FSB via AFP - Getty Images file

A handout photo taken early on May 14 and released by Russia's Federal Security Service (FSB) shows a man, identified as Ryan C. Fogle being questioned after his arrest.

The U.S. diplomat who Russia claims tried to recruit one of its intelligence officials to spy for the CIA has left Moscow, Kremlin-loyal TV reported on Sunday.

A Russian NTV broadcast appeared to show the U.S. embassy employee, Ryan Christian Fogle, moving through security at the Sheremetyevo International Airport in Moscow on Sunday, according to reports from the Associated Press and the BBC.

Fogle’s flight left on Sunday, according to the reports.

It was unclear where Fogle was heading. The U.S. Embassy has refused to comment on details of the case.

Fogle, who reportedly was wearing a blond wig, carrying cash, and had technical equipment when arrested, was briefly detained last week by Russian authorities. Russia declared Fogle "persona non grata" and ordered his expulsion last Tuesday.

The Russians identified him as the third secretary of the political division of the U.S. Embassy. The State Department said only that an officer at the U.S. Embassy in Moscow had been detained and released.

The Russian security service, known as the FSB, released to Russian media photographs of the American’s arrest and what it said were items he had with him, including two wigs, a torch, a compass and a wad of 500-euro notes, each worth $650.

Russian television also displayed a letter it said was found on Fogle, printed in Russian, that offered $100,000 for a potential CIA recruit.

After the decision to expel Fogle was made, the Russians then revealed a person they purport is the CIA station chief in Moscow.

According to a NBC News translation of FSB's statement on Fogle's arrest, American intelligence has made multiple attempts lately to recruit employees of Russian law enforcement agencies and special divisions, the Russians claim.

Related:

'Spirit of the Cold War': Russia says US diplomat was trying to recruit for CIA

This story was originally published on Sun May 19, 2013 4:15 PM EDT

News analysis

LONDON -- The Justice Department's secret seizure of phone records from the Associated Press was prompted by a leak that put considerable strain on the relationship between American and British intelligence agencies.

The leak was the basis of an AP story in May 2012 about a CIA operation in Yemen that foiled an al Qaeda plot to detonate a bomb on an airplane headed for the United States. 

There was anger in the British government over the leak and subsequent news reports that disclosed U.K. spies had been heavily involved in the operation.

The alleged details of the operation, which were never officially confirmed, were straight out of a John Le Carre novel. According to reports, a U.K. passport holder of Yemeni descent was recruited by British security officials and sent to Yemen to infiltrate an al Qaeda group.

The details of alleged U.K. involvement were attributed by many American media outlets to U.S. security sources. According to London's Times newspaper, the level of detail made public had left British officials "slack-jawed." 

"I understand there is an investigation under way, being led by the Americans. It is clearly a matter for the U.S. authorities,", the official spokesperson for Britain's prime minister said at the time. "Clearly, we think that sensitive information should be protected."

Sir Malcolm Rifkind, chairman of the parliamentary Intelligence and Security Committee, went even further and said leaks about operations could be "extremely harmful."

"It can prevent the effective involvement of intelligence officers or agencies in operations that are designed to save lives either in this country or other countries," he added. "Whether a leak arises in the U.S., the U.K. or elsewhere it is equally serious."

In the wake of the leak, it was claimed that the double agent had managed to smuggle out a bomb that would have been used to blow up an airliner. The bomb was described as even more sophisticated than the underwear bomb that attempted to bring down an jet landing in Detroit on Christmas Day in 2009.

The British double agent was also said to have provided vital information about al Qaeda in the Arabian Peninsula and about its master bomb maker Ibrahim al-Asiri. Around the same time as the leak, a drone strike in Yemen killed a senior al Qaeda leader, Fahd al Quso, who had been involved in the USS Cole bombing. However, it not been confirmed that this killing was connected to the undercover operation.

The leaked news potentially did more than put the operation it at risk. It also threatened the life of the double agent and his family and had an impact on the prospects for similar operations in the future. After all, why would similar recruits co-operate with the British knowing that information about what they did would go public?

"The revelations about the British agent in al Qaeda remind us that Beltway leaking is a major security threat," said Nigel Inkster, a former assistant chief of the British intelligence agency MI6.

