Within weeks, the Justice Department would send Fai a letter of warning. Within months, he would be pulled over by New York police with $35,000 in cash in his car. And by the next year, Fai would be arrested, the unlikely central character in a scheme by a foreign government to pay more than $4 million to sway U.S. politicians and policy on Kashmir, the Justice Department says.

Fai's tale of rags to riches to arrest this summer is a lesson in how easy it is to win influence in Washington. Fai mingled with some of America's top politicians, meeting President Bill Clinton and drawing as many as 32 members of Congress to his annual conference on Kashmir. His access to power illustrates an issue that could become even more significant in this election cycle: foreign money illegally coming into U.S. political campaigns.

But the case, the first known criminal prosecution of its kind, could also involve much more. It is unfolding at a particularly sour moment in the relationship between the U.S. and Pakistan, once a key ally in the war on terror. Fai's alleged accomplice, Zaheer Ahmad, is a prominent Pakistani-American who runs one of the nicest hospitals in Pakistan. The FBI has allegedly questioned at least one witness about Ahmad's ties to a Pakistani nuclear scientist who once met with Osama bin Laden.

Fai long denied being an agent of Pakistan to the Indian press, the FBI and the Justice Department. That changed the day he was arrested. Then, the FBI says, he told an agent that for 15 years, the ISI had funneled money to him and directed him to attend certain conferences and even to report back on certain people.

Syed Ghulam Nabi Fai / AP

"He was living a lie," Assistant U.S. Attorney Gordon Kromberg said at Fai's initial court hearing. "When he spoke to politicians, when he spoke to members of Congress, when he spoke to heads of state, he didn't say, 'I get my money from the ISI.'"

A Pakistani embassy official in Washington, who spoke on condition of anonymity because of the sensitivity of the case, said allegations that Fai and Ahmad were working for the ISI were false. "The ISI has no connection with these two persons," he said, adding that the FBI has not talked to anyone at the embassy about the investigation.

So far, Fai, 62, and Ahmad, 63, have been accused of failing to register as foreign agents, punishable by a maximum of five years in prison. Fai also has been accused of making false statements. But Ahmad--who is free in Pakistan--and Fai, released on $100,000 bond and under house arrest, may soon face other charges. A grand jury has been hearing evidence, and a recent deadline to indict the men or drop the case was extended by two months.

Typically, people at the center of such cases remain a mystery, refusing to speak about their predicament or what led up to it. Fai, a birdlike man with a sing-song voice and thinning hair combed to the side, declined to talk about the case against him. But in his only interview since his arrest, Fai offered a detailed account of his journey from being a victim of world events to, in some small way, a shaper of them. Another U.S. ally, Saudi Arabia, played a pivotal role in his transformation, he explained. Mostly, though, Fai spoke about Kashmir, which remains his focus even as his legal troubles rise.