THE SPY WHO WAS LEFT OUT IN THE COLD

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00494R001100710105-2
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 19
• Document Creation Date: December 22, 2016
• Document Release Date: July 26, 2010
• Sequence Number: 105
• Publication Date: February 1, 1985
• Content Type: OPEN SOURCE

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The Spy Who Was
Left Out in the Cold
Athe sun was setting in Tokyo, Richard
Craig Smith stepped up to a public pay phone, and
nervously reached into his jacket pocket and pulled out a
handful of coins and a crumpled piece of paper on which a phone
number was scrawled.
"Tars," said the voice that answered his call.
Smith took a deep breath and began his pitch. "I'm an American businessman.
I have some information that your country may be interested in obtaining."
"Does this have to do with a news
story?"
"No. This is much more important.
I'm not really interested in any publici-
ty. This is a matter that requires deli-
cate handling."
The Russian paused. The nature of
the call caught him off guard. "Perhaps
you should then call our embassy. We
are only a news organization. Here's the
number. Good luck and good-bye."
Smith was pleased. His initial contact
had gone as expected.
He checked his watch. He wanted to
give the KGB agents who masqueraded
as journalists for the Soviet news agency
enough time to alert their boss at the
embassy that a walk-in was coming. Smith
would make his next move in 30 minutes.
Based on his service in military Intel
ligence, Smith knew that Russians, as
well as Americans, deeply distrust for-
eigners who simply stroll into an em-
bassy saying that they have information
to sell. More than 90 percent of them
turn out to be agents provocateurs: dou-
ble agents assigned to learn how anoth-
er country's diplomats handle spies-how
they verify information and contact agents,
how much they're willing to pay, and what
secrets they want to know. Most walk-ins
who saunter through the front door are
quickly ushered out the back.
By calling Tass first, Smith showed
that he knew how the Russians operat-
ed and therefore had a background in
counterintelligence. He wanted to convince
the Russians that he was an American
spy and that the KGB couldn't afford to
ignore him.
After waiting a half hour, Smith dialed
the number the Tass employee had giv-
en him. The number was for the Sovi-
EMo Ris sMH
THOUGHT NE K
A HUBIf GGENi
FOR THE CIA.
BUT WHEN THE FBI
ARREED HIM,
NE E HE'D BEEN
DOUBLLCROSSE
ets' commercial compound in Tokyo,
which is located in an aging neighbor-
hood of small businesses and cramped
houses on the western edge of the city.
The spies who work there pose as trade
experts and union officials. Smith knew
that the Soviet agents stationed at the
compound were seasoned pros who'd
appreciate the importance of his infor-
mation and pay top dollar for it.
The phone rang for several minutes
Scott Klug is an investigative reporter for 4JLA7V
He u-rot, about the Eastern /ndemnitr financial
scandal in the March Regardie's.
before someone answered.
The switchboard operator connected
Smith to a Russian agent who clearly had
been waiting for the call. Smith identi
fied himself as an American business-
man who had contracted a terminal illness.
He said he needed money so that his
wife and kids would be financially well.
off after his death.
"I used to work in the military in
Japan," Smith told the Russian. "We
should do business."
When the Russian expressed interest,
Smith gave him the phone number of a
small coffee shop nearby. If the Soviets
were interested, Smith said, he'd expect
a phone call within a few minutes.
As he walked to the coffee shop on
that cool November night, Smith felt cer-
tain that he was about to make a lot of
money. Perhaps as much as $10,000 for
each meeting. More than enough to make
his trip to Japan worthwhile.
He was drinking a cup of coffee when
the restaurant's pay phone rang. The
Russian's message was brief: he was
still waiting for his superiors to approve
the plan; Smith should wait in the lob-
by of a local hotel, where he would be
paged at 7:00 P.M. if the Russians want-
ed to meet him.
Smith paid for his coffee and walked
briskly toward the hotel. He was sure
that he was about to make a good deal
of money spying for the Russians. His
mood was upbeat.
0 April 11, 1986, four years after
his trip to Tokyo, Craig Smith slowly rose
from his chair at the defense table and
faced the jury in a federal courtroom in
Alexandria. His five-day trial on charg-
es of conspiracy, espionage, and pass-
ing classified documents to the Russians
was about to end.
His arrest in 1984 had been the first in
an unprecedented series of espionage in-
dictments brought by the justice Depart-
ment. Following Smith's indictment, the
government nabbed John Walker, Jr., and
his son, Michael Walker, Ronald Pelton. and
I Lam- Chin, all on charges of espionage. In
"-T GRAPH Bi CNAD S_"`:~
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l9i t flit' IIkrI'- \\l'i . V...
tcnc ed t lerigtliy prt
tenns, felt )n way corn in
ed of selling mil tar se
crets to the Soviets, and
Chin committed suicide in
his Northern Virginia jail
cell while awaiting trial.
I'nesecutors argued that
Smith was no different
than Walker, Melton, or
Chin-he had sold out his
country for it pocketful
of cash. Smith's lawyers
didn't deny that their cli-
ent sold secrets to the So-
yiets. But they tried t( I co ~n-
vince the jury that Smith
was working for the CIA
and that the agency had
turned its back on him.
After six hours of delib-
eration, the jury reached
its verdict. The 42-year-
old defendant rose, took
a deep breath, and faced
the jury. The foreman read
the verdict: Smith was in-
nocent on all counts.
Smith's wife, Susan,
started to sob uncontrol-
I lably. The defendant em-
braced his lawyers. The
prosecutor stormed from
the courtroom.
The jury's decision was
startling. Smith was the
first American in 11 years
to be acquitted of espi-
onage charges. Since 1975 the govern-
ment had sent 47 other accused spies
to prison.