Raffaelllo Pantucci, senior research fellow at London-based think tank RUSI, added: "It, of course, undermines  the trust between the agencies. It’s a big problem."

The Saudis also substantially assisted in the operation, according to experts. Could their connections have been compromised? In 2010, Saudi intelligence had helped foil an attack out of Yemen involving bombs disguised as printer cartridges smuggled onto airplane cargo.

Did British disquiet help spur the U.S. investigation into the leak? British government sources would not say whether a complaint was lodged.

"It is a long standing policy of successive governments not to comment on intelligence matters," an official with the U.K.'s Foreign Office said Wednesday.

NBC News' Michele Neubert contributed to this report.

Related: 

• AP, DOJ clash over seriousness of leak that prompted phone records seizure

Evoking the spy games of the Cold War, Russia said Tuesday that it had detained an American diplomat who was carrying cash, two wigs and technical equipment and was trying to recruit a Russian intelligence official to work for the CIA.

Russia ordered the expulsion of the American diplomat, whom it identified as Ryan Christopher Fogle, third secretary of the political division of the U.S. Embassy. The State Department said only that an officer at the U.S. Embassy in Moscow had been detained and released.

American officials said they did not expect a rift in U.S.-Russian relations. U.S. officials are trying to improve those relations, and to persuade Russia to help resolve a civil war in Syria.

FSB via AP

Wigs and spy gadgets that the Russian Federal Security Service says were carried by American diplomat Ryan Fogle.

Russia used stronger language, calling the matter provocative and in the spirit of the Cold War.

A statement by the Russian Federal Security Service, the successor agency to the Soviet-era KGB, said that Fogle was taken to the service’s headquarters and then to the U.S. embassy after his arrest Monday night.

The security service, known as the FSB, released to Russian media photographs of the American’s arrest and what it said were items he had with him, including the wigs, a torch, a compass and a wad of 500-euro notes, each worth $650.

Russian television also displayed a letter it said was found on Fogle, printed in Russian and addressed “Dear friend.” The letter offered a $100,000 payment as “an advance from someone who has been highly impressed by your professionalism, and who would highly value your cooperation in the future.”

The statement from the security service said that the U.S. had “repeatedly attempted to recruit employees of Russian law enforcement bodies and special departments” recently.

The U.S. ambassador to Russia, Michael McFaul, was participating in a question-and-answer session on Twitter when the detention was announced. He was summoned to Russia’s foreign ministry, The Associated Press reported.

Experts expressed surprise at the old-school nature of the alleged espionage, but they noted that intelligence-gathering had not stopped just because the Cold War ended more than two decades ago.

FSB via AP

In this photo provided by Russian Federal Security Service, a man claimed by the service to be Ryan Fogle is seen at the service's offices in Moscow.

“If anything, it has increased,” said James Nixey, head of the Russia and Eurasia Programme at the British think tank Chatham House. “The methods have changed — or so we thought — because it’s more about industrial espionage and corruption these days.”

Besides the diplomacy over Syria, there have been questions about whether Russia gave the United States enough information about Tamerlan Tsarnaev, one of the suspects in the attack on the Boston Marathon.

Russian officials asked the U.S. for more information about Tsarnaev, who was born in what is now Russia and traveled to Russia early last year. Russia suspected that Tsarnaev was becoming radicalized, American officials have said.

The FBI interviewed him in 2011 and turned up nothing, and when the FBI asked Russia twice for more information about its concern, Russia failed to respond, the American officials said. Tsarnaev was killed April 19 in a shootout with police.

President Barack Obama later said Russia had cooperated since the attack but noted: “Old habits die hard. There are still suspicions sometimes between our intelligence and law enforcement agencies that date back 10, 20, 30 years, back to the Cold War.”

The incident would not be the only intelligence blunder in Russia. Britain admitted bugging a Moscow park in 2006 by disguising a recording device as a big rock. The FSB saw a British diplomat picking it up and walking away with it.

Related: 

Full Russia coverage from NBC News

Editor’s note: This story includes a correction.

