The Moscow Rules Still Rule

The Cold War may be over, but spycraft hasn’t changed much since the good old days.

The arrest of the American diplomat, Ryan Fogle, in Moscow late Monday, May 13, was a journey to an earlier era, a throwback to a quarter century ago when these Cold War cloak and dagger spy games were painfully regular, as the United States and the Soviet Union played out the final act of a long and deadly contest. About the only difference in the handling of the ambush of Fogle by the Russian security service was that the photographic record of his arrest was in sharp, digital color, rather than grainy black and white. It was a textbook takedown. We see Fogle on the ground, arms behind him; then later in FSB headquarters being photographed with all the spy gear he was carrying. The "competent organs" are clearly protecting the motherland.

The reaction back in the United States was immediate. The "CIA has slipped into rank amateurism," observed any number of commentators. "How could he have been carrying all that spy paraphernalia," others clucked. The chatty "Dear Friend" letter he had in his possession could not have been real, spy buffs declared.

Not so fast.

I have no direct knowledge of what happened in Moscow on Monday night, but as both deputy and then chief of the CIA's Soviet East European Division (SE Division) during the late 1980s, I've seen all this before, again and again. Whatever did happen to Fogle is immaterial to this narrative, which is an informed tale on how these things actually played out in the 1980s, a tale that shows how little has actually changed. Vladimir Putin's Russia and his security services have not buried the past. They may be called the FSB now, but the little red KGB identity books are still tucked in the bottom drawers, ready to go back to the hardknuckle games of the past. The Fogle affair is a small, fleeting win, a single blue chip on the Russian side of the table, not much more. That the FSB seemed shocked, shocked that spying is going on in Moscow, belies their full court spying press across the United States.  And the "Moscow Rules" may still apply.

Let's go back, for a moment, to June 13, 1985, when it was all Moscow Rules, all the time. I was just rotating from East Africa to Langley to take the deputy job in SE Division, that awful summer when so many of our Moscow agents were compromised and our officers ambushed trying to meet them.

CIA officer Paul Stombaugh sat alone on a bench in the dark, trash-strewn courtyard of a concrete apartment block in the Moscow suburbs. He had stopped his final counter-surveillance detection run a few hundred yards short of the site where he would meet with Adolf Tolkachev, the CIA's most prized agent in Moscow.  From January 1979 until this night, Tolkachev, an electronics design engineer, had provided the Americans with just about everything they wanted to know about Soviet research and development for its advanced fighter aircraft avionics systems. Tolkachev's intel had allowed the United States to design its aircraft electronic systems to defeat the Soviet devices. What the CIA did not know that sultry June evening, was that Adolph Tolkachev had been betrayed and compromised, first by CIA turncoat, Edward Lee Howard, and then by Aldrich Ames. Stombaugh was walking into an ambush.

Stombaugh , a former FBI officer in his 30s, who was code-named "Narciss"-- the handsome one, by the KGB -- had spent hours on checking and rechecking to make sure he wasn't be tailed. He was convinced he was black -- in the spy parlance, surveillance-free. He had come to the quiet, residential street some 20 minutes early, had made one quick pass. Everything looked normal, and as he was instructed to do so in the casing report, he left the area to check his materials and equipment and prepare himself for the intense meeting, just minutes away. The only thing that seemed unusual was a large trailer parked about 50 yards from the meeting point, its hitch propped up on cinder blocks.

He checked his miniature tape recorder -- all meetings with Tolkachev were recorded -- and his materials. In one large, double-lined, plastic shopping bag, Stombaugh carried 125,000 rubles in small notes, equivalent to almost $150,000. The bag also contained five subminiature cameras concealed in key chain fobs. A second shopping bag was packed with American medicine and eyeglasses for Tolkachev and his wife, English-language study tapes for their son, books with concealed messages, "intelligence reporting requirements" -- Soviet secrets the CIA wanted Tolkachev to try to steal --  and communications plans, printed on water-soluble paper for added security. Everything he carried was compromising -- fatally so for the man he was to meet. He glanced at this watch and decided it was time to move.

Stombaugh took in the street scene with a sweep of his eyes as he rounded the corner of  the apartment block.  Fifteen yards ahead and on his left, an attractive young woman with dyed red hair was waving her hands in animated conversation in a telephone booth that had been marked as a "taxi phone" on the diagram of the meeting site. Tolkachev's car, with its familiar registration number, was parked on the far side of the street -- the reassuring "safe, ready to meet" signal he was looking for. 

Stombaugh began to walk briskly, running over in his mind the actions he had planned for the next few moments when Tolkachev would step out of the shadows, give the verbal recognition code, and then walk with him into the recesses of the nearby woods.  There, he would take Tolkachev's used cameras, still sealed with their microfilm inside, stash them in his jacket, and hand over the two shopping bags. If both men sensed it was safe, there might be some time for the small talk that had always been so reassuring to Tolkachev during these dangerous meetings over the years. 

As he passed the phone booth, the world exploded. At least five men burst from the cover of trees and brush. Two grabbed his Stombaugh's arms from behind as two others snatched the heavy shopping bags from his grip. A fifth man forced his head down. He heard the tailgate of the parked trailer slam to the ground. The night air filled with voices of men who had been hiding inside, waiting for the trap to be sprung.

