One day at the dawn of the 1980s, an FBI agent in his 30s named Rick Smith walked into the Balboa Café, an ornate, historic watering hole in San Francisco’s leafy Cow Hollow neighborhood. Smith, who was single at the time, lived nearby and regularly frequented the spot.
As he approached the oak wood bar to order a drink he suddenly spotted a familiar face — someone Smith had met about a year before, after the man had walked into the Soviet Consulate in San Francisco. He was Austrian by birth, but a denizen of Silicon Valley, an entrepreneur who operated as a middleman between American tech companies and European countries hungry for the latest hi-tech goods.
The Austrian had visited the consulate to drum up business behind the Iron Curtain. The tech entrepreneur may not have put much thought into how closely the building was being watched by FBI spy hunters. And why should he? At the time, there wasn’t necessarily anything suspicious about trying to conduct commerce with the Soviets. In 1979, for instance, there was $4.5 billion in legal trade between the U.S. and Soviet Union; about $200 million of that was in high-tech goods. But bureau counterintelligence routinely blanketed the consulate with surveillance. And their interest was piqued. After the FBI clocked the Austrian’s visit to the consulate, Smith had reached out.
International businesspeople could be important sources for the FBI. They had access to people who would never knowingly speak to a U.S. government official, and to all sorts of information of interest to U.S. intelligence. Some could even become secret agents of the U.S. spy services.
During their initial meeting, Smith and the Austrian, rough contemporaries, hit it off. The Austrian was a sophisticated and worldly man, well dressed, proper in demeanor. An athlete and an avid skier, he spoke flawless English alongside his native German.
The tech entrepreneur had seemed interested in assisting the bureau. But his case fizzled out. This sort of thing wasn’t unusual. In the counterintelligence world, leads dry up all the time. But now, at the bar, Smith decided to seize on this serendipitous encounter. “I got a good memory for faces, and reintroduced myself,” Smith told me recently. “And we started talking.”
Smith couldn’t have known it then, but this chance encounter would have momentous implications. It would sow the seeds for a major counterintelligence campaign — an FBI-led operation that sold the Soviet Bloc millions in secretly sabotaged U.S. hi-tech.
At the time, the Cold War had been heating up. For decades, the U.S. had forbidden the export of “dual use” technology — items with civilian as well as military applications — to the Soviet Bloc. Sanctions tightened further after the Soviet invasion of Afghanistan in late 1979.
By the early 1980s, the FBI knew the Soviet Union was desperate for cutting-edge American technology, like the U.S.-produced microchips then revolutionizing a vast array of digital devices, including military systems. Moscow’s spies worked assiduously to steal such dual use tech or purchase it covertly. The Soviet Union’s ballistic missile programs, air defense systems, electronic spying platforms, and even space shuttles, depended on it.
WORKING UNDER THE FBI’S DIRECTION, THE AUSTRIAN AGREED TO POSE AS A CROOK, A MAN WILLING TO SELL PROHIBITED TECHNOLOGY TO THE COMMUNIST EASTERN BLOC.
The Soviets “saw Silicon Valley as a critical area to infiltrate precisely because they needed to access as much of this technology as they could,” said Chris Miller, author of Chip War: The Fight for the World’s Most Critical Technology. “And there was no better place to get knowledge of it, and try to acquire the tools and the chips involved.”
The CIA assessed that, in the late 1970s, Moscow’s spies had illicitly acquired thousands of pieces of Western microelectronics worth hundreds of millions of dollars. The Soviets “were stealing us blind,” said Milt Bearden, a retired senior CIA official who ran the agency’s Soviet operations. “It was a vacuum cleaner of tech theft.”
While the Soviet Union might have imploded over three decades ago, this underlying dynamic hasn’t really changed. Russia’s intelligence services are still scouring the globe for prohibited U.S. tech, particularly since Moscow’s February 2022 invasion of Ukraine. Current sanctions have only stanched, but not stopped, the flow of prohibited goods. A constellation of countries, including former Soviet republics in Central Asia and the Caucasus, have become major transshipment hubs for contraband ultimately making its way to Russia. Russia has reportedly even covertly imported household items like refrigerators and washing machines to rip out the microchips within them for use in military equipment.
