ACTION REPORT asks: Doesn't this mean that You-Know-Who got hold of Bill's private conversations with You-Know-Her?

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INSIGHT MAGAZINE EXCLUSIVE

FBI Probes Espionage at Clinton White House

A foreign spy service appears to have penetrated secret communications in the Clinton administration, which has discounted security and intelligence threats.

By J. Michael Waller and Paul M. Rodriguez

The FBI is probing an explosive foreign-espionage operation that could dwarf the other spy scandals plaguing the U.S. government. Insight has learned that FBI counterintelligence is tracking a daring operation to spy on high-level U.S. officials by hacking into supposedly secure telephone networks. The espionage was facilitated, federal officials say, by lax telephone-security procedures at the White House, State Department and other high-level government offices and by a Justice Department unwillingness to seek an indictment against a suspect.

The espionage operation may have serious ramifications because the FBI has identified Israel as the culprit. It risks undermining U.S. public support for the Jewish state at a time Israel is seeking billions of tax dollars for the return of land to Syria. It certainly will add to perceptions that the Clinton-Gore administration is not serious about national security. Most important, it could further erode international confidence in the ability of the United States to keep secrets and effectively lead as the world's only superpower.

More than two dozen U.S. intelligence, counterintelligence, law-enforcement and other officials have told Insight that the FBI believes Israel has intercepted telephone and modem communications on some of the most sensitive lines of the U.S. government on an ongoing basis. The worst penetrations are believed to be in the State Department. But others say the supposedly secure telephone systems in the White House, Defense Department and Justice Department may have been compromised as well.

The problem for FBI agents in the famed Division 5, however, isn't just what they have uncovered, which is substantial, but what they don't yet know, according to Insight's sources interviewed during a year-long investigation by the magazine. Of special concern is how to confirm and deal with the potentially sweeping espionage penetration of key U.S. government telecommunications systems allowing foreign eavesdropping on calls to and from the White House, the National Security Council, or NSC, the Pentagon and the State Department.

The directors of the FBI and the CIA have been kept informed of the ongoing counterintelligence operation, as have the president and top officials at the departments of Defense, State and Justice and the NSC. A "heads up" has been given to the House and Senate Intelligence Committees, but no government official would speak for the record.

"It's a huge security nightmare," says a senior U.S. official familiar with the super-secret counterintelligence operation. "The implications are severe," confirms a second with direct knowledge. "We're not even sure we know the extent of it," says a third high-ranking intelligence official. "All I can tell you is that we think we know how it was done," this third intelligence executive tells Insight. "That alone is serious enough, but it's the unknown that has such deep consequences.

A senior government official who would go no further than to admit awareness of the FBI probe, says: "It is a politically sensitive matter. I can't comment on it beyond telling you that anything involving Israel on this particular matter is off-limits. It's that hot.

It is very hot indeed. For nearly a year, FBI agents had been tracking an Israeli businessman working for a local phone company. The man's wife is alleged to be a Mossad officer under diplomatic cover at the Israeli Embassy in Washington. Mossad -- the Israeli intelligence service -- is known to station husband-and-wife teams abroad, but it was not known whether the husband is a full-fledged officer, an agent or something else. When federal agents made a search of his work area they found a list of the FBI's most sensitive telephone numbers, including the Bureau's "black" lines used for wiretapping. Some of the listed numbers were lines that FBI counterintelligence used to keep track of the suspected Israeli spy operation. The hunted were tracking the hunters.

"It was a shock," says an intelligence professional familiar with the FBI phone list. "It called into question the entire operation. We had been compromised. But for how long?

This discovery by Division 5 should have come as no surprise, given what its agents had been tracking for many months. But the FBI discovered enough information to make it believe that, somehow, the highest levels of the State Department were compromised, as well as the White House and the NSC. According to Insight's sources with direct knowledge, other secure government telephone systems and/or phones to which government officials called also appear to have been compromised.

The tip-off about these operations -- the pursuit of which sometimes has led the FBI on some wild-goose chases -- appears to have come from the CIA, says an Insight source. A local phone manager had become suspicious in late 1996 or early 1997 about activities by a subcontractor working on phone-billing software and hardware designs for the CIA.

The subcontractor was employed by an Israeli-based company and cleared for such work. But suspicious behavior raised red flags. After a fairly quick review, the CIA handed the problem to the FBI for follow-up. This was not the first time the FBI had been asked to investigate such matters and, though it was politically explosive because it involved Israel, Division 5 ran with the ball. "This is always a sensitive issue for the Bureau," says a former U.S. intelligence officer. "When it has anything to do with Israel, it's something you just never want to poke your nose into. But this one had too much potential to ignore because it involved a potential systemwide penetration.

Seasoned counterintelligence veterans are not surprised. "The Israelis conduct intelligence as if they are at war. That's something we have to realize," says David Major, a retired FBI supervisory special agent and former director of counterintelligence at the NSC. While the U.S. approach to intelligence is much more relaxed, says Major, the very existence of Israel is threatened and it regards itself as is in a permanent state of war. "There are a lot less handcuffs on intelligence for a nation that sees itself at war," Major observes, but "that doesn't excuse it from our perspective.