The facts of the case were as improb-
able as the jury's verdict. The story of
Craig Smith's metamorphosis from a spy
in Tokyo to a defendant in a Virginia
courtroom unfolds like the Chinese puzzle
that's made of an almost endless series
of boxes within boxes within boxes. The
elements of Smith's puzzle are spies and
double agents who engaged in a succes-
sion of double crosses and flim-flams
i against a backdrop of international es-
pionage
.
I if Craig Smith's story is true, it shows
a frightening degree of negligence and
ecifical
CIA
S
th
hi
i
.
p
n
e
t
incompetence w
ly, it points to the agency's inability to nese, Turkish, and some Russian. ous matters: the two visitors revealed
adequately monitor the conduct of its top In 1976, while living in San Francis- that they also knew about Smith's back-
employees. What other explanation is co. he turned in his sergeant's stripes ground in military intelligence.
there for CIA agents who freelanced for a civilian job at INSCUMI. Before long What followed was a kind of mating
covert operations against the Russians Smith had become a top counterintelli- dance. White and Ishida mentioned a few
or for top operatives who used a CIA cover Bence expert. He worked with soldiers carefully chosen facts to show Smith that
operation as an opportunity to bilk thou- who had been approached by the Rus- i they knew the specific tasks he had per-
sands of people out of millions of dollars? sians and who were working undercover ~ formed at INSCOM. Smith tried to deter-
to study how the KGB spied on the army. mine how much they knew: Who did he
The Man Who Loved Mysteries In 1980 Smith's wife announced she'd report to? Where was his boss based?
In the early 1960s the CIA built its had enough. She complained that her What was his title" White and Ishida
new headquarters just a few blocks from husband was spending t(K) much time had the right answers. Then they grilled
the high school that Craig Smith was away from his family, and that when he I Smith with their own set of questions.
attending. After graduating from high was home he could never talk about his I Chace the two parties had begun to trust
school, Smith got a job as a clerk for the work. Craig Smith loved the intrigue and ~ one another, White and Ishida brought
Craig Smith began freelancing as a double
agent during a business trip to Tokyo in 1981.
agency. Raised as a devout Mormon (his
father is a direct descendant of Hyrum
Smith, the elder brother of Joseph Smith,
who founded the Mormon church), Smith
left the CIA after eight months to join a
group of church members on a mission to
France.
In 1965 Smith entered Brigham Young
mystery his wife hater
Reluctantly, he agreed t
give it all up and moved
the family to Utah.
In Salt Lake City Smith
and two of his brothers ;
formed a video company
called Timespan. Cap--
talizing on the Mormons'
keen interest in genealo-
gy, the brothers made a
fair amount of money by
convincing their brethren
to videotape elderly rela-
tives to preserve family
histories. Soon Timespan
was producing commer-
cials. Then Smith came
up with the idea of a trade
mission to Japan: his firm
would produce slick pre-
sentations for local com-
panies to attract Japanese
capital to the Salt Lake
City area. In early 1981,
after contacting several
state officials, Smith joined
a delegation of Utah's busi-
ness and political leaders
on a trip to Japan. The
group made some inroads
and returned to Japan lat-
er that year.
It had been almost two
years since Smith had
walked away from the spy
game. As he strolled off
the plane in Tokyo in Oc-
tober, he had no idea he
was about to become a player once again.
s A Call to Glory
mith was settling down to a quiet
night in his Tokyo hotel when he was
startled by a knock at his door. Two well-
groomed men asked if they could come in.
The one who called himself Ken White
was about six feet tall, with curly brown
hair, in his mid thirties. His companion,
University, but he left college two sears who identified himself as Danny Ishida,
later when he was drafted. In the service 1 was a Japanese American in his late
he learned electronics and then transferred I twenties.
to INSCOMI, whose 16,000 employees han- Since White and Ishida knew the details
dle the amw's most secretive and imp)-- of his trade mission. Smith assumed that
tant strategic intelligence work. On his the two were affiliated with the U.S. em-
church mission he had mastered French. bassy. After more than an hour of small
At I\SCUM he picked up German. Japa- talk, the conversation turned to more serf-
__ :FS _ r! 0, 4Q LTi _c -iM[:
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a- ATi irr
d,qu!,;t r is npt?-;r'. .1i the l ar
t-1i t. n. incthe pia) err-. their assign
nients, even their cover names.
"The CIA doKesn't cam badges or flash
credentials," says Smith. "But it was clear
to me that they knew so much about past
operations that they could only work for
me agency.'
The two strangers had a proposition:
They wanted Smith to hand-deliver some
letters to the mainland. No salary, they
said, but the agency would reimburse his
expenses.
Smith agreed to do the job.
"It wasn't so much that I missed the
intrigue," says Smith. "It's just that I rea]-
ly believe in the work. I'm not a Rambo
type, but I guess you could call me a
pretty gung-ho person."
During the ensuing months Smith ran
a few simple errands for White and Ishida.
He made several trips to the West Coast
and mailed letters there. Although he
wasn't allowed to read the letters, he did
see the addresses on the envelopes. Today I
he remembers only one address, for the
Honolulu offices of a company called
Bishop Baldwin Rewald Dillingham &
Wong. At the time he assumed it was
the address of a law firm.
Smith recognized the drill: he was being
put through the same tests that he had
devised for double agents back at INSCOAM
to assess how well operatives followed
directions.
"It's a way to develop a psychological
dependency," Smith says. "Command and
response."
White and Ishida never told Smith how
he could contact them. He assumed it
was because they still didn't trust him
completely, or because of the sensitivity
of the operation. Each time he went back
to Japan, Smith had to wait for the pair
to contact him.
