it was going to offer insights into illegals operating across the country, headquarters in Washington, DC, took on a coordinating function. Initially it was known as “the backroom cases” to the small group read into the investigation in headquarters. It sat with the FBI’s SVR unit, whose job was to track SVR activities in the United States. Their main office normally had around six to eight people working together. But there was a small back room that had four more pods that people could work out of. This “back room” was where the illegals cases were coordinated from and where all the highly classified materials were kept. This was a counterintelligence case rather than a counterespionage case. The latter were focused on arresting those, normally Americans, who were passing on secrets to foreign powers; the former were more about understanding the activities of a foreign intelligence service operating inside the United States and more rarely led to arrests.
Alan Kohler, a New Jersey native, joined the SVR unit in 2003, having previously served as a spy-catcher in the Washington field office. A year and a half later he was promoted to chief of the SVR unit and decided it was time to give the whole investigation a formal code name (there were separate code names within each field office and for each target). A computer spits out a list of five options a day for the bureau. If you do not like any, then you can log in the next day and get another five and keep waiting it out until you get one you like. Or you can come up with your own and take it to the team for them to approve. An analyst in the SVR unit came up with a list of names and brought it to Kohler. The others are lost to history, but one stood out as her favorite—Ghost Stories. The FBI tries to shy away from a code name that tells you too much about the case it refers to—after all, the whole point of a code name is that it hides the truth. But agents do sometimes like to come up with something a bit clever or that has an inside joke or reference. In this case everyone agreed that Ghost Stories fit perfectly with the world of dead doubles. And so it was settled.
Ghost Stories would be at once one of the largest but also one of the most sensitive counterintelligence investigations in the bureau’s history, revealed in detail here for the first time. The investigation would eventually sprawl across the country, with field offices in Washington, Chicago, Seattle, Boston, as well as New York involved, each passing on news of significant developments through headquarters. The New York field office was the hub for much of the investigative work over the decade. It was where the case had started and many of the illegals would live around the New York region. In 2006, Kohler was promoted to the New York field office to supervise the counterespionage team and became the supervising agent for the illegals cases there, through to the end.
In New York, he would work with two younger officers who would play a key role in the investigation into the Murphys and the wider illegals. Maria Ricci, an Italian-American with an infectious laugh, had grown up in New Jersey. She was not one of those people who had dreamed of being an FBI agent as a child. “If someone said you were going to be an FBI agent, I would have thought it was the most ridiculous thing I’d ever heard in my life,” she says. She had been an English major and then trained as a lawyer, but after five years practicing decided she wanted to work in public service. She applied to join the FBI as a lawyer. She was told there were no openings for lawyers but was asked if she would be interested in being an FBI agent. In 2002, to her surprise, she found herself as an agent with her first case, investigating Russian illegals. She would see it through to the end and spend more time on it than any other agent in New York. As a result, colleagues like to joke she was the OG—the “original gangster”—of the team.
Derek Pieper, originally from Boston, was another long-standing member of the team. Quieter, with a dry sense of humor, he had also been to law school after Harvard but decided he did not want to be a lawyer. He had worked as an investigator on public corruption in New York and then joined the bureau’s New York field office in 2004. Investigating organized crime seemed the most interesting possibility at the time but instead he found his first assignment was to the counterintelligence squad investigating illegals. He too would see the case through to the end. The squad had to keep things tight even from neighboring counterintelligence teams. “The next squad over had no idea what we were doing,” says Pieper. Because the team also hunted for treacherous Americans, it was sometimes assumed by colleagues that their secretiveness might be because they were investigating someone within the building. Working counterintelligence was not the way to make yourself popular.
The FBI agents found themselves plunged into a strange world. Ricci would talk to some of her Boston colleagues who were following Heathfield and Foley about what it took to be an illegal. “This is crazy. I can’t imagine going to Quantico and being told: you know what, Maria, you’re really good at languages, we think you have an ability to be an illegal—I want you to give up your life, your family, your friends, everything, go to Moscow, live a completely different life. You can’t call home anymore. You can’t say ‘Happy birthday, Mom.’ By the way, here’s your new husband.” They had a front-row seat into the SVR’s most secret program and yet the reality was they were watching a family like the Murphys in suburbia. “When you think of a Russian spy you are thinking of someone rappelling off a rooftop or jumping out of a plane,” Maria Ricci said years later. “What I think of is these two eating a hamburger at the family picnic and drinking really bad beer.”
