Tiger Trap: America's Secret Spy War With China (24 page)

Since J.J. Smith often consulted Leung on FBI investigations, and virtually treated her like an unofficial member of the China squad, there was no way to be sure about the volume of information she had passed to Chinese intelligence. For example, one investigation she certainly knew a lot about was the
TIGER TRAP
case, on which, because of her friendship with Hanson Huang, she had worked closely with both Bill Cleveland and J.J.

A few days after
PARLOR MAID
produced the transcript of her conversation with Mao, Peter Duerst and Carlson went to the FBI's Wilshire field office and into the SCIF, the secure vault where secret documents are kept. They found several
TOP SECRET
summaries of conversations between Luo and Mao that contained portions of the transcripts in the document that Leung had produced from her bedroom safe.

At first, the FBI agents wondered what led Smith to take the transcript of
PARLOR MAID
's conversations with Mao to her home. Surely, J.J. would need no reminder of the intercept that had revealed to him that
PARLOR MAID
, his top source, had been flipped by the MSS. But Smith had used the transcript as proof that Leung was working for the MSS when he confronted her in 1991 about the intercepted call to Beijing. And the document ended up in her bedroom safe.

The next day, with Leung's consent, two FBI agents searched her home and discovered a document classified
SECRET
that was in a way even more significant, because of its 1997 date, than the intercept of the conversation between Luo and Mao. The date was crucial, because it meant that six years after being confronted by J.J.,
PARLOR MAID
was still extracting documents from his briefcase.

The document, dated June 12, 1997, was one of four discovered by Special Agent Stephen Lawrence in a bookcase on the second floor.
It was an FBI electronic communication, or EC, written by the bureau's legat in Hong Kong.

The document reported that China was trying to purchase US electronic equipment that would enable Beijing "to intercept the same intelligence"
collected by US spy satellites as the data was beamed to ground stations.

But here the story took an unusual twist. The document said the MSS had offered a $1 million reward
for information on the whereabouts of two Chinese nationals, Liu Zuoqing, the manager of a company in northern China, and Zheng Dequan, his son-in-law. The pair were accused of stealing $140 million that was supposed to be used to buy the high-tech "most-up-to-date satellite retrieval systems technology manufactured by a U.S. firm."

According to the legat's report, the MSS had ordered its agents in the United States to find the fugitives; Chinese intelligence was ready to kill the two men and their families. The document also said that the spy operation to acquire the satellite technology had been ordered by the "highest level" of the Chinese government and that the revelation of the attempt to buy the technology would be "far more detrimental to [Beijing] than the loss of the money."

The sensational report was obviously based on information from a source that had reached the FBI agent in Hong Kong. And there it was, sitting in a bookcase in Katrina Leung's house in San Marino.

In the same bookcase where the FBI found the report from Hong Kong about the two Chinese fugitives, the agents also found three other documents.
One was a 1994 telephone directory of the NSD-2 China squad in Los Angeles, the initials standing for the FBI's national security division. The directory included the home telephone numbers of the FBI agents on the counterintelligence squad.

Another document discovered was a 1994 legat directory, listing the names, telephone numbers, and office addresses of FBI legal attachés overseas. Finally, the bookcase held a phone list of FBI agents and members of the Special Surveillance Group, the civilians known as G's, who had worked on an espionage case code-named
ROYAL TOURIST
.

In that case, Peter Lee, a Taiwan-born nuclear scientist who had worked at both the Los Alamos and Livermore labs, pleaded guilty in 1997 to passing classified defense information to China and lying about it to the government. Although J.J. supervised
ROYAL TOURIST
, government documents do not explain why he brought the list of FBI agents to Leung's house.

The agents searching Leung's house also uncovered a journal with handwritten notes in Chinese and English. Among the words in English were "military double agent," "rocket knowledge," and "US Airforce." Bruce Carlson translated the journal and explained to a fellow agent that it was difficult to express those terms in Chinese, and easier for someone fluent in both languages to use English.

