- The Washington Times - Wednesday, May 24, 2006

An FBI counterintelligence agent and his lover — a “top asset” later accused of being a Chinese spy — kept their relationship secret for nearly 20 years before their arrests in 2003 and after she had been paid $1.7 million for services that she provided to the United States, a report said yesterday.

The Justice Department’s Office of Inspector General said FBI supervisors in Los Angeles “did little or nothing” to resolve concerns about FBI Agent James J. Smith’s handling of Katrina Leung, a Chinese-American, even after she had given classified information to Beijing without FBI authorization.

Inspector General Glenn A. Fine said FBI supervisors responsible for oversight of Leung were “deficient,” failing to provide adequate oversight of Smith, who served as the acting supervisor of counterintelligence squad.

“The numerous red flags that appeared between 1990 and 1996 should have placed the FBI on notice of serious concerns about Leung’s true loyalties, as well as Smith’s relationship with her,” Mr. Fine said, noting that FBI supervisors in Los Angeles and at the bureau’s Washington headquarters “told us they did not have time to read” reports on Leung’s activities.

“Smith operated Leung with little oversight based primarily on his status as a top agent in Los Angeles and Leung’s status as a top asset,” he said.

In a statement, the FBI acknowledged that the conduct in handling Leung was in violation of bureau policy and exposed weaknesses in its asset program, but said it “has made significant progress in reforming and strengthening its management and oversight of human sources.”

Mr. Fine, in a 235-page report, said bureau officials also discovered that Leung had been romantically involved with FBI Agent William Cleveland Jr., who also worked counterintelligence cases at the bureau’s San Francisco field office. He retired in November 2000 and was not charged in the case.

Smith and Leung were arrested in April 2003. Smith pleaded guilty in May 2004 to one count of making false statements to the FBI and was sentenced in July 2005 to three years’ probation. He also was fined $10,000.

Leung initially was charged with unauthorized copying of national defense information with intent to injure the United States and spent three months in jail after her arrest and 48 months in home detention. In January 2005, U.S. District Judge Florence-Marie Cooper in Los Angeles dismissed the case against Leung for prosecutorial misconduct.

In December, the wealthy Los Angeles-area businesswoman and active Republican Party fundraiser pleaded guilty to lying to the FBI and filing a false federal tax return and was sentenced to three years’ probation, 100 hours of community service and a $10,000 fine.

Known under the code