4.10 — Spying: Hiding in Plain Sight

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Spycraft has always excited us, with stories of daring agents using high-tech wizardry to bust terrorists in the act. But the reality is much less glamorous—and much more dangerous.

As spying entered the 1960s, technology started to play a serious role in getting intel.

Join us as we see just how close real spies are to James Bond, all on the latest episode of Trailblazers.

What you’ll hear in this episode:

● A story about a Palm Pilot (0:00)

● Cracking the code (3:00)

● The shadowy world of intelligence (6:01)

● Tech becomes essential (10:26)

● The Year of the Spy (13:20)

● Catching a spy in the act (15:11)

● Challenges in a post-9/11 world (21:02)

● Spying commercially (25:52)

Guest List

  • Cassandra Chandler is a retired FBI assistant director and special agent and has managed, directed, and led criminal, terrorism, and cybercrimes investigations.
  • Robert Wallace , former director of CIA's Office of Technical Service, has co-authored several books including SPYCRAFT, The Official CIA Manual of Trickery and Deception, and Spy Sites of New York City.
  • Eric O'Neill is a former FBI undercover operative and author of, Gray Day: My Undercover Mission to Expose America's First Cyber Spy.
  • Jim Olson is a former chief of CIA counterintelligence, an expert on how to find spies, and the author of To Catch a Spy: The Art of Counterintelligence.
  • Calder Walton is the Assistant Director of the Applied History Project at Harvard Kennedy School of Government and the general editor of the Cambridge History of Espionage and Intelligence.

“Unless we began finding ways to use technology, we simply couldn't run clandestine operations. ”

— Bob Wallace, former Office Director of the CIA's Office of Technical Services

Walter Isaacson: It’s a wintry day in early 2001 at FBI headquarters in Washington DC and novice spy hunter Eric O’Neill can’t remember which bag pocket his boss keeps his Palm Pilot in. Normally, this would not be the kind of thing that would unduly concern an FBI agent, but this isn’t a normal day, and his boss, Robert Hanson, isn’t a normal boss. Hanson is a longstanding veteran counter intelligence agent, but the FBI suspects him of something else, that for decades he’s been selling out vital intelligence secrets to the Russians in exchange for cash.

Walter Isaacson: With Hanson due to retire in a matter of months, there’s precious little time to catch the suspected traitor in the act. Today is the day to strike.

Walter Isaacson: A colleague is keeping Hanson distracted at the FBI shooting range while O’Neill, working undercover as his assistant, swipes the Palm Pilot containing the man’s secrets from his bag and delivers it to a technical team a few floors away to download its contents. But things haven’t gone entirely according to plan.

Walter Isaacson: Hanson unexpectedly leaves the shooting range early, and O’Neill gets word that he’s minutes away from his office. If he doesn’t get the Palm Pilot back into his boss’s bag before he returns, he risks not only the government’s entire case, but his own life. Hanson is erratic, always armed, and there’s no telling what he’ll do if he’s discovered.

Walter Isaacson: O’Neill races back to the office just in time. But suddenly he realizes he can’t remember which of the four bag pockets the organizer goes in. Hanson is detailed-oriented and brilliant. He’d notice if his precious Palm Pilot was misplaced.

Walter Isaacson: Making his best bet, O’Neil picks a pocket, gets the organizer back in the bag and is back at his desk moments before Hanson opens the door. But did he get it right?

Walter Isaacson: I’m Walter Isaacson and you’re listening to Trailblazers, an original podcast from Dell Technologies.

Speaker 2: Foreign intelligence services have wide ranges of intelligence collection capabilities at their disposal.

Speaker 5: Designed to help safeguard the security of the nation-

Speaker 4: By a carefully prepared sneak attack.

Speaker 2: The foreign intelligence threat is real and their principle target is you.

Walter Isaacson: The story of modern technology-enhanced espionage starts during a conflict that would define and reshape almost everything about the 20th century. And it begins not on a battlefield or in some heavily guarded underground bunker, but a lovely manor in the English countryside.