The FBI’s armory of techniques includes monitoring and recording phone calls and emails, searching bank records, placing covert video cameras in public places and hotel rooms, and physical surveillance of suspects. But one of the most important would be the covert searches of their homes. The FBI’s job may include combating crime, but one of its core investigative techniques is to do something that, if a passerby happened to spot it, would look a lot like breaking and entering. A covert search is legally authorized to support the FBI’s mission. But it still involves people in the middle of the night getting into someone else’s property and having a root around. In the case of the illegals this would have seemed even stranger to a passerby. It was not as if these were offices belonging to a company or someone thought to have mob links. These were ordinary suburban houses and apartments belonging to people with families.
Covert searches are risky. If one of the illegals realizes there has been a break-in, either because they notice something in the wrong place or a neighbor tells them there were some strange goings-on when they were out, then they might well suspect the FBI was on to them. In that case, the whole investigation could be over. This meant the searches were carried out only rarely. Typically, they would be done when you knew for sure the inhabitants of a property were out and there was no chance of them coming back. Out for dinner was not good enough—an argument or a bad meal and they could be back early. Out of town for a vacation when you knew the day of their return was better. But even then you still had to worry about neighbors. You do not want them seeing something strange and telling the owners or a police car waking the street with sirens. A property like that of the Murphys would maybe be searched twice a year. No more. “We didn’t go in just to have a look around,” explains Kohler.
An FBI team wants to know as much as possible about the lifestyle and the property before they go in. The FBI used experts who are “pattern of life analysts,” whose job is to learn every detail of people’s lives—when do they normally go to sleep and get up? Do they wake in the middle of the night much? When are the neighbors awake? Are there any dogs? What time does the garbage truck come? The last question is important because the FBI carried out what is called “Trash Cover,” which means switching trash cans before they are picked up. One source says that for a full decade, the FBI collected all the trash from the illegals’ houses to search it for any possible clues. “We owned almost every facet of their life. We knew what they were doing on a daily basis. When they came. When they went,” one FBI agent would later say.
A covert entry like that in Hoboken in 2005, which led to the key breakthrough, would usually take place in the middle of the night. A skeleton key or lock pick got you in. Then windows are carefully blocked out so that the team can use their own light inside without anyone outside becoming suspicious. It would include one or two case officers working directly on the investigation—like Maria Ricci or Derek Pieper—who might be able to spot the significant items. Others would be technical specialists. “You are literally sneaking around somebody’s house … there’s always pressure,” says Ricci; “they lived in an apartment building, so walls are thin. So you would hear the guy next door cough and you realize you really needed to be quiet … We went in when we had a reason to go in.” Every time you went in, you rolled the dice. Too many times and chances are you would eventually make a mistake. The team searching in Hoboken realized that their targets were using small tricks to detect whether anyone had been inside their apartment while they were away. When the Murphys’ closets were opened, they were packed with items. In some cases, strings were weaved around things in a particular pattern. In another there were coins in pockets of certain clothes. Disturbing the string or coins would make it hard to put them back in exactly the same way. They were simple but effective tricks using everyday items. It meant the FBI team decided not to touch certain things, as they could not take the risk.
One role for covert entry teams was the placement of tiny listening devices—microphones or bugs that were able to pick up conversations in the room. This is something the FBI has long experience in developing, so they can be hidden in everyday items. The bureau will not comment on what these might be, where they can be placed, or how they work, for fear of tipping off subjects of investigation. But they gave a deep insight into what targets talked about and how they lived their lives—right down to how they talk to their children and to each other. “I practically lived with the Murphys for so long,” says Ricci. “I feel I know Richard Murphy better than some of my relatives, which may say something quite bad about me.”
The hours were long for the FBI team, just as they were for the illegals. The amount of material produced by the bugs was enormous. Every time a floorboard squeaked, the recording device would be tripped and the recording would need to be reviewed. The squad of agents had to sit listening to the endless chatter of daily life, hoping somewhere in there was a nugget that might be a clue to some spy activity. The FBI team never heard the Murphys talk to each other about the challenges of living as an illegal. Even when they were alone in the house together, they never broke cover and talked to each other either in Russian or in English about their real work. They certainly seemed aware of the possibility of some kind of surveillance. Occasionally there might be a hushed conversation somewhere in the house that was hard to pick up on the listening devices but seemed to correlate with when there was an operational meeting coming up, but it was hard to be sure.
