LIMA, Peru -- The secret world of Peru's former spy chief began to unravel Friday after
                  the government launched a probe into allegations he laundered some $50 million
                  through Swiss banks, and he lost a key ally when the attorney general resigned.

                  As the public clamor grew for the arrest of Vladimiro Montesinos, long considered as
                  powerful as President Alberto Fujimori, authorities said he was believed to still be in
                  Peru and was being sought.

                  It was Montesinos' appearance in a videotape, apparently bribing an opposition congressman,
                  that set off the crisis that led Fujimori to offer to hold new elections and then
                  leave office. Fujimori's election in May to a third straight term was marred by
                  charges of fraud and dirty tricks.

                  Montesinos has been in hiding since his October 23 return from a failed asylum
                  bid in Panama, and he is rumored to be protected by his military allies. As of
                  Friday afternoon, no arrest warrant had been issued.

                  For years, Montesinos controlled much of Peru's military and judiciary, manipulating legal cases to
                  undercut Fujimori's rivals and quash any criminal complaints against him, judicial experts say.

                  But he appeared to suffer a critical blow Friday morning with the resignation of
                  Attorney General Blanca Nelida Colan, who had always protected him from legal
                  scrutiny.

                  In 1996, she dismissed allegations from a high-profile drug trafficker that he had
                  paid Montesinos $50,000 a month in exchange for free use of a jungle air strip to
                  ship out the drugs.

                  And twice in the last three years, her department apparently shelved probes of
                  Montesinos' personal wealth, including an investigation after the discovery last
                  December by an opposition congressman of what was said to be a Peruvian
                  bank account in Montesinos' name with some $2 million from unknown sources.

                  Justice Minister Alberto Bustamante announced late Thursday that Peru would
                  investigate Montesinos' finances after judicial authorities in Zurich, Switzerland
                  informed Peru they had frozen five accounts as part of a criminal investigation of
                  possible money laundering by Fujimori's former intelligence adviser.

                  "(We have) ordered the lifting of his bank secrecy both nationally and
                  internationally," Bustamante said in Lima, adding the government had appointed
                  an investigative judge.

                  Zurich District Attorney Dieter Jann said the banks involved were the Swiss
                  branches of Bank Leumi Le-Israel, Fibi Bank and Canadian Imperial Bank of
                  Commerce.

                  The accounts were held in the name of companies rather than Montesinos
                  himself, Jann said. He did not explain how the funds were linked to Montesinos.

                  Jann told Reuters that the U.S. Drug Enforcement Administration might be asked
                  for help in the search after widespread allegations of Montesinos' involvement
                  with drug traffickers. "We have so far had no contact with the DEA," Jann said.
                  "We will consider whether to make contact."

                  The Swiss investigation began October 5 -- less than two weeks after
                  Montesinos fled Peru.

                  Since rising to power when Fujimori first took office in 1990, Montesinos has
                  faced allegations of trafficking in arms and ordering death squads to kill
                  suspected leftist guerrillas.

                  But until the corruption allegations were made in September, Fujimori had always
                  defended his spymaster, whom he credited with helping the government defeat
                  leftist rebels and the illicit drug trade in this nation of 25 million people.

                  Bustamante said Friday that Montesinos' precise location remained unknown. He
                  dismissed reports that Montesinos had fled to Morocco. "Montesinos is in Peru.
                  There is no other working hypothesis," Bustamante told radio station CPN.

                  Swiss banks have been working to tighten regulations against money laundering
                  since the 1980s when they were embarrassed that former Philippine President
                  Ferdinand Marcos had deposited millions of dollars in Swiss banks.

                  But problems have continued. The Swiss bank regulator recently rebuked six
                  institutions for failing to take sufficient care in accepting millions of dollars linked
                  to the late Nigerian dictator Gen. Sani Abacha. Some $645 million in
                  Abacha-related funds remains frozen.

                  A special prosecutor, Jose Carlos Ugaz, was assigned "specifically to begin legal
                  action," Bustamante said Thursday, and to "initiate measures to shed light on
                  these presumed criminal activities."

                  With this latest twist, even some of Montesinos' most vocal defenders appeared
                  to distance themselves from the feared spymaster.

                  "This information is like a bucket of cold water," said pro-government
                  Congresswoman Martha Chavez. "It's a very painful situation, but I believe the
                  truth must come out."

                           The Associated Press & Reuters contributed to this report.