Stombaugh was taken to the infamous KGB headquarters in Dzerzhinsky Square, where his spy materials were laid out, photographed, and where he was subjected to a pro forma tirade by the chief of the KGB's American Department of the 2nd Chief Directorate. Stombaugh had his diplomatic identity card on him -- standard operating procedure -- and within a few hours he was set free and ordered out of the country.

Aside from the switch to color photography, there isn't much difference between Monday's arrest in Moscow, and Stombaugh's arrest in 1985. A successful intelligence operation can be a thing of beauty, the elegant result of serious training, planning, and execution. A compromised intelligence operation, on the other hand, in every respect looks like a bungling pratfall, a clumsy, amateurish misadventure that begs critical review. In my 30 years in the CIA, I had the full mix -- the elegant successes and a share of sad failures. It's part of the territory.

Every item a Moscow CIA officer carried to a clandestine meeting was necessary and thoroughly examined. Tolkachev had been told repeatedly that the money and the other things he demanded would immediately compromise him if anyone were to take note, but he was steadfast. Those things were part of the deal. And we bent over backwards for him: he was a completely vetted CIA asset, a man who had done so much damage to the Soviet Union that there was no question of his bonafides.

But even the best spies can be sloppy. When Tolkachev first attempted to volunteer his services to the CIA, his recklessness was harrowing -- dropping notes in cars with American diplomatic plates, or making entirely random approaches to American diplomats or, in one case, an Italian employee of the embassy in Moscow, to pass his letters.

The CIA was finally able to reach out directly to him by getting an officer, surveillance-free, to locate a phone booth near Tolkachev's apartment and call him at home. The call instructed him, that very moment, to go to the phone booth on the street and pick up a dirty glove he would find lying on the ground a few feet away. Then the CIA officer left the scene. Inside the glove were secret writing materials, a lengthy "Dear Friend" letter (not at all unlike the one Fogle was said to have been carrying) telling him how to prepare his answers to a list of scientific questions, and an accommodation address for him to mail his cover letter (with secret writing on the back) to Germany.  He followed the instructions, and for the next six years became one of the most productive CIA agents of the Cold War.  KGB counterintelligence never caught on to him until he was betrayed by the spies working in our own house. Adolf Tolkachev was tried and sentenced to the "exceptional measure of punishment." He was executed in October 1986.

I can't tell you what happened to Fogle in Moscow last Monday, I can't explain how he got sloppy or if he made mistakes at all. But I haven't seen much that makes me think much has changed from the way we, and the Russians, play the game. I for one, would be inclined defer judgment for the time being.



Give Them Our Huddled Masses

Why America should swap its retirees, patients, and students for skilled immigrant labor.

Immigration reform is back on the policy agenda. Can it help get the United States out of the economic pickle in which it finds itself these days? The global financial crises reinforced the long-term trend of stagnating incomes, shrinking wealth, and diminishing opportunities for the U.S. middle class. Both ends of the age spectrum have been hit: Today, only 45 percent of those between the ages of 16 and 24 are employed, while an increasing number of baby boomers are retiring with reduced savings and pensions. Meanwhile automatic budget cuts and future fiscal tightening will overwhelmingly affect the infirm, retirees, and students. High long-term growth, obviously, is one solution. But that's easier said than done. There's a more straightforward way to revive the U.S. economy and put money in people's pockets. To borrow from the 19th century U.S. politician Horace Greeley: Go South, Americans!

Already, Americans are spending more time in the economically dynamic developing world. Patients are traveling to Thailand for treatment. Retirees are enjoying the low costs of living in Latin America, while students are enrolling in medical schools in the Caribbean.

These trends should be embraced and enhanced. This new form of globalization will boost the purchasing power of U.S. consumers by providing greater and cheaper access to key services -- such as health and education -- whose costs will likely grow in the future. Additionally, if U.S. emigrants and medical or education tourists seek opportunities overseas, other countries could help convince the United States to relax its barriers to foreign entrepreneurs, scientists, doctors, and engineers. Greater skilled immigration would boost domestic innovation and growth.

To start, consider retirees. The Congressional Budget Office estimates that the unfunded pension liability of the state and local governments in the United States ranges between $0.7 trillion and $3 trillion (depending on how assets and liabilities are valued.) Since the net worth of the median household has also declined by 35 percent over the last decade, the prospects of current and future retirees who stay in the United States are dim: They have fewer savings, and their pension incomes will become less reliable.

One dollar will buy twice as much in Costa Rica, and three times as much in Thailand as it does in the United States, as well as the opportunity to hike in Monteverde and sunbathe in Phuket. According to the Social Security Administration, about 350,000 U.S. retirees (about 1 percent of the total) already live abroad, a quarter in developing countries. Between 2008 and 2010, 35 percent of U.S. retirees who moved abroad headed for the developing world, double the rate of the preceding seven years. If the fraction of those choosing to live overseas were to increase to 2 percent by 2020, and 3 percent by 2030, nearly 3 million U.S. retirees could be living abroad within two decades. Retirees relocating to developing countries would not only continue to draw Social Security benefits, but they would maintain their current standard of living.

