Arrests May Lead to FBI Changes

As the FBI scrambled to assess the damage from its latest spying scandal, Justice Department officials said Thursday that the alleged betrayal by former Los Angeles counterintelligence agent James J. Smith will accelerate reforms in the bureau’s recruitment and handling of informants.

Just as the espionage case of disgraced former agent Robert P. Hanssen moved the FBI to tighten controls over its vast computer system, officials said, the bureau could see significant changes resulting from the arrest Wednesday of Smith and a Chinese American businesswoman alleged to be a double agent and his longtime informant and lover.

“Now that this is out in the open, we can launch reviews and overt investigations into how this happened,” one top Justice Department official said.

Any definitive conclusions, several FBI officials said Thursday, could take months, since Smith’s relationship with the woman spanned about 20 years and she had been considered a prized informant.

Moreover, officials said, Smith served as supervisor for a unit whose mission was primarily foreign counterintelligence, but occasionally assisted domestic probes when they involved China issues. Those investigations included the Democratic Party fund-raising scandal of the late 1990s.

Months ago, with the Smith investigation already underway, FBI Director Robert Mueller ordered the oversight of informants to be consolidated, rather than split between the bureau’s divisions of national security and criminal investigations, sources said.

“The challenge for us has been to increase our intelligence base, particularly since 9/11,” one FBI official said. “We have been trying to move forward in that regard in many ways,” and this case will be part of the initiative.

But even as FBI agents from around the country lamented the scandal’s possible effect on the bureau’s reputation, some insisted no new safeguards or procedures could fully protect the FBI from the sort of embarrassment brought on by Smith’s alleged actions.

“I don’t know how many assets we have out there -- hundreds, thousands,” said one veteran counter-terrorism agent, using the intelligence community’s term for informant. “I just think we have to accept a certain amount of failure on the part of agents.

“We are going to have a certain percentage who will succumb to temptation ... but that number is pretty small.

“And I’m concerned that if they tighten things up too much, the number and quality of informants we have will decrease. And that will hurt us, maybe even more than getting a bad agent every once in a while.”

Added one longtime counterintelligence agent: “I think it’s OK if things get a little stricter with sources. But how much can you do?

“I mean, she seduced that guy,” the agent said of Smith’s co-defendant, Katrina Leung.

“And what amount of oversight or paperwork will prevent that from happening?”

As authorities sought to grasp the magnitude of Smith’s alleged security breach, the 30-year FBI veteran was at his Westlake Village home Thursday after posting $250,000 bail.

Standing in front of the family’s spacious two-story home, Smith’s wife of more than 30 years, Gail, expressed tearful faith in her husband’s innocence.

“We are behind my father 100%,” said the couple’s only child, son Kelly, 24. He and his mother said they could not discuss any aspect of the criminal case, at the direction of Smith’s attorneys. But Kelly Smith said they looked forward to having the case resolved as quickly as possible, describing his father as a “patriotic, loyal and loving man.”

“I am proud of him,” Kelly Smith said.

James J. Smith and Leung were arrested Wednesday on complaints alleging that he enabled her to have access to top secret documents while she, serving as a double agent, sought to provide those documents to Chinese intelligence agents.

Smith’s attorneys, Brian Sun and Paul Murphy, emphasized Thursday that charges against their client “are nowhere near espionage.”

They also said that though the government was put on notice in 1991 that there might be problems with Leung, according to documents in the case, the FBI continued to use her services for more than a decade afterward, paying her more than $1.7 million overall.

A source close to the case said that as a result of information Smith had obtained from his work with Leung, he received a high commendation from intelligence officials in Washington.

Loyola law professor Laurie Levenson said the facts presented so far make “you wonder if this is an isolated case.”

“If those classified documents should not have been out overnight, why didn’t the FBI immediately jump on that?” asked Levenson, a former federal prosecutor.

“If the career people in this unit were performing in a negligent manner, what does it say about the overall level of the unit? I expect that the overall operation of that unit will be put under a microscope by the defense,” Levenson said.

Smith first met Sun, his current defense lawyer, when Sun was representing Johnnie Chung, a Los Angeles businessman who figured in the Democrats’ fund-raising scandal.

An examination of the unit’s overall operation already was underway at the Justice Department and FBI , where investigators were attempting to determine potential damage.

One Justice Department official expressed hope that damage to national security would be limited. “If you look at some of the more serious cases, you will see there were indicators that actually got the government’s interest,” the official said. “Assets were missing. People were killed. Actions that indicated another government knew something. Things that indicated something was amiss.

“The question is, did that occur here? ... I don’t think so.” But, the official said, “this is a dirty business and you have to assume the worst.”

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Times staff writers Rick Schmitt, William Rempel and David Rosenzweig contributed to this report.