An article on CNET says that the FBI has been using mobile phones as wireless microphones. The technique came to light in comments by a judge on evidence gathered using the method. What is important to note is that the technology is confirmed to exist, whereby mobile phones, even when turned off, can be manipulated to transmit information without the user's knowledge or consent. Presumably, if the phone is connecting to the network, it can be used for location finding in the same manner that the network tracks your location to suggest where the nearest bank machine is. And there's no guarantee that any surveillance is legally authorised by a judge, as it was in this story.

See the article here:  http://news.com.com/FBI+taps+cell+phone+mic+as+eavesdropping+tool/2100-1029_3-6140191.html