East Germany’s Spy Files at Center of FBI-CIA Clash : Espionage: Ex-Bonn station chief started bureaucratic war that still poisons ties between agencies, sources say.

WASHINGTON —  In espionage circles, Ed Pechous was nicknamed “The Poison Dwarf,” a monicker FBI officials had derisively attached to the diminutive spy, some in the CIA say.

But if Pechous seemed like a character torn from the pages of a John Le Carre spy novel, there was nothing fictional about his enormous influence within the shadowy intelligence world during the twilight of the Cold War. As Bonn station chief of the Central Intelligence Agency in 1989, Pechous was in charge of American spy operations in Germany as the Berlin Wall was coming down.

Yet, critics said, his arbitrary use of power helped lead to a secret bureaucratic war in Washington that continues to poison relations between the CIA and the FBI. His actions--and those of other senior CIA officials--may have severely hampered American efforts to take advantage of one of the greatest intelligence windfalls the West has obtained from the death of communism in Europe.

U.S. intelligence sources close to the controversy said Pechous and other senior CIA officials refused to grant the FBI access to reams of secret documents that the CIA had obtained from Stasi, the feared East German intelligence service after the fall of the Berlin Wall and the reunification of Germany. Sources said the CIA repeatedly rebuffed efforts of the FBI’s counterintelligence experts to see files of the now-defunct East German spy service.

Bitter FBI officials believe the CIA’s refusal to turn over the critical information blocked the bureau from tracking down leads about terrorists once backed by East Germany and prevented its counterintelligence service from uncovering potential East Bloc moles who might have penetrated the U.S. government.

Pechous, who recently retired from the CIA, refused to be interviewed for this story.

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The sources said the CIA’s refusal to share the files led to friction between the spy agency and the bureau, possibly hurting relations between the CIA and the FBI nearly as badly as the CIA’s long refusal to share information with the FBI about the Aldrich H. Ames spy scandal.

Robert M. (Bear) Bryant, assistant director in charge of the FBI’s National Security Division and the bureau’s chief spy hunter, repeatedly clashed with Pechous and other CIA officials over their refusal to grant access to the files, sources said.

One FBI source said Bryant was so unhappy with Pechous’ actions on this and other equally sensitive counterintelligence matters that he wanted to seek Pechous’ prosecution. But the source could not detail how Bryant hoped to prosecute Pechous. Bryant refused to comment.

“I think Bear Bryant was infuriated over this,” said former CIA and FBI Director William H. Webster.

Several sources suggested that the CIA refused to grant the FBI access to the files for a simple reason: The records included humiliating revelations about CIA espionage operations. They showed that virtually every CIA operation in East Germany had been penetrated and “doubled”--turned back against the CIA--by the Stasi or other East Bloc intelligence services.

A congressional source familiar with the dispute said an internal CIA investigation revealed that CIA operations elsewhere in Eastern Europe and Cuba also had been penetrated by East Bloc intelligence services.

The internal CIA investigation, the congressional source added, showed that spies from East Germany and other Soviet satellites had been feeding the CIA disinformation throughout the Cold War. The files, he said, helped explain why the CIA was not able to predict that the East Germans would construct the Berlin Wall in 1961 or that the Soviets would invade Czechoslovakia in 1968. The CIA was being fed disinformation by double agents.

Yet, U.S. intelligence officials offered another, more complicated rationale for the CIA’s refusal to share the files with the FBI: The CIA did not obtain the files through official German government channels and was concerned about protecting the sources who had given the agency the files.

The battle over how to handle the Stasi files has continued to perplex policy-makers in Washington. Sources said that in meetings early in the Clinton Administration, for example, former CIA Director R. James Woolsey told White House National Security Adviser Anthony Lake that access to the Stasi files had to be tightly restricted because they contained many unsubstantiated reports that could destroy careers.

“I know that there was concern at the highest levels of the government about not having these things being used in a reputation-damaging campaign,” said one U.S. intelligence source.

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It is unclear how long the CIA restricted FBI access to the Stasi files. Some sources insisted that it was for months after the CIA obtained them but others said that it was for years. After a bloody turf battle, the FBI has access now. But some officials at the FBI suspect that the CIA still has not shared all the files.

Senior Justice Department officials stressed that new CIA Director John M. Deutch--who has developed a good personal relationship with FBI Director Louis J. Freeh--has worked hard to improve the FBI’s access.

Without confirming the details of the dispute, Deputy Atty. Gen. Jamie S. Gorelick said: “Access to that material is 100% better than it has been.” In an interview, she attributed the “dramatic” improvement over the last year “to the leadership of the CIA.”

Gorelick and CIA General Counsel Jeffrey Smith are scheduled to testify today before the Senate Select Committee on Intelligence about the often-tense relationship between the agency and the bureau.

For America’s spies, the collapse of East Germany provided a unique opportunity. Finally, the CIA could peer into the darkest recesses of a Communist espionage apparatus that had been one of their deadliest adversaries.

At the peak of its Cold War power, the Stasi was easily one of the largest espionage services in the world, with as many as 85,000 agents. Most of those agents operated within East Germany itself, ruthlessly helping to maintain order over virtually every aspect of society.

Drawing on traditions inherited from the Nazi Gestapo and the Soviet KGB, Stasi developed a network of informants so pervasive that neighbors spied on neighbors, factory employees spied on fellow workers and spouses spied on each other. Over the decades of East Germany’s existence, Stasi became a Kafkaesque bureaucratic beast: Its East Berlin headquarters encompassed 41 dreary, concrete buildings that stored millions of secret records.

The Stasi was grimly effective outside its own borders as well--especially in West Germany. East German agents riddled the upper reaches of the West German government and intelligence services and financed terrorist rings like the Red Army Faction that staged bloody attacks throughout Western Europe.

“The East Germans had the most extensive intelligence and spy network in the West and probably had West Germany penetrated more than any place on Earth,” said one former FBI official.

As station chief in Bonn when the files first became available, Pechous was pivotal in how they would be handled within the U.S. intelligence community. He did not have the last word within the CIA on that question but within Germany was able to quash FBI attempts to get the files.

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A presidential directive gives the CIA authority over intelligence operations outside the United States, which means that a station chief is in charge of all U.S. intelligence operations in his assigned country, according to CIA General Counsel Smith. Sources said that Pechous used that authority to the hilt.

“He was the kind of guy that, if you played tennis with him, he would practically climb over the fence and hit you with the racket,” said one of Pechous’ former colleagues at the CIA. “He was as devious as they come--and a total control freak.”

Adds one former FBI official: “Pechous definitely had the old agency approach: ‘We’re going to protect our own.’ ”