from china with love
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transcript

From China With Love

Produced, Directed and Written by Michael Kirk
Co-produced and Reported by Jim Gilmore

 

ANNOUNCER: They use code names. Hers was Parlor Maid.

I.C. SMITH, FBI Special Agent, '73-'98: I view her as the classic dragon lady. She's tough. She's cold. She's manipulative.

ANNOUNCER: Her information about China found its way to four American presidents.

T. VAN MAGERS, FBI Special Agent, '69-'02: And I remember one time Parlor Maid met Chinese intelligence officials, who said, "When you get back, give this information to the president of the United States."

ANNOUNCER: She was what is known as an "asset." Her handler was a free-wheeling FBI agent everybody called J.J.

DAN STOBER, Reporter, San Jose Mercury-News: And J.J. Smith squired Parlor Maid -- Katrina Leung -- all over Los Angeles.

ANNOUNCER: But now the United States government has arrested Parlor Maid and claims she was also an agent for China and that J.J. Smith helped her.

EDWARD APPEL, FBI Special Agent, '73-'97: Very grave damage, even death or execution. And it certainly could result in a compromise of U.S. government interests and U.S. intelligence interests with regard to China.

ANNOUNCER: But it also seems that over 20 years, Katrina and J.J.'s relationship became more complicated.

JACK KELLER, Fmr FBI Special Agent, Los Angeles: I think this is all about sex, quite frankly, free sex at the cost of the government.

ANNOUNCER: Tonight on FRONTLINE, a story of secrets, risk, patriotism and perhaps a story of love.

 

NARRATOR: It was early morning, April 9th, 2003, in Los Angeles when they headed out to arrest Parlor Maid and J.J. The FBI's Chinese counterintelligence division has only made a handful of arrests in the past 50 years. They worry that they may be losing the ongoing espionage war with China. Procedure calls for the arresting teams to converge at dawn, when the suspects are likely to be at home asleep. It's called a "retention."

They had been watching Parlor Maid's house. They knew she was inside. Another team of agents headed out to J.J.'s house near the San Fernando Valley. J.J. knew the drill. As a special agent, he'd rolled out at down before. But he wasn't expecting this. The government has almost never prosecuted an agent.

EDWARD APPEL, FBI Special Agent, '73-'97: We have lost the counterintelligence war against the Chinese intelligence services because we haven't had major counterespionage successes. I think we have to decide, you know, what is it we're going to do, from a counterintelligence perspective, to protect our economic interests, to protect or national security interests? And I think that we simply can't let them win this game this easily.

NARRATOR: The FBI views the arrests of J.J. Smith and Katrina Leung as a counterattack in the espionage war with China. The Bureau's version of what they did can be found in the paper trail of arrest documents and affidavits.

[case file documents]
"Defendant James J. Smith, being entrusted with and having lawful possession and control of a document, writing a note relating to the national defense"--
"Defendant Katrina Leung copied, took, made and obtained a document"--
"--from 1997 that was classified secret"--
"--connected with the national defense, that is"--
"--through gross negligence, delivered to a person in violation of his trust, lost and stolen"--
"--that it was to be used to the injury of the United States and to the advantage of a foreign nation."

NARRATOR: It was an hour drive down from J.J.'s house to the Metropolitan Detention Center in central L.A.

BRIAN SUN, Attorney for J. J. Smith: From J.J. Smith's perspective, and that of others, we think that the Bureau is sort of reacting and perhaps overreacting to external political pressures, to public relations nightmares, and that they are being unduly and harshly sanctioned and punished for-- for conduct which arguably could have been dealt with administratively or in some other means short of a criminal prosecution.

NARRATOR: J.J. pled not guilty and was released on $250,000 bail. Katrina also pled not guilty, but they wouldn't let her leave. A judge denied bail. The government said she was a flight risk.

"The government came across documents reflecting 16 foreign bank accounts in various names, including Katrina Leung"--

NARRATOR: The FBI documents state that Katrina regularly traveled to China.

"Defendant also has very substantial contacts in the PRC, both family and business/political. As to the family connections, defendant's husband's uncle"--

NARRATOR: They contend that she was a Chinese agent who used the code name Luo.

"Defendant was acting as an operational asset for the U.S. and an agent for the PRC. Such an arrangement inherently requires secretive, surreptitious and deceptive behavior. She was lying to the FBI and may well have been lying to"--

NARRATOR: And the government says Katrina had the financial means to flee.

"--and has been involved in the transfer of money into defendant's domestic accounts and properties."

NARRATOR: Much of it provided by the United States itself.

I.C. SMITH: She's being paid extraordinary amounts of money, $1.2 million just for expenses that she incurred over the years, and then a half a million for information, which in my view, is an imbalance, which made me think that probably the FBI was probably supporting some of her private business ventures.

"The FBI paid Leung approximately $1,097,585 for expense reimbursement and approximately"--

THOMAS PARKER, Fmr FBI Special Agent, Los Angeles: Most people don't know what the value of the information was, but it's very unusual that any information is worth $1.7 million.

"--$435,575 for services provided as an FBI asset."