Calder Walton: I think the Second World War created modern intelligence as we would recognize it today.

Walter Isaacson: Calder Walton is the assistant director of the Applied History Project at the Harvard Kennedy School and the author of Empire of Secrets, British Intelligence, The Cold War, and the Twilight of Empire.

Calder Walton: So I’m talking really about the British and allied codebreakers at Britain’s Bletchley Park that cracked the Enigma code during the Second World War and created, for the first time, computerized intelligence gathering. If you look at the careers of the people at Bletchley Park, they were eccentric people that thought outside the box, brought together, and through their combined efforts whittled away at cracking the German supposedly uncrackable ciphers, the enigma code.

Walter Isaacson: The Enigma was a cipher machine used by axis powers to communicate during the war. Reports from the front or orders to the German U-boat fleet could be intercepted by the allies, but they were encrypted in such a way as to make them unreadable without an Enigma device. Cracking the code was critical to the war effort. It took the combined genius of the Ultra code-breaking group, which included computing pioneer, Alan Turing, to decipher the formerly uncrackable code, as well as other more advanced encryption that the Germans developed over the course of the conflict, but the resulting intelligence was invaluable.

Calder Walton: The level of collection and deciphering really is extraordinary from our perspective today. Some of the messages that were traveling from the German eastern front in Soviet Russia back to Berlin actually arrived on Churchill’s desk in London after being intercepted and decrypted before they reached Hitler in Berlin. It’s an absolute extraordinary phenomenon.

Walter Isaacson: In September of 1945, President Truman disbanded the Office of Strategic Services, or OSS, which was America’s wartime intelligence agency. Japan had surrendered. The war was over and the world’s major powers were at peace. There was no need for espionage on the scale conducted during the Second World War. Or was there?

Walter Isaacson: What became rapidly apparent was that there was a new conflict underway. One that would be fought almost entirely by covert means, a cold war against America’s former uneasy ally, the Soviet Union. Two years later, the Central Intelligence Agency was formed as OSS’s successor to defend the US against foreign threats, but the CIA soon realized it was at a serious technical disadvantage when it came to their new adversary.

Robert Wallace: It became apparent in the first few years of the agency that unless we began finding ways to use technology, we simply couldn’t run clandestine operations either with our agents, or we didn’t have any technical systems that would provide collection capabilities.

Walter Isaacson: Robert Wallace is a former director of the CIA’s Office of Technical Services, the department responsible for developing the agency’s espionage devices. And he’s the coauthor of several books including Spycraft. Robert has been called the Q of the CIA in a reference to the fictional MI6 agent who provides James Bond with all of his gadgets and gizmos.

Robert Wallace: The lack of that came home very hard. I say, perhaps with a loud bang, when the Soviets exploded their nuclear weapon in 1949. And then that was followed about eight months later with the invasion of South Korea. And those two events, which the CIA did not adequately prepare the American policymakers for, really drove… The organization drove the administration to contemplate how we could see into the Soviet Union, how we could anticipate those kinds of military events.

Walter Isaacson: The Soviet Union was an intelligence challenge unlike any other, a nation under constant surveillance by the feared KGB. Any Soviet national that might have any contact with the Americans or even be of any interest to them would be followed closely. It was rare, but informers did sometimes pass through the KGB’s very fine sieve, and when they did, the information they provided could literally save the world.

Walter Isaacson: Calder Walton.

Calder Walton: British MI6 and America’s CIA ran an extraordinarily successful agent inside Soviet military intelligence, GRU. Oleg Penkovsky was his name. Penkovsky’s codename by the British and American was called Iron Bark. What we find is that each of the key missile assessments about Soviet missiles that was given to president Kennedy during the Cuban missile crisis had Iron Bark stamped across their top. That meant that each of the key missile assessments about how advanced the Soviet missiles on Cuba were that were threatening the American homeland were cross-checked against Penkovsky’s information that he gave deep within the Russian military intelligence, the GRU. He actually provided British and US intelligence with blueprints for the missiles that Moscow placed in Cuba.

