Indictment Stops Short of Espionage

Times Staff Writers

A prominent Chinese-born businesswoman was indicted by a federal grand jury Thursday on charges of obtaining, copying and keeping national security documents that she allegedly lifted from the briefcase of an FBI counterintelligence agent with whom she carried on an extramarital affair for two decades.

Katrina Leung was not charged with passing any of those documents to Chinese intelligence agents, despite prosecution claims that she was a double agent who transmitted sensitive information to China’s Ministry of State Security while working as a paid FBI informant.

Leung, 49, a U.S. citizen who lives in San Marino, faces a maximum 50-year prison term if convicted on all five criminal charges.

She has been held without bail as a flight risk since her arrest April 9 along with her former FBI handler and lover, James J. Smith, 59, of Westlake Village. He retired as head of the Los Angeles field office’s China squad in 2000.


Smith, who is free on $250,000 bond, was indicted Wednesday on four counts of depriving the FBI of his “honest services” and two counts of gross negligence in the handling of national security documents.

Both defendants are scheduled to be arraigned Monday in Los Angeles federal court.

Minutes after the indictment was released, Leung’s husband and attorneys stood on the steps of the family’s home, predicting that she would be vindicated and denouncing the federal government for its prosecution. They called her a “sacrificial lamb” for the bureau’s shortcomings.

“Katrina Leung is no Mata Hari, as people have suggested,” said attorney Janet I. Levine, flanked by co-counsel John D. Vandevelde and others. “She was recruited actively by the FBI because of what she could do, because of what she knew....

“She tried to quit many times but was begged by her FBI handlers to stay on. They appealed to her patriotism, her love for the country -- a love she has shown in 20-plus years of service to this country, both through the FBI ... and through the community involvement and her involvement as a loving wife and a mother.”

Leung’s husband, Kam, accused the FBI of using his wife as a scapegoat.

“At the first sign of these two supervisors’ sexual improprieties, the government immediately arrested her, ruined her reputation and threw her in jail while two male FBI supervisors are either free or out on bail,” he said. " ... This is blatant discrimination against women and the foreign-born.”

Bureau officials and federal prosecutors declined to comment on the accusations.


Smith’s attorney, Brian A. Sun, said he wouldn’t comment on the remarks, but did lash out at the news media for linking Smith and Leung to various national security scandals. Reports in the New York Times and on ABC News have suggested that Leung might have tipped off China about U.S. efforts to bug that government’s embassy, consulates and presidential plane.

“It is wholly irresponsible to suggest, through innuendo and speculation, that she or my client were responsible for all of these perceived or alleged intelligence disclosures to the Chinese intelligence services,” Sun said. “There is absolutely no evidence to support those claims.”

Smith is accused of violating bureau regulations by concealing his sexual affair with Leung and by vouching for her credibility and usefulness, even after learning in 1991 that the Chinese knew she was an FBI operative.

When taken into custody last month, Leung was charged with a single count of illegally copying a classified document with intent to harm the United States. But an FBI affidavit unsealed at the time of her arrest revealed that she was also under investigation for espionage, a capital offense under certain circumstances.


Papers Seized in Search

The offenses of which Leung was accused Thursday fell short of espionage because they did not include any allegation that China received the documents. The charges involve three documents that were seized during a search of her home.

One relates to an FBI investigation of Peter Lee, a Manhattan Beach scientist convicted in 1998 of giving Chinese scientists classified information that might have aided that country’s nuclear weapons program. The document identified a classified location, the indictment said without further elaboration.

The second document was a transcript and summary of intercepted conversations between Leung and her alleged handler at the Ministry of State Security in Beijing in late 1990 and early 1991. She used the code name “Luo.” He went by the name of “Mao.” An FBI affidavit said they discussed national security matters.


The third document was described only as an FBI electronic communication classified “secret.”

Smith learned of the intercepted conversations in the spring of 1991 from William Cleveland Jr., his FBI counterpart in San Francisco, who also was having a sexual affair with Leung. Smith then confronted Leung, who admitted having unauthorized contacts with the Chinese, the FBI said. Smith asked her to take a polygraph test and she refused, court papers said. Smith is accused of failing to report her admission to superiors, continuing to vouch for her credibility in 19 subsequent evaluations.

Cleveland, who like Smith had retired from the FBI by the time Leung was arrested, has not been charged. He has been cooperating with investigators, according to government sources. However, he acknowledged the affair with Leung and resigned last month as head of security at the Lawrence Livermore National Laboratory east of San Francisco, home to some of America’s most sensitive nuclear weapons research projects.

Sources familiar with the Leung-Smith case said federal prosecutors could seek additional charges if they uncovered new evidence. “There are a lot of things being looked at,” one source said. The timing of this week’s indictments was dictated under federal procedural rules after Leung and Smith waived their right to a preliminary hearing.


“In an espionage case, you go with what you’ve got, and the investigation continues,” said another person familiar with the case, speaking on condition of anonymity. “I would not make any assumptions about the strength of the case or where it is going in a relatively early stage.”

The government must balance the charges it brings against the possibility that classified information to support its case might have to be revealed in court.

Loyola Law School professor Laurie Levenson said she thought the hardest thing for the government to prove would be that Leung acted “with the intent and reason to believe” that the documents in question were to be used to hurt the United States and help a foreign nation.

“I don’t think there is much of a dispute that she had the documents. The whole fight will be over what did she intend to do with the documents and what did she think she was supposed to do with the documents,” said Levenson, a former federal prosecutor. “The government has someone who had been working for them and now they have to show the person turned and was using the information to injure the U.S.”


Levenson said she was not surprised by the brevity of the indictment. She said it is possible that the government is not finished filling in the details and does not want to reveal too much of its strategy.

Still, she added, “The case as drafted will not sound like the espionage case of the century.”

Levenson said she thought the government has a strong interest in making a deal with Leung.

“The value of her cooperation might be much greater than the value of her conviction on these charges,” she said. “Ultimately, the goal may be to find out how much the FBI and government intelligence was compromised by her actions and that of her handlers. They need to find out what happened.”


Levenson emphasized that she is not prejudging whether either defendant is guilty.

Another law professor, Jonathan Turley of George Washington University, agreed on the strategic considerations.

“If you have a guilty client, that person has an enormous advantage, because they are often the only source who can confirm the damage done to intelligence assets,” he said.

An FBI Embarrassment


The case has been a major embarrassment for the FBI. It has prompted at least three investigations within the Justice Department and calls for congressional inquiries, all focusing on apparent security breaches and management lapses within the bureau.

It has also produced political fallout in Los Angeles. Top officials in the administration of former Mayor Richard Riordan said recently that Leung once suggested that the city could persuade China to lease a port facility at the Los Angeles Harbor by paying influential people. Leung’s lawyer called the allegation untrue.

Leung was active in a Los Angeles sister city program with China and was instrumental in setting up a 1988 meeting between Riordan and Chinese President Jiang Zemin during a trip by the mayor to China.



Times staff writers K. Connie Kang, Mitchell Landsberg and Henry Weinstein in Los Angeles and Richard B. Schmitt in Washington contributed to this report.