How to Get Away with Spying for the Enemy
RONALD REWALD AND RICHARD CRAIG SMITH did not appear to have much in common.
The founder of an investment firm in Hawaii, Rewald lived like a Master of the Universe, traveling the world, driving expensive cars, staying in expensive hotels and throwing expensive parties. Smith, by contrast, was a Mormon who lived in Utah with his wife and four children. A former case officer in intelligence with the United States Army, he had resigned from his job at the start of the 1980s to spend more time with his family. Smith sought to make a new life for himself as an entrepreneur; when VHS tapes were still cutting-edge, he began a service to make video diaries and testimonials for families to pass down from one generation to the next.
The common thread between Reward and Smith was espionage. In the early 1980s, legal troubles tangled the two men in a similar narrative of spying and betrayal. First charged in August 1983 in state court with two counts of theft, Rewald was eventually indicted, a year later, on 100 counts of fraud, tax evasion, perjury, and other federal crimes. In April 1984, Smith was accused of much more serious offenses—conspiracy, espionage, and transmission of secret material, charges that, were he convicted, could lead to a death sentence. The two men were represented the same lawyer, the bombastic Brent Carruth, and they had the same defense for their alleged crimes: The CIA made them do it.
Rewald and Smith’s assertions sometimes seemed preposterous, as if lifted from a convoluted spy novel. The cartoonish stories they told involved fake names, fear of assassination, and envelopes full of cash. (They certainly seemed fictional to government prosecutors, who dismissed the tales as fabrications.) But in the Reagan era, as now, the news was full of undisclosed meetings and clandestine plots to swing elections. Americans were being inundated with reports about the secrets of the intelligence community: the Watergate revelations about the CIA’s domestic surveillance, the assassination attempts on foreign leaders, and the Iran-Contra scandal, for starters.
Suddenly, anything seemed possible.
On paper, the government’s success in Smith’s case was all but assured. Americans have little tolerance for disloyalty. There have been more than 110 Americans arrested on espionage charges since the 1950s and those that didn’t defect before they went on trial were sentenced to years, sometimes decades, in prison.
But though Rewald and Smith’s stories sounded wild, their juries weren’t entirely willing to trust the veracity of the government’s narrative, either. In the end, one of the two men would be sent to jail, the other set free.
In 1978, Ronald Rewald was a new arrival in Hawaii, where he had opened up an investment firm named Bishop Baldwin Rewald Dillingham and Wong (BBRDW). Rewald had come from Wisconsin, where, he said, he’d played briefly on a professional football team and, less briefly, worked in the sporting goods business as a salesperson and company manager. As the head of BBRDW, Rewald enjoyed substantial financial success: He moved to a house worth close to a million dollars in a fancy neighborhood, and began traveling all over the world, from Taipei to London to Paris. He became wealthy enough that he was able to buy a polo club.
In 1983, five years after his arrival, Rewald’s high-flying life began collapsing. His firm had taken millions of dollars from investors with the astounding promise of 20 percent returns, but the returns were non-existent. Rewald was operating a Ponzi scheme, using new investors’ money to pay older investors. The IRS opened an investigation, and Rewald was soon indicted for fraud.
From there, a fountain of lies gushed forth. It turned out that Rewald hadn’t graduated from Marquette University, as he claimed. He had told investors, falsely, that the firm had been around since the 1910s. Elvis Presley had been a client, he said. Even the name of his firm was fake: no one named Bishop, Baldwin, or Dillingham, three of Hawaii’s most well-known families, had anything to do with the business. (Sunlin Wong is a real person, and he was also prosecuted for fraud.)
Rewald had an excuse for everything. After his arrest, he claimed that during his international travels he’d been collecting information for the CIA. And his ties to the agency went even further than that, he said. He’d also been working on clandestine arms deals. In fact, the whole firm, he explained, was a front for CIA operatives… and the only way for him to repay his investors was to gain access to a secret bank account in—where else—the Cayman Islands.
Rewald’s legal defense got off to a slow start. Even after he was indicted in federal court, Rewald didn’t have a lawyer to argue his case. He didn’t have much money and, he told the court, after talking to dozens of lawyers, he hadn’t found one he could now afford. A federal judge was slow to appoint one for him; Rewald needed to scale down his lifestyle—he was still living in a mansion and leasing an expensive car—before the public would pay for his lawyer.
So Rewald must have been relieved when, in the fall of 1984, Brent Carruth, a California lawyer, offered to represent him. There was a catch, though. Carruth was already representing another man with an interest in Bishop Baldwin’s supposed CIA connection: Richard Craig Smith.