But such tech-focused sanctions-evasion schemes by America’s foes offer opportunities for U.S. intelligence, too — including the opportunity to launch ultra-secret sabotage campaigns to alter sensitive technologies before they reach their final destination.
There is a long but shadowy history of U.S. covert action in this domain. A reputed explosion of a major oil pipeline in Siberia in 1982 may have been the fruit of a White House-directed campaign to infiltrate the Soviets’ technology supply chains. And, at least since the George W. Bush administration, U.S. spy agencies have overseen programs to seed faulty tech into Iran’s nuclear enrichment and missile programs, as well as sabotage North Korea’s missile capabilities. But most sabotage campaigns remain shrouded in secrecy, and details about their actual mechanics are few and far between. With U.S.-Russia relations at their lowest ebb since the 1980s — and with Moscow more voracious for prohibited American technology than in decades — it is a good bet that U.S. intelligence agencies are currently rethinking ways to infiltrate Russia’s illicit supply chains, to stymie their war machine.
During the Cold War, FBI spy hunters like Rick Smith were thinking hard about the issue, too. “At the time, there was a lot of interest in technology transfer,” recalled Smith. So his chance run-in, at that local watering hole, with a tech entrepreneur who had sprawling business connections in Europe — well, that presented some tantalizing possibilities.
Smith says the Austrian didn’t take much convincing. That night, over drinks, the two began hatching a plan, one refined over many meetings in the months that followed. Working under the FBI’s direction, the Austrian agreed to pose as a crook, a man willing to sell prohibited technology to the communist Eastern Bloc.
It was the start of Operation Intering — a never-before-reported massive, multiyear, transcontinental effort. Along the way, the FBI and the Austrian would seed faulty tech to Moscow and its allies; drain the Soviet Bloc’s coffers; expose its intelligence officers and secret American conspirators; and reveal to American counterspies exactly what tech the Soviets were after. (This article is based on extensive interviews with five former FBI and CIA officials with knowledge of Operation Intering and similar U.S.-authored covert sabotage operations, as well as contemporaneous supporting court documents and media reports. An FBI spokesperson declined to comment.)
Because of Intering, the Soviet Bloc would unknowingly purchase millions of dollars’ worth of sabotaged U.S. goods. Communist spies, ignorant that they were being played, would be feted with a literal parade in a Warsaw Pact capital for their success in purchasing this forbidden technology from the West. But as the operation gained momentum, it would become increasingly risky — including to the life of the Austrian himself.
‘HE KNEW WHAT HE WAS DOING’
Successful double agent operations don’t just materialize out of the ether. They take concerted patience, assiduous planning — and some measure of luck.
With Intering, the bureau first tried to get their new asset in cahoots with some unsuspecting Soviet officials abroad. “That was the goal: to put him in [direct] contact with the Russians,” said Smith. (Other former FBI officials interviewed for this story corroborated the Austrian’s role in the operation. All declined to provide his true name, and other efforts to identify him were unsuccessful.) This was, of course, much easier said than done, as Soviet diplomats and intelligence officers were constantly sniffing around for Western spies.
Initially, the Austrian, who wasn’t a trained spy, needed some coaching from his FBI overseers. “Once I determined that I thought he could pull it off, then we had to orchestrate how to do it, each step of the way,” recalled Smith. But the Austrian was a quick study — independent-minded and “terrific for the role,” said Smith. He “knew what he was doing.”
The FBI sent the Austrian home to Vienna, a key Cold War spy capital infamous for its cloak-and-dagger antics. The city was neutral ground, a place where Communist and Western officials could operate in relative comfort and safety. There, the Austrian made an appointment with the Soviet Embassy and prepared to pitch selling Moscow cutting-edge Silicon Valley microelectronics and computer technology.