JOHN VANDEVELDE, Attorney for Katrina Leung: When you do the math, what it amounts to is she got paid about $80,000 a year. More than two thirds of that was for expenses, for trips that she took to China and other places at the direction of the FBI. The FBI approved and paid for those expenses. It left her with an income of something less than $30,000 a year for working full-time for the FBI.

NARRATOR: Sorting out the web of relationships between the FBI, the Chinese, Parlor Maid and Agent Smith was further complicated because Katrina and J.J. were having an affair.

JACK KELLER, Fmr FBI Special Agent, Los Angeles: I think this is all about sex, quite frankly, free sex at the cost of the government. The government was paying for his sex, is what they were doing.

"When asked whether he was having a sexual relationship with Leung, Smith first refused to answer the question and then denied having a sexual relationship. On November 5th, 2002, I participated in FISC-authorized electronic surveillance of Smith and Leung"--

NARRATOR: With authorization from the secret Foreign Intelligence Surveillance Court, agents monitored a hotel in the Los Angeles area.

"The electronic surveillance revealed Smith and Leung having sexual relations."

NARRATOR: Then the agents confronted Katrina.

"Leung admitted to first becoming intimate with Smith in the early '80s-- "very long ago, but I cannot tell you what year."

EDWARD APPEL: When two people are intimate, they're intimate under either one of two circumstances. Either it's legitimate or it's not. It's either licit or illicit. If it's illicit, in the case of a person who's sleeping with a married person, then, obviously, there is a blackmailable offense going on. There is a-- there is an illicit aspect to it that creates, for counterintelligence purposes, an impossible relationship.

NARRATOR: The relationship was illicit because J.J. had been married for more than 30 years.

BEE CANTERBURY LAVERY, Friend: Gail, his wife, is a vivacious, very sparkly woman. And they were just a really tight-knit family, and to me seemed very happy.

NARRATOR: J.J. considered himself a close friend of Katrina and her husband, biochemist Kam Leung.

BEE CANTERBURY LAVERY: I had no idea there was anything going on between Katrina and J.J. I-- I-- if anyone had come and told me that, I would have said, "Well, you're full of it."

NARRATOR: The government contends that J.J. and Katrina carried out their affair here, at her upscale home near Pasadena.

"--that from the early 1980s until December, 2002, Smith and Leung had a sexual relationship"--

NARRATOR: They said a pattern was established. They would make love, and then J.J. would leave the bedroom.

"Defendant has admitted that while Smith was outside smoking or in the bathroom, she would surreptitiously take sensitive materials out of his briefcase, copy them on her home copier and replace them in his briefcase."

NARRATOR: Here's what they found in Katrina's home.

"An FBI Los Angeles NSD-2 squad telephone directory dated December 20th"--
"A telephone list relating to an FBI investigation code name Royal Tourist."
"A secret FBI memorandum regarding Chinese fugitives dated June 12, 1997."
"FBI Legat directory dated March 17, 1994.

[www.pbs.org: Read the government's case]

NARRATOR: The FBI spent more than a year trying to find out what exactly Katrina had transmitted to the Chinese. But in the end, the United States attorney decided to focus on a narrow charge, having and copying classified documents. And they charged J.J. Smith only with providing those documents through gross negligence. Some thought it should have been the more severe charge of conspiracy to commit espionage, but for 40 years, the FBI has consistently failed to win those cases.

JACK KELLER: It was carefully indicted to charge him with gross negligence with regard to the handling of classified defense information.

EDWARD APPEL: The truth of the matter is, that's a 10-year espionage charge. That's a part of the espionage statute. So it's still very, very bad. It's still a horrible violation of law.

NEWSCASTER: There's a sex scandal emerging at the FBI, and officials say it will have wide-ranging repercussions for national security.

NARRATOR: By the next morning, it was big news in Los Angeles.

NEWSCASTER: --investigation of Chinese espionage--

JUANITA ST. JOHN, Friend: I was devastated. A friend of mine called me and heard it on the news, and I couldn't believe it. My good friend, Katrina, was arrested as being a double agent for the FBI.

BEE CANTERBURY LAVERY: I was shocked. I was just in a state of shock because I didn't think that J.J. would do anything like that. And I guess that's naive, a woman, to think that. I really had J.J. up on a pedestal. He was-- he was, you know, the good guy that was doing-- working for our safety and our government.

NARRATOR: He'd had a great career, straight from Army intelligence in Vietnam to the FBI.

BEE CANTERBURY LAVERY: He looks like the all-American boy to me. He has kind of sandy hair and blue eyes, and he's-- a great sense of humor, and the way he'd talk about Vietnam and having been there. And he was, you know, the all-American, patriotic boy.

T. VAN MAGERS, FBI Special Agent, '69-'02: J.J. was competent, conscientious. J.J. certainly handled most of the important cases in-- in Los Angeles for a number of years.

NARRATOR: He worked Chinatown, the travel agencies, tour guides, local politicians, gathering information, picking up sources.

DICK HELD, FBI Special Agent in Charge, San Francisco: The best agents that I think I ever saw were people collectors. They liked people. They liked all kinds of people. And people liked being around them. And they did a fantastic job of being able to elicit information, you know, quite openly, not anything seductive or-- or illegal. It's just that they were very good at eliciting information.

