What Did FBI Know When in Spying Case?

As part of their investigation of an alleged Chinese double agent, the FBI is examining evidence that some officials at bureau headquarters knew for more than a decade that the woman was having unauthorized contacts with Chinese intelligence agencies but failed to take action.

The activities of Katrina M. Leung, a Chinese American businesswoman from San Marino who was arrested earlier this month, were a topic of a May 1991 meeting at FBI headquarters. Former FBI counterintelligence agents James J. Smith and William Cleveland Jr., who are both now accused of having had affairs with Leung, were present at the meeting along with an unknown number of other FBI counterintelligence officials, FBI officials have determined.

Former FBI Assistant Director Bill Baker, calling the case a “debacle,” said Friday he was stunned by the notion that a possible risk to national security continued for years after it was brought to the attention of FBI headquarters.

“If there was follow-up, it obviously was inadequate,” said Baker. “And if there wasn’t a follow-up, shame on headquarters and the L.A. [FBI] office for not looking at it more closely.”

Investigators so far have no evidence that any Chinese counterintelligence sources were physically harmed because of Leung’s alleged activities. But they say they do not yet know whether the identities of FBI assets were revealed.

Smith, 59, and Leung, 49, were arrested April 9. Leung is accused of having taken classified documents and passing them to the Chinese. Smith, who is currently free on $250,000 bond, is accused of gross negligence for allowing Leung to have access to the material.

Details of the 1991 meeting are only now being collected, because before the arrests, FBI investigators were afraid of compromising their investigation by asking current and former agents about what was said at the meeting, according to one Justice Department official.

What is known, however, is that Leung’s contacts with Chinese intelligence were discussed at the meeting and that it was left to Smith to address the unauthorized actions by Leung, the official said.

“Unfortunately, it appears the issue was left for Smith to go back and handle this, and there doesn’t appear to have been any follow-up by headquarters,” said the official, who added that investigators had not yet turned up any notes from the meeting.

The lack of oversight for the FBI in Los Angeles was particularly troubling, Baker said, because it was the Los Angeles office where former Agent Richard Miller became the first member of the FBI to be indicted for espionage. That case, in 1984, also included an alleged tryst with an informant.

“After the Miller case, the L.A. office should have been more attuned than any other in the FBI that when you have a male agent covering a female source, you have to be careful,” said Baker, who also served as a special assistant to the director of the CIA.

Smith’s attorney, Brian A. Sun, said the disclosure confirms his assertion that the former FBI agent did not hide concerns -- years ago -- about Leung’s actions.

“It is our firm belief that, as early as 1991, FBI headquarters was fully aware of the possibility that Ms. Leung was engaged in unauthorized discussions with Chinese officials,” Sun said.

Leung’s lawyers have asserted that she worked as an American patriot for the FBI, following the instructions she received from Smith, and was paid $1.7 million for her work, which drew praise from intelligence officials.

Before this case became public, FBI officials had launched a review of every intelligence source used by agents because of the damage to national security caused by another agent, Robert P. Hanssen, who was convicted two years ago of spying for Russia.

A full assessment of the damage caused by the case could take considerable time, officials say. “The problem is we could still have some major compromising of sources that would impact what we have been doing for years,” said one Justice Department official. “It could be devastating if it turns out we got the wrong information in cases because we were focusing investigations in the wrong area.”

Some counterintelligence officials believe the identity of a once-reliable informant in one important public corruption case may have been provided to Chinese officials, rendering the source virtually useless, a veteran FBI source said Friday. The FBI agent refused to identify the case, though it has long been known that ex-agent Smith was among those assigned to a Democratic Party fund-raising scandal during the Clinton administration.

Attorney Charles LaBella, the former federal prosecutor who led that fund-raising probe, said Friday he had no information that the case -- or any informants -- may have been compromised.

“The FBI is conducting a damage assessment in this current [espionage] case ... and until that is done, nobody will know what damage, if any, was caused” by the alleged actions of Smith and Leung, LaBella said.

When Smith and Leung were arrested April 9, FBI Director Robert S. Mueller said three separate investigations were underway to determine the potential security breaches, as well as structural problems, within the agency that failed to uncover the alleged espionage.