China Doll: Was a Chinese-American Temptress Really a Secret Agent?

Katrina Leung was a temptress, but was she also an agent of influence for Beijing?

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Party time. The relationship between Smith and Leung, by any measure, was unusual. Smith decided early on in his handling of Leung "to appear with her frequently and publicly as an FBI agent," Special Agent Thomas wrote. "She came to his retirement party, for God's sake," says I. C. Smith. "They were seen at parades. These are things you just don't do."

Forget about appearances--the security implications were huge. J. J. Smith permitted Leung to videotape his retirement party, according to court records, capturing for posterity the faces of the FBI agents and CIA officers there. Smith was the only agent in the L.A. field office to check out classified documents overnight between 1997 and 2000, an FBI clerk told Thomas. And Smith and Leung met at L.A. hotels. They also met twice in Hong Kong and once in London. "China has an active intelligence operation in London," says Wortzel, "and everything in Hong Kong is completely penetrated by the PRC"--the People's Republic of China.

Numbers help to tell the story. Leung had 2,100 contacts with Chinese officials over 20 years. She made 71 overseas trips and failed to tell the FBI about 15 of them, including the two to Hong Kong after Smith retired. She also vacationed with Smith, including one trip to Hawaii. Leung told the FBI that China gave her $100,000 because "President Yang Shangkun liked me." But that was peanuts compared with what the FBI paid her--a staggering $1.7 million. "Those kinds of payments are really for me, almost unbelievable," says retired FBI official Thomas Parker. "I've made huge payments to criminal sources, Mafia guys, but nothing ever added up to that." Seventy percent of the $1.7 million was for Leung's operating expenses--nearly $1.2 million, all tax exempt. She got another $521,000 for passing on information, but she failed to pay any tax on it. Moans one counterintelligence official: "They were paying for her parties." Sources say that it's likely that with so much "blue-slipping," as such cash transactions are called, the FBI doesn't have a full accounting.

Counting the cost. On balance, some espionage experts say, Leung probably didn't cause as much damage as Ames, Hanssen, or Larry Wu-Tai Chin, a former CIA translator who spied on the United States for nearly four decades before being convicted and taking his own life (box, Page 40). Unlike Ames, Hanssen, and Chin, there is no evidence at all that Leung's actions jeopardized the lives of American espionage assets working against China. But Wortzel and other experts say the damage could be colossal, principally because of the extraordinary access J .J. Smith and Bill Cleveland had to some of the nation's most precious intelligence secrets. As supervisory special agents, Smith and Cleveland were privy to the entire gamut of FBI China operations and led major China investigations. All must now be re-examined. Among the most critical issues: Did Leung play any role in the botched espionage investigation of Los Alamos nuclear scientist Wen Ho Lee or in its largely inconclusive investigation of Chinese government campaign contributions to the Clinton-Gore re-election campaign in 1996? "We may never know what we lost," says Wortzel. "What we will never know is if what we got was fed to us and created in China to mislead us, or was real. . . . The question is, Who was controlling whom?"

If Leung had her way, the FBI contends, no one would ever know the answer to that question. In December of last year, four months before her arrest, Leung sat for an interview with the FBI. Afterward, Special Agent Peter Duerst walked her outside, with a hidden tape recorder running. "You know," Leung, said, according to court papers, "I think the perfect way to end all this, if I just . . . disappear, not disappear, oh well, wouldn't that be nice? I mean if I don't exist, if I do not exist anymore? Would it help?"

Leung's attorneys contend that the FBI distorted Leung's remarks. Leung also told Duerst, during the official interview, that going to court was her only salvation: "Here I know at least I would have a so-called fair trial if we go on trial. And if you lock me up, at least you won't say, 'OK, I'm gonna have somebody murder you in prison.' OK?" Later, in the chat with Special Agent Duerst and several of his coinvestigators, Leung sought to reassure the agents: "And I'm not going anywhere, OK? I'm not going anywhere, period. I'll be right here."