It crossed the minds of Les Wiser and his team that there might be another explanation of how
PARLOR MAID
had obtained the FBI's classified documents. They wondered, but did not know, if perhaps J.J. suspected or knew that Leung was taking the documents and tacitly allowed her to do so to "build" her, a term of art in counterintelligence that describes how a double agent is given information in order to appear more valuable to the opposition service.

The more
PARLOR MAID
impressed the MSS, the more intelligence she might bring back to J.J., which in turn would increase his already lofty standing in the FBI. He might have allowed
PARLOR MAID
to take the documents "with a wink," one official speculated, allowing him to deny, truthfully, that he ever gave her any material from the files of the FBI.

There was no evidence produced by the FBI to indicate that Smith knew or suspected that
PARLOR MAID
was stealing the documents. But Wiser and his colleagues also recognized that they might never fully understand the dynamic of the complicated relationship between J.J. Smith and his prize asset.

A week after searching Leung's house, the FBI conducted the first of four interviews with Bill Cleveland. After retiring from the bureau in 1993, Cleveland had been hired by the Livermore lab as its chief of counterintelligence. Ironically, in light of his sexual relationship with
PARLOR MAID
, it was his job to protect the nuclear weapons laboratory from penetration by Chinese or other foreign espionage services. As such, he was in charge of the Security Awareness for Employees (SAFE) program at the lab, which encouraged employees to report suspected spies or anything "suspicious."

As part of the security awareness program, Cleveland briefed lab scientists on the importance of avoiding sexual entanglements that might prove embarrassing. He warned that foreign intelligence services could try to use the information to blackmail the scientists into revealing secrets.

At the first interview with Special Agent Duerst, Cleveland talked about how Leung had provided information to him, how he had met with her frequently in both San Francisco and Los Angeles, often with J.J. At this initial interview, however, he did not reveal his own affair with Leung.

Not until a second meeting with Duerst, on January 28, more than a month later, did Cleveland confess to his own long-term sexual relationship with
PARLOR MAID
.
But he had difficulty recalling when it began. He thought it had started in 1991, but in the next interview, amended that to 1989. Finally on February 4, Cleveland was polygraphed and in the pre-interview he said the affair had begun in 1988, continued for five years until his retirement, and then was revived in 1997 and 1999.

Cleveland described how he had listened to the 1991 audiotape of the Luo and Mao conversation and recognized Leung's voice. He recounted his alarm at realizing that she was "passing information to the MSS without FBI authorization," as the affidavit of Special Agent Randall Thomas described it. How Smith, "visibly upset," had flown to San Francisco when he heard the news. And how J.J. later assured him that "the problem" had been resolved.

Bruce Carlson, after interviewing Leung for several days in December, concluded that her relationship with the MSS "cast doubt on all her previous reporting." The FBI had relied on her information "in the conduct of various foreign counterintelligence investigations.... The FBI must now re-assess all of its actions and intelligence analyses based on her reporting."

The bureau, Carlson warned, would now have to figure out which counterintelligence cases had "been thwarted or compromised" by her passing information "to her PRC handlers, as well as by disinformation she may have provided her FBI handlers."

It was not a merry Christmas or a happy New Year for J.J. Smith, Katrina Leung, or William Cleveland. Wiser and his team had established the somber, unhappy truth. China's intelligence service, the MSS, had penetrated the Federal Bureau of Investigation.

There was no telling what would happen next. All the three could do was wait for the government's next move. It was a nerve-racking time, especially for J.J. and
PARLOR MAID
. It was only slightly less so for Cleveland, since there was no evidence that Leung had obtained documents or information from him. But his job at Livermore would be in jeopardy if his relationship with Leung became public.

It was better to try not to think about what the days or weeks ahead might bring, and J.J. dealt with the waiting by keeping busy. After he had retired, like many ex-FBI agents, he opened a private security firm out of his home in Westlake Village. His business card read "James J. Smith, Private Investigations and Security Consultant." On the reverse side, the same information appeared in Chinese.

