FBI Officials Are Faulted In Chinese Spying Case

By Sonya Geis
Washington Post Staff Writer
Thursday, May 25, 2006

LOS ANGELES, May 24 -- A Los Angeles FBI informant was able to spy for China undetected for more than 10 years, passing on information she garnered from an affair with her handler, because her supervisors ignored a series of clues and were too deferential to the FBI official responsible for working with her, a report released Wednesday said.

The FBI paid Katrina M. Leung $1.7 million to spy on Chinese officials during the time she was secretly passing sensitive information to the Chinese, court documents showed in 2003. Leung's FBI handler, James J. Smith, helped her evade polygraph tests and covered up their affair, according to a 23-page summary of a Department of Justice report. The full 235-page report is classified.

Officials did not suspect the two's 20-year affair, even after a source told agents that Leung was "in bed with" the Los Angeles FBI, and Smith's supervisor saw them get off an airplane from London together, the report said.

"The FBI's inattention to oversight of Smith and Leung, its willingness to waive and exempt Smith from complying with the rules, and supervisory mismanagement allowed Smith to continue his affair with Leung unimpeded until his retirement" in November 2000, said the report released by Glenn A. Fine, the Justice Department's inspector general. "Unfortunately, through Smith, Leung's access to sensitive FBI investigations and information also continued until that time."

FBI officials on Wednesday acknowledged "weaknesses in the FBI's asset program." The agency has implemented, in whole or part, seven of 11 recommendations in the report, they said. Managers have standardized procedures, and now review agents' files every 90 days and closely monitor their payments.

"The FBI expanded its polygraph program in 2001, making all on-board employees, contractors and detailees subject to a polygraph examination," FBI Assistant Director Charles S. Phalen Jr. wrote in response to Fine's report. "The FBI has built, and continues to improve, a comprehensive, centralized and forward-looking security program."

The Leung case was particularly embarrassing to the FBI since it came on the heels of revelations that another agent, Robert P. Hanssen, had sold information to the Russian government for 20 years.

At the same time Leung conducted her affair with Smith, she was romantically involved with an FBI handler in San Francisco. He cooperated with government investigators and was not charged in the case.

Attorneys for Leung and Smith did not return calls to comment.

During the years Leung worked for the FBI, "the FBI's China Program was understaffed, overworked, and experienced regular turnover in management," Fine's report said. Agency officials ignored a number of red flags.

In 1990, the FBI received reports indicating Leung had disclosed the existence and location of a still-classified operation. But a headquarters unit chief accepted Smith's denials on Leung's behalf. Reports on the matter were placed in different files and were not discovered for another 10 years.

Less than a year later, the FBI learned that Leung was using an alias to communicate with Chinese officials, but this, too, did not cause alarm. "We found that Smith's reputation at the time was such that he was treated as being above reproof," the report said.

Smith later admitted that he was the source of information Leung gave to the Chinese. He brought classified documents to her house, where she secretly copied them. Smith told investigators he discovered Leung's deception and tried to regain her loyalty to the United States.

"Smith said that for the next three or four months, he was more circumspect with Leung than usual," the report said, "but eventually things went back to the way they had been before the issues arose and the entire matter appeared to be forgotten."

In 1992, Los Angeles FBI managers received reports that a double agent named "Katrina" was working for the Chinese. But Leung's name was dropped from a transmission to Washington, and the matter was handed back to Smith, who discredited the source.

Leung and Smith were arrested in 2003. Smith struck a plea deal with federal prosecutors that spared him prison time and prevented him from speaking with Leung's defense lawyers because of concerns over classified information coming out in open court.

That provision doomed prosecutors' case against Leung. A U.S. district judge threw out the case in January 2005, ruling that Leung could not get a fair trial without access to Smith. The government has appealed to the U.S. Court of Appeals for the 9th Circuit.

Leung ultimately pleaded guilty to two minor charges: lying to the FBI and failing to report income on her tax returns. She spent three months in jail and 18 months in home detention, and was sentenced to three years' probation, 100 hours of community service and a $10,000 fine.

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