China sought system to intercept U.S. spy data

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China's government secretly tried to buy U.S. electronic equipment that would allow Beijing to intercept U.S. intelligence data sent to the ground by satellites, according to court papers in a spy case.

A declassified FBI report from 1997, which authorities say was found in the possession of Chinese spying suspect Katrina Leung before her arrest in 2003, said two Chinese nationals were being sought by Chinese authorities for stealing $140 million intended for "a high-tech transfer/purchase of a most-up-to-date satellite retrieval systems technology manufactured by a U.S. firm."

The technology would enable China "to intercept the same intelligence being collected by the U.S.," said the report from the FBI's Hong Kong office.

The report said the "highest level" of the Chinese government had ordered the operation and that the disclosure of the purchase attempt would be "far more detrimental to [China] than the loss of the money."

China's intelligence service, the Ministry of State Security (MSS), offered a reward of $1 million for information about the location of the two Chinese men and the men's "entire families." The men were identified as Liu Zuoqing, a manager of a company in northern China, and Zheng Dequan, a son-in-law of Mr. Liu.

The report also said China's spy agencies had told its agents in the United States to find the men and that Chinese intelligence was prepared to kill the men and their family members.

The document was among several classified reports found in Mrs. Leung's California home. She was arrested in April 2003 and charged with illegally copying the documents she obtained from her FBI handler, James J. Smith, who later pleaded guilty to lying to investigators about Mrs. Leung's reliability as an FBI informant.

Mrs. Leung, who was born in Guangzhou, China, was paid $1.7 million for work as an FBI informant after she was recruited in 1979. Court papers show she also was paid $100,000 by the MSS.

She was not charged with espionage but with illegally copying classified documents she took from Smith's briefcase. Mrs. Leung's case was dismissed in January by a federal judge in Los Angeles on a legal technicality. Federal prosecutors appealed the dismissal, and a ruling on the case is expected next year.

U.S. intelligence officials say the intelligence compromises in the case are among the most damaging in U.S. history. China was able to deceive U.S. intelligence agencies and several American presidents by providing deceptive information about Beijing's plans and strategies through Mrs. Leung's intelligence reports, said officials close to the case.

Two of the FBI's most senior counterintelligence agents, Smith and William Cleveland, improperly had long-term sexual relations with Mrs. Leung, and officials say the affairs prompted both agents to overlook her spying for China.

John D. Vandevelde, an attorney for Mrs. Leung, declined to comment on the case but said his client "has been and is a loyal American who has always worked for the interests of the United States."

Court papers detail that Mrs. Leung was identified as a Chinese spy after U.S. agents intercepted clandestine telephone calls she made to Beijing in October 1990 to her handler for the MSS, identified as Mao Guohua.

Confronted by Smith in 1991, Mrs. Leung admitted that she had been begun spying for the MSS, the documents say. Smith overlooked the spying and later told investigators that he thought he could "re-obtain" her loyalty to the U.S. government. He lied to FBI headquarters, telling them that Mrs. Leung had agreed to take a polygraph to test her loyalty, even though she had refused, the paper say.

Mr. Cleveland, who retired from the FBI in 1993, accepted Smith's word that he had resolved the problem of Mrs. Leung's spying for China, the documents state.