After Smith had performed his sim-
ple tasks well, the stakes grew higher.
White and Ishida told Smith they wanted
a letter delivered to the Soviet embassy
in San Francisco.
The message informed the Soviets that
an American with military intelligence
connections had some information to sell.
If the Russians were interested, they were
told to place birthday messages in the
personal columns of three major Ameri-
can newspapers on a specified day. Smith's
role was limited to making sure that the
Russians got the letter.
After delivering the letter. Smith made
additional business trips to Japan but didn't
hear from White or Ishida. He assumed
that the San Francisco project had been
a success and that his services were no
longer needed.
But during another trip to Japan in
the summer of 1982, White and Ishida
unexpectedly reappeared at Smith's d(x)r.
They said the Soviets had ignored the
trial balhxin Smith had taken t(! San Fran-
cisco) and that they needed a more direct
appna:l;: tilt:
ant', the Si,yiet ernha,sy ni Japan and
offer t? sell svcrcts, and they wanted Smith
to play the role.
White and Ishida proposed selling in-
formation that would impress the Sovi-
ets but wouldn't affect national security
because most of it was 10 years old.
The two agents told Smith how much
they needed his cooperation-but even
for someone with his zeal it was a tough
call.
"Once you walk into the Soviet embas-
sy, you're on their turf," Smith explains.
"I knew I'd be subject to their laws. Once
in, I might never come out. One mis-
take and I'd be dead."
Yet Smith couldn't bring himself to say
no. Although he had spent years in the
intelligence field, he had never person-
ally worked undercover. Instead, he had
always been the control agent back at
headquarters who laid out the plans and
watched them unfold from afar.
"As a case agent you train the guy
a KGB agent stationed in Tokyo,
paid Smith for details about U.S.
double-agent operations.
and set up the scenario," he says. "but
someone else gets to live the excitement."
Finally, Smith had his chance to "live
the excitement."
Loo: t h ( r, GP
AALfter getting the phone call at the
coffee shop. Smith walked to a nearby
hotel where he expected the Soviets to
page him at 7:00 P.M. When the page
failed to occur, Smith's initial rush turned
to nervousness. At 7:30 the hotel's oper-
ator announced a call for "Mr. David."
Smith picked up the phone.
"Come right aver." he was told.
At the gate to the Soviet comp,)und.
-'rii,th identified ham
self and was buzzed
in. Surprised by the
lack of security-no
one accompanied him
from the gate to the
front door-Smith
wandered around the
grounds for 15 min-
utes. He bumped into
a security guard, who steered him back I
to the lobby and introduced him to his
contact, Victor Okunev.
Okunev was short, stocky, had thinning
hair, and wore a well-tailored suit.
"He knew exactly why I was there.
He took ch-irge immediately," recalls
Smith. "He was the consummate pro-
fessional '
Smith repeated the story he'd outlined
on the phone. His name was Walter Ham-
lin. He lived in Salt Lake City. He need-
ed money fast because he didn't have
long to live.
The two men sat beside each other
on.?a couch in a ground-flcx,r foyer. Oku-
nev placed a tape recorder between
them. Within 30 minutes they'd
worked out the details for subse-
quent contacts. Okunev told Smith
that he'd be paged two days later
ij the lobby of the Keio Plaza Hotel
minutes of driving through
alleys and one-way streets to
iiaake sure they weren't being
..:followed (dry-cleaning as it's
called in the trade), Okunev
dropped off Smith near a
train station.
Two days later, on Novem-
er. 7, 1982, Smith again was
paged in the hotel. He was
told to return to the Soviet
compound that evening. When he arrived
Smith was led to a conference room on
the second flexor. Thick mirrors lined the
walls of the rcxmi; Smith figured that
cameras were videotaping the entire ses-
sion. Okunev had a list of questions on
a piece of paper that he placed on a table
next to a tray of hors d'oeuvres.
Smith supplied Okunev with details
about several U.S. double-agent opera-
tions that the Russians already knew
about. Even now most of the informa-
-if the Soviets wanted to pur-
sue the relationship.
:Okunev drove Smith out of the
-:compound to avoid his being de-
tected by the Japanese police or
,the American agents who moni-
lion about those oper-
ations remains classi-
fied, except for their
code names: Canary
Dance, Lancer Flag,
Landscape Breeze,
Lariat Toss, and Hole
Punch. Since Smith
knew- the intimate de
tails of those old nper-
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;iii ;i.. Ohlll',t I ,~.1` (IL!I,hk cOII%IfCea
that thin Anlt r1C,li1 waI legit and cIIII ld
lead thCm t,, current 1'.5. counterintelli
gence operati%es.
Okunev handed Smith it stack of 50
$100 bills. It wasn't a great deal of mon
ev; in fact, it was far less than the $25,(X)()
Smith had requested. But Smith knew
that the Russians tend to be cheap, and
that an initial payment of $5,000 meant
they were taking the bait.
There will be more meetings," Okunev
said. "Soon. Perhaps in Vienna."
Smith was ecstatic. Vienna is one of
the Soviet's main debriefing centers. The
meeting was going even better than he
had expected. And then Okunev offered
a goodwill gesture that almost ruined
everything.
Smith had told the Russian he was
suffering from a terminal illness. To Smith's
horror, Okunev offered to fly him to Mos-
cow for free medical care. Smith, who
was in perfect physical health, danced
around the offer as best he could and
their meeting ended.
This time Okunev's driver took the
wheel. As before, after making sure they
weren't being followed, Smith was dropped
off by a train station.
Smith's next contact with the Soviets
came one month later, on American soil.
Okunev had promised to pay Smith more
money if he would get in touch with
the Soviet consulate in San Francisco on
December 18.
