The Invasion of the Chinese Cyberspies

As cyberspying metastasizes, frustrated network protectors say that the FBI in particular doesn't have enough top-notch computer gumshoes to track down the foreign rings and that their hands are often tied by the strict rules of engagement. That's where independents--some call them vigilantes--like Carpenter come in. After he made his first discoveries about Titan Rain in March 2004, he began taking the information to unofficial contacts he had in Army intelligence. Federal rules prohibit military-intelligence officers from working with U.S. civilians, however, and by October, the Army passed Carpenter and his late-night operation to the FBI. He says he was a confidential informant for the FBI for the next five months. Reports from his cybersurveillance eventually reached the highest levels of the bureau's counterintelligence division, which says his work was folded into an existing task force on the attacks. But his FBI connection didn't help when his employers at Sandia found out what he was doing. They fired him and stripped him of his Q clearance, the Department of Energy equivalent of top-secret clearance. Carpenter's after-hours sleuthing, they said, was an inappropriate use of confidential information he had gathered at his day job. Under U.S. law, it is illegal for Americans to hack into foreign computers.

Carpenter is speaking out about his case, he says, not just because he feels personally maligned--although he filed suit in New Mexico last week for defamation and wrongful termination. The FBI has acknowledged working with him: evidence collected by TIME shows that FBI agents repeatedly assured him he was providing important information to them. Less clear is whether he was sleuthing with the tacit consent of the government or operating as a rogue hacker. At the same time, the bureau was also investigating his actions before ultimately deciding not to prosecute him. The FBI would not tell TIME exactly what, if anything, it thought Carpenter had done wrong. Federal cyberintelligence agents use information from freelance sources like Carpenter at times but are also extremely leery about doing so, afraid that the independent trackers may jeopardize investigations by trailing foes too noisily or, even worse, may be bad guys themselves. When Carpenter deputized himself to delve into the Titan Rain group, he put his career in jeopardy. But he remains defiant, saying he's a whistle-blower whose case demonstrates the need for reforms that would enable the U.S. to respond more effectively and forcefully against the gathering storm of cyberthreats.

A TIME investigation into the case reveals how the Titan Rain attacks were uncovered, why they are considered a significant threat now under investigation by the Pentagon, the FBI and the Department of Homeland Security and why the U.S. government has yet to stop them.