This story was originally published on Tue May 14, 2013 7:59 PM EDT

Raminder Pal Singh / EPA

School children in Amritsar, India, pay tributes on Thursday to Sarabjit Singh, who died after being beaten in a Pakistani prison. Singh was convicted in Pakistan of spying and involvement in 1990 bomb attacks that killed 14 people. His family has always maintained his innocence.

Alive, he was a spy in purgatory on death row – neither executed by his Pakistani captors nor released to return home to India.

In death, Sarabjit Singh, 49, has become the source of a tense verbal battle between South Asia's nuclear-armed rivals.

After serving 22 years in a Pakistani jail for a confession-backed conviction for espionage and involvement in bombings in 1990 that killed 14 Pakistanis, Sarabjit Singh was beaten into a comatose state by two fellow inmates on April 26, officials said.

In the early hours of Thursday, after a week on life support, he died of cardiac arrest.

While the coma lasted, Pakistan allowed access to Singh that was unprecedented for an Indian prisoner. There were visits by his family and Indian diplomats and officials.

It seemed that if he lived, he would become a symbol of cooperation between New Delhi and Islamabad.

But after his death, the normally tense relationship between nuclear-armed India and Pakistan plummeted even further.

Indian opposition leaders and conservative media demanded an immediate downgrading of relations with Pakistan. Indian Foreign Minister Salman Khurshid appeared on television, bluntly saying ties with Pakistan "may be affected."

K.M. Chaudary / AP

Pakistani hospital staffers transfer the body of former Indian prisoner Sarabjit Singh after an autopsy in Lahore on Thursday.Singh's death raised tensions between New Delhi and Islamabad.

Indian media, opposition leaders, and even government officials have accused Pakistan of not being a responsible custodian. Singh's family has long said that he was neither a spy nor a terrorist, arguing that he was an innocent farmer and that he must have accidentally entered Pakistan while intoxicated.

Indian Prime Minister Manmohan Singh, who is not related to the deceased, issued a strongly worded statement about the "barbaric and murderous" attack against Singh and said Pakistan never seriously considered the convicted spy's pleas for mercy.

There is angry rhetoric from Pakistanis, too, with many people on the country's social and conventional media networks saying Singh's confessed involvement in actions that killed Pakistanis is reason enough to justify his untimely death.

The Pakistan Foreign Office and media have responded with carefully worded statements and analysis that reinforce Islamabad's message: that Mr. Singh "was being provided the best treatment available and the medical staff … had been working round the clock since his hospitalization to save his life."

Also emphasized by the Foreign Office through various media was the fact that there were no violent incidents reported against Singh during more than two decades of incarceration and that Pakistanis had cooperated with the Indian government and given it high-level access to the investigation and the interrogation of the two men accused of attacking Singh.

Cooler heads may be prevailing.

Out of the spotlight, the Pakistanis and Indians are cooperating, and after the initial bout of highly emotive statements, both countries appear to be following the "less is more" technique of back-door diplomacy.

Islamabad has suspended jail officials and appointed judicial, medical and investigative commissions to probe the exact cause of Singh’s death. 

And now it is transferring Singh’s body to the Indian embassy, which has arranged a special flight for its return.

Related:

Pakistan test-fires missile that could strike deep within India

Pakistan and India trade barbs over cross-border attacks

India hangs only surviving gunman of 2008 Mumbai attacks

LONDON - A cordon will surround the U.K. home of exiled Russian tycoon Boris Berezovsky until at least Wednesday, while detectives await the initial results of autopsy into his unexplained death.

The area will remained sealed off "until Wednesday or Thursday in order to protect the scene,” a spokesman for Thames Valley Police said Monday. An earlier search for evidence of radiation or chemicals returned a negative result.

Government pathologists were due to begin a post-mortem Monday afternoon on the 67-year-old, whose body was found in the locked bathroom of his large house in rural Berkshire, about 25 miles west of London. It was not clear when the initial results would be available to police.

"It would be wrong to speculate on the cause of death until the post-mortem has been carried out," Detective Chief Inspector Kevin Brown said in a statement late Sunday. "We do not have any evidence at this stage to suggest third-party involvement."