This seemed to be more good news
for White and Ishida, who had said they
wanted to establish contact with the So-
viets in both Tokyo and San Francisco,
and eventually in Hong Kong.
Smith, again posing as businessman
Walter Hamlin, waited for his page in
the lobby of the plush St. Francis Hotel.
Although the call came on time, the
news was disappointing. "It's too dan-
gerous to pass money on American soil,"
the caller said. "Go back to Tokyo and
meet Okunev on the date already agreed
upon." The meeting would be confirmed
when Smith dialed the number of Okunev's
telephone beeper.
Before his February meeting with the
Russian, Smith met with Ishida, who was
delighted with the operation's progress.
Smith gave his handler the $5,000 he'd
received from Okunev, minus expenses.
In return, Smith was finally told how
he could contact White and Ishida. Smith
figured that he had gained his handlers'
trust and confidence. Ishida showed him
a business card for a company called CMI
Investments, Incorporated, based in Hono-
lulu. Smith was not allowed to keep the
card but was told to memorize the com-
pany's name and phone number as well
as the name of the agent in charge, Rich-
ard Cavanaugh. Smith had no idea wheth-
er the name was real or fictitious. If he
was ever contacted by someone other
than White and Ishida, Smith was told,
the new agent would produce the busi-
ness card to prove
his CIA affiliation.
In February Smith
returned to Japan for
his next meeting
with Okunev. This
time the two met
on a Tokyo street
corner. They walked
around the corner
to a car. Okunev
opened the door and
handed Smith a
present.
"Don't you ever
wear hats?" he asked
Smith. "You should
wear a hat. They take
pictures. You'll get
recognized."
Smith pulled the black lambskin cap
around his ears and slunk down in the
backseat.
Once inside the compound, Okunev
asked Smith about two double agents
code-named Royal Miter and Hole Punch.
Smith, who had been their case officer,
told Okunev in great detail how the Unit-
ed States had tricked Russian agents into
believing that U.S. military officers had
agreed to sell top army secrets. Smith
also told Okunev that while most of his
information was dated, he had friends
currently working on bases who were
interested in passing on solid informa-
tion for hard cash.
"I basically told them the truth," says
Smith. "That I was a U.S. intelligence
officer who'd retired in 1980. 1 also told
them, which was a fact, that I still had
many contacts in Japan that were asso-
ciated with intelligence."
To keep Smith's interest, Okunev pulled
out a briefcase full of bills. Smith esti-
mates it contained between $30,000 and
$50,000.
Smith recognized the ploy. Russian de-
fectors come to the United States for ide-
ological reasons. They hate communism,
reject the party line, or simply fall in
love with the American way of life. On
the other hand, U.S. traitors rarely sign
up with the Soviets because they've fallen
in love with ballerinas or Engel. Instead
they are usually already in love-with
cash. And usually they're broke.
"The Russians are like pushers," Smith
explains. "They give you just enough
money to get you hooked, but never
I enough to satisfy you."
Smith had been told by Ishida and
White to find out how much control Oku-
nev had over his slush fund. After Okunev
peeled off $5,000 and handed it to him,
Smith told the Russian he wanted an
additional $1,000. Okunev forked over
another grand. Since Okunev didn't seem
fazed by the request. Smith felt that
the Russian might be a lot more impor-
tant than he had first thought.
Okunev again asked about Swum,
health. Was he feeling better? Was there
hope? Smith couldn't believe he was ag?-un
being grilled about his phony illness. try-11
ing not to show his panic, Smith told
the KGB agent that powerful new medi
cations and experimental treatment pro-
grams were working wonders. To hi- re-
lief, Okunev dropped the subject.
Okunev then gave Smith the details
about a trip to Vienna in the spring. an ad-
dress and phone number, and a procedure
for establishing contact. Okunev promised I
Smith a payoff that was astronomical by
Soviet standards: $125,000. Smith knew
a trip to Austria would include a chance
to be debriefed by the KGB's best offi-
cers. He had conned the Russians beyond
his wildest dreams.
Okunev's chauffeur drove the car out
of the compound. Smith sat in the back
proudly wearing his new hat. When they
got to the train station Okunev said. "I'll
see you in Austria."
Armed with the $6,000, Smith couldn't
wait to tell White and Ishida that he had
Okunev completely fooled.
Smith had good reason to be elated.
After all, how could he have known that
he was the one being played for a fool?
Ti N t tnlarE begins
n March 1983 Smith traveled to Hono-
lulu to tell Ken White about his encount-
er with Okunev the previous month. He
also wanted White's permission to meet
with the Russians in Austria. To his dis-
may, White and Ishida failed to show
up for their rendezvous. That evening,
however, Smith got a phone call from
Danny Ishida who told him to be at a
nearby park the following afternoon.
When Smith arrived at the park he
was greeted by an agent he'd never met
before. The man produced a CMI busi-
ness card that verified his connection to
the CIA. "Danny's in Hong Kong," the
agent said. "Danny and Ken will be in
touch. Go back to Salt Lake and wait."
"But I've got this money from the Feb-
ruary meeting. I wrote down the serial
numbers. I've got these notes," Smith pro-
tested. "You've got to at least take these
notes, because I don't want to haul them
around."
The two took a taxi to a little restau-
rant near Honolulu's waterfront. Smith
gave the agent his notes along with Oku-
nev's cash. The agent said he was sor-
ry, but he couldn't authorize the meet-
ing in Vienna or allow Smith to accept
the payoff of $125,000. He told Smith
to hang tight until the agency contacted
him.
Ever the good soldier, Smith followed
orders and returned to his home in Utah.
