Posted on 04/27/2003 8:01:11 AM PDT by Fizzie
'Parlor Maid' tarnishes FBI Details of Leung-Smith spy case throw bureau's handling of investigation into question
Details of Leung-Smith spy case throw bureau's handling By Ian Hoffman, STAFF WRITER Twelve years ago, a team of U.S. counterintelligence operatives flew into frigid southern Manchuria to assess Chinese spying on American diplomats. Instead, the U.S. agents came to believe their own team was tracked by China's Ministry of State Security every step of their mission, which is still classified today.
The first clue was an odd elevator encounter in remote northeast China, an FBI agent bumping into a California nuclear-weapons scientist suspected of stealing neutron bomb secrets.
Counterintelligence agents are no believers in coincidence. Their suspicions drew them to Katrina Leung, a Southern California businesswoman, GOP activist and salaried FBI spy. Leung would go on to spy for the bureau for more than a decade.
Yet two weeks ago, the FBI arrested Leung, 49, and her former handler of 20 years, retired agent James "J.J." Smith, 59, charging her with copying bureau secrets and him with gross negligence. Another retired agent, Bill Cleveland Jr., 60, a handsome stalwart in China counterintelligence and son of a former FBI assistant director, resigned his post at Lawrence Livermore nuclear weapons lab, stripped of his security clearances.
Leung, a vivacious Los Angeles socialite, is accused of serving as a Chinese double agent who had affairs with the FBI's top China spycatchers on the West Coast and beguiling Smith out of FBI secrets, charges that cast doubt on 20 years of political intelligence that she and Smith supplied on China's top leaders.
Yet as prosecutors unravel the pair's tangled loyalties, the Leung-Smith case could well put the FBI itself on trial, dredging up old cases and exposing bureau secrets as well as lax oversight inside an agency now reinventing itself for the war on terror.
"FBI headquarters clearly knew what was going on," said Smith's attorney and former federal prosecutor Brian Sun. "To the extent there were warning signals, the bureau was just as culpable as my guy. And if you're going to go after J.J. Smith, you should go after the Enron in this case -- the FBI."
In fact, the FBI launched probes last week of its Chinese counterintelligence operations, its Los Angeles field office and its running of spies. FBI director Robert Mueller has already stripped a veteran counterterrorism executive of her post for not moving the Leung-Smith investigation swiftly enough. On April 9, he called the arrests of Leung and Smith "a sad day for the FBI" and said it "warranted a strong response."
Troubles with agents and informers are common in U.S. intelligence agencies, but most are dealt with quietly. Not the FBI. The bureau arrests its own. Prosecutors have already taken the first step -- declassifying Leung's role as a key FBI asset, code named "Parlor Maid" and paid $1.7 million since 1982.
Their evidence is simple: FBI documents seized inside Leung's San Marino home or that she surrendered to investigators from her bedroom safe. They include a secret 1997 FBI memo on Chinese fugitives, plus FBI directories for the China squad and a contact list for agents and surveillance-team members working on "Royal Tourist," the FBI investigation of Peter Hong-Yee Lee, a defense scientist at TRW Inc., Lawrence Livermore and Los Alamos labs.
FBI surveillance of Peter Lee in Beijing, where he gave a May 1997 talk at China's lead weapons design institute, played a major role in compelling his confession to giving up then-classified data on laser fusion and microwave radar to Chinese scientists in the 1980s and'90s.
But the Leung and Smith cases will also turn heavily on events in 1990 and 1991. That's when FBI executives first learned "Parlor Maid" was delivering information to China's intelligence service and was probably a double agent -- yet they chose to keep sending her to China as a spy. Katrina Leung was judged a gamble worth taking for national security.
"They trusted her; they had every reason to trust her, and she fulfilled that trust," said Leung's attorney Janet Levine.
Strange encounter
In early December 1990, the team of FBI agents and diplomatic security officers touched down on an icy runway at Shenyang, a Soviet-style industrial city of more than 4 million and home to a U.S. consulate, close to the North Korean border.