Calder Walton: Having those blueprints allowed aerial reconnaissance, U2 spy planes, to then figure out how advanced they were and when they were likely going to be able to fire on America, and thus gave President Kennedy time to maneuver diplomatically with Moscow. So that’s an extraordinary moment where good intelligence, human sources, actually provided diplomatic room for a maneuver in Washington and London during the Cuban missile crisis.

Walter Isaacson: Penkovsky turned out to be a turning point in more ways than one. The method he used to collect information and pass it along to his handlers was already outdated. He’d used a commercially available camera to take pictures of secret documents and passed along packages in broad daylight. A new, more surreptitious and technically savvy form of tradecraft was urgently needed.

Walter Isaacson: Robert Wallace.

Robert Wallace: Penkovsky needed a better way to collect his information than what he had been using. He needed a camera to take photos of the secret documents in a way that would not be obvious to anyone who might happen to see what he was doing. This led to the creation of what is known as the T100 camera, the camera that could be concealed in a writing pen, it could be concealed in a cigarette lighter, and it could be easily used by the agent without being obvious.

Walter Isaacson: Perhaps the most James Bond-like of all of the CIA’s gadgets, the infinitely concealable T100 camera has been referred to as the camera that won the Cold War. It remained a key element of the CIA’s arsenal until as late as the 1990s.

Walter Isaacson: Equally important was the question of how agents like Penkovsky could, while under near constant surveillance, communicate with the American or British handlers.

Robert Wallace: The critical element of human operations is almost always, how does the agent get the secret information to his handler? And that required a complete rethinking of our covert communications systems.

Walter Isaacson: One of the CIA’s breakthroughs, a system called Buster was a small device that allowed agents to pass information to their handlers in short bursts of text. Agents only had to enter the radius of the Buster base station and surreptitiously press a button on their device in order to send a message. Produced in the early 1970s, it was effectively the world’s first mobile text messaging system. The CIA’s technical efforts proved incredibly useful as they attempted to penetrate the Iron Curtain. By the 1980s, the US was running hundreds of agents in Russia and in Soviet territories.

Walter Isaacson: And then came 1985, the catastrophic year that is still referred to in intelligence circles as the year of the spy.

Jim Olson: Well, one thing that is very painful for me to talk about is 1985, because I was there, I experienced it, and we began, one after another, to lose our assets inside the Soviet Union.

Walter Isaacson: Jim Olson served as a CIA chief of counterintelligence and he’s the author of To Catch a Spy.

Jim Olson: It was a heady time up until 1985 because we had great penetrations of the Russian government. Every Russian organization we cared about, whether it was the KGB or the GRU, the foreign ministry, the defense ministry, we had penetrations in, sometimes multiple penetrations. And in that one year, the worst year of my professional career by far, we began to lose them, and they were all wrapped up. And they were wrapped up of course, because of treason, betrayal from within.

Walter Isaacson: America began to lose some of its most valuable assets and it would be years before the intelligence agencies fully understood what had happened. But what they did understand was the grievous consequences suffered by the agents who had put their lives on the line.

Jim Olson: That set them up for arrest, interrogation, torture, and in many cases, execution. It was extremely painful. It was incredible anguish to go into the office every morning and to see somebody else hasn’t shown up. Somebody else had disappeared. I even have had trouble talking about it.

Walter Isaacson: Of course, there were defectors on both sides. Aldridge (Rick) Ames was a CIA counterintelligence officer who would pass along the names of American assets to the KGB in exchange for payments. He wouldn’t be caught until 1994, and even when he was, many felt he wasn’t the only guilty party. It would take another decade before their eyes turned to an FBI agent by the name of Robert Hanson.

Eric O’Neill: My first conversation with Robert Hanson, he said words that I’ve never forgotten in my entire life.

Walter Isaacson: Eric O’Neill is the former FBI agent who went undercover to apprehend Hanson, and he’s the author Of Gray Day, My Undercover Mission to Expose America’s First Cyber Spy.

