"We're looking into the reports and we're seeking further details from the government of Panama," a State Department spokesman said, speaking on condition of anonymity because of privacy laws involving U.S. citizens.
Italy's top court of appeals in September confirmed a nine-year jail term for Lady in the extraordinary case, the first attempt by a foreign judiciary to prosecute U.S. officials for the controversial practice of extraordinary rendition – the practice of sending a person detained in one country to another country for questioning without requesting the approval of a court.
First approved as a counterterror tactic in 1995, extraordinary rendition was stepped up during the administration of President George W. Bush after the Sept. 11, 2001, terror attacks.
The tactic has been harshly criticized by human rights groups because it circumvents regular extradition practices processed through diplomatic channels between nations. The Center for Constitutional Rights, a liberal U.S. advocacy group, welcomed the arrest.
"While the United States refuses to investigate or prosecute its own officials for torture and other serious breaches of domestic and international law, other countries like Italy have been willing to place the demands of justice above politics," the organization said in a statement.
A CIA spokesman said the agency had no comment on the case.
Nasr was snatched from Milan's Via Guerzoni before noon Feb. 17, 2003, by two men who sprayed chemicals in his face and forced him into a white van. He turned up in an Egyptian prison, where he spent four years before his release. U.S. officials suspected him of recruiting radical Muslims in Italy for jihad in the Middle East, but he was never charged with a crime in Italy or Egypt.
Italian prosecutors said they proved that the van was part of a CIA scheme to round up Nasr, move him to an air base north of Venice and on to Ramstein Air Base in Germany, before delivering him to Egyptian interrogators.
Neither Nasr nor Lady, who oversaw his abduction from a nearby cafe, have found good fortune since.
According to a March 2007 article in GQ magazine, Lady was born in Honduras, the son of Americans, and grew up there. He spent more than two decades in the CIA. At the time of the rendition of Nasr, Lady, who is 59 now, was only a year from retirement.
When the GQ writer spoke to him at a strip mall near Miami, Lady said he'd been on the run since his initial conviction in Italy in 2005.
"The agency has told me to keep quiet and let this blow over," Lady told the magazine. "But it's not blowing over for me. I pay $4,000 a month on a mortgage to a house I can't live in."
Lady had planned to spend his retirement at his home in Penango near the Italian Alps, eventually moving to a second career as a security consultant.
In August 2009, Lady was tracked down by an Italian reporter at an undisclosed location and described himself as "a soldier . . . in a war against terrorism," ANSA reported.
Italy's conviction of Lady and the other CIA agents has drawn strong attention from Cuba, partly because of Lady's past in Central America.
According to an article this week on the website of the international edition of Granma, the Communist Party organ in Cuba, Lady's job in the CIA put him in contact with one of the island's most hated enemies, Luis Posada Carriles, who it accuses of putting a bomb aboard a Cuban airliner in 1976, killing 73 people.
Granma said Lady played a role in a secret CIA scheme to arrange arms sales to Iran in the 1980s to raise money for the Nicaraguan contra rebels seeking to overthrow the leftist Sandinista government. The resulting Iran-contra scandal was the biggest to shake the government of then-President Ronald Reagan.
Granma said that "'Bob' Lady handled his business with Manuchar Ghorbanifar, the notoriously sulfurous (and) sinister Iranian businessman, to conduct secret arms sales to Iran with drug operations directed from El Salvador by Felix Rodriguez and Luis Posada Carriles."
The Cuban news site also connected Lady with an international arms dealer, Gerard Latchinian, whose associate provided weapons to the government that took power briefly after the coup in Honduras against elected President Manuel Zelaya in June 2009.
If Lady now faces the threat of being returned to Italy, Nasr has fared little better. During his four years in an Egyptian jail, Nasr tried to commit suicide three times, his attorney told Knight-Ridder newspapers, which was later bought by The McClatchy Co., in 2006.
"He's been exposed to torture ever since he was kidnapped in Italy," attorney Montasser Zayat said then. "He said he was beaten even on the plane that took him to Germany before he was handed to Egypt."
The lawyer said Nasr told him that he'd been kept in isolation for long periods and that Egyptian security guards stripped him to his underwear, blindfolded him and bound his arms during interrogation sessions in his first few weeks of detention.
Jonathan S. Landay in Washington contributed to this report.
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