For years, U.S. intelligence chiefs have worried about moles burrowed into their agencies, but detecting them was fruitless. The activities of Israeli spy Jonathan Pollard were uncovered by accident, but there remains puzzlement to this day as to how he was able to ascertain which documents to search, how he did so on so many occasions without detection, or how he ever obtained the security clearances that opened the doors to such secrets. In all, it is suspected, Pollard turned over to his Israeli handlers about 500,000 documents, including photographs, names and locations of overseas agents. "The damage was incredible," a current U.S. intelligence officer tells Insight. "We're still recovering from it.

Also there has been concern for years that a mole was operating in the NSC and, while not necessarily supplying highly secret materials to foreign agents, has been turning over precious details on meetings and policy briefings that are being used to track or otherwise monitor government activities. The current hush-hush probe by the FBI, and what its agents believe to be a serious but amorphous security breach involving telephone and modem lines that are being monitored by Israeli agents, has even more serious ramifications. "It has been an eye opener," says one high-ranking U.S. government official, shaking his head in horror as to the potential level and scope of penetration.

As for how this may have been done technologically, the FBI believes it has uncovered a means using telephone-company equipment at remote sites to track calls placed to or received from high-ranking government officials, possibly including the president himself, according to Insight's top-level sources. One of the methods suspected is use of a private company that provides record-keeping software and support services for major telephone utilities in the United States.

A local telephone company director of security Roger Kochman tells Insight, "I don't know anything about it, which would be highly unusual. I am not familiar with anything in that area.

U.S. officials believe that an Israeli penetration of that telephone utility in the Washington area was coordinated with a penetration of agents using another telephone support-services company to target select telephone lines. Suspected penetration includes lines and systems at the White House and NSC, where it is believed that about four specific phones were monitored -- either directly or through remote sites that may involve numbers dialed from the complex.

"[The FBI] uncovered what appears to be a sophisticated means to listen in on conversations from remote telephone sites with capabilities of providing real-time audio feeds directly to Tel Aviv," says a U.S. official familiar with the FBI investigation. Details of how this could have been pulled off are highly guarded. However, a high-level U.S. intelligence source tells Insight: "The access had to be done in such a way as to evade our countermeasures … That's what's most disconcerting.

Another senior U.S. intelligence source adds: "How long this has been going on is something we don't know. How many phones or telephone systems we don't know either, but the best guess is that it's no more than 24 at a time … as far as we can tell.

And has President Clinton been briefed? "Yes, he has. After all, he's had meetings with his Israeli counterparts," says a senior U.S. official with direct knowledge. Whether the president or his national-security aides, including NSC chief Sandy Berger, have shared or communicated U.S. suspicions and alarm is unclear, as is the matter of any Israeli response. "This is the first I've heard of it," White House National Security Council spokesman Dave Stockwell tells Insight. "That doesn't mean it doesn't exist or that someone else doesn't know."

Despite elaborate precautions by the U.S. agencies involved, say Insight's sources, this alleged Israeli intelligence coup came down to the weakest link in the security chain: the human element. The technical key appears to be software designs for telephone billing records and support equipment required for interfacing with local telephone company hardware installed in some federal agencies. The FBI has deduced that it was this sophisticated computer-related equipment and software could provide real-time audio feeds. In fact, according to Insight's sources, the FBI believes that at least one secure T-1 line routed to Tel Aviv has been used in the suspected espionage.[next]

'So What, It's Only Israel!'

There is a tendency in and out of government to minimize the impact of Israeli espionage against the United States because Israel is a friendly country. That overlooks the gravity of the espionage threat, says David Major, former director of counterintelligence programs at the National Security Council. "This 'don't worry about allied spying, it's okay' attitude is harmful," he warns. "The U.S. should expect that the rest of the world is bent on rooting out its national-security secrets and the secrets that could subject its leaders to blackmail." Minimizing or excusing "friendly spying," he argues, only discourages vigilance and encourages more attacks on U.S. national security. "I'm not outraged by nations that find it in their interests to collect intelligence but by our unwillingness to seriously pursue counterintelligence."

Major, now dean of the private Center for Counterintelligence and Security Studies, asks: "What price should Israel pay for this? My predictions are that there will be no impact whatsoever. Do we put our heads in the sand or do we take it as a wake-up call?"

Others observe that Israel has passed stolen U.S. secrets to America's adversaries. The government of Yitzhak Shamir reportedly provided the Soviet Union with valuable U.S. documents stolen by Israeli spy Jonathan Pollard. "It's the security equivalent of herpes," says a former U.S. antiterrorism official now at a pro-Israel think tank who requested anonymity. "Who gets it [beyond Israel] nobody knows.... Once we let it happen, the word gets out that 'you can get away with this.'"