Eric O’Neill: And in fact, my entire theory of security that I’ve developed over the years is based on the first real conversation that Hanson and I ever had. He sat me down across from him at his desk and he said, “Look, the only thing you need to know to be a top counter intelligence agent is what I call Hanson’s law.” He said, “Hanson’s law is this simple. The spy is in the worst possible place. The spy is in that place where they have access to that information that is going to do the most damage, and the knowledge and wherewithal to sell that information for the most money to that party that is going to take it and do that damage.” And he said, “Those are the spies we’re hunting for.” And of course, he was just saying, “I’m that spy and they’ve been hunting for me for all this time and they haven’t been able to catch me.”

Walter Isaacson: Hanson had been passing secrets to the Russians since the 1980s. Highly intelligent, he was able to take advantage of several weaknesses in US intelligence. One was the fact that from a computing and cybersecurity point of view, the FBI was behind the times. Even then, its case records were only lightly protected, allowing Hanson to pilfer them at will and pass along key information on suspected spies to the KGB.

Walter Isaacson: But it was technology that would eventually be Hanson’s undoing. O’Neill was recruited to work undercover posing as Hanson’s assistant in his FBI office, observing everything his boss did and looking for opportunities to catch him in the act. And he soon couldn’t help but notice how attached Hanson was to this new gadget he’d carried around, a PDA or personal digital assistant called the Palm Pilot. O’Neill and his team developed a plan to distract Hanson by having an assistant director show up unannounced in his office and invite him shooting. The invitation took him off-guard, and for the first time Hanson left the office without his Palm Pilot.

Eric O’Neill: I was pretty excited. There’s the device. I knew that it had to be able to help us. I ran it down three flights of steps to where we had a tech team waiting. They started to decrypt it and copy it. And as this is happening, I get a page by the asset I had in the shooting range who says, “Don’t know what happened. Out of pocket probably coming to you.” So I knocked on the door and I told the tech team, “I’m going to need that stuff,” and they said, “Yeah, hold on. We’re copying it. We’re almost done. We’ll get it to you soon.” And I said, “You don’t understand. He’s armed, I’m not. He’s angry. I got to get this stuff there before him or he’s going to shoot me.”

Walter Isaacson: O’Neill races back to the office, but soon realizes he’s made a critical mistake.

Eric O’Neill: When I got in the office, got to his bag, and realized I had a Palm Pilot one hand, a floppy disk and a data card in the other. That’s three things I’d taken from his bag. There were four pockets. They were all identical. I had no idea what pockets I pulled this stuff out of. Just rookie mistake. And I hear him coming through the door. So I just dropped all three, zipped all four pockets up, ran to my desk with the best poker face I’ve ever had on. He comes through my office, glares at me, goes into his, slams his door, and I hear the telltale zip and I just sat there thinking, “I’ve blown the biggest case the FBI has ever run. There’s no way I got this all right.”

Walter Isaacson: Luckily, Hanson didn’t notice anything amiss, and with the data collected from his Palm Pilot, the FBI was able to apprehend Hanson red-handed just days later as he attempted to leave a package of classified documents at a dead-drop site in a park. He would receive 15 life sentences with no chance of parole, and not long after, the FBI made a long past due overhaul of its computer systems.

Eric O’Neill: I like to say that Robert Hanson is the architect of the modern secure FBI, because by analyzing all the ways that Hanson was able to exploit the flaws in the FBI’s security, the FBI rebuilt their security from the ground up. They are now worlds past where they were in the year 2000 and 2001 as far as computerization, as far as security, as far as internal security, as far as all of the checks and balances you need to make sure that a trusted insider, a mole, a spy like Hanson can’t operate from within the agency.

Walter Isaacson: Mere months after Hansen’s arrest, the United States would face an entirely new intelligence challenge. One that would make the cold war seem like a distant memory. The terrorist attacks of September 11th, 2001 called for a very different response than the conflict with the Soviet Union. There was no Al-Qaeda embassy in Washington to bug, no diplomats that could be tempted to the American side with the promise of money and a new life in the USA, and technology would have to quickly adapt to the changing times.