DAVID LEE, Business Owner, L.A. Chinatown: I have a travel agency. I used to take groups to China, come back from there. And he was always invite me for breakfast, sit down and talk, who I met, what I did, and so forth. So I give him the same routine report. We usually have the 97-cents breakfast.

NARRATOR: Asset development. In the Bureau, there may be no skill more prized.

I.C. SMITH: You were judged-- your promotions and your performance appraisals, how you were rated, difference between being exceptional and average would be-- a great deal depended on how well you were able to develop sources.

BEE CANTERBURY LAVERY: He called me and wanted to have lunch with me, and we started just having lunch maybe a couple of times a month.

NARRATOR: As chief of protocol for Los Angeles mayor Tom Bradley, Bee Canterbury Lavery frequently traveled to China. She joined J.J.'s asset list. And so did Katrina Leung. Katrina was born in southern China. When she was 10, she moved to Hong Kong. At 15, she and her aunt came to New York. She did well in school.

BEE CANTERBURY LAVERY: And she could go from Mandarin into Cantonese and the Fujian dialect and, you know, back and forth. And she was brought up in China knowing very important leadership-- people in leadership.

NARRATOR: Katrina's immigration papers follow a trail of addresses.

"Ithaca, New York; Chicago, Illinois; Los Angeles, California"--

NARRATOR: In Ithaca, she attended Cornell University. She received an MBA from the University of Chicago. Sources close to Katrina say that was where the FBI first recruited her in the late 1970s. By 1983, she was living in Los Angeles, had joined some Chinese civic groups, and along the way had met and become an asset for Agent J.J. Smith.

BEE CANTERBURY LAVERY: She was a little matronly-- you know, the granny bun, the big glasses. She wore her dresses long, never anything revealing. Who knows what attracts people to each other? I don't know. We all know looks do and-- to some of my girlfriends, I said, "How could she end up with him?" You know? It's-- I-- I don't know what it was, but-- but she evidently-- she had a wonderful-- she has a wonderful personality. She really does. She's fun to be around. She's bubbly and upbeat.

NARRATOR: And she had more than personality. A family connection gave her regular access to Chinese officials, making her a prime asset.

RICHARD SMITH, FBI Special Agent, '70-'95: A source like that can provide information about Chinese government officials, intelligence officers, what their goals are, what their objectives are, what they're trying to accomplish, what the U.S.-- what they're trying to accomplish in the United States, political information, intelligence, economic, technological.

NARRATOR: And once the information began to flow, it was very good for J.J.'s career and everyone else in the chain of command.

[www.pbs.org: More on the FBI's human "assets"]

RICHARD SMITH: You have a successful source that's provided great information and it goes back to the intelligence community in Washington, and everybody says, "This is terrific" and "That agent's doing a great job out there in L.A.," or San Francisco or wherever, you know, you have some-- you got-- you got some chits on your side for a while.

NARRATOR: But one consequence of J.J.'s skill at asset collection was that he could now get away with being a bit of a maverick.

I.C. SMITH, FBI Special Agent, '73-'98: J.J. was the kind of guy that seemed to have little regard for wearing the coat and tie that was very much part of the uniform. And we attributed that to just kind of that Los Angeles attitude, which-- which was not uncommon out there.

This source allowed him to be almost bulletproof. And what I mean by that is, "I've got this great source, so I don't have to wear a tie to work. I've got this great source, so I can-- I'm not going to ever be transferred," like 99 percent of FBI agents are. "I've got this great source, so I can meet this source by myself. I've got this great source, so that means that I can openly socialize with that individual."

NARRATOR: Then, as J.J. and Katrina courted agents from the Chinese Ministry of State Security, they began to play what counterintelligence agents call "give to get."

T. VAN MAGERS, FBI Special Agent, '69-'02: The problem with developing a source is you have to give a certain amount of information away in order to get information. Operating a source always is going to be a value judgment of how much you give the-- the informant in order to get your results from the informant. You try to make sure you give less than you get.

NARRATOR: Giving and getting is a complicated matter and forms the very heart of counterintelligence. As a U.S. agent, Katrina produced inside political information in China that made its way to four American presidents. In return, she was supposed to deliver to the Chinese carefully calibrated information authorized by the FBI.

RICHARD SMITH: At some point, you've got to figure out whether you're giving more than you're getting. If you're being played more than you're playing somebody else, then it's not worth it.

INTERVIEWER: You figure that's what happened here?

RICHARD SMITH: Yeah, something happened in that-- in that respect. Something happened where-- you know, you got two sides, like a game, like a sport, and you know, you got to win. The idea is to win, to get information, and not to give information more than you're getting. So something happened in that area that I think probably wasn't so good.

NARRATOR: There are those, of course, who take the dark view, that Katrina was really an agent for the Chinese all along and that she used her charms and J.J.'s hubris against him.

I.C. SMITH: J.J.'s the kind of fellow that would think that he actually seduced Katrina Leung, where in all probability, she seduced him, if you may draw that distinction.

