Ex-FBI Agent Charged In China Spy Case

A federal grand jury indicted a retired FBI agent Wednesday on charges of gross negligence and wire fraud for allegedly allowing his longtime intelligence source and lover access to secrets she passed on to China.

The grand jury indictment returned in Los Angeles and released by the Justice Department in Washington charges James J. Smith, 59, for his role in the case of alleged Chinese double agent Katrina Leung.

Court documents say that Smith recruited Leung in 1982 to be an FBI "asset" providing intelligence on China and that the two began a long-lasting affair that year. Prosecutors say Leung pilfered classified material from Smith's briefcase when he visited her home and passed the information to Chinese intelligence agents.

Smith spent most of his 30 years in the FBI as a Chinese counterintelligence agent, retiring in 2000. He has been free on $250,000 bond since shortly after his April 9 arrest on a gross negligence charge.

Leung, 49, code-named "Parlor Maid" by the FBI, is a prominent Los Angeles socialite and political activist who has been jailed without bond since her arrest the same day. The government is expected to seek a grand jury indictment against her later this week.

Both Smith and Leung are married to other people.

The indictment against Smith charges him with four counts of "honest services" wire fraud, meaning he deprived the United States of his honest services by failing to disclose an improper relationship with Leung, failing to describe the full extent of her contacts with China and mishandling classified information.

For example, the indictment charges, Smith never told FBI officials that Leung refused in 1991 to take a lie detector test concerning her reliability, instead filing a report indicating she had taken the test.

The wire fraud charges stem from asset evaluation reports about Leung that Smith sent periodically to FBI headquarters in Washington in 1998, 1999 and 2000.

Two negligence charges allege that Smith improperly removed two classified documents from FBI offices in Los Angeles and allowed Leung access to them. One involved an investigation code-named "Royal Tourist" that involved espionage allegations against Peter Lee, an employee at defense contractor TRW Inc. The other document involved Chinese fugitives.

The six counts in the indictment carry a maximum penalty of 40 years in prison, prosecutors said. Smith's attorney has said he is innocent and Leung's attorneys issued a statement Wednesday saying they had not been told of a pending indictment.

"We expect her to be exonerated of any charge the government may choose to bring," the statement said.

It is unclear how many FBI investigations or other intelligence assets were compromised, but it is possible that the damage extended over nearly two decades.

Leung was considered a highly valuable source and was paid $1.7 million for her information over the years, court documents say. She claimed contacts with some 2,100 Chinese officials over the years and frequently visited China, where she was often seen with high-ranking government officials.

Smith was involved in several high-profile Chinese counterintelligence investigations, including allegations that China tried to use campaign contributions to influence U.S. elections in 1996 and several espionage cases.

The government says Leung provided the Chinese with information from FBI files regarding Chinese fugitives, a telephone list of agents involved in an espionage case, lists of agents serving at overseas posts and other classified information.

FBI officials learned in 1991 through an intercepted telephone call that Leung was giving classified information to her Chinese handler, code-named "Mao." A second FBI counterintelligence agent, identified as San Francisco-based William Cleveland Jr., was also having an affair with Leung and recognized her voice on the recording.

Cleveland, who retired in 1993, is not charged in the case and is said to be cooperating. But he did lose his position as chief of security at the Lawrence Livermore National Laboratory in California after the story broke in April.

The FBI is conducting an internal review to determine what happened after officials learned that Leung was apparently a double agent. There was a meeting at FBI headquarters in 1991 regarding the case, but court documents say the matter was left to Smith to address and he provided assurances that it had been resolved.

The FBI also is conducting an exhaustive review of all its intelligence assets, including some use of lie detectors, to determine the quality and validity of the information they are providing. In addition, FBI Director Robert Mueller asked Justice Department Inspector General Glenn A. Fine to perform a review of the management issues raised by the Leung breach.

CBS Legal Analyst Andrew Cohen had this take on the indictment.

The first question people will ask is why isn't this an out-and-out espionage case, why just a gross negligence and wire fraud case. I suspect it has something to do with the level of intent necessary. Prosecutors must feel they cannot prove that Smith intentionally spied or even had any criminal intent when he allegedly allowed his lover to look at certain documents.

These charges tell me that prosecutors feel they can't prove that Smith intentionally spied against his country; that he had no criminal intent. Otherwise we would almost certainly have seen this turned into an espionage case, which in turn would have meant a death penalty case.

Compared with convicted spies of recent memory, Smith is sitting pretty from the get-go, whether or not he's ultimately convicted. He hasn't even been charged with espionage, even though material he had in his possession apparently was copied by a Chinese agent. And unlike, say Brian Patrick Regan, who merely tried to spy against America and got a life sentence, Smith faces 40 years as a maximum -- if he's convicted, Cohen concludes.