OSTENSIBLY UNINTERESTED IN THE TECH OFFERED BY THE AUSTRIAN, THE SOVIETS INSTEAD PASSED HIM OFF TO THEIR EASTERN BLOC ALLIES. BUT IT WAS ALL A RUSE.
At first, Moscow’s spies didn’t bite. “They expressed some interest, but they wanted classified information, basically,” Smith said. “He couldn’t provide that.” Ostensibly uninterested in the tech offered by the Austrian, the Soviets instead passed him off to their Eastern Bloc allies. But it was all a ruse. The Soviets did covet the microelectronics and other prohibited tech, they just wanted the scheme run through their Eastern Bloc lackeys.
He was directed to the East Germans, who in turn brought in the Bulgarians, another Soviet Bloc ally. But U.S. intelligence knew who the ultimate recipient of this forbidden technology would be: Moscow. “Eastern Bloc countries got from the Russians a wish list of things they would like them to target,” recalled Bill Kinane, a retired longtime San Francisco-based FBI counterintelligence agent who helped supervise the Intering operation.
By using its allied services, the KGB put distance between itself and these technology-transfer operations. It allowed the Russians to free up resources to pursue other espionage targets. Moscow also knew that the West didn’t scrutinize trade with Eastern European countries the same way it did with the Soviet Union itself.
The Austrian’s connections now presented a major opportunity. The Bulgarians, and their East German and Russia allies, were going to get that forbidden tech. But not before the FBI tampered with it first.
‘THEY WERE ALL UNWITTING’
Getting the operation up and running took some time. But by 1982, Intering was humming on all cylinders.
The bureau couldn’t do it alone. It needed technical experts. Trusted intermediaries. Cooperation from other U.S. and foreign government agencies. The FBI also needed to set up shop somewhere to sabotage the parts en route to the Bulgarians. London was a key transshipment point where U.S. officials would intercept the and sometimes subtly tweak the hardware. It was all “altered by engineers,” recalled Smith.
The operation spanned countries and continents. An employee of the East German electronics behemoth Robotron, who worked as a secret U.S. intelligence source, provided information to U.S. officials. A Netherlands-based tech broker called Traco Supplies served as a major conduit for shipments. The Bulgarians used a front company called INCO to import the prohibited technology. One transhipper was based in Toronto; Smith traveled there as part of the operation.
A critical end-broker to the Bulgarians, a company called Cosmotrans, had a storage facility in Zurich, Switzerland; Smith traveled there, too, coordinating with Swiss intelligence. “It was a long, involved process,” recalled Smith. Some of the shipments even seemed to wind their way through China.
And the operation really did appear to be a windfall for the Bulgarians — and, by default, their Soviet masters. To U.S. intelligence, it was clear that the Soviets didn’t just want to steal or illicitly purchase Western microelectronics to insert into their military hardware. They wanted to covertly duplicate the entire U.S. computer industry.
“The Soviets couldn’t produce domestically the types of ultra-complex and precise chip-making tools that they needed, and that the U.S. and Europe and Japan could,” said Chris Miller, the Chip War author.
Indeed, by 1981 Soviet and Bulgarian intelligence had initiated a series of secret agreements whereby Bulgaria’s spies would procure export-prohibited hi-tech machine tools needed for factories in Russia that would produce data storage devices and other advanced manufacturing products, according to research by Jordan Baev, a Bulgarian academic who has plumbed his county’s cold-war era intelligence archives.
Operation Intering coincided with this Soviet-led campaign. Beginning in 1982, the FBI shipped disk drive testing equipment from two Arizona-based firms, Pace Industries and the Luctor Corporation, to the Bulgarians. (These drives enabled computers to permanently store and retrieve data.) Via the Austrian, the bureau brokered a deal to send Eastern Bloc spies hard-disk coating equipment from California-based Tempus Industries.