In the summer of 1982, after Smith had proved himself to be a reliable courier (again, his version of events), White asked him to become a double agent—to approach the Soviet government and start pretending to work with the KGB. Smith would sell Soviet intelligence the details of the American operations he had worked on, and let them think they had bought him off. Secretly, though, he would be working for the CIA, trying to gather information on the inner workings of the Soviet spy system.
This was Smith’s story in April 1986, following his arrest for espionage two years earlier. It was also, more or less, the story later published in Accused. The main difference between Smith’s version of events and the government’s was his assertion that he worked for the CIA. The FBI and Department of Justice prosecutors were confident that Smith was not a CIA agent and that, when he sold information to Soviet officials, it was for his own personal gain.
What everyone agreed on was this: On November 5th, 1982, while visiting Tokyo, Smith called the Soviet embassy from a payphone to hint that he had classified information about the U.S. to sell.
That call set off a pas de deux of spy work. Soviet intelligence wouldn’t just invite Smith over to the embassy; each side had to have a couple of chances to back out of the meeting, in order to underscore its commitment to the illegal exchange. First, Smith waited for officials at the embassy to consider his offer. He’d know that they were game when, at Tokyo’s iconic La Scala coffee shop, someone would page a “Mr. David”. When the page came in, Smith called back from the coffee place. Then came another call, this time at the Takanawa Tobu Hotel, a streamlined building near a Soviet embassy compound. Then came another call from his new, still-nameless Soviet contact, leading to Smith’s entrance into the Russian compound, a boxy building fronted with rectangular windows and solid, white gates. He finally met his correspondent, a KGB office named Victor I. Okunev.
Smith had a plan. He knew a certain amount about America’s covert operations—information that the Soviet government would be very interested in. He was going to sell that information. Two days later, Smith and Okunev met again at the compound. In that meeting and another the following February, Smith disclosed the details of six American intelligence operations, including the identity of a double agent known as “Royal Miter.” In exchange for these secrets, Okunev gave Smith $11,000—fifty $100 bills at the first meeting, another $6,000 at the second.
In his account, Smith claimed the CIA had approved the release of these details—that giving them to the Soviets didn’t harm anyone. The government, however, said that, far from being approved, the sale of such details put U.S. double agent operations at risk.
Regardless, in June of 1983, a few months after his third meeting with the Russians, Smith called the FBI and told them what he had done.
When Carruth started working on Smith’s case, his client still had not said anything, to anybody, about working with the CIA. When the agents and prosecutors heard Smith’s defense, that he was secretly a covert agent the whole time, they did not believe it, telling the press and the jury that he’d fabricated the story. If CIA had employed Smith, they suggested, they would have had some idea.
But Carruth? “Carruth believed,” the lawyer himself said, using the third person to some kind of effect. “He believed Craig Smith.” He needed evidence to back up his client’s claims, though. According to Smith, those two CIA agents he had met in Japan, White and Ishida, had given Smith a business card with a name and number listed on it. They had explained that, if someone else showed Smith the same card, it would mean he was also working for the CIA.
Interestingly, the listing on the card was that of a subsidiary company of a certain investment firm in Hawaii— Bishop Baldwin Rewald Dillingham and Wong, the business founded by Ron Rewald. By this time, of course, the firm had already collapsed and Rewald had been arrested. But Carruth thought he might still be able to scoop up financial documents from Bishop Baldwin, now held by a court-appointed trustee, to shore up his client’s incredible story, and early in the summer of 1984, he went to Hawaii to try to obtain copies. There, Carruth first met Rewald, who was out of prison on bond, and in Carruth’s words, “frightened and confused.” In the year since Bishop Baldwin had fallen apart, Rewald had been telling the press and the courts that the CIA was to blame for his situation, but no one seemed to believe him. He faced the possibility of years in jail and was having trouble finding an experienced lawyer to represent him.
Though there was a potential conflict of interest with Carruth representing two men with intertwined defenses, according to Carruth, Rewald begged for him for help. “Please,” he said, at one point. “I have no one else. Please help me, I am innocent.” Carruth agreed to take on his case.
The mid-1980s were tumultuous years for spies. The CIA had been disgraced by its role in the Iran-Contra affair, and it was also proving vulnerable to leaks of classified information from inside its own community. In just 15 months, from June 1985 to October 1986, there were more than a dozen arrests of both American and Soviet spies for espionage. Between 1984 to 1986, 27 U.S. citizens were charged with sharing, intending to sell, attempting to sell, or actually selling classified information to foreign countries, including Israel, China, Ghana, and, of course, the USSR. The year 1985, which the media dubbed the “Year of the Spy,” still holds the U.S. record for the number of spy-related charges against American citizens who sold information to foreign governments.