Walter Isaacson: Robert Wallace.

Robert Wallace: Were we positioned technically to a deal with that? I’d like to say yes, we were. Not because we had worked on systems that specifically would be beneficial in the war on terrorism, but because we had systems that could be rapidly adapted to those needs. Specifically, those were the geolocation systems, we could find the people. They were the communications intercept systems that we had, we could hear the people. And third, we had the drones that gave us the capability to attack the systems covertly and silently in a way that had never been done before. All three of those technologies and those systems were developed in the 1990s prior to 9/11, and they were ready for use when that occurred.

Walter Isaacson: One developing technology that proved essential to identifying the CIA’s person of interest was facial recognition.

Robert Wallace: Digital technologies enabled us to have the kinds of digital photography with the resolution or the pixel distribution that made clear matching both possible as well as reliable. We were collecting a variety of possible images of people from around the world who might be of interest, and when the CIA in a joint operation captured the first high value terrorist in 2002, he was identified conclusively as the right person by the facial recognition technology.

Walter Isaacson: But like all technologies, this can be a double-edge sword. Facial recognition software is now so easily accessible that it’s actually making it much harder to be a CIA agent in the field.

Walter Isaacson: Jim Olson.

Jim Olson: Our clandestine task of operating overseas has really been complicated by what our adversaries can throw against us in the same terms of technology. You know we hate things like facial recognition and the fact that there are cameras everywhere including pinhole cameras. I remember when I was on active duty, for example, that I could cross international borders with relative ease, even with the false documents and an alias, because at that time you would have kind of a bored airport official or a passport clerk kind of glance at you and then stamp your passport and you’re in. That’s all changed today because of technology, because even small third world countries have scanners, they have databases. They can instantly check your addresses, your phone numbers, your place of employment, sometimes your family members. The requirement for us to have much deeper backstopping for our alias documentation has really changed how we do our business. We can still do it, but it’s a lot harder than it used to be.

Walter Isaacson: 9/11 also forced the country’s sometimes competitive intelligence agencies to share information and to collaborate in ways they never had before.

Cassandra Chand…: When we look back at that time period, after September 11th we had to change.

Walter Isaacson: Cassandra Chandler is the CEO of Vigeo Alliance and a former FBI assistant director.

Cassandra Chand…: Prior to that time period, the CIA did have significant amount of intelligence. The FBI had a great deal of intelligence, NSA and other players. And the DNI or the Directorate of National Intelligence had a community with a lot of disparate components providing what intelligence or information they thought was relevant to the other component. Now and after 9/11 it became more of a very integrated intelligence collection and sharing capability.

Walter Isaacson: Threats continued to evolve. In an era where virtually all communication is going online, espionage is not far behind and the line between cyber crime and government orchestrated spying is a very blurry one.

Cassandra Chand…: What is rapidly becoming a problem for us in the cyber crime realm is that some of the cyber crimes are backed or supported or encouraged through state sponsors. And with these state sponsors, there’s a lot of power and authority given, a lot more access into places.

Walter Isaacson: And what’s needed to take that on, experts agree, is education. Anyone who isn’t careful can lose of their personal data and the consequences can be devastating, whether it’s a state secret or not.

Cassandra Chand…: I think what’s most important is for people to not become complacent with seeing things and thinking everything’s okay. It’s just not anymore. Electronic capabilities in the internet of things, cyber capabilities, artificial intelligence, it is capable of manipulating so much that you have to look at every bit that comes across your screen on the computer or across your telephone. That’s presently something like 27 billion mobile phones are now connected across the world. We’ve got to start looking at everything with a keen eye and a bit of suspicion.

Walter Isaacson: The internet has given almost anyone the ability to connect across its global networks. Anyone with the right knowhow can be a spy, but with a little education that doesn’t mean everyone needs to be a target.

Walter Isaacson: I’m Walter Isaacson and you’ve been listening to Trailblazers, an original podcast from Dell Technologies. For more information on any of our guests, go to our website, delltechnologies.com/trailblazers. Thanks for listening.