JACK KELLER, Fmr FBI Special Agent, Los Angeles: I've described J.J. as being a very confident guy, to a point of being a bit arrogant. And I think he just went over the edge. "I am so good. I know how far I can go with this. I've got this under control." And it got away from him. He stepped onto that slippery slope, and then when he got romantically -- if you can call it a romance -- involved with her, then he went even further down the slippery slope. And there was no turning around.

NARRATOR: Four hundred miles north of Los Angeles, there was another agent monitoring Chinese activities. Based at the FBI's primary counterintelligence outpost in San Francisco, he was one of the Bureau's top Chinese counterintelligence agents. His name was William Cleveland.

"Bachelor of Arts, William and Mary, juris doctor, William and Mary"--

DAN STOBER, Reporter, San Jose Mercury-News: Bill Cleveland is different than most FBI agents. First of all, his father was an FBI agent. But also, he's better-looking than most of them are. He dresses better than most of them are. He's more urbane. He's-- he's soft-spoken. He's seen as an intellectual. And everybody likes Bill Cleveland.

"Languages-- Chinese, Mandarin, dialects"--

EDWARD APPEL, FBI Special Agent, '73-'97: Bill Cleveland had many friends in the Chinese community, was always very discreet and proper, had a-- was a good family man, a very religious guy and a very well-respected person.

"1993, supervisor, confidential squad for Chinese intelligence."

I.C. SMITH: If you look at it from the standpoint of those people that were in the China program, he'd have to be in the top two or three.

NARRATOR: Cleveland had been involved in most of the handful of Chinese espionage cases the FBI prosecuted. He was put in charge of a case involving the theft of nuclear secrets, code named Tiger Trap.

T. VAN MAGERS: Tiger Trap represented the first case where we could definitively say there was targeting of national laboratories.

NARRATOR: The primary suspect in Tiger Trap was a Chinese-American scientist named Gwo-Bao Min. To build a case, Cleveland led dozens of agents, including a secret source run by J.J. Smith in Los Angeles, Parlor Maid.

NOTRA TRULOCK, Dir of Intelligence, Dept of Energy, '94-'99: They have a full counterintelligence investigation on the guy. They have wiretaps, and so forth. But the whole thing seems to come down to-- and Cleveland told me this. He said, "You either have to catch them in the act or they have to confess." We never caught him in the act. We had him at the brink of confessing.

DAN STOBER: You hope and pray for a confession, in part because that's the easy way. You don't have to worry about losing classified information in a court setting, being disclosed. You get a confession, you're home free. That's the hope.

I.C. SMITH: Cleveland told me one time that he thought that he had a confession almost-- he was almost to the point that-- he almost had Min to the point of making a confession, when suddenly, he stepped back.

[www.pbs.org: Explore more about "Tiger Trap"]

NARRATOR: Gwo-Bao Min never did confess and was never charged. And so the Tiger Trap case was effectively closed.

EDWARD APPEL: Bill Cleveland was extremely disappointed, and I think anybody who interrogated an espionage subject and didn't get them would be extremely disappointed.

NARRATOR: The old China hands say the United States has never fully understood how the Chinese wage the espionage war.

JAMES LILLEY, Ambassador to China, '89-'91: The Chinese have done espionage and spying and intelligence work very well since the beginning. They use different techniques. You don't find the case officer in a trenchcoat on a corner making a pass with an agent or laying down a dead drop, necessarily. What you find is the massive collection technique, the vacuum cleaner.

DICK HELD: The Chinese are enormously methodical and very patient. They didn't have to score a touchdown every time they got the ball. In the United States, we like to think every time we get the ball, we can score a touchdown. And the Russians engaged in their operations more like us than the Chinese did.

JAMES LILLEY: It's a different technique. They rely much more on contacts, persuasion. Only a small percentage is for actually clandestine work. They do that, but a very small percentage. And it's very frustrating for people like the FBI, who are looking for the classical intelligence man.

EDWARD APPEL: But by and large, they rely on a large number of what they call "overseas Chinese" and a few non-Chinese to provide them with information basically because of the relationships they build over time.

[www.pbs.org: More on how China spies]

NARRATOR: In 1990, the Bureau decided to give Cleveland a change of scene, a temporary assignment to the place he loved.

I.C. SMITH: We actually landed in Beijing on November the 28th of 1990. Cleveland was just absolutely tickled to death.

NARRATOR: To this day, there are questions about what Agents Smith and Cleveland were actually doing in China. From the beginning, however, they discovered they were being tailed by more than the usual number of Chinese security officers.

I.C. SMITH: And I thought at the time that this was a little bit unusual, but then I said, "Well, maybe they recognize me or Cleveland or something from the past"-- you know, whatever reason. But I can remember thinking that I thought that the surveillance was a little bit more than I had anticipated.

NARRATOR: Then, in a remote section of China, on the North Korean border, the agents got a big surprise.

I.C. SMITH: We get to the hotel, and Bill is going to stretch his legs. And he walks back in a few minutes, and he looked at me, and he said, "I.C., you won't believe whom I just saw." "Bill, who did you see?" He said, "Well, I just saw Gwo-Bao Min."