His video business was teetering on the
brink of bankruptcy. Being out of town
so much hadn't helped. Wondering what
the hell was going on with White and
Ishida wasn't helping either.
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Smith, his wife Susan, aad their children are devout Mormons. Mormon communities in Utah and Washington raised money for Smith's bail.
April rolled around, and the day of
the Vienna meeting came and passed with
no word from White and Ishida. Smith
called the contact number in Hawaii and
waited in vain for a call back. Once a
week for six weeks he called the Hono-
lulu offices of CMI and left a phone num-
ber and a plea for a return call.
The silence was driving Smith crazy.
He knew he was supposed to sit on his
hands and wait-maybe forever. He also
realized that if the Soviets were willing
to pay him six figures for a trip to Europe,
it could be a tremendous coup for the
CIA. In June he decided to go to San
Francisco and contact the agency to see
what the problem was.
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Smith knew that while White and Ishida he needed to get in touch with the CIA s
operated out of Hawaii and Japan, the San Francisco office through the "back
shots were actually being called in San door." He wanted Shields to call the agen-
Francisco. Smith figured he could count cy so that he wouldn't have to explain
on an old friend to help him get in touch to some dim-witted operator why he need-
with the local office of the CIA. From a ed to talk to a supervisor. Smith also
pay phone in the lobby of the federal knew that it was best if there was no offi-
building in San Francisco he called Paul cial record of his visit.
Shields, the head of counterintelligence Shields asked where he was. "Stay
for the FBI in the Bay area. He was right at that pay phone," he ordered
Smith's former bishop in the Mormon Smith. "An agency guy will call you in
church and a close family friend. Shields the next five minutes. If he doesn't call
knew that Smith had worked in intel- within 15 minutes, call me back."
ligence, but the two had never discussed A few minutes later the phone rang.
the details of their work. The voice at the other end identified him-
Smith told Shields that there was a prob- I self as a high-ranking CIA official. "What's
lem with an agency mission, and that up?" he asked. so.
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r;rrg I Word to be
with somebfKly about some con
"tth the Soviets."
i in send somebody down to meet you
at the federal building," the agent said.
"What was your name again and where
was this contact:"'
-Craig Smith. Japan."
The agent put Smith on hold for sev-
eral minutes and then got back on the
line. Smith could tell he'd moved to anoth-
er phone in a different room because the
sounds of typing and talking had disap-
peared. Now the line was eerily quiet.
"I'm sending someone down," the offi-
cial said. "But let me tell you something:
you're into something you don't under-
stand and don't know anything about."
"I want to meet with you face to face,"
said Smith. "It's important I understand
what's going on."
"Keep your fucking mouth shut," the
voice said. "Don't say anything to any-
one, especially to your friends in the FBI.
Go home, keep quiet, and we'll be in
touch. Just shut the fuck up."
Smith was shocked. There was a cold
edge in the voice that frightened him.
Something was wrong-he didn't know
what, but something was definitely wrong.
During his 13 years in intelligence
operations Smith had never heard of one
federal agency's not talking to another.
Why not be up-front with the FBI? Smith
wondered. It didn't make sense. "Just the
tenor, the tone in this guy's voice-it was
a real vicious warning. I didn't understand
it," Smith recalls.
A few minutes later a CIA employee
arrived and suggested they talk in the
building's cafeteria. Smith replied that it
might not be smart to discuss a spy opera-
tion within earshot of 100 federal em-
ployees and God knows who else. The offi-
cial insisted; so as discreetly as he could,
Smith outlined the Japan operation and his
current dilemma.
"To call him a lackey is giving him
credit," says Smith. "He was the new-
est guy in the office, and he was sent
down simply to physically identify me.
There was no other reason for him to
be there."
Confused and unsettled, Smith flew
back to Utah and waited for Ishida and
White to call. He was still rattled by the
warning he'd gotten in San Francisco, but
he knew there was nothing he could do. If
White and Ishida were able to call, they
would. He had no one else to contact.
Meanwhile Smith tried to get on with
his life. He returned to college and got
a job producing a sports show for the
local public television station. His video
company had gone down the tubes, forc-
ing him to sell his equipment and some
of his household goods. He figured it was
going to be a long summer.
One month after his trip to San Fran-
cisco Smith was contacted by government
agents. But the nature of the call could
not have been more surprising. Early one
DM=
Saturday morning Smith was visited at
home by two FBI agents. Smith knew
them both. Rick Smith was an old friend
from San Francisco; the other, Peter Chase,
worked in the FBI's Salt Lake City office.
They immediately flashed their badges.
Since Smith knew both of them well,
it could mean just one thing: he was under
investigation.
"When Rick Smith flashed his badge
at me," recalls Smith, "it was a very hos-
tile act. I was angry and confused."
He knew instantly that making con-
tact with the FBI and the CIA in San Fran-
cisco had been a huge mistake. "I had
no way of knowing at that point that
everything had not been coordinated with
the FBI," Smith explains. "I just assumed
that if there was a domestic target [San
Francisco] as well as a foreign operation,
the FBI would be aware of it."
Smith was interrogated for the next two
days, during which he repeatedly insisted,
"If you'll get back to the right people in
Washington, they'll back me up." But
remembering the warning he had received
in San Francisco. Smith didn't feel he
could be totally open with the FBI agents.
"The more we talked," he recalls, "the
more convoluted it became."
After the questioning on Saturday
Smith couldn't sleep. When he met with
1 the agents again the next morning, he
said that the previous night had been
the worst in his life. The agents thought
Smith meant that he was overwhelmed
by guilt brought on by selling out his
country. But Smith says his remark de-
scribed a very different emotion: a numb-
ing awareness that he was being locked
out in the cold by his own government.
