By David Jackson and Lena H. Sun
The two met in Hong Kong two years ago and soon set up a business to trade telecommunications services and telephone parts. Thousands of dollars flowed from her to him -- and then to Democratic Party coffers.
Today, their short-lived partnership is over and Chung has told federal investigators that some of the money Liu gave him for their dealings actually came from Chinese military intelligence accounts and was meant to influence U.S. political campaigns. Attorneys familiar with his claims say Chung alleges that at least $35,000 of the $100,000 he donated to Democrats in the summer of 1996 came from the Chinese government through Liu. He has said she gave him a total of about $300,000 as part of their business dealings.
His allegations put the 39-year-old Liu -- an aerospace executive with a penchant for Chanel suits and oversized glasses -- at the center of a Justice Department investigation into the first charge of a direct money trail from the Chinese government to the Democratic Party.
Liu and other officials of the state-controlled China Aerospace Holdings International last week emphatically denied that they made improper donations to the Democratic Party. But federal investigators are probing whether her dealings with Chung were part of a Chinese government effort to illegally funnel as much as $2 million in contributions to U.S. political campaigns.
As investigators sort through fragments of data gathered from U.S. intelligence surveillance intercepts and business records spread from Hong Kong to Torrance, Calif., Liu's dealings with Chung have come to resemble an intercontinental connect-the-dots puzzle in which there are plenty of dots but few firm connections.
But new details are emerging about the money trail between the two from bank records, corporate reports and interviews. The records trace Liu's business activities in Hong Kong and show how money transfers from her coincided with some of Chung's Democratic contributions.
The documents also trace the history of their partnership, showing how Chung's political donations -- which ultimately totaled $366,000 and were all eventually returned by the Democratic National Committee -- led directly to meetings with Commerce Department officials. They suggested he attend a U.S. trade mission in Beijing, where Chung was introduced to senior Clinton administration officials, as well as the network of Chinese executives that would eventually include Liu.
In addition, the records show that Chung's recent assertion that Liu gave him Chinese funds contradicts the account he and his legal team gave to Senate campaign finance investigators in August 1997, when Chung outlined the testimony he would give if he was granted immunity from prosecution.
According to a 10-page memo prepared jointly by Republican and Democratic committee staff members after those meetings, Chung's lawyer "emphasized . . . that Mr. Chung had not been a conduit for foreign money," and argued that "Chung could 'deflate the foreign source' issue by proving that he made his donations entirely out of his own money."
The Senate Governmental Affairs Committee decided not to cut an immunity deal with Chung. In March, he pleaded guilty to fraud charges stemming from the Justice Department's campaign finance investigation and became a cooperating witness.
Chung's lawyer, Brian Sun, would not comment about the source of Liu's money, adding that his client had only limited information about her motivation. Because Chung has not yet been sentenced, Sun said he would not comment on what Chung has told investigators.
Evidence gathered in federal surveillance intercepts has indicated that the Chinese government planned to increase China's influence in the U.S. political process in 1996. But two government officials who took part in briefings on the evidence gathered through the intercepts analyzed so far said the data contained no suggestion Chung was a tool of the Chinese government or that Chinese officials planned to funnel money to the Democrats through Liu.
In addition, no evidence has emerged thus far that Chung lobbied any administration officials or federal agency on Liu's behalf, although a person familiar with Chung's activities said Chung did lead an entourage that included Liu on a tour of the Securities and Exchange Commission, where they were briefed on the rules for listing overseas companies on U.S. stock exchanges. The briefing, requested by another person in the entourage, was set up by aides for Sen. John F. Kerry (D-Mass.), whose campaign later received $2,000 in donations from Chung.
Liu's company, known as Casil, has benefited from the Clinton administration's easing of some restrictions on the transfer of technology to China. But U.S. corporations and overseas trading partners have long been pushing to liberalize the export to China of high-technology items that could have military applications. There is no indication that Liu's dealings with Chung had any effect on that policy.
"For two years people have been looking for a magic link that shows how the Chinese money affected policy," said RAND China specialist James C. Mulvenon. "All I see are a bunch of coincidences standing around the same room trying to introduce themselves."
Member of Privileged Class
At the center of this particular tale of campaign finance and international aerospace conglomerates is Liu Chaoying, a woman whose family pedigree puts her in the first ranks of Beijing's privileged class.
Liu's father, Gen. Liu Huaqing, was until his retirement last fall China's most senior general and one of seven members of China's all-powerful ruling party standing committee. Liu's elder brother, Liu Zuoming, has been a high-ranking official with the Chinese navy's Equipment Study Center. And her ex-husband, Pan Yue, has been a top officer with the state agency that controls China's $625 billion in government assets. Pan is also a prominent spokesman for hard-line nationalist policies.
Liu herself is a graduate of the Chinese navy's electronic engineering institute, according to the state-controlled Xinhua News Agency, and has held the military rank of lieutenant colonel.
In many ways, Liu is typical of the favored sons and daughters of China's top political and military families, known as taizidang or princelings. They capitalize on their connections based on their family ties to prosper in the business world, and businesses, in turn, are eager to have them in their management because they can open doors.