NARRATOR: Cleveland, who was already concerned about being tailed, now was stunned to run into Gwo-Bao Min.

I.C. SMITH: Ten or fifteen minutes in Shenyang, China, you got Bill Cleveland, who was the case agent for the Tiger Trap case, meeting the principal suspect in a hotel in Shenyang, China. What are the odds of that happening? Well, I viewed it mathematically as something that probably couldn't even be calculated. And that's how we kind of viewed that at the time.

NARRATOR: Agents Cleveland and Smith wondered whether the Chinese were sending them a no-so-subtle signal.

I.C. SMITH: And sometimes these things happen, though I should add that-- that in the counterintelligence business, sometimes we look on coincidences with a jaundiced eye. We don't always-- we don't always, you know, believe in coincidences.

NARRATOR: When he returned, Agent Cleveland found out how the Chinese knew he was there. The Bureau had received a classified intercept tape, and it was played for Cleveland.

"A top secret source provided an audio recording of the conversation between Luo and Mao, transcriptions and/or summaries of which"--

DAN STOBER, Reporter, San Jose Mercury-News: The tape presumably comes from U.S. eavesdropping. And it comes from the NSA or possibly the FBI, the CIA. And they play it for Cleveland.

NARRATOR: On the recording, made in the fall of 1990, a woman whose code name is Luo tells her Chinese controller, named Mao, information that compromised Cleveland's trip to China. After listening to it, an astonished Bill Cleveland called I.C. Smith.

I.C. SMITH: He said that they knew we were coming before we even left. And he mentioned the Los Angeles source being J.J. Smith.

NARRATOR: The woman's voice was well known to Cleveland. She had helped him during the Gwo-Bao Min case. It was one of the FBI's prized assets, Parlor Maid.

DAN STOBER: But you can imagine him listening to this tape and thinking-- standing in a room with other people, "Oh, my God. Oh, my God. What am I going to do? What am I going to do? What do I say? This is very bad." And just-- his mind spinning ahead to the possible consequences of all this because if there's really a problem with Parlor Maid, he's got a problem, too. And how do you handle that? What do you do? Here's a guy, as far as we know is honest, but has got himself into this tangled web he's woven.

NARRATOR: A tangled web because for the past three years, Bill Cleveland and Katrina Leung had been meeting secretly. They were lovers.

DAN STOBER: Now, the question is, does Bill know J.J.'s sleeping with Katrina, and does J.J. know Bill's sleeping with Katrina? And if so, when?

NARRATOR: It is perhaps the great unknown of this story.

I.C. SMITH: Certainly, I would think that J.J. would have known that Katrina Leung knew Bill Cleveland, and Bill Cleveland knew that-- obviously, that Katrina Leung knew J.J. because he was the handler. I can't imagine that either one of them knew the other one had a personal relationship with him. But then, I've been surprised before.

"The former FBI SSA immediately notified Smith in Los Angeles"--

NARRATOR: Agents J.J. Smith and Bill Cleveland had a problem.

"--immediately traveled to San Francisco from Los Angeles"--

NARRATOR: Katrina was clearly in control. It looked like either J.J. had lost her or they had never had her.

"Smith was visibly upset at the news of Leung's unauthorized communications with the MSS. The former FBI SSA relied on Smith as Leung's"--

NARRATOR: FBI procedure demanded the agents turn Parlor Maid in, but in doing so, they each risked exposure of their relationship with her.

"In or about May, 1991, defendant Smith traveled to FBI headquarters in Washington, D.C."

NARRATOR: Bill Cleveland also came to headquarters.

JACK KELLER, Fmr FBI Special Agent, Los Angeles: The bells and whistles were going off. The flag was going up. It would have been a real high-profile type of meeting, a lot of puckering going on in that meeting, a lot of concern about the validity of the allegation.

DAN STOBER: I try to see Smith and Cleveland in this meeting, trying, as good citizens, to tell the truth as best they can, at the same time, never saying that they're sleeping with this woman. And speaking of two lives-- I mean, that's just got to be torture. It's just got to be very hard. And so you wind up with Cleveland, great guy though he may be, is lying continuously by omission or commission. You can't-- every time he filled out a report about what he's doing, he should be saying, "I'm sleeping with an informant," and he's not saying that. And of course, he's not telling his wife that. He's not telling his friends that. And when-- I can't imagine that he's in that meeting in Washington and telling the truth. He's got to be lying.

NARRATOR: But headquarters didn't probe too deeply. Apparently, no one was aware of the personal relationships. So they handed the matter back to J.J. Smith.

THOMAS PARKER, Fmr FBI Special Agent, Los Angeles: If there are no strong managers in that meeting on the managerial side and the tough questions are not asked, many times a meeting like this will end up in giving the benefit of the doubt to those agents or to the agent that was on the scene.

JACK KELLER: And there's no reason to distrust him. Apparently, nobody-- the thought never occurred to somebody that maybe something is untoward here with regard to their personal relationship.

THOMAS PARKER: What you have then set in is the FBI culture, the good old boy network, the fact that both J.J. and Bill Cleveland are well-respected, well-liked guys. No reason for any suspicions between the two of them.

