Vaughn, who has now lost counter mission approval to Jack, angers Sydney when he suggests that Jack had set up Irina during the Madagascar mission. At Francie's restaurant opening, Jack gives Syd her counter mission — to hack into the computer, steal the files for the CIA, and download dummy files for SD-6. He also tells her that Irina is facing the death penalty for breaking her agreement with the CIA.

Vaughn speaks to Manolo Souza, a US national being held for transporting explosives in Madagascar. Souza tells Vaughn that he was working for Jack, confirming Vaughn's suspicions.

In Budapest, Syndey, wearing a blond wig and glasses, infiltrates the Magistrate's Bureau by claiming to be working on her family tree. She hacks the computer and downloads the files, but when Dixon leads her to the research room, she finds a man instructing young students how to assemble a gun. The weapons are children!

Sloane explains that they're being trained as sleeper agents. European standardised tests locate the brightest children, who are then given a month-long training program that's erased from their memory and sent back home. Supposedly, the KGB was developing a similar program in the 80s.

Sloane tells Jack that Emily's name was forged on a B&B registry weeks after her death. He admits that he poisoned her with sodium morphate, but only after doctors confirmed that her lymphoma would return. He asks Jack to find out who else was in the running for Alliance membership. At home, Sloane finds a glass of wine ominously waiting for him. When he has the wine analysed, he finds that it contains VTX, an antidote to sodium morphate that simulates death.

At the CIA, Vaughn identifies the instructor as former KGB psych ops agent Valerie Kolakov. Against Jack's wishes, Sydney offers to get Kolakov, who's now in Buenos Aires. Later, Vaughn tells Jack that he'll go to Sydney if Jack doesn't tell her about Madagascar.

In Buenos Aires, Kolakov attacks Syd with a stun gun but is electrocuted when she throws him into water. She finds a spatial relations puzzle and completes it in seconds. When Sydney undergoes hypnosis back home, she sees herself giving a gun to her father! Syd confronts Jack with her memories — Irina's mission was to uncover "Project Christmas," a plan Jack developed to train kids to become American spies. Syd claims that Jack has been afraid she would figure it all out. "You programmed me to be a spy," she says, "I will never forgive you for this."