One overseas Chinese executive who was hoping to do import-export deals with Liu said she and her associates made clear "that they were powerful and had access to people and products all over China." This executive secured a brief meeting with her in Hong Kong through a mutual friend, and even then, "they told me I wasn't guaranteed to see her, to come by in the late afternoon and wait," he said.
A Westerner who met Liu in California in 1996 said that "within about a minute of meeting her, she mentioned her father."
In addition to being a dealmaker, she's also an avid shopper for shoes and handbags on Rodeo Drive in Beverly Hills, according to this business associate. She has been seen in a full-length mink coat. She likes to gamble, and on trips to the United States and Australia has expressed little interest in sightseeing, opting for the slot machines instead.
At Casil, the sprawling, state-controlled aerospace conglomerate where she has worked since 1994, Liu heads the fast-moving international trade division in Hong Kong.
As China moves toward a market economy, government agencies often set up publicly traded Hong Kong affiliates as a way of raising capital and attracting global partners. One of the largest of those is Casil, which is owned by China's aerospace ministry. Created in 1975 to acquire and sell rocket systems, Casil has since become a multinational network of high-tech subsidiaries that make telephone switching systems, color television sets and China's first "fraud-proof tax control cash register."
Through some 80 subsidiaries and joint ventures, Casil employs more than 10,000 people worldwide and reported a net profit of $20 million during 1995. Casil's business dealings and corporate affiliations have also linked it to the current debate about the Clinton administration's granting of export waivers to U.S. satellite companies that launch their satellites atop Chinese missiles.
Two U.S. firms, Loral Space and Communications Ltd. and Hughes Electronics Corp., are the subject of an ongoing Justice Department investigation into whether they shared militarily sensitive information with the Chinese in the aftermath of a failed 1996 satellite launch. Casil's Beijing-based parent company, China Aerospace Corp., is also the corporate parent of the China Great Wall Industry Corp., the satellite-launching firm that oversaw that failed launch.
Liu, too, has a connection to Great Wall. Before taking the Casil job in 1994, Liu worked as a top aide to the chairman of Great Wall, a former business associate said. A Great Wall official described her as director of public relations until 1994.
Great Wall was twice sanctioned by the U.S. government -- once by the Bush administration and then by the Clinton administration -- for allegedly improperly transferring M-11 missile technology to Pakistan.
Chung's lawyer, Sun, said Liu and Chung "never talked about Loral or satellites."
Chung's Struggling Business
In August 1994, as Liu's career was ascending, former engineering student Johnny Chung was trying to launch a "blast fax" business -- an automated system to send out thousands of faxes quickly. But the Taiwan-born Chung was fighting off a lawsuit from disgruntled investors, Los Angeles County Superior Court records show, and his business income totaled only $19,813 that year.
That August, Chung made his first substantial DNC contributions, totaling $11,000 from his fax company's account, and his luck quickly turned for the better.
The same month as his donation to the party, Democratic operatives introduced Chung to then-Deputy Assistant Commerce Secretary Jude Kearney, who in turn suggested that Chung join a Commerce Department trade mission to China, according to Chung's proposed testimony -- or proffer -- to the Senate investigators. (Kearney said through an attorney that he did not recall making that suggestion, but did not dispute Chung's account.)
The trip was Chung's first visit to China. Indirectly, it led to Chung's meeting with Liu and, in a previously unreported twist on the campaign finance scandal, to his hooking up with another Democratic fund-raiser, Yah Lin "Charlie" Trie, who was indicted earlier this year on charges that he illegally funneled foreign money to the Democrats.
Chung made the trip at his own expense and was not listed as a member of the official U.S. delegation, but Kearney met him at the Beijing airport and escorted him to a restaurant where they met Trie's wife, Chung's proffer said. Kearney then took Chung to a hotel where they met then-Commerce policy official Melinda Yee, the proffer said. Chung later attended functions where he met with government officials and executives from the United States and China, and had his picture taken with Commerce Secretary Ronald H. Brown.
After the mission, Trie and his Macao-based financier Ng Lap Seng tried to broker a deal with Chung in which they would buy the rights to market his fax business in China, the proffer said. But Chung did not bite at the offer.
Chung was already a regular visitor to the White House -- he eventually made at least 49 separate visits there between February 1994 and February 1996. At least one of those visits helped Chung's business dealings. According to his proffer, a photograph of Chung, President Clinton and a group of Chinese Haomen beer executives he had squired to the White House in December 1994 was later used in an ad to sell Haomen beer, and the publicity generated by that ad gave Chung "a formidable reputation in China as being well-connected in U.S. political circles."
On March 6, 1995, the Haomen Group beer company wired Chung $150,000 from its Bank of China account. Three days later, on March 9, Chung wrote a $50,000 check to the DNC, and on March 11 he hand-delivered the check to first lady Hillary Rodham Clinton's chief of staff, Margaret Williams, at the White House.