NARRATOR: Agents Cleveland and Smith had contained the problem in Washington. Now it would be up to J.J. to deal with Katrina. He would confront her in Los Angeles on May 31st.

"If you-- you asked me, like, the worst day of my life, that must be the day that, you know, J.J. confronted me."

NARRATOR: She had an excuse for J.J. The Chinese had discovered she was working for the FBI. They threatened her. So she promised to provide Mao with information about the FBI. J.J. believed her. He told Katrina she could continue as his asset.

"Things still go on, and he did not want me to quit. And he'd keep telling me things.
"So it didn't look like he was taking anymore precautions. He still treated you like he did before, after the event, basically?"
"I believe so. I mean, I do not really see any big difference as my"--

BRIAN SUN, Attorney for J.J. Smith: Seems like something right out of a novel, but in essence, the Chinese thought they had recruited her, but in essence, she was really working for us, and therefore, that would make her a double agent for us. So as convoluted as this terminology is, the essence is the FBI always truly thought that Katrina Leung was in their camp.

NARRATOR: So the FBI had given J.J. the benefit of the doubt, and now he was willing to do the same with Katrina.

T. VAN MAGERS, FBI Special Agent, '69-'02: You develop a vested interest in your-- in your sources because sources are so important to successful operations, you want your source to be-- to be good. You-- you know, maybe that's an incentive to-- not to look too closely.

NARRATOR: Then J.J. brought Katrina north to face Bill Cleveland. In the official FBI transcript, Cleveland's name has been blacked out, redacted by the FBI.

"I apologized to [redacted], and I said-- I got to have apologized that I'm sorry [redacted]. It might be something like this, OK? I'm sorry, [redacted]."

NARRATOR: Cleveland accepted the apology. Their secret affair continued.

"Did [redacted] then treat you the same way after he and J.J. confronted you about that?"
"Yes, he's the same way because he would still come down here. He would still talk to me on the phone."

NARRATOR: It was 1991, and for the next few years, the counterintelligence division would be working a number of significant cases. At the center of them was Bill Cleveland: the case of a nuclear scientist named Wen Ho Lee, another case code-named Royal Tourist, involving a nuclear scientist named Peter Lee.

_"We're trying to figure out if he talked to you about the cases, too. But when you went up sometimes to San Francisco or [redacted] came down, did you ever meet him privately in a hotel room or anything?
"I remember meeting him. I can tell you right now, I do not remember [redacted] ever carrying a briefcase."
"Did he ever show you documents, like J.J. did, where he would black things out?"
"I cannot remember. To me at that time, it-- you know, it's not important because I got plenty of cases that he run by me."

DAN STOBER, Reporter, San Jose Mercury-News: Nobody that I know thinks there's any chance that Bill Cleveland is a traitor to his country. However, he's working with an informant he trusts, and he's talking shop in his pillow talk. And Cleveland is deeply involved in Gwo-Bao Min. He's deeply involved in Wen Ho Lee. He is involved in the Peter Lee case.

NOTRA TRULOCK: I think Bill probably knew more about the status of the Wen Ho Lee investigation, of the Peter Lee investigation. If there is something that would truly be at risk, maybe it would be information on the status of the investigations. And things got very squirrely during that period. They got very squirrely with Peter Lee. They got very squirrely with Wen Ho Lee. I don't know.

DAN STOBER: If Cleveland is talking to Katrina about these things and she's telling the Chinese, then the Chinese, you know, theoretically, could be telling their sources at the labs, "Look out. Look out."

NOTRA TRULOCK: My heart tells me that it wasn't Bill. I hope that someone is pursuing that, you know, because if-- if you're going to do a responsible counterintelligence investigation inquiry, you know, surely those would have to be questions that would have to be posed to Bill. I hope he didn't do it.

NARRATOR: In government documents, Bill Cleveland says he ended his affair with Katrina Leung when he retired from the FBI in 1993 and took a job as head of security at the top-secret Lawrence Livermore lab.

RICHARD SMITH, FBI Special Agent, '70-'95: He was very happy there. Anybody that would hire him would be-- you can't help but admire what he-- what he could accomplish. And you know, I'm sure he was very successful there.

NARRATOR: During this time, Cleveland helped the FBI and J.J. Smith with that case, Royal Tourist, involving the scientist Peter Lee from Lawrence Livermore.

["The Washington Post," May 11, 2003] "The officials said Energy Department agents were disturbed as they closed in on Lee in 1997 because he seemed to know what we were going to do."

NOTRA TRULOCK: They have a full counterintelligence investigation on the guy. They have wiretaps, and so forth.

DAN STOBER: They got a FISA warrant. They put a microphone in an air-conditioning duct in his house, which his wife eventually discovers when she's dusting, of all things.

[www.pbs.org: More on the Peter Lee investigation]

NARRATOR: But as has happened in almost every Chinese counterintelligence case, the outcome was not as definitive as many agents hoped.