The FBI agents left on Sunday, but
Smith's ordeal was far from over. He be-
gan to realize that he was being treated
not as an American agent but as a Soviet
spy -and he was in deep trouble.
The FBI wanted pnx)f that Smith was a
U.S. agent. The CIA had no record that
hc,ur; , ;,n i;; I r iu hay any
letters it ,,- ': Did ht have any re
ceipts f,;! th, .:.mey he had accepted.'
They accused Smith of making up the
entire story.
Smith kept expecting a phone call from
the CIA that would clear up the mess.
Smith recalls, "I kept hoping someone
would show up and say, 'Yeah, we had a
problem. All is forgiven. Everything's
cool, but the operation's dead."'
If explaining his actions to the FBI was
tough, explaining the situation to his
family was a nightmare. He told his wife
that the FBI was questioning him about
a spy operation that had ended years
earlier. The FBI, he told her, was just
trying to pick up some loose ends. For
a while she believed him.
After many days of interrogation the
FBI resorted to lie-detector tests. Smith
easily passed the first series of tests. But as
summer turned to fall the FBI employed
new tactics. One day Smith's former mili-
tary counterintelligence boss, Noel Jones,
showed up. He yelled at Smith. "He
jumped in my face and told me to come
clean," Smith remembers. Smith replied
that he would, but only under certain
conditions.
Smith was put through a second series
of polygraph tests. The investigators want-
ed one of the questions to be: "Have you
ever passed secrets to the Soviet Union?"
Smith said he wouldn't answer that ques-
tion unless it was phrased: "Did you ever
pass unauthorized secrets to the Soviet
Union?" Smith passed the polygraph with
flying colors. Later Jones said to Smith,
"1 knew you wouldn't let us down," and
gave Smith a warm handshake.
Although Jones seemed convinced of
Smith's innocence, the FBI was not per-
suaded. The investigation heated up.
Smith was given more polygraphs.
"They started pushing and manipulating
and changing questions, looking for some-
thing to squeeze me with," Smith recalls.
Growing more alarmed, Smith decided
to confront his wife with the truth. He
said he couldn't tell her much, but he
was in serious trouble. He had done some
work recently for the CIA, but for some
reason, the agency was icing him, and
now he was the target of an FBI investi-
gation. He told her he'd likely be charged
with espionage. Her reaction was not
surprising: she was terrified. Would she
have to spend the rest of her life alone?
What kind of future would their chil-
dren face?
From July 1983 to April 1984 Smith
was questioned by the FBI 19 times. Hard
as it may be to believe, Smith refused
to talk to a lawyer. He signed 11 "waiv-
er of rights" forms. He took seven lie-
detector tests. He kept believing he could
talk his way out of the jam. He kept
waiting and praying for a CIA cable that
would clear him. No such cable arrived.
Finally the FBI brought in its top lie-
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detector expert . He tialhed Intl, the r(w)i,,,
stared at Smith, and allegedly bragged:
"All right, you've been fucking with my 1
people, but I'll) going to get to yo,u."
A lie-detector exam usually starts with
a series of fairly innocuous questions that
establish norms for truth and falsehood.
Instead of following this standard pro-
cedure, the expert asked some bizarre and
unrelated questii )ns. When he asked, "Are
you a faggot:'" Smith angrily left the nxnn.
The expert's questioning indicated de-
ception in some of Smith's responses, and
the agents thought they had finally nailed
him. Smith objected to the line of ques-
tioning, and went back to his hotel room
where he drafted his own series of ques-
tions to clarify the matter. The questions
covered his trips to Tokyo and his work
for Ishida and White. But when he showed
the list to the FBI, the agents rolled it
into a ball and tossed it in the trash can.
Fall turned to winter, winter to spring,
and the probe dragged on. Finally Smith
made a proposition to the FBI's lead agent
SCatt1C Dow.-,
Beiievue man arrested as Soviet spy
in the case, Michael Waguespack. "You
can put needles in my arms. Give me
truth serum. Put me under hypnosis,}
Smith suggested. "I want a CIA guy here,
and a friend of mine who is a forensic
psychologist to make sure nothing that
comes out of my mouth is manipulated.
With those two things, I'll put everything
on the table."
Waguespack told Smith he'd check
with headquarters. His bosses said no
deal.
"I looked him right in the eye," Smith
recalls, "and said, `Mike, it really doesn't
matter whether I tell the truth or not,
does it, because the Justice Department
is going to get me.' "
On April 4, 1984 Smith flew from Utah
to Washington for one more meeting with
FBI officials. When he walked off the plane
at Dulles airport, he was arrested and
charged with espionage. That afternoon
his hometown paper, the Seattle Times,
ran the headline: BELLEVUE 11A,' ARREST
ED AS SOVIET SPY. Spy stories make
gocxl copy and similar headlines appeared
across the country. From coast to coast
Craig Smith was branded a traitor. - if
AThe Search for a Defense
t Smith's arraignment the gov-
ernment came out with both barrels
blasting. Assistant U.S. Attorney
Joseph Aronica told the court that
Smith had sold out his country and
then had attempted to save himself
by begging the FBI to cut a deal by
using him as a double agent. The
defendant had surfaced, Aronica
said, because he had panicked after real-
izing that he'd probably been spotted
by the Tokyo police on one of his
trips to the Russian embassy in Japan.
Smith pleaded not guilty to the charges.
Bail was set at $500,000.
Smith's family said little about the case.