Who were these rogues? There was Richard W. Miller, the first FBI agent arrested for espionage, caught after giving classified documents to his Russian lover who turned out to be working for the KGB. There was John Walker, a Navy intelligence officer, who started selling information to the Soviets late in 1968 and compromised millions of secret documents before he was finally arrested in 1985. There was Jonathan Jay Pollard, who sold classified information to Israel, and Ronald Pelton, an officer with the National Security Agency who was paid tens of thousands of dollars by the Soviet government for hours of debriefing and consultation about U.S. intelligence operations against the U.S.S.R. Like Smith, many of the men who sold information to the Soviets had fallen into financial difficulties; at least one other, Miller, also tried to argue in his defense that he had been trying to spy on the KGB.
In a 1987 report about the spike in espionage cases, a Congressional intelligence committee called the anti-espionage work at the CIA “a litany of disaster.” Many of the men and women who pled guilty or were convicted of espionage charges had worked in the intelligence community in some capacity and their odd behavior, which should have been a warning sign, was “ignored or given insufficient attention by management,” the committee reported. The press, too, was less than impressed with the CIA. “Soviets Winning Spy War,” one newspaper headline announced. “They’re definitely out ahead,” one diplomat told UPI. “The West has taken a bad beating.”
It is in this environment that Craig Smith would be acquitted, the only accused Cold War spy to walk away from the charges against him. Rewald, though, didn’t get off so easy. Though he stuck with his story that the CIA had instructed him to spend millions of investors’ dollars to live like a wealthy man, the jury didn’t believe he was acting at the behest of the agency. In November 1985, Rewald was convicted of fraud and later, sentenced to 80 years in prison, before Craig Smith even went to trial.
It would have been easy enough to assume that Rewald’s conviction would undermine the intersecting stories between himself, Craig Smith and Brent Carruth. But there was just one problem: Not everything about Rewald’s story was a fabrication.
During his trial, the government had been forced to reveal more than it had wanted to about the CIA’s relationship with the Bishop Baldwin firm. Although at first the agency had denied any connection with the company, it later allowed that its offices had used the organization as “light cover,” deploying the firm to provide telephone numbers, telex, and business cards for agents and officers so that when they posed as business people, they could have actual, verifiable resources to back up their stories. Rewald himself would sometimes report to the CIA office about his conversations with foreign businessmen, but according to a judge in the case, his own conception of his importance to spycraft far outpaced reality.
Conveniently enough for Carruth, the information revealed in Rewald’s case would help his other client, Craig Smith. Rewald became a witness in Smith’s case, testifying that the CIA had used his firm as a front for its activities. Smith himself testified that White and Ishida, the agents who had recruited him, had disappeared at around the same time Bishop Baldwin was collapsing, and that he had not been able to contact them again. Carruth also managed to subpoena Charles Richardson, a former CIA station officer who had been based in Hawaii. Richardson, who also went by Richard Cavanaugh, had been connected to Bishop Baldwin; the phone number listed on that Bishop Baldwin business card had been his own contact number, used as part of his CIA cover. The government tried to downplay the link between the CIA and Bishop Baldwin, but the evidence Carruth presented made it hard to deny.
Smith had spent two years awaiting trial but the proceedings went shockingly quickly, with just five days between opening and closing arguments. Carruth did his best to make the trial like a thriller; at one point, he confronted Smith with a simple question—“Mr. Smith, are you a spy?”
“I have been, yes,” he responded.
“For whom?” Carruth prompted.
“For the United States of America,” Smith said.
Why did Smith get off, then, when so many other spies were falling? In the most famous cases of the 1980s—Walker, Pollard, Pelton—the men who were caught had dug themselves so deep into selling out the U.S. that the only real question was how harshly they’d be punished. But in plenty of other cases, defendants were sent to jail for much less. Sometimes they hadn’t even gotten around to selling American secrets, only considered it. There were even other cases where disloyal Americans turned themselves in, hoping they could parlay their position into a role as a double agent.
Only Rewald and Smith claimed they had been on America’s side the whole time and had a lawyer with the bluster to sell that story. However flimsy that defense might have sounded to counterintelligence pros, to someone outside that world, Smith’s story might not have seemed entirely preposterous. The choice came down to whose statements you trust more—people who work for the government, who make a living from keeping secrets or the guy who, if he’s telling the truth, was betrayed by that very government. For some, the betrayal seemed all too likely.