NOTRA TRULOCK: Everyone expects that, you know, he's going to get a little more than a slap on the wrist, and at the end of the day, he gets a year in a halfway house in Anaheim and, you know, basically, gets off with nothing more than a slap on the wrist. So it was-- it's very puzzling, I think, to a lot of people.

NARRATOR: Lee, who pled guilty to revealing classified information, maintains they were merely technical violations. It was during the Peter Lee investigation that Bill Cleveland and Katrina Leung rekindled their relationship.

DAN STOBER: What starts it up again in '97 and '99-- both times when sort of interesting things were happening vis-a-vis China.

"The former FBI SSA further stated that the affair continued in 1997 and 1999."

NOTRA TRULOCK, Dir of Intelligence, Dept of Energy, '94-'99: 1997 was a critical year in the Lee investigation. A coincidence? I don't know. But how is it that this woman who lives in Los Angeles, you know, gets hooked up again with Bill, who lives up, you know, in Monterey? I mean, that's-- that's not sort of hopping down to the local bar. I don't know what to make of it. I just-- the coincidence of the dates bothers me.

NARRATOR: And one of the documents Katrina had at her house was about the Peter Lee case.

"While searching a shelf in a bookcase to the left of the desk on the second floor"--

I.C. SMITH: That's extraordinary.

--"a telephone list relating to an FBI investigation code-named Royal Tourist"--

I.C. SMITH: The fact that she would have a document associated with an ongoing investigation-- no, you know, that's extraordinary.

"--secret FBI memorandum regarding Chinese fugitives"--

I.C. SMITH: That should not have been allowed to happen, is that-- and something like that could not have been authorized, in my view.

NARRATOR: Katrina contends none of the documents in her possession came from Bill Cleveland.

DAN STOBER: Bill Cleveland was lost in the counterintelligence world. When you're in this world, where everything's secret, you can't even talk to other FBI agents about it. Who are you going to talk to about your life and about your work? You're going to talk to other people in the same world. You're going to talk about your marriage problems to-- to counterintelligence people at Los Alamos, for example. And you're going to talk about the frustrations of your marriage and your work to maybe an FBI informant, maybe Katrina Leung. And if she starts asking you about your life, it's a safe person to talk to. It feels safe. She's in the same world, where they all don't have any secrets from each other over here.

NARRATOR: J.J. stopped serving as Parlor Maid's handler when he retired from the FBI in November of 2000.

"He acknowledged that Leung and not his wife had picked him up on his last day of work. Smith also acknowledged he had invited Leung to attend his FBI retirement party in November, 2000. He also acknowledged that he had permitted Leung to videotape the party, even though FBI agents and CIA officers were in attendance. When asked where the tape was, Smith stated, 'At home.' "

JACK KELLER: I don't care if the Chinese have a thousand pictures of me. It doesn't make any difference. But I wasn't an espionage agent, either. But I-- some agents who were might have some reservations or would have some reservations about that.

NARRATOR: And then J.J. and Katrina came under the scrutiny of the government. Shaken by a spy scandal involving FBI agent Robert Hanssen and intelligence failures on September 11th, a formal investigation was ordered.

"Investigation has revealed that Smith continued to provide information about the FBI and FBI agents to Leung after he retired. On November 11, 2002, he participated"--

NARRATOR: After J.J. retired, Katrina took another trip to China. This time, the FBI used their warrant, the FISA, to covertly search her luggage.

"In Leung's luggage, there was a facsimile cover sheet from Smith to Leung. A second page bore six photographs from a meeting of the Society of Former Special Agents of the FBI held in October, 2002. Two of the photographs were of active duty special agents."

NARRATOR: The FBI also searched Katrina's luggage upon her return. Now the photographs of the agents were not there.

BEE CANTERBURY LAVERY, L.A. Chief of Protocol, '72-'92: And if that's true, that's-- that's unforgivable, to out someone. I remember back in the days-- in the '60s, when some magazine came out and outed all the CIA agents, you know, and some of them were killed. And you know, that's a terrible thing to do. That's-- that's something that I-- I couldn't forgive her for.

I.C. SMITH: And if you was to ask Katrina Leung, "Who are you really working for?" I suspect she would have difficulty answering that question. I suspect that she was using the Chinese, to a degree, just like she was using the FBI. And the only person that she was really working for was Katrina Leung, the classic dragon lady. She'd do anything she needed to accomplish her own goals. She became very wealthy doing that.

NARRATOR: Katrina, in fact, had prospered during her years as an asset. Her contacts in China helped her business clients and personally enriched her. She passed some of the wealth along as a contributor to Republican candidates. And in January of 2001, Katrina and J.J. traveled to the nation's capital--

Pres. GEORGE W. BUSH: I, George Walker Bush, do solemnly swear that I will faithfully execute the office of president of the United States.

NARRATOR: --where, by chance, The Washington Post took their picture at the inauguration of the 43rd president of the United States.

The investigation would take nearly two years, and in the spring of 2003, a case was prepared for the arrest of Katrina Leung and Agent J.J. Smith.

EDWARD APPEL: You do it to do the right thing. You do it to clean up messy operations. You do it to set a standard for the future. And you do it because somebody did a wrong thing and should be put in jail for that wrong thing.

