WASHINGTON — The FBI, after more than seven months of exhaustive investigation, has failed to find solid evidence to support espionage charges against career diplomat Felix S. Bloch and has all but abandoned hopes of prosecuting him, sources familiar with the case said Friday.
A federal grand jury has heard testimony from a series of witnesses, including an Austrian prostitute linked to Bloch, the sources said, and FBI agents have completed a painstaking "Capone-like" examination of his finances, a reference to the government's successful tax case against mobster Al Capone.
But neither the grand jury proceedings nor the financial reconstruction yielded sufficient evidence to confirm FBI suspicions that the veteran State Department official accepted payments from the Soviets in exchange for U.S. government secrets, the sources said.
With only limited long-shot leads still to be checked in Europe, the FBI sharply cut back its surveillance of Bloch earlier this month.
In what may be the only action taken against Bloch, the State Department is expected to move soon to remove him from its payroll. He has continued to draw his $78,600 annual salary since his suspension June 22.
"This is coming out the worst possible way," one official said. "The bureau is criticized for heavy-handedness for the public surveillance that was maintained primarily to stop him from disappearing. And (bringing) no charges makes the FBI look like the guilty party."
Failure to bring charges against Bloch would magnify what has already been a highly embarrassing episode for the State Department, FBI and Justice Department and leave unknown the extent of the damage he allegedly caused to national security.
It also would renew questions about the fairness of Bloch's treatment by the government, which officially acknowledged suspicions against him that, in the end, it could not prove, and which conducted an extraordinarily public surveillance that made him a media event.
For months, FBI agents had monitored Bloch's Washington residence around the clock, accompanied him on walks and followed him on trips to New York and other destinations, often trailed by an entourage of reporters and cameramen.
The decision to reduce surveillance came after Justice Department officials, lacking cause to bring charges, questioned whether agents legitimately could take any action to prevent Bloch from seeking asylum in the Soviet Embassy or otherwise fleeing the country.
Bloch's lawyer, John M. Bray, declined to comment on his client's affairs, and official spokesmen for the FBI and Justice Department would not discuss the case.
Bloch, who could not be reached for comment Friday, has spoken cryptically about the investigation in the past. In August, for example, he was urged by an interviewer for the Austrian magazine Profil to declare that he was not a spy.
Instead, Bloch replied: "There are suspicions but there is no proof. They have to prove my guilt."
Bloch, a 30-year veteran of the Foreign Service, served as the second-ranking officer at the U.S. Embassy in Vienna, a sensitive crossroads post, until he returned in 1987 to the State Department to head the office handling regional affairs for the European Community.
Last May, sources said, U.S. intelligence officials intercepted an overseas phone call to Bloch from a KGB "illegal," or undercover intelligence agent, who used the pseudonym Pierre. Based on that call, the FBI asked French agents to monitor a meeting in a Paris restaurant between the two men.
At the meeting, Bloch allegedly passed a travel bag to the agent, identified by U.S. intelligence officials as Reino Gikman, a Soviet spy who traveled undercover as a Finnish computer salesman. The meeting was understood to have been photographed by the French agents.
In June, U.S. intelligence officials intercepted another international call between the two men, during which the Soviet agent, using cryptic terms, seemed to try to warn Bloch that both men could be under surveillance, the sources said.
At that point, the FBI greatly expanded its surveillance of Bloch and no longer took pains to remain covert. The State Department placed Bloch on administrative leave with pay, took back his building pass and removed his nameplate from his office door, leaving a gaping hole.
A month later, the investigation was reported by ABC News and subsequently confirmed by the State Department.
In an interview with FBI agents, Bloch maintained that he knew Gikman only as a fellow stamp collector, sources said.
A source familiar with the investigation said the grand jury had questioned a former Austrian prostitute named Tina, who in July told Austrian police that Bloch had paid her more than $750 a night for sexual services.
She now works as a waitress in a Viennese coffeehouse, and Austrian security officials said they are "certain" that she had no connection with any espionage activity.