Shenyang was bitterly cold and snowing, the drifts turned black nightly by the soot of coal-burning factories. A giant statue of Mao Tse-tung towered over the central plaza.
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As the State Department team checked in at their hotel, they were amazed to see former Lawrence Livermore lab weapons scientist Min Gwo Bao, a spy suspect who lived in Danville, stride into the hotel lobby. No one was more bowled over than the FBI agent who had pursued Min for much of the 1980s.
Supervisory Special Agent Bill Cleveland had tried, but failed, years before to wring a confession out of Min. Working on a tip, the FBI was convinced Min, an analyst of missile basing and defenses, had given away design secrets to Livermore's W-70, the warhead for the Army's Lance missile.
"You wouldn't believe who I just ran into -- Min Gwo Bao!" Cleveland told his fellow agents.
Cleveland intercepted Min by the elevators. Now owner of his own trading company, Min said he was there "on business" and mentioned something about it being "nice to run into Californians."
"I'm not so sure you're glad to see me," Cleveland replied. Min never was charged, but the investigation cost his job at Livermore lab and his security clearance, the death knell for a career in U.S. defense science.
In response to Cleveland's questions, Min said he was leaving on the same flight as the U.S. team. But when they departed a few days later, he was nowhere to be seen. The entire incident was perplexing: What were the odds of running into an American nuclear spy suspect 6,000 miles from home, in a nation of 1.2 billion?
A week or so after the U.S. team came home, Cleveland listened to a wiretap recording and heard a woman named "Luo" spilling U.S. secrets to a suspected Chinese intelligence officer known as "Mao." Cleveland knew the woman's voice. Unbeknownst to Smith, Cleveland had been intimate with Katrina Leung for at least two years.
In fact, just before he'd gone to China for the State Department, Cleveland had questioned her closely on Chinese intelligence facilities in the cities where the U.S. embassy and consulates were located. He had, in effect, revealed the team's itinerary to her.
Leung was a live wire. She was cutting financial deals and flowing money to as many as 16 overseas bank accounts, raising thousands for former Los Angeles Mayor Richard Riordan and other California Republicans, lobbying for Northern Telecom in China and for Chinese Americans back home -- all while spying for the FBI and, the bureau alleges, the Ministry of State Security. She was known for her lavish lifestyle and high-level ties on the Chinese mainland. Cleveland's colleague in Los Angeles, FBI special agent Smith -- "J.J." to all -- had recruited her as an intelligence asset, a spy, for her knowledge of key figures in "Tiger Trap," the FBI code name for Cleveland's neutron-bomb case at Livermore.
Smith used a common recruitment pitch: Spy for the FBI; we'll pay you, and both America and China will be the better for it. In a statement last weekend, Leung's family said "Katrina always did what the FBI wanted, believing it was in the interest of America and the Chinese people" and described her as a "tireless, idealistic believer in, and worker for, the improvement of relations between China, the country of her birth, and the United States, her adopted country that she loves."
Smith and Leung, both married, started a sexual affair soon after the recruitment, often meeting at her house in San Marino. It is in those encounters, the FBI alleges, that Leung pilfered FBI documents from Smith's open briefcase and either made notes or photocopied them.
When Cleveland called in 1991, Smith didn't know his colleague was also sleeping with Leung and had been since 1989.
Smith hastened to meet Cleveland in San Francisco and was "visibly upset," according to FBI affidavits based in interviews with Cleveland. The agents now had three data points: Leung's knowledge of the State Department trip, Min popping up in remote Shenyang and now Leung's conversation with a suspected Chinese intelligence officer. Technically, Min's appearance was ambiguous. Who would dream of sending a Chinese-American spy suspect to watch them? But as the coincidences piled up, suspicions soared and the odds favoring an innocent explanation fell fast.
Smith confronted Leung with the wiretap transcript, and Leung admitted she had reported details of the U.S. team's trip to her Ministry of State Security handler. In a San Francisco hotel room, Smith had her apologize to Cleveland. Cleveland still sounded angry when he called the leader of the U.S. team on an open, unsecure phone line.