THE OPERATION REALLYDID APPEAR TO BE A WINDFALL FOR THE BULGARIANS — AND, BY DEFAULT, THEIR SOVIET MASTERS.
The FBI also covertly sold the Bulgarians “servowriters,” critical tools for manufacturing hard drives, from the San Diego-based Megatek corporation. In 1983, another shipment of servowriters, this time purchased via the San Jose-based General Disk Corporation, and valued at a quarter of a million dollars, was sent to the Bulgarians — but sabotaged beforehand.
That same year, the FBI shipped $3 million worth of computer-related equipment, from Hewlett Packard and Oregon-based firm Tektronix, to the Eastern Bloc. That’s worth over $9 million in 2024 dollars. (Tektronix and HP Inc., Hewlett Packard’s legal successor, did not return requests for comment.)
There were many other FBI-controlled shipments. Some of the tech was subtly altered before the Bulgarians could get their hands on it. Some was rendered completely unusable. Some of it was shipped unadulterated to keep the operation humming — and allay any suspicions from the Eastern Bloc about what might be going on.
And some of it never made its way to the Bulgarians at all. In one case, the bureau intercepted a $400,000 order of computer hardware from the San Jose-based firm Proquip and shipped out 6,000 pounds of sandbags instead.
Throughout the operation, these companies were totally clueless that their products were being sold — ostensibly illegally — to the Eastern Bloc, let alone that they were being tampered with as part of a transcontinental spy game. “They were all unwitting,” said Smith.
‘WE WERE ACUTELY AWARE OF THE DANGER TO HIM’
Intering was an immense effort, and the San Francisco-based FBI agents couldn’t pull off the operation on their own. The operation was too sprawling, too complex, too sensitive to be managed out of one office. Washington had to be brought in, too. The White House, Pentagon, and Justice Department all had to give their sign-off.
“We were in a position to guarantee that the technology, even though it would be illegal to export, it could safely find its way to the end user in Eastern Europe, whether it was East German or Bulgarian — you never knew exactly who’s loading dock was going to end up on,” recalled Ed Appel, a former senior FBI official. Appel helped run Intering from Washington, where he then oversaw Bulgarian and East German operations for the bureau.
But not all the players in Washington were onboard, recalled Appel. Defense Department officials were queasy about sending Moscow prohibited U.S. technologies, even if much of it had been tampered with.
By departmental disposition, the Pentagon was generally skeptical of double agent tech-transfer operations. “They just didn’t like the idea of letting the FBI run a particular operation like that,” recalled Appel.
To the uninitiated, it looked like the FBI was serving up state-of-the-art U.S. tech — the cream of U.S. innovation — right into the hands of America’s geopolitical foes. Even if some of these parts were sabotaged, other tech had to work correctly. There was always the fear — a real, legitimate fear — that so much pristine tech would be exported that the operation would inadvertently end up benefiting the U.S. adversaries it aimed to thwart. And what, worried some U.S. officials, if some of the altered technology shipped during Intering wasn’t actually sabotaged sufficiently to prevent its use?
The bureau tweaked the hi-tech in a variety of ways. Some suffered what appeared to be “accidental” wear-and-tear during the long journey to the Eastern Bloc, recalled Appel. Other times, the FBI would tamper with the electronics so they would experience “chance” voltage overloads once Soviet Bloc operatives plugged them in. The sabotage could also be more subtle, designed to degrade machine parts or microchips over time, or to render hi-tech tools that required intense precision slightly, if imperceptibly, inaccurate.
THE BUREAU HAD TO HOPE THAT ITS SABOTAGE OPERATIONS WORKED WELL ENOUGH TO TRULY DISABLE THE SHIPMENTS — THOUGH PERHAPS NOT TOO WELL, IN ORDER TO EVADE SUSPICION.
In all these cases, the bureau had to hope that its sabotage operations worked well enough to truly disable the shipments — though perhaps not too well, in order to evade suspicion.