Late in January 2003 J.J. and his old boss, Dot Kelly, who had also retired, were in separate cars conducting a surveillance in a northern Los Angeles suburb for a corporate client of the Emerald Group, a private security firm
run by Tom Parker, an ex-FBI agent in Los Angeles. The streets in the area may have become a tad overcrowded, because at the time, and for several weeks, J.J. remained under surveillance by the FBI as he in turn conducted his own surveillance for Parker. It was a scene worthy of Mack Sennett, the celebrated silent film director who specialized in slapstick.

The comic relief would not last for long, however. Soon, Les Wiser, his work done, packed up the office in Santa Monica and prepared to head back East, after many months away from his family.

As daunting as the job had seemed in the beginning, he had done what he set out to do. The rest was up to the prosecutors.

Chapter 15

ROYAL TOURIST

I
N JULY
1997 Robin Lee was annoyed when an outlet in the kitchen of her house in Manhattan Beach, California, suddenly stopped working. She unscrewed the faceplate to have a look; perhaps she could divine what was wrong and avoid the expense of an electrician.

She removed the plate and immediately saw something that struck her as extremely odd. There was an extra wire in the outlet, and it was unlike anything she had ever seen before.

Her husband, Peter Hoong-Yee Lee, a physicist and a graduate of the California Institute of Technology, had no difficulty recognizing the strange wire for what it was—a miniature bug, a microphone that had been disguised to pick up conversations in the room.

For Peter Lee, it was the first sign of danger, a harbinger of the major trouble that was soon to descend upon him. Until that moment, life had been good for the Lees. A respected scientist and expert on lasers who had worked at both the Los Alamos and Lawrence Livermore nuclear weapons labs, Peter Lee was then fifty-eight and employed at TRW, a Livermore contractor, in Redondo Beach, California.

A shy, introverted man who spoke and wrote Chinese fluently, Lee was born in Chongqing (then Chungking), in central China, in 1939, grew up in Taiwan, and immigrated to the United States.

Lee, a naturalized citizen, had briefly appeared on the FBI's radar screen in the early 1980s, while he worked at Livermore. On a trip to China, according to Paul Moore, the former FBI analyst, "at breakfast he tells a colleague that the strangest thing happened,
somebody came to my hotel room and wanted to talk to me. The person he confided this to said, 'This is the kind of thing the security folks want to know about, be sure to put it in your trip report.' Lee didn't but the other guy did. The FBI came out to interview Lee. Bill Cleveland did the interview. Lee says, 'Oh yeah, I didn't put that into my report, I should have.' 'You kept a trip diary?' Lee says yes, but he can't find it, come back later. The FBI comes back and Lee says he doesn't want to get involved any further. So now Lee is on the FBI's records."

What Peter Lee did not know was that a decade later, in 1991, J.J. Smith had opened an FBI case on him after the bureau received information about Lee from an informant. The scientist was suspected of passing government secrets to China. The FBI gave the Peter Lee file the code name
ROYAL TOURIST
.

Chinese spy cases have tendrils that often seem to reach out and become entangled in other cases. The Peter Lee case was used as a pretext when the FBI ran a notably unsuccessful sting on Wen Ho Lee, with a bureau agent pretending to be a spy for the MSS. And the names of the agents who worked on the Peter Lee case were found in
PARLOR MAID
's bookcase in 2002, when the FBI was closing in on Katrina Leung and J.J. Smith.

At TRW, Lee worked on the Joint UK/US Radar Ocean Imaging Program, a $100 million effort by the United States in cooperation with Britain to use radars on satellites and aircraft to detect submarines moving underwater.
The theory was that the remote sensing radars could detect submarine signatures by subtle changes on the surface of the ocean waves. The Pentagon program was based at the Livermore lab.

In February 1994 the FBI, with approval of the secret court established by the Foreign Intelligence Surveillance Act, began "technical surveillance" of Peter Lee, a euphemism for a wiretap. The bug in the kitchen was approved later, in August 1996.

In May of the following year, Lee and his wife visited China on a three-week trip that took them to Beijing, Shanghai, Guangzhou, and other cities. On his foreign travel form at TRW, Lee said he was going on a vacation and paying his own expenses. In fact, he had been invited to lecture by China's Institute of Applied Physics and Computational Mathematics in Beijing, which paid for his trip.