"They knew we were coming before we even left," Cleveland told I.C. Smith, chief counterintelligence investigator for the U.S. Department of State's Bureau of Diplomatic Security.
"I could tell he was upset and irritated," said Smith, who later retired as chief of FBI intelligence analysis, budget and training. He is unrelated to J.J. Smith.
'Mountain at the center'
Spycatchers are skilled actors, used to deceptions. In briefing the Tiger Trap case to fellow agents later, Cleveland would laugh off the Shenyang encounter, saying the nervous Min looked like he thought Cleveland was still trailing him. But in 1991, Cleveland and Smith were looking at potentially big trouble. Leung's seeming parallel life as "Luo Zhongshan" -- a typically male name meaning "mountain at the center" -- was reason enough for the FBI to drop her and investigate her.
"I just assumed she would have been closed and they would have probably opened a counterintelligence investigation of her," said I.C. Smith. "Here she had violated the relationship and was providing information to the PRC (People's Republic of China). I was somewhat flabbergasted to find she had been operating all these years."
Cleveland and Smith reported the problem to superiors in California, then in Washington. Smith at least was called to headquarters in May 1991 for what could prove to be a critical meeting.
In Washington, managers of the FBI's China unit agreed Leung's unauthorized contacts with the Ministry of State Security were a problem. But they ultimately decided that "J.J. would handle it."
Placing such discretion in the hands of a single agent was unorthodox. Experts in counterintelligence call it deeply troubling. But there were reasons for the FBI to keep J.J. Smith and Leung at work.
"Parlor Maid" was judged exceedingly valuable inside the China unit. She claimed to be friendly with then-PRC President Yang Shangkun and other Chinese leaders, including today's president and premier, Hu Jintao and Wen Jiabao. She was wired into the PRC embassy in Washington and all the consulates. In 20 years, she reported more than 2,100 contacts with PRC officials here and abroad, delivering their drinks-and-dinner talk to the FBI as high-level political intelligence.
Smith's handling of her won commendations, even the coveted National Intelligence Medal. He was a proven hand, one of the nation's top counterspies. Together with Leung, they delivered a trove of insight into a closed, communist government and its views on American policy and politics.
FBI supervisors in Washington knew Smith had cultivated close ties with her and were counting on those ties to keep her in check and under control.
Relationships stay secret
Yet Smith and Cleveland never told their supervisors on the West Coast or in Washington that they were having sexual relations with Leung. Counterintelligence experts say that missing piece of information would have changed their mind about leaving Smith and Leung in place, essentially unsupervised.
"These were very intelligent, well-meaning people who worked hard," said a former FBI counterintelligence supervisor. "The question is, how do you evaluate information when there's a huge factor you don't know about?"
The agents had broken at least one cardinal rule of counterintelligence.
"It's as basic and fundamental as living and breathing itself," said I.C. Smith. "You don't establish personal relationships with sources. You always assume that your sources do not necessarily keep the confidentiality of the relationship. So you take, but you don't do any giving. You don't provide them with any information of value. And you don't tell them secrets."
Now, the bureau itself bent or broke other rules.
Agents running spies submit regular reports to their supervisory agent. But when J.J. Smith was promoted to supervisory special agent over the Los Angeles squad, he was allowed to keep Leung as his informant instead of handing her off to another agent or at least sharing her handling. In effect, this short-circuited the FBI's primary method of overseeing agent-informant relations.
Also, the FBI runs a special double-agent program out of headquarters specifically to assess which secrets can be safely handed to a foreign government. The program is intended to weigh keeping those secrets against tossing them to a foreign intelligence agency, as bona fides to boost a source's standing. Instead, it appears Smith was allowed to decide some or all of what to feed to Chinese intelligence.
"The FBI fed information to her and encouraged her to give it to the PRC in order to obtain the trust of the PRC and obtain information in return," Leung's attorneys Levine and John D. Vandevelde argued in a court filing. "The only secret items she could access were those provided to her or made available to her by her handler, Special Agent Smith."