Soon he had to hire assistants, his bank records show, and other Chinese officials were asking Chung to set up U.S. visits for their delegations, the proffer said.
While Chung sought ties to Chinese officials, he also solicited investment funds from their strategic rivals in Taiwan, and passed around a promotional photo album that showed him cheek-to-jowl with Republicans such as House Speaker Newt Gingrich (Ga.), California Gov. Pete Wilson and then-Sen. Majority Leader Robert J. Dole, as well as the president.
Chung was also trying to develop a formidable reputation among White House officials. As he made plans for the delegation of Haomen executives, Chung wrote a memo instructing that messages for him should be left with his company's D.C. senior adviser.
That senior adviser was actually a distant relative who agreed to let Chung install a telephone line in his Potomac home. Engineer Wen-Chen Lin, 62, said his family invested $50,000 in Chung's fax business, then never saw their money again.
"He sent us all kinds of paper showing how well the company was doing. It was just paper," Lin said.
By 1996, Chung's efforts to impress were paying off -- despite concerns expressed by a National Security Council aide that Chung was a "hustler" seeking to use the White House to enhance his business.
On a trip to Hong Kong that year, he was introduced to Liu through a mutual business acquaintance based in the former British colony, sources close to Chung said.
"People who knew Johnny talked him up to her," said a person who knows Chung.
At the time, Liu was juggling several business ventures in addition to her main job at Casil. One of them was a Hong Kong company named Marswell Investment Limited, which she and her Casil underlings had created in April 1995.
The 12-page binder filed with Hong Kong authorities does not say what Marswell was supposed to do, but the papers show that Liu personally owned 99 percent of Marswell's stock, indicating that Marswell belonged to her and not Casil or the Chinese military.
But other details of the filing link Marswell to Casil. At least two of Marswell's three other officers worked under Liu at Casil, corporate records show, a degree of involvement that some China watchers say suggests a strong state interest in a company.
As one federal law enforcement official put it: "The fact that her name is on there doesn't tell you one way or another where she or Marswell got its money. There's nothing in that paper trail that says where the money came from."
One of Marswell's officers, secretary Brian Kin Hang Lo, said in a telephone interview from Hong Kong that he drew up the papers creating Marswell on orders from his Casil superiors. "I was instructed to be the company secretary," Lo said, although he refused to name the Casil officials who directed him to do that.
Lo said he had no knowledge of Marswell's operations. "I do my job handling the files, that's all," Lo said. "I was never involved in the operations of that company." When he was asked about Liu's role in the company, Lo cut the interview short. "I'm sorry I can't comment on this matter," he said, and hung up the phone.
By mid-1996, Chung and Liu had made contact and were discussing potential deals, according to a person familiar with their transactions.
In a courtesy that he extended to at least seven of his Chinese business partners, Chung contacted the U.S. Consulate in Hong Kong and requested that Liu be given a visa to travel to the United States, a State Department memo shows. Liu obtained the visa on July 11, 1996, according to an attorney familiar with the paperwork.
Four days later -- on July 15 -- one of Chung's three bank accounts received a $190,000 deposit, according to a summary of his bank records. The source of that deposit could not be determined.
The next day, Chung wrote to the DNC that he wanted to bring Liu and a Chinese medical company executive to a fund-raiser at the Brentwood, Calif., home of financier Eli Broad. Clinton himself was to be present.
On July 19, Chung wrote two checks to the DNC totaling $45,000 from the account that had received the deposit, the bank summary shows. Liu arrived in Los Angeles on July 21, people close to Chung said, and the next day, he escorted her to two Clinton fund-raising events, including the dinner at Broad's home that raised more than $1.5 million for the Democrats. There Liu shook the president's hand, and was photographed with him.
Two weeks later, on August 9, 1996, Chung filed papers establishing an office of Liu's Marswell Investment in California.
The papers listed Liu as president of Marswell Investment Inc., and Chung as the company's vice president. Marswell was headquartered at his office in Torrance. In the box on the state form where corporate executives are required to state the purpose of their new business, it said: "import/export of auto accessories."
It could not be determined whether Marswell actually transacted any auto-parts business -- or indeed any business at all -- although one person familiar with their conversations said Chung and Liu made tentative plans to use Marswell to explore phone parts and telecommunications ventures.
Six days after Marswell was established in California, one of Chung's three bank accounts received a $79,980 wire transfer from Hong Kong, bank records indicate. Those funds came from Liu, an attorney familiar with the transactions said.
Chung has told Justice Department investigators that Liu told him her funds came from Chinese military intelligence. His bank records indicate he subsequently used that money to write at least two checks totaling $35,000 to Democratic causes. But Chung's records are not simple to sort out because he was simultaneously mingling funds from several businesses in his three bank accounts.
In July 1996, about the time Marswell was created in California, activity ceased at the Hong Kong Marswell, according to business filings in Hong Kong.
Today, U.S. Marswell is also dormant, Liu is denying Chung's account that anything illegal occurred in their partnership and Chung is hoping the information he has provided about Liu will mean a reduced sentence when he appears before a federal judge in July.
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