Today, the U.S. government spends nearly a trillion dollars on the major federal health-care programs alone, more than 6 percent of GDP. But health care of comparable quality is much cheaper in other countries. Besides retirees or expats already living internationally, if other Americans with medical problems elected to go abroad for treatment, it could yield huge savings. For example inpatient knee surgeries, roughly 400,000 of which were performed in 2010 in the United States, cost more than $15,000 in a typical community hospital; the same procedure is roughly $3,000, including travel, at the best hospitals in Hungary and India -- which have the same or better record than the average U.S. hospital. If only one out of every 10 Americans who need 15 highly standardized, low-risk treatments, such as tonsillectomy or cataract extraction went abroad for treatment, the annual savings for the United States would be $1.4 billion, according to our calculations.

But since most of these savings accrue initially to Medicare or health insurers, and because patients must bear the cost of travel and the hassle of claiming reimbursement for treatment abroad, they have little incentive to travel for treatment. Insurance reform is needed to eliminate these disincentives.

While less dramatically than in health care, higher education too has become more costly and less affordable in the United States, and at a time when globalization and technological developments are increasing the premium on skill. Tuition fees in the United States have risen 29 percent in private universities and 72 percent in public institutions over the past decade. More ominously, student indebtedness has risen sharply. Two-thirds of students who graduated in 2011 took on debt to finance their education, compared with 59 percent in 1996; meanwhile average debt has risen from $17,100 to nearly $26,600. While online education could lower these costs, it's an imperfect substitute.

As with health care, exploiting the gains of trade could lower costs. Higher education, like most other goods and services, can be broken down into a highly skilled component and a less-skilled one. For example the early stages of a medical education involve the acquisition of fairly routine knowledge and skills like anatomy and physiology, which need to be learned in a classroom, and which could be imparted cheaply in developing countries. If the first two years of a U.S. medical education (where the learning is mostly standardized) can be traded for an Indian one, the cost savings for a 4-year U.S. medical degree would be about $90,000, or about 40 percent.

Americans are already studying abroad in larger numbers. The number of post-secondary U.S. students studying overseas increased from 65,000 in 1987-88 to 260,000 in 2008-09. Over the same period, post-secondary U.S. students studying in developing countries increased twentyfold, to 57,000. Savings from studying abroad will initially accrue to universities in the United States, as they will save money by hosting students overseas. But as in the case of health care, competition between universities will ensure that the savings are passed on to students.

Would exploiting this cost differential undermine quality? A significant number of foreign-educated medical professionals have been deemed qualified to work as health-care providers in the United States. Foreign-educated instructors now account for almost a fifth of the total at U.S. medical school faculties. It is, therefore, likely that the medical education chain can be sliced up without compromising quality. Multinational universities would help create global value chains in education while ensuring and certifying quality of individual segments.

There are large economic gains to be realized from flows of people in both directions. Flows from rich countries would allow Americans to get cheaper services, while skilled immigrants coming to the United States would enhance production possibilities by making the U.S. economic pie larger.

But politics impede flows: It is difficult for foreign scientists, doctors, and engineers to enter the United States. There are also subtle barriers to consuming health and education abroad: in particular, the lack of portability of health insurance and educational qualifications.

Barriers imposed by poor countries are currently not significant. But if the scale increases there will be a political backlash, for example, against U.S. patients occupying scarce hospital beds and driving up the costs of health care in Bangkok, or American students taking slots away from aspiring university students in Mexico City. Demands to erect barriers will emerge, mirroring the barriers to flows of people from poor to rich countries.

The symmetry of barriers, and of the political costs of reducing them, sets up the possibility of cooperation to ensure they are kept low. Governments in developing countries could tell their citizens that welcoming U.S. retirees, patients, and students means more money in the local economy, with the added benefit that that they, in turn, would be welcomed in the United States as well.

For Washington, reducing barriers on both sides and facilitating greater two-way flows of people would have political advantages over traditional trade with developing countries. The anxiety about globalization in the United States comes from the threat of relatively unskilled workers losing their jobs because of competition with factories in cheaper countries. It is becoming politically harder to make the case that the expansion of the economic pie offsets the costs inflicted on those at the bottom of the income distribution.

But the politics of going south could be different. Americans would still be better off and have more money in their pockets as the elderly go abroad for cheaper retirement and medical care, and as students seek low-cost educational opportunities. But this time, the squeeze within the United States would benefit the unskilled and poorer people at the expense of those at the upper end of the income distribution. For example, more foreign doctors entering the United States, and more Americans seeking medical care overseas, would put downward pressure on doctors' fees. While doctors would likely resist, they would have to contend with the countervailing power of retirees, who have a big stake in getting cheaper health care.

Developing countries can help overcome many of the problems the United States faces. As economic imperatives continue to drive this trend, the attitudes and mindsets that hinder it domestically could change. The developing countries are saying to the United States, "Give us your retired, your poor, your huddled students yearning to breathe free." It's time to listen.

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