And what of the technology that wasn’t tampered with at all? The FBI had to let some unadulterated hi-tech through to the Soviet Bloc. After all, if the Austrian’s cover was to remain intact, he had to provide legitimate goods in order to win the trust of his “partners” on the other side. What, then, pondered FBI officials, was the proper ratio of doctored versus unaltered technology necessary to maintain the charade?
There were always other sorts of dangers, too, to these sorts of operations — including to life and limb of unsuspecting recipients of that doctored hi-tech. By sabotaging such technology, a spy service might endanger innocent lives. A blown electrical grid in wintertime could mean people freeze to death. Fritzed traffic lights could lead to car accidents.
In the case of Intering, once the tech made it from Silicon Valley out to the Eastern Bloc, the U.S. was generally blind to how it was employed. “We were worried they were going to use it in a hospital or something,” said former FBI agent Bill Kinane. “We had a lot of discussions and meetings about whether this was an ethical thing to do or not to start with.”
Ultimately, the FBI was confident that the tech wasn’t ending up in civilian infrastructure, and was all being funneled to the Soviet military and intelligence agencies. “The Russians only wanted those things to take them apart and figure out how they worked,” said Kinane. Still, the bureau could never be 100 percent certain where all the sabotaged parts would end up.
The Austrian was also in a treacherous position. He needed to maintain his cover, to demonstrate his legitimacy, over and over, to his Soviet Bloc interlocuters, while somehow also providing faulty goods on behalf of a meddling foreign intelligence agency. “At every step of the operation, you have to have the source prove his bona fides to the other side, he has to be able to produce something, or else they’re not going to keep on using them,” recalled Appel, the former Washington-based FBI agent. “Of course, we were acutely aware of the danger to him,” said Appel.
Soon, that danger became more than an abstract concern.
‘CAN’T LAST FOREVER’
By 1983, Intering was in full bloom. The Austrian had a good rapport with two Bulgarian intelligence officers who were running the tech-transfer operation on Moscow’s behalf. He was getting paid. And the Austrian told Smith, his FBI handler, that the Bulgarians were getting serious props from their Communist bosses. “Everybody was happy, for a while,” recalled Smith.
The Bulgarian spies “were taking all the credit for getting all this technology from the United States, which was state of the art,” recalled Smith. “Even though it wasn’t classified, it was the stuff — I mean this was semiconductor stuff in 1980. So they thought their reputation was enhanced.”
To celebrate their victory, the Bulgarians threw a parade. A literal parade in Sofia, the country’s capital, of the tech they’d purchased from their Austrian fixer in San Francisco. “When it got there, they had a big parade to show it off, that they got these semiconductors,” said Smith.
But the FBI had tampered with the shipment in London. It was all worthless. “What we wanted to do was engineer the process, but give them fake stuff to discredit them,” said Smith. Infuriated at their embarrassment, the Bulgarian spies demanded a meeting with the Austrian in Vienna. And that’s when, for the FBI, the alarm bells started to ring.
“They were pissed off,” said Smith. “And they told him that he was either compromised by the FBI and that’s the reason it was altered, or he was in on it from the beginning. And he was in on it from the beginning.”
The Bulgarian operatives demanded the Austrian travel to Sofia for further consultations. This was out of the question, recalled Smith. “I said, ‘Don’t say no. Say shit no,’ because, that would’ve been the end of the world. And the FBI’s lost sources that way.”
This wasn’t an empty threat on the Bulgarians’ part. If the Austrian had agreed to cross the Iron Curtain and travel to Sofia, there’s no telling what they or their Soviet allies might have done. Bulgaria’s enemies weren’t even safe in the West: In 1978, Sofia’s spies had assassinated a prominent dissident on the streets of London using a poison-tipped umbrella.
The FBI couldn’t risk using the Austrian as an agent anymore. He was blown. Operation Intering had successfully seeded millions of dollars of sabotaged technology to Moscow and its allies. “It couldn’t have worked out any better,” said Smith. But now it was finished.