RICHARD SMITH: They've got to take some action. They've got to take it right now. You can't fool around with that because you're responsible. And once you become aware of the situation, if you don't do anything about it, then you're-- you got a problem yourself.

EDWARD APPEL: When the FBI says counterintelligence is it's number two priority, I think it makes it very clear that next to terrorism, this is the most important thing the FBI does. And the real reason is because it's only the FBI that does this.

NARRATOR: The media started calling it "The Parlor Maid case," and some of the coverage began to question how effective the FBI could ever be, given its failure to follow the correct procedures in using human intelligence.

JAMES LILLEY, Ambassador to China, '89-'91: The Leung case is just a travesty of what an operation is supposed to be all about. There was no real authentication there.

INTERVIEWER: What do you see wrong with that case?

JAMES LILLEY: I would say contamination of the sexual factor, which clouded objective vision. I would say the willingness to grab what sounded like good information and pump it up the line and say, "We've done what other people can't do." Competitive collection.

NOTRA TRULOCK: I think-- you know, look, they are important. Human resources, human intelligence is important, but it is not the only source of intelligence. And unless you're doing all-source intelligence and sort of vetting the information you're collecting against other sources of intelligence, then you are being set up for a fall. And that's what I see as being a major problem for the Bureau. They don't know how to do intelligence. And you know, we've seen that. We've seen that post-9/11.

NARRATOR: Right now, the FBI is reexamining every piece of information about China it has gathered since Parlor Maid, J.J. and Bill Cleveland worked together.

EDWARD APPEL: Very grave damage could have been done, very grave damage, partly because of her ability to manipulate, her ability to elicit information and the possibility that, as charged, she's actually copied very highly sensitive documents and turned them over to the other side. That could result in compromise of sources and methods. It could result in even death or execution. And it certainly could result in a compromise of U.S. government interests and U.S. intelligence interests with regard to China. So this could be extremely damaging.

JACK KELLER: As to what she gave up in the way of value, we're talking years, and reams of information. I think it's more of a question of, "What about the stuff that we got from her that she's bringing back from the mainland over these last 15 or 20 years?" Is this stuff righteous, or is it fictitious? So that's really the question. We may have thought we had some very valuable intelligence information that may turn out to have been made up by the Chinese just to keep this whole thing going, to feed us and, in turn, try to get information out of us.

NARRATOR: The stories of Bill Cleveland, J.J. and Katrina are no less complicated, and the outcomes of their cases no more definitive. Bill Cleveland has been cooperating with the FBI. He has not been charged in the case. He resigned from Lawrence Livermore lab when the news of J.J. and Katrina's arrest broke.

I.C. SMITH: I've never been in Bill Cleveland's house, but I'd be willing to bet that if one walked in it, it would be filled with fine art, porcelain, things like this, from China. He was a fellow that seemed to be more ingrained in the culture than most of us. And my feeling is the problems that's associated with him today, the personal relationship with Katrina Leung and what have you, assuming all these allegations are true, that great affinity that he had developed for China and the culture, something like that, influenced him in that regard. If I had to make a bet.

NARRATOR: J.J. is waiting for trial. He and Katrina are not allowed to see one another. His attorney won't let him be interviewed but did let us take these pictures. J.J. and his wife, Gail, are still together. Friends say he contends he and Katrina were always working for America, that their only crime was to fall in love.

Katrina was ultimately released on $2 million bail. Her husband, Kam, is standing by her. Her attorneys' office is one of only a handful of places she's allowed to go. Her defense will argue that Katrina is being punished for actions the FBI once condoned and encouraged. Katrina's attorneys didn't want her to answer questions, but they helped her with this statement.

KATRINA LEUNG: I can walk with my head held high because I know I'm innocent of the charges in this case. I have been and I am a loyal American. I'm very confident that I'll be found innocent. But that is not enough. I will not rest easy, I will not be satisfied until my name, my family's name is cleared. That is what I want here.

NARRATOR: The government will present its case at trial, now scheduled for the fall of 2004.

 

FROM CHINA WITH LOVE

WRITTEN, PRODUCED AND DIRECTED BY
Michael Kirk

CO-PRODUCER
Jim Gilmore

EDITOR
Steve Audette

ASSOCIATE PRODUCER
Corey Ford

DIRECTOR OF PHOTOGRAPHY
Ben McCoy

SOUND
Steve Lederer

NARRATOR
Will Lyman

ONLINE EDITOR
Michael H. Amundson

SOUND MIX
Jim Sullivan

RESEARCHER
Mike Wiser

PRODUCTION ASSISTANT
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ARCHIVAL MATERIALS
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A FRONTLINE Co-Production with Kirk Documentary Group, Ltd.

2003
WGBH EDUCATIONAL FOUNDATION
ALL RIGHTS RESERVED

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ANNOUNCER: This report continues on our Web site, where you'll find an analysis of this case's impact on U.S. national security, an overview of China's espionage tactics and techniques, more on how the FBI recruits counterintelligence assets, FRONTLINE's extended interviews. Plus, watch the full program on line. Then join the discussion at pbs.org or write an email to frontline@pbs.org.

 

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