However, his death has raised suspicion in Britain where memories linger of the murder of Berezovsky's friend, Alexander Litvinenko, a former Russian spy poisoned with radioactive material in London in 2006.

Like Litvinenko, Berezovsky had become an enemy of Russia’s president, Vladimir Putin and his suspicious death caused a major diplomatic rift between London and Moscow.

'Many enemies'
His death on Saturday makes him the latest in a line of former Soviet residents to have met an untimely end in Britain.

Litvinenko’s wife, Marina, told the U.K.’s Daily Telegraph that her friend Berezovsky had "many enemies" and that it was "not likely" he that he had committed suicide.

Her lawyer last month accused Britain and Russia of colluding to try to shut down an inquiry into his death for the sake of lucrative trade deals.

Matthew Lloyd / Getty Images

The home of Russian oligarch Boris Berezovsky in Sunningdale, England.

Berezovsky accumulated his wealth in the early 1990s, when Russia's privatization of state assets turned chaotic. He orchestrated the re-election of Boris Yeltsin in 1996 and played a role in Putin's rise to prominence, but he fell out of favor with the latter after Putin became president of Russia in 2000. 

He suffered a huge financial blow in 2011 after agreeing one of Britain's biggest-ever divorce settlements – reportedly as much as $100m - with his former wife, Galina.

Reuters reported that Berezovsky was also under pressure after losing a $6 billion court case to Chelsea Football Club owner Roman Abramovich, a former business partner he sued in one of the most expensive cases in British legal history.

"He had no money, he had lost it all. He was unbelievably depressed," Tim Bell, a public relations executive who was one of his closest British advisers, told the Sunday Times newspaper. "It's all very sad."

Meanwhile, Putin's spokesman said Berezovsky, seen by Moscow as a criminal who should stand trial for fraud and tax evasion, had written to Putin asking for forgiveness - a suggestion dismissed by one of the oligarch's friends, Reuters said.

"Berezovsky sent Vladimir Putin a letter he wrote personally, in which he acknowledged that he had made many mistakes, asked Putin's forgiveness for these mistakes and appealed to Putin to help him return to his homeland," said Putin's spokesman Dmitry Peskov.

A friend of Berezovsky's in London, Andrei Sidelnikov, told Reuters the idea that the businessman would write a letter to Putin was "complete nonsense".

"He was a sane person and he understood that he would never be able to return under Putin's regime, for political reasons," Sidelnikov said.

Related:

Full Russia coverage from NBC News

This story was originally published on Mon Mar 25, 2013 7:19 AM EDT

RCMP via Reuters

Naval intelligence officer Jeffrey Delisle is shown in this still image taken from video of the Royal Canadian Mounted Police videotaped interrogation of the confessed spy in Lower Sackville, Nova Scotia on Jan.13, 2012. Delisle found himself facing Mountie Jim Moffatt at the RCMP detachment after he was arrested following the interception days earlier of attempted transmissions to the Russians.

Published at 7:15 p.m. ET -- A Canadian naval officer who handed over secrets to Russia for more than four years, damaging Canada's relations with the United States and other key allies, was jailed for 20 years on Friday.

Sub-Lt. Jeffrey Delisle, dressed in a blue hooded sweatshirt and jeans, showed no reaction when found guilty of breach of trust and handing information to a foreign entity that could harm national interests.

He was also fined $111,817 (Canadian), the sum he received from his Russian spy masters.

Delisle, 41, worked at a security unit in Halifax that tracked vessels entering and exiting Canadian waters. He stole secret information by copying it onto a computer memory stick.

Officials told a sentencing hearing last week that allies had threatened to withhold intelligence from Canada unless it tightened security procedures.

Canada shares sensitive information with the United States, Britain, New Zealand and Australia.

Gen. Tom Lawson, chief of the Canadian defense staff, said Canada was boosting security in the wake of what he called Delisle's odious behavior.

"A critical foundation of our intelligence mission is the mutual trust we have forged with our allies ... Sub-Lieutenant Delisle failed each and every Canadian," he said in a statement.

Delisle, unhappy after his marriage started to break up, walked into the Russian embassy in Ottawa in July 2007 and offered to sell secrets.

