Ex-FBI Agent Is Indicted in China Spy Case

A retired FBI counterintelligence agent was accused in a federal indictment Wednesday of concealing evidence that his longtime informant and lover was a Chinese double agent.

James J. Smith, who once headed the FBI’s China squad in Los Angeles, was charged by a federal grand jury with four counts of depriving the FBI of his “honest services” and two counts of gross negligence. The charges carry a maximum 40-year prison term.

Smith has been free on bond since his arrest April 9 along with Katrina Leung, a prominent Chinese American businesswoman from San Marino. Although he was supposed to be using her to gather information for the FBI, federal authorities charge that she used him to obtain classified information for the Chinese government. His arraignment is scheduled for Monday.

Leung, who is being held as a potential flight risk, is expected to be indicted today or Friday.

Attorneys for Smith and Leung have maintained that their clients are innocent. Leung’s lawyers have said that she is a loyal American who was acting on the instructions of her FBI handlers when she passed information to the Chinese.

After reviewing the indictment Wednesday, Smith’s attorney, Brian A. Sun, said: “We are disappointed that the government has chosen to pursue these charges against Mr. Smith.”

Sun declined further comment and refused to discuss suggestions that Smith’s legal team had entered discussions with federal prosecutors about a possible plea agreement. However, one U.S. Justice Department official said the indictment, which steered clear of accusations of spying, was aimed at encouraging a plea agreement.

“These kinds of violations are not that significant when you look at the transgressions he committed in providing classified information,” said the senior Justice Department official, who has had no role in prosecuting the case and spoke on condition of anonymity.

As such, the official said, the indictment underscores the department’s interest in having Smith plead guilty.

“You’re loading the shotgun with enough pellets that you will hit something,” the official said. “And when you do, you will get the guy to roll and cooperate.”

Even if the charges are not as serious as allegations of espionage, the official said, they constitute a “virtual life sentence” for the 59-year-old former agent.

Smith, who retired from the FBI in November 2000, was assigned for 22 of his 30 years at the bureau to a foreign counterintelligence squad in Los Angeles that focused on China. During his 18-year relationship with Leung, he received commendations for the information she gathered for him about the Chinese. Ultimately, however, their relationship led to an internal FBI probe of suspected security breaches and a review of management lapses in the bureau’s counterintelligence program.

Leung went to his retirement party in 2000, videotaping the festivities attended by an assortment of FBI and Central Intelligence Agency employees.

According to the indictment, Smith occasionally took his briefcase containing classified documents to Leung’s home and left them unattended, allowing her an opportunity to copy them.

Documents Seized

Some of those documents were recovered during a search of Leung’s home last December, the indictment said. One of the documents, marked top secret, allegedly contained a transcript and summary of conversations between Leung and her handler at the Chinese Ministry of State Security, code-named Mao.

The indictment said Smith learned of Leung’s unauthorized contacts with the Chinese intelligence service in 1991 from another FBI counterintelligence agent in San Francisco with whom she also was having an affair. William Cleveland Jr., the former head of counterintelligence for the FBI in San Francisco, resigned a sensitive post at the Lawrence Livermore National Laboratory last month after authorities said he acknowledged a longtime affair with Leung.

Confronted by Smith, Leung admitted her secret communications with Mao, the indictment said.

Smith was aware that those unauthorized conversations included information related to sensitive intelligence matters, according to the indictment, but never reported the full extent of her admissions to the FBI. The indictment said he also failed to report Leung’s refusal to take a polygraph test in May 1991, and continued to vouch for her as a reliable informant in 19 subsequent evaluation reports.

In a series of interviews with FBI agents before her arrest, Leung was quoted as saying that Smith sometimes gave her classified documents to read, but never allowed her to keep them.

A naturalized U.S. citizen, Leung was a well-known figure in the Los Angeles Chinese American community who made frequent trips to China and had access to high-ranking officials in Beijing.

She is charged with unauthorized copying of national defense information with the intent to harm the United States or benefit a foreign government, an offense punishable by a maximum 10 years in prison.

After retiring, Smith opened a private investigative service, James L. Smith and Associates, operating out of his home in Westlake Village. But even after leaving the FBI, the government affidavit said, Smith continued providing information to Leung about the identity of FBI agents.

Smith also traveled to Hong Kong, accompanied by Leung, in 2001 and 2002. During recent questioning by FBI agents, Smith at first denied but then admitted being there with her. Smith and Leung are married to others.

An FBI affidavit disclosed that after retiring, Smith kept 47 journals containing extensive notes about his debriefings of Leung between 1988 and 2000 along with 14 videotapes and miscellaneous documents. Smith voluntarily surrendered them through his lawyer in exchange for a grant of immunity against being prosecuted for taking them from the FBI. It is not known what he intended to do with them.

Officials at the FBI allowed at least one departure from FBI policy designed to protect the integrity of the bureau’s counterespionage system in the Leung case. Smith was allowed to meet with Leung alone when she collected payment for her espionage work, despite rules stating that at least two agents should be present for such transfers. Over two decades, she received $1.2 million in expense reimbursements and $521,000 in fees for her work.

The case led to a call by three senior U.S. senators last week for hearings on how well the FBI is handling informants. The request was turned down by Senate Judiciary Committee Chairman Orrin G. Hatch (R-Utah).

When Smith was arrested, FBI Director Robert Mueller said he had “betrayed the trust the FBI placed in him, he betrayed the American people he was sworn to protect.”

U.S. Rep. Jane Harman (D-Venice), the ranking Democrat on the House Intelligence Committee, who has received several briefings on the case, said the allegations against Leung and Smith represent a serious threat to the United States.

Los Angeles FBI spokesman Matthew McLaughlin said bureau headquarters this week dispatched half a dozen additional inspectors to assist in a sweeping administrative review of the local counterintelligence program.

Bureau Stunned

The inspection is part of a bureau-wide review of counterintelligence programs ordered by Mueller.

As in the 1984 case of Richard W. Miller, the first FBI agent ever charged with espionage, Smith’s arrest stunned the bureau and the Los Angeles division where both agents worked. And Smith, like Miller, is alleged to have breached national security through a romance -- in this case, between an agent entrusted with top secrets and his longtime informant.

But there, the comparison ends.

Unlike Miller, who was portrayed as a bungling outcast, Smith was routinely described as a well-known, well-regarded agent. Indeed, in one of the many ironies in the case, Smith was among those who investigated the Miller case.

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Times staff writer Mitchell Landsberg contributed to this report.