If you knew where to look, however, there were aftershocks. In 1983, federal prosecutors in southern California charged an entire clandestine network of illegal tech exporters: two Californians (the network’s American suppliers), a Dutch co-conspirator, and two Bulgarian government officials. Another related indictment targeting illegal tech exporters dropped a few years later.
Intering created investigative leads for these prosecutions. But you wouldn’t know it from the news stories at the time. Counterintelligence operations sometimes quietly transform, in their afterlife, into criminal probes. Indictments are akin to a ray of light that illuminate a sliver inside a dark chasm, but leave the rest in shadow.
OPERATION INTERING HAD SUCCESSFULLY SEEDED MILLIONS OF DOLLARS OF SABOTAGED TECHNOLOGY TO MOSCOW AND ITS ALLIES.
When prosecutors in California busted these Bulgarian tech export rings, there was no mention of Intering. No mention of sabotaged computer equipment. And certainly no mention of the Austrian.
If the Austrian was a kind of ghostly presence in these prosecutions, invisibly hovering over them, he was also something of a mystery to those who worked with him closely. Why did he agree to work secretly for the FBI? To this day, his motivation isn’t entirely clear, even to the bureau agents who ran the case.
“He did all this for the sheer fun of doing it,” said Kinane. “And, like most Austrians, he hated the Russians.”
Smith saw the Austrian as acting more in an entrepreneurial spirit. But that wasn’t a dealbreaker. “If it benefited him, I don’t care. I mean, as long as he’s not stealing, or killing people, I don’t care what he is doing.”
In the world of counterintelligence, operatives are used to working with all sorts of people — upstanding and unsavory, altruistic and self-interested, ideological and mercenary. And the Austrian was, in many ways, an exemplary asset. Over time, Smith and Kinane became friendly with him, even going on jogs and skiing together.
But FBI officials also understood that, in the end, the Austrian was looking out for himself — and that his interests wouldn’t always align with the bureau’s. The FBI couldn’t keep track of all their source’s international doings. And that made them nervous.
What, worried bureau agents, if the Austrian were striking side deals with the Bulgarians or other Eastern Bloc states, unknown to the FBI? They couldn’t find dispositive proof of such activity, but their fears persisted. “One of the concerns was that he continued to use our cover to get involved in this stuff, then he beats the system,” said Smith.
Tensions between the bureau and its star Austrian source were probably inevitable, given the dynamics of the relationship, according to Ed Appel. The Austrian was “in the transshipment business, he wants to do legitimate stuff, but now he’s got people that want illegitimate stuff — and he’s got a way to do that, using the FBI,” said Appel. “So our trust in him, just as the Bulgarians’ trust in him, or East Germans’ trust in him, is critical,” recalled Appel. “And that can’t last forever.”
In any case, the Austrian certainly did well for himself during the whole affair. He made money twice over: first, as an ostensible agent of the Eastern Bloc, selling them lucrative, prohibited hi-tech; and then again, as an asset of the FBI. “I paid him as a source and he got paid based on the transfers,” said Smith. “So he made out pretty good.” Ultimately, the bureau paid the Austrian roughly $100,000 for his work as a U.S. intelligence asset. “He was worth every dime,” said Smith.
But the Austrian was just getting started. After the Intering operation was blown, the tech entrepreneur, now untethered from the FBI, continued his profitable wheeling and dealing in 1980s Silicon Valley. Eventually, after the Cold War, he moved back to Europe, amassing a sizable fortune there in real estate.
For Appel, even if the Bulgarians hadn’t sniffed out the Austrian as a U.S. intelligence plant, the operation may have already been entering a sort of inevitable denouement. “If you have a really, really good source, it’s very, very unusual for it to go on for an extended period of time,” he reflected.
Indeed, according to Appel, these sorts of operations possess a pre-determined, almost naturalistic logic to them. “Every single case of this kind has a half-life,” Appel said. “In other words, it’s like an atomic particle. At some point, it’s not going to be emanating radioactivity anymore.
“It’s going to come to an end.”