Authorities first became suspicious after Delisle returned to Canada from a meeting with a Russian handler in Brazil in 2011, carrying tens of thousands of dollars in cash and pre-paid credit cards. This prompted an investigation that ended with the officer's arrest in January 2012.

He was the first person to be charged under a secrecy law that was enacted after the attacks of Sept. 11, 2001, and can carry a life sentence. Prosecutors had demanded a 20-year sentence while Delisle's lawyers argued a 10-year term would be appropriate.

As he left court he glanced briefly at several members of his family in the room.

Defence lawyer Mike Taylor said Delisle "is a little bit shocked. It's a significant sentence that he received and one that quite frankly I don't think he was really expecting."

Taylor told reporters it was too early to say whether an appeal would be lodged.

Delisle was also given nine years in jail for attempting to communicate information to a foreign entity and five years for breach of trust, with all sentences to be served concurrently.

Taking the time he served in pretrial custody into account, Delisle will spend 18 years and five months in jail.

Published at 10:17 a.m. ET: TEHRAN -- Iran's state TV has broadcast footage allegedly extracted from the advanced CIA spy drone captured in 2011, the latest in a flurry of moves from Iranian authorities meant to underline the nation's purported military and technological advances.

Iran has long claimed it managed to reverse-engineer the RQ-170 Sentinel, seized in December 2011 after it entered Iranian airspace from the country's eastern border with Afghanistan, and that it is capable of launching its own production line for the unmanned aircraft.

After initially saying only that a drone had been lost near the Afghan-Iran border, American officials eventually confirmed the Sentinel had been monitoring Iran's military and nuclear facilities. Washington asked for it back but Iran refused and instead released photos of Iranian officials studying the aircraft.

The video aired late Wednesday on Iranian TV shows an aerial view of an airport and a city, said to be a U.S. drone base and Kandahar, Afghanistan. The TV also showed images purported to be the Sentinel landing at a base in eastern Iran, but it was unclear if that footage meant to depict the moment of the drone's seizure.

In addition, the TV also showed images of an Iranian helicopter transporting the drone, as well as its disassembled parts being carried on a trailer.

Iranian Revolutionary Guard via EPA, file

Iranian Revolutionary Guard General Amir-Ali Hajizadeh, right, looks at the US RQ-170 drone which reportedly crashed in eastern Iran near the city of Kashmar on Dec. 4, 2011, displayed at an undisclosed location in Iran.

In another part of the video, the chief of the Revolutionary Guard's airspace division, Gen. Amir Ali Hajizadeh, said that only after capturing the drone, Iran realized it "belongs to the CIA."

"We were able to definitively access the data of the drone, once we brought it down," said Hajizadeh.

He described the Sentinel's capture as a huge scoop for Iran, saying that at the time, Tehran did not rule out a possible punitive U.S. airstrike over the drone.

Iranian officials have accused the U.S. of stepping up its espionage activities against Iran as part of intensified Western efforts to force Tehran to abandon its uranium enrichment program, a key aspect of its disputed nuclear program. The U.S. and its allies suspect Iran may be trying to develop atomic weapons, a charge Tehran denies.

In an attempt to embarrass Washington, Iran has claimed to have captured several American drones, most recently in December, when Tehran said it seized a Boeing-designed ScanEagle drone — a less sophisticated aircraft — after it entered Iranian airspace over the Persian Gulf.

U.S. officials said there was no evidence that the latest claims were true.

Also Thursday, the semi-official Fars news agency published photos reportedly depicting a domestic production line of ScanEagle drones. The photos show several drones in a workshop.

Iran has said before that it's making ScanEagle copies and putting them into service, but it has not offered proof of those claims.

Slideshow: Everyday life in Iran

At schools, in shops and on the streets of big cities and small towns, daily life plays out in Iran.

Launch slideshow

Fars also quoted deputy defense minister Mohammad Eslami as saying that Iran has also established a "production line for the drones in foreign countries." He did not elaborate, and it was not clear if he was referring to Syria or Lebanon's Hezbollah group, Iran's top regional allies.

The latest Sentinel footage came as the U.S. tightened sanctions to pressure the Iranian government to limit its nuclear program and restrictions on institutions that Washington says are stifling political dissent and censoring speech.

