A Steamy Spy Scandal at the State Department

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Few occasions are more sensitive than a visit to the U.S. of a foreign head of state, and few such events during the Bush years have been as closely watched as Chinese leader Jiang Zemin’s visit to the President’s Texas ranch in 2002. But a Taiwanese spy named Isabelle Cheng had the inside track on Jiang’s trip, according to a recent court filing. Federal prosecutors say vaunted State Department Asia hand Donald Keyser sent Cheng long e-mails detailing his “conversations with Chinese President Jiang” in Texas. At some point, prosecutors say, the spy became his lover, and Keyser was caught lying to hide the affair — and hoarding classified documents in his suburban Washington home. Facing jail and with his marriage threatened, Keyser cut a deal, promising to tell all he knew about Taiwan’s intelligence operations. But then the tale of the diplomat, his spook paramour and his wife — also a spy — got even weirder.

In return for Keyser’s cooperation, prosecutors had accepted his denial of spying for Taiwan and let him plead guilty to three lesser felonies, preserving his pension. But in their filing earlier this month to throw out his plea, they allege Keyser repeatedly lied about his contacts with Taiwanese intelligence. Prosecutors want to enter new evidence to support “espionage-related” charges.

The new filing could also raise awkward questions for Director of National Intelligence (DNI) John Negroponte because Keyser’s wife, Margaret Lyons, is a senior CIA official on loan in a sensitive post helping set up a new open-source unit of DNI. The prosecutors’ filing says Lyons had known for about a year that Keyser had improperly kept classified documents at home. Worse, current and former U.S. government officials tell TIME, an FBI search of the couple’s home found CIA documents that Lyons had there without authorization. In a Feb. 22 letter to the judge in Keyser’s case, Lyons — who hasn’t been charged — admitted she and Keyser had failed “to properly secure” her husband’s secret material. Through a spokesman, Negroponte declined to discuss Lyons’ DNI role or whether CIA material was compromised. A CIA spokeswoman said the agency “stands by the decision” not to revoke Lyons’ security clearance.

Keyser’s attorney Robert Litt says the prosecutors’ filing “contains numerous inaccuracies.” Litt insists Keyser never spied for Taiwan, didn’t improperly disclose classified information and fulfilled his end of the plea bargain. The government seems to disagree — and appears content to let this spy saga unfold in court.