Other mistake: When Katja asks Frank where he found Sarah, Sarah answers Kansas. Actually, her apartment is east of downtown Kansas City, Missouri. In Red, the camera angle shows the Kansas City, MO sky line pointing west and pans down. (00:32:24)
Other mistake: When Katya is told that Frank was spotted in Red Square, she tells the soldier (in the English subtitles) to call out the Army - but she says, in Russian, something about Spetznaz - which Is Special Forces, not Army.
Chosen answer: Insane in the sense that he wasn't completely mentally capable? Yes. Insane in that he wanted to blow them up? No. He was heavily medicated while in care and so his ramblings and confusion are supposed to be perceived as genuine. Once he starts commenting that he is beginning to remember his past, we then assume that he realizes what his original intentions were and somehow manages to contact the other agency.
But Bailey states before he kills Katja that he was responsible for leaking the post online that Marvin saw which started the whole thing. He said he took a guard's phone to do it. I believe he was very aware and was just "playing" everyone.