Among the expanded measures announced Monday by the Treasury Department is a move to deny Iran access to revenue garnered from its oil exports. Under the latest sanctions, Iran would be able to use revenue from its oil sales only in a country that purchased its crude — now mostly big Asian economies such as China and India — which would significantly limit its access to the money.

Related:

US sources: Downed CIA drone made previous trips over Iran

Analysis: Israel airstrike may foreshadow Iran attack

Drone that crashed in Iran risks secret US technology

David J. Phillip / AP

Federal agents carry boxes out of Arc Electronics Inc. in Houston on Wednesday. The Justice Department said it had broken up a smuggling ring aimed at illegally exporting microelectronics from the United States to Russian military and intelligence agencies.

Updated 9:18 a.m. ET: NEW YORK -- An elaborate network aimed at illegally acquiring U.S.-made microelectronic components for Russian military and spy agencies has been broken up, the Justice Department said on Wednesday - but Russia later denied its spy agencies were involved.

Federal prosecutors unsealed an indictment charging 11 alleged participants in the network, as well as companies based in Houston, Texas and Moscow, with illegally exporting high-tech components from the United States to Russian security agencies.

NBCNewYork.com reported that allegations involve illegally exporting approximately $50 million worth of high-tech microelectronics.

Alexander Fishenko, an owner and executive of the American and Russian companies, was also charged with operating as an unregistered agent of the Russian government inside the U.S. Fishenko was born in Kazakhstan and became a naturalized U.S. citizen in 2003.

According to the indictment unsealed in Brooklyn federal court, the procurement network began obtaining advanced, technologically cutting edge microelectronics from manufacturers and suppliers within the U.S. and exporting those goods to Russia in October 2008, while evading the government licensing system set up to control such exports.

Russia warns Obama's 'reset' in relations 'cannot last forever'

The microelectronics shipped to Russia have applications in a wide range of military systems, including radar and surveillance systems, missile guidance systems and detonation triggers, NBCNewYork.com reported.

'Web of lies'
Court papers say the network induced manufacturers and suppliers to sell them the high-tech goods -- and to evade applicable export controls by providing false end-user information in connection with the purchase of the goods -- concealed the fact they were exporters, and falsely classified the goods they exported on export records submitted to the Department of Commerce.

Prosecutors say the network's principal port of export for the goods was John F. Kennedy International Airport.

"As alleged in the indictment, the defendants spun an elaborate web of lies to evade the laws that protect our national security," U.S Attorney Loretta Lynch said. "The defendants tried to take advantage of America's free markets to steal American technologies for the Russian government. But U.S law enforcement detected, disrupted and dismantled the defendants' network."

Two law enforcement officials told Reuters that Fishenko and seven alleged associates were being held in custody in Houston. One of the defendants was scheduled to appear in court on Wednesday in Houston, and the others on Thursday.

More news from NBCNewYork.com

It was not known if they had yet entered any pleas, one of the officials said late on Wednesday. He said that prosecutors expected to ask for those arrested to be transferred to the custody of federal authorities in Brooklyn.

Three other individuals charged in the indictment are currently in Russia, the official said.

A court document made public by prosecutors outlined further details of the government's case against those charged.

It alleged that Fishenko used a Houston company called Arc Electronics to acquire U.S.-made technology for Russian government agencies, including the Russian armed forces and Russia's principal domestic intelligence agency, the Federal Security Service or FSB, a successor to the Soviet-era KGB.

According to the document, among electronic components that the procurement network sought were microcontrollers, microprocessors, static random access memory chips and analog-to-digital converters. Prosecutors claim that such items can be used for a wide variety of sensitive military and intelligence purposes, including radar and surveillance systems, missile guidance systems and detonation triggers.

However, Russia's deputy foreign minister Sergei Ryabkov said on Thursday the country's spy agencies were not involved. "The charges are of a criminal nature and have nothing to do with the work of the secret services," Ryabkov was quoted as saying by Russian news agencies, Reuters reported.

He said the situation had caused deep concern in Russia, and Russian diplomats had met one of the accused to discuss the situation and was preparing to meet the rest. 

