A Steamy Spy Scandal at the State Department

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 Zemins visit to the Presidents Texas ranch in 2002. But a Taiwanese spy named Isabelle Cheng had the inside track on Jiangs 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 Taiwans intelligence operations. But then the tale of the diplomat, his spook paramour and his wife — also a spy — got even weirder.

In return for Keysers 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 Keysers 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 couples home found CIA documents that Lyons had there without authorization. In a Feb. 22 letter to the judge in Keysers case, Lyons — who hasnt been charged — admitted she and Keyser had failed to properly secure her husbands 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.

Keysers attorney Robert Litt says the prosecutors filing contains numerous inaccuracies. Litt insists Keyser never spied for Taiwan, didnt 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.