The FBI allowed one of its counterintelligence agents to carry on a sexual affair with his Chinese spy for almost 20 years, despite evidence that she was a double agent secretly working for the communists, the Justice Department reported Wednesday.
Over two decades the FBI paid the alleged double agent, Katrina Leung, more than $1.7 million, even though her affair with FBI counterintelligence veteran James Smith, was an open secret in the Bureau’s Los Angeles field office.
At the same time, unbeknownst to Smith, Leung was carrying on an affair with another FBI counterintelligence agent in San Francisco, William Cleveland, who was the lead investigator on Chinese espionage, said the report from the Justice Department’s inspector general (IG).
Smith and Leung, a prominent Southern California businesswoman, were arrested in 2003.
Smith had been allowed to retire three years earlier.
Cleveland, who retired from the FBI in 1993, then spent almost a decade as counterintelligence chief at the Lawrence Livermore National Laboratory in California, which carries out highly classified nuclear weapons research. Following the arrest of Smith and Leung in April 2003, the lab suspended Cleveland, stripped him of his security clearances, and launched an investigation of his nine-year tenure — whereupon he resigned.
Smith and Leung escaped espionage charges and were sentenced to probation and fines. Cleveland, who admitted his affair with Leung and cooperated with FBI investigators, was not charged.
To further complicate matters, another FBI agent in the Los Angles office, was allegedly funnelling information about the FBI investigation to a subject of the probe, the IG said.
Agent Denise Woo was fired and indicted in 2004 on charges of lying to investigators and disclosing the identity of a covert agent or source, according to news reports.
It could not be determined whether FBI managers responsible for supervising Chinese espionage cases were disciplined or fired.
“I am under the impression that administrative procedures were taken against FBI employees,” said Special Agent Rich Kolko, an FBI spokesman, but he did not specify any.
“I’m appalled,” Rep.
“Whatever happened to the firing squad?”
Simmons, a former CIA officer himself, said it was “disgraceful” that Smith, Leung and Cleveland were not dealt with more severely and that “the FBI failed to follow basic tradescraft,” in which “you assume everybody is a rat.”
Sen.
Grassley said, “I will be watching closely to see how faithfully the FBI implements the IG’s new recommendations.”
An aide to Sen. Patrick Leahy of Vermont, ranking Democrat on the Judiciary Committee, said the senator would have “no comment until he had a chance to read classified version” of the report.
“The report is very accurate,” said a former FBI counterintelligence chief, David W. Szady, who retired in February, “but the FBI now has one of the best asset validation programs in the country.”
Leung was first accused of stealing classified documents, but the case was dismissed because of prosecutorial misconduct.
“We determined that the FBI was aware of serious counterintelligence concerns about Leung that began to surface during the late 1980s and early 1990s but the FBI did little to follow up on the warning signals it received,” Inspector General Glenn Fine said in his 235-page report, an unclassified version of a much larger study.
“Smith admitted to us that he shared operational information with Leung, but Cleveland steadfastly maintained that he provided no information to Leung, nor did she ask him for it,” the IG said.
“Cleveland was later interviewed extensively by the FBI in 2002 and described in detail his relationship with Leung. He passed a counterintelligence-focused polygraph examination during which he denied providing sensitive information to any representative of a non-U.S.intelligence service,” the IG said.
According to the IG report, when evidence surfaced in another investigation that Leung was giving Chinese authorities inside information on the FBI’s counterintelligence operations against Chinese espionage, Smith was allowed to resolve the contradictions himself because of his sterling reputation.
“We determined that the FBI was aware of serious counterintelligence concerns about Leung that began to surface during the late 1980s and early 1990s but the FBI did little to follow up on the warning signals it received,” the IG said.
Likewise, Cleveland was “a very religious man who was universally well regarded, dedicated to the FBI, and considered a mainstay in the FBI’s China Program in the 1980s and early 1990s until his retirement in 1993,” the IG report said.
Smith pleaded guilty to making false statements to the FBI.
Leung, a well-known businesswoman in Southern California’s Chinese-American community, pled guilty last year to lying to the government about her relationship with Smith and filing a false tax return.
They both received probation.
The Leung affair was not the first time an FBI agent in Los Angeles became romantically involved with an enemy spy. And ironically, while Smith was having an affair with Leung, he was assigned to investigate the case of a co-worker, FBI agent Richard Miller, who was having an affair with Svetlana Ogorodnikova, a Russian spy suspected of unlawfully passing classified information to Moscow.
“At the same time, Smith continued the clandestine romantic relationship with Leung he had begun a year earlier, telling us he viewed the Miller case as merely a ‘cautionary tale,’ ” the IG said.
“Smith’s supervisor told us that one day during the Miller investigation, when Smith said he was going to meet Leung, the supervisor casually asked of him whether he was involved in a Miller-Svetlana situation,” the IG said.
“The supervisor said he accepted Smith’s denial because he trusted him. The supervisor said he never truly suspected that Smith was actually romantically involved with Leung.”
The Smith affair began to unravel in May 2000, when the FBI received fresh evidence that Leung was a Chinese spy and had a source in the FBI’s Los Angeles office.
FBI managers told Smith about the new evidence and failed to launch their own investigation for a year.
The delay was “particularly troubling,” the IG said, because the FBI was probing yet another major security breach, this one in its headquarters, that would eventually lead to the arrest of special agent Robert Hanssen, who spied for Moscow for 20 years.
According to former senior FBI agent Rosemary Dew, Smith’s affair with Leung was well known in the Los Angeles office.
“Smith flaunted his relationship with Leung. They appeared together in public, and she even attended his retirement party and videotaped the event for posterity,” Dew wrote in her memoir, “No Backup: A Female Agent’s Life in the FBI.”
Dew said the case illustrated the “casual acceptance of extra-marital affairs by many people in the Bureau.”
FBI officials were quick to say that they had fixed most of the counterintelligence lapses pointed out by the IG.
“The FBI has built, and continues to improve, a comprehensive, centralized and forward-looking security program incorporating security awareness, education and training,” said Charles S. Phalen Jr., assistant director in the Security division, in a prepared statement.
“The FBI expanded its polygraph program in 2001, making all on-board employees, contractors and detailees subject to a polygraph examination.
“Furthermore,” Phalen said, “all FBI employees hired in the last 12 years have been polygraphed before they enter on duty.
“In 2005, the FBI conducted over 7,000 polygraph examinations in connection with applicants, contracts, detailees and periodic reinvestigations. The FBI has also implemented a financial disclosure program that will ultimately include all FBI employees and contractors,” Phalen said.
“These improvements ensure that security is embedded into all FBI activities now and in the future.”
But former CIA officer and Defense department official Peter Brookes, a China expert at the conservative Heritage Foundation, called the FBI’s performance “unacceptable.”
“The ongoing pilfering of high-tech, industrial and military secrets [by Chinese and Russian intelligence] ranks just behind terrorism as a threat to our national security here at home.”
Jeff Stein can be reached at jstein@cq.com.
First posted May 24, 2006 8:00 p.m.
Corrects Cleveland's title at Livermore to counterintelligence chief and the circumstances leading to his departure from Livermore.