Surveillance
During the U.S. investigation of the alleged procurement network, which began in July 2010, the U.S. government had engaged in extensive court-approved surveillance of the email and telephone communications of those arrested, the document says.

Prosecutors say that among items collected during the investigation was a letter in which an electronics production laboratory operated by the FSB allegedly complained that certain microchips -- purchased from Arc in Houston through an affiliate of Fishenko's Moscow company -- were defective and needed to be replaced.

More Russia coverage from NBC News

Prosecutors say that when the Russia-based affiliate received the letter from the Russian intelligence agency, it forwarded it to Arc in Houston seeking replacements for the microchips.

At one point, in an effort to show their activities were innocent, Arc told Americans it had approached that it manufactured traffic lights, a U.S. official said.

NBC New York's Joe Valiquette and Reuters contributed to this report.

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Mark Coote / Reuters

The FBI requested the arrest of Kim Dotcom for leading a group that netted $175 million since 2005 by allegedly copying and distributing music, films and other copyrighted content without authorization.

New Zealand's spy agency illegally carried out surveillance on Megaupload founder Kim Dotcom, an official report showed Thursday, prompting an apology from the prime minister and dealing a possible blow to a U.S. bid to extradite him.

Washington wants the 38-year-old German national, also known as Kim Schmitz, to be sent to the United States to face charges of internet piracy and breaking copyright laws. 

The FBI requested the arrest of Dotcom for leading a group that netted $175 million since 2005 by allegedly copying and distributing music, films and other copyrighted content without authorization.

Dotcom maintains that the Megaupload site was no more than an online storage facility, and has accused Hollywood of lobbying the U.S. government to prosecute him.

New Zealand police asked the Government Communications Security Bureau (GCSB) to keep track of Dotcom and his colleagues before a raid in late January on his rented country estate near Auckland, which saw computers and hard drives, works of art, and cars confiscated.

Megaupload founder's homes raided, $5M in luxury cars seized

A report by Justice Paul Neazor found that the GCSB had illegally spied on Dotcom because it is only allowed to gather “foreign intelligence” and people who are New Zealand citizens or residents are protected.

The illegal surveillance may deal another blow to the U.S. extradition case after a New Zealand court ruled in June that search warrants used in the raid on Dotcom's home were illegal.

New Zealand Prime Minister John Key blamed “human error” in a statement, saying the GCSB had relied on information from the police about Dotcom’s residency status without checking further and also made a mistake in interpreting the law.

“It is the GCSB’s responsibility to act within the law, and it is hugely disappointing that in this case its actions fell outside the law. I am personally very disappointed that the agency failed to fully understand the workings of its own legislation,” he said.

More international coverage from NBC News

The director of the GCSB, Ian Fletcher, said he was “very sorry” over the affair in a statement, admitting that “we got this wrong.”

“I know that it will take time to regain the trust and confidence that we have lost,” he said.

Opposition Labour Party leader David Shearer described the Neazor report as a “whitewash,” and called for a broader inquiry in a statement.

He complained the report “doesn’t address why, in the 15 meetings the Prime Minister had with GCSB this year, he was not briefed about this issue given it involved national security and a massive police operation involving the FBI.”

Megaupload suspect Kim Dotcom denies Internet piracy, money laundering

Ira Rothken, a U.S. lawyer working with Dotcom’s defense team, told Radio New Zealand that he wanted to find out what Key knew and when he found out.

“We’ve seen a great amount of government aggression in this case, from the raid on a family with children – Mr. Dotcom’s residence – to illegal search warrants to what we think is an illegal search and seizure and we also have seen that the United States has illegally taken some data offshore,” Rothken said.

Feds shut down popular file-sharing website Megaupload

Asked if the case should continue, Rothken told Radio New Zealand, “The prosecution [lawyers] in both New Zealand and the United States likely has a discretion that when you have such a high dose of illegality that goes into the process of dismissing the case in the interests of justice. Of course we think that’s the right thing to do.”

U.S. authorities are currently appealing a New Zealand court decision that Dotcom should be allowed to see the evidence on which the extradition hearing will be based.

The extradition hearing has been delayed until March 2013.

Reuters contributed to this report.

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