One week after his arrest. Smith's broth-
(1, 'I'ndd. rt"i(l
thr prig. "H'e're nol t~cahhy pe pie.
except in friends. W1'e, the Smith family.
hit\ e every desire to inform the public
ab )ut the integrity of Richard Craig Smith.
and of his deep and abiding loyalty to
his country -now, in the past, and in the
future.',
Although incarcerated in a Northern
Virginia jail, Smith refused to discuss
his case with his own court-appointed lawyer, William Cummings, a former U.S.
attorney for Northern Virginia. Even in
the confines of his cell, Smith continued
to believe that a phone call from the
CIA was imminent and that his or-
deal .Would soon end. An unusual-
ly quiet man in the best of times.
Smith grew even less communica-
tive. He became restless and de-
1 11
s was losing pa-
ressed
Cummin
p
g
.
Bence and began to suspect that his
client was a nut who didn't under-
stand that he could go to prison for
life. Smith's chances of getting out
on bail seemed remote; his chances
of being acquitted of the charges
seemed negligible.
Smith's first break came in the
form of a phone call, but not the one
he was expecting. A. Brent Carruth, 1
a lawyer practicing in Los Angeles,
telephoned Smith's father to express
his interest in the case. Carruth had
met Smith a few years earlier during
a trial that had established Carruth's
reputation. Smith had been a minor de-
fense witness in the case of Grant Aff-
leck, who was accused of cheating 650
Mormon families out of $22 million. It
was the most famous criminal trial in
Utah's history, and Carruth's flamboy-
ant style had worked wonders with the
jury. Local law students were sent to the
courtroom to hear his two-hour closing
argument, which literally left many jurors
in tears. Three days later the jury acquit-
ted Affleck on all counts. Prosecutors
called Carruth a "magician." The press
dubbed him "the Mormon Melvin Belli."
'll fly out at my own expense," Carruth
I told Smith's father. "And I'll handle the
case at a reduced rate." Carruth played
up his church connections and expressed
his admiration for Smith's straightforward
style and easy manner in the Affleck
case. Although there was no point in men-
tioning it, Carruth also felt that a spy trial
would be great for his career. A former
newspaper reporter, Carruth loved ink
and knew that a Washington spy trial
would generate reams of copy. Smith's
family accepted the offer.
At about the same time Mormon com-
munities in Utah and Washington began
to raise money for Smith's bail. One of
the leaders in the fundraising effort was
Lloyd Cooney, a former Seattle televi-
sion commentator who had run unsuc.
cessfully for the Senate. Cooney and his
wife put up a $50,000 letter of credit.
Cooney, a staunch right-winger. saw nr-
PH;, J' kAP 'n: ?~ H~,--rp1" .{w:? NA'.7CHA'AN O i
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 Sanitized Copy Approved for Release 2010/07/26: CIA-RDP90-00494R001100710105-2 ,1;,rchetti recalls..
others recelved ple(Ig
es of property and
notes fmm people in
California, ),4ashing-
ton, Colorado, Utah,
New Mexico. and An-
zona. Five weeks af-
ter his arrest, Smith
was able to post bail.
Cooney Smith's release did
not alter his relationship with his law-
yers. He still refused to help them pre-
pare for trial. "He was so, concerned atxiut
trying to protect the agency, he didn't
tell us anything." Cummings recalls. "And
what he did tell us was impossible to
believe."
Searching for a strategy, Carruth and
Cummings decided that their client should
plead insanity. Considering their client's
intractable behavior, the idea didn't seem
so farfetched. Smith, they would tell the
jury, was a former intelligence agent who
had gone off halfcocked on a foolish scheme
to trick the Soviets. He had never been
adequately debriefed by the agency, never
had the counseling and therapy he needed'
and while under the strain of a collapsing
business, he'd simply snapped. Pleading
insanity was a risky defense, but with a
little luck their client might get only five
or 10 years in prison, instead of life. Their
next step was to propose the idea to Smith
and to two people they hoped would serve
as expert witnesses at the trial.
Carruth and Cummings met first with
Victor Marchetti, a 14-year veteran of
the CIA who has become one of the agen-
cy's harshest critics. Marchetti, who wrote
the popular book, The CIA and the Cult
of Intelligence, has turned his knowledge
of the spy game into a livelihood, lectur-
ing at colleges and testifying at spy trials.
Carruth and Cummings hired Marchetti
to analyze their client's story from a pro-
fessional spy's perspective. Marchetti met
with Smith at Marchetti's home in Falls
Church. Based on what Carruth had al-
ready told him. Marchetti told Smith and
his lawyers that he thought the story was
phony.
"For a guy who had been playing
games with the Soviets for 12 years, I
don't think it washes," Marchetti told
them at the outset of their meeting. Nine-
ty minutes later Marchetti had heard
nothing that changed his mind. His eval-
uation of Smith was devastating.
"He's either the dumbest intelligence
officer who's ever lived, or he's a liar, trai-
tor, and spy," Marchetti told the lawyers.
He added that there was no more than
a 2 percent chance that Smith had been
snookered by renegade CIA agents. And,
A. Brent Carruth (left), a flamboyant trial
attorney who has been dubbed "the Mormon
Melvin Belli," agreed to represent Smith
but advised his client to plead insanity.
naugh really existed. Marchrli,
the ide;1 that a simple business card wlint
convince a CIA agent that he way dc;d
ing with an official agency operation.
Smith's tale was patently unbelievable
to anyone who had ever worked in coon
terimelligence, Marchetti concluded. For
someone who had concocted so many
cover stories, Marchetti mused, Smith
should have come up with a much bet-
ter one than this.
"We marched right through the details
of the alibi and I just kept saying, 'This
is impossible. You don't do these things.