The apparent failure of China unit managers to demand extra oversight marked a departure with prudent counterintelligence practice, and it now lends a powerful defense to both Smith and Leung as they face separate indictments early next month.
"If, in fact, the bureau was aware that she was passing information to the Chinese, the defense she can use is, 'That was what I was told to do,'" said Michael R. Bromwich, former inspector general for the U.S. Justice Department. "She can say, 'They knew what I was doing, and I was approved to do it.' It's an authorization defense."
True American patriots?
In court documents and public statements, family and attorneys for Smith and Leung call them true American patriots, even as they swap accusations of betrayal.
Smith's defense calls her a thief. Leung's family says Smith and Cleveland "embarrassed the FBI by taking advantage of Katrina" and lying to investigators.
FBI affidavits back them both up: Leung admitted in December to stealing documents out of Smith's briefcase during their trysts, usually while he was in the bathroom. Among other things, she filched the classified top-secret transcript of her conversation with "Mao."
"I think I sneaked it," she told agents, according to court records.
"If they can demonstrate that she was taking classified material from her handler without his knowing about it, it seems to me that undercuts her defense that 'What I was doing was fully authorized by my handler and therefore the FBI,'" Bromwich said.
Yet Smith evidently was still giving her information after his retirement in 2000. Last November, agents secretly searched Leung's luggage at Los Angeles International Airport and found a two-page fax from Smith, containing six photos of active and retired FBI agents. Leung flew to China, and the fax was missing when she came back.
At first, Smith refused to answer questions about his sexual relations with Leung, then outright denied the affair until agents played a recording of him and Leung having sex in an L.A. hotel.
It took a total of four interviews before Cleveland acknowledged the full duration of his affair with Leung, running past his FBI retirement in 1993 and into his first six years as counterintelligence chief at Lawrence Livermore lab, protecting weapons scientists and their secrets.
Cleveland hasn't been charged, and sources say there's no evidence he let any government secrets slip. He passed a polygraph test, they said, and is cooperating with the FBI. Cleveland apologized recently to his family and friends. Most believe he's guilty of bad judgment, not giving up secrets, and have forgiven him.
Despite the tactical split between Leung and Smith, they are likely to employ similar arguments. They will argue that Smith and Leung had every reason to trust each other and for the bureau to trust them, and that the information they provided the U.S. government was far more valuable than the few phone books and names that U.S. prosecutors allege were lost to China's Ministry of State Security.
In making their arguments, Leung and Smith will seek to introduce classified evidence on how the FBI recruits and runs spies; what dangers Leung encountered getting the intelligence; how the FBI tested the accuracy of the "Parlor Maid" material and blended it into analyses shared with the U.S. intelligence community, Congress and even the White House.
Under the Classified Information Procedures Act or CIPA -- the law that defense attorneys wielded to force prosecutors into retreat in the cases of Iran-Contra figure Joseph Fernandez and former Los Alamos weapons scientist Wen Ho Lee -- prosecutors are supposed to assess the risk of exposing secrets at trial and craft their charges to minimize the loss.
Yet past espionage cases suggest federal prosecutors often underestimate that risk.
"I think in almost every case, even when they tried to scope it out in advance, there are always surprises because prosecutors frequently fail to anticipate all of the defenses that may be advanced," said Bromwich.
As the FBI races to learn more of the 1991 meeting, prosecutors could face a similar quandrary: How much did China get versus how many FBI secrets might be lost in open court?
Contact Ian Hoffman at ihoffman@angnewspapers.com
More for the Archives.
There ain't a dimes worth of difference ... ...
Let me be very blunt! If you think there's no difference between Clinton and Bush, you need serious mental help.
There's none so blind as those who will not see; you sir appear blind.
Of course to some of the perpetual whiners and malcontents who are like spoiled little children, demanding and wanting everything to be changed instantly, they see no change.
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