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iii 11111c- 'it i!t
11 Yi; ii I inns. (i,oiic\ and
1111IF. 125
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I
f Vir favor
Sweethearts,
This Valentines Day and all
thru February bring your
romance to our place Well
caress you with subtle,
old world flavor designed
to enhance any love
affair Sip your
favorite wine or
spirits in the
cosmopolitan
elegance of
our beautiful
dining room.
we have
' the flavor
1r
to keep
it glowing'
Be A Sweetheart'
Join Us Soon,
COWL IMEN7ARv OINNFR
CARING Of COURSE
Lafayette Centre ? 1120 Twentieth Street N W
Washington. D C 20036 . [phone]
i ?'
Corporate Invocstincrit Business
Brokers are the most highl) trained
for complete information.
Northern 1Virginia -Joel .11
esl
[phone]
[phone]
N
Ing that the investnu?ni firm wa,, about
to cullapst_. But CIA insiders knew, and
they moved quickly and quietly.
In late April Richardson withdrew his
remaining money from the firm and closed
out his account, which was worth about
$80,000. He also managed to withdraw
$44,000 that didn't belong to him.
On June 6, 1983 he wrote Rewald a
letter. "Dear Ron," the letter begins,
"Thanks for getting everything closed
out for me. Unfortunate, from my view,
but it at least clears the air with my home
office who are now seemingly satisfied
that there is no 'apparent' conflict of inter-
est." The letter continues: "They were
not arguing that there was any 'real'
conflict of interest but must be simon
pure. . . I assume your tax problem' with
CMI has also all been taken care of."
The day before Richardson wrote that
letter, Smith had walked into the feder-
al building in San Francisco and talked
to the local head of the CIA on the phone.
Smith had been shocked when the un-
known speaker had told him that "you're
into something you don't understand and
don't know anything about" and to keep his
mouth shut. At the time Smith had no
idea to whom he was talking. But CIA
phone records identified the voice as
Charles Richardson's.
"If Craig had kept his mouth shut and
stayed in Utah, Richardson could have
reorganized things," says Carruth. "He
would have called six months later and
said, `You don't need to know what hap-
pened, but we're starting up again.' Craig
ruined the whole plan by contacting the
agency. And that put Richardson in a
precarious position because at that time
he was lying to CIA investigators."
Richardson's attempts to cover up the
fiasco in Hawaii didn't work. In August
1983 the CLA canned him and disciplined
the other agents who had invested in Re-
wald's firm.
(The CIA, by the way, had lied to the
court about Richardson's dismissal when
it claimed that he was no longer working
for the agency and had disappeared.)
On the eve of the trial Smith's attor-
neys filed a motion to force the govern-
ment to locate Richardson and to make him
testify. The motion reads, in part: "The
defendant has reason to believe Rich-
ardson was sent into deep cover, per-
haps demoted, but certainly reassigned.
Further, the defendant has reason to
believe the government still has control
over Cavannaugh [Richardson's cover
name] and his activities."
That same day the government, which
for two years claimed Richardson was
missing, miraculously produced his ad-
dress and phone number. "They knew
where he was all along," says Cummings.
"He was getting a government pension."
But Cummings's joy at finally locat-
i ing the :ny -ter:-u-, CIA agent was quick
ly dampened. Because of the appellate
courts ruling, the trial judge could not
let the defense question Richardson about
h
H
t
e
awaiian operation or his ties to
Rewald. After Judge Williams had list.
ed all the restrictions regarding Richard-
son's testimony, Cummings and Carruth
realized he'd be a worthless witness.
Smith would have to save himself.
"Mr. Smith, are you a spy?" asked
Carruth.
"I have been, yes," said Smith.
"For whom?"
"For the United States of America."
Smith answered. "I have never been a
spy for the Soviet Union, but I sold
secrets to the Soviets as part of another
missiot:."
For the next several hours Smith pa-
tiently explained his actions.
Carruth attacked two prosecution the-
ories. The government claimed that Smith
had turned himself in because he was
afraid he'd been spotted in the Russian
compound by Japanese police. Smith told
the court that he never wore a disguise
even though he knew he was being pho-
tographed, and he never tried to dodge
the Japanese agents who were follow-
ing him to his meetings with Okunev.
The government also
asserted that Smith
sold secrets because
he needed cash to
save his failing busi-
ness. Smith did in-
deed accept $11,000
from the Russians.
But if greed was his
motive, he was pretty
inept. He presented receipts for his trips
to Japan and Hawaii that totaled $19,000.
Smith was so straight, Carruth told the
jury, he'd even reported the payoffs on
his tax returns.
When Smith was on the stand, the
jurors listened intently. One member often
leaned forward, trying to catch every
word. More than once a juror nodded
his head in agreement.
"Craig was very credible, very believ-
able. His performance and demeanor
were excellent," Cummings says. The
defense team clearly was pleased. Addi-
tional defense witnesses followed. Skid-
more explained why her psychological
study of Smith indicated that he was telling
the truth. Rewald testified that his company
had been paid by the CIA to provide cov-
er stones for its agents and to take mes-
sages for them. Rewald's former recep-
tionist told the jury that while she didn't
remember Smith's phone calls, she did
remember messages for someone named
Ken White. "That name was very famil-
iar to me because I had an old friend by
that name. So it always stuck in my
mind," she said.
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?hhc defense rested it, ca>c. S(, did
the prosecution. Then Judge Williams
decided to call a bench witness. To the
pn 6evution's astonishment, Williams called
Charles Richardson to the stand.
To the defense the surprise was both
exhilarating and frightening. "Rewald was
terrified of Richardson." recalls Smith.
"He said Richardson was the most bril-
liant and most dangerous person he'd
ever met. 'if he comes to trial, he'll kill
yoU.
If convictions were based on appear-
ance alone, Richardson could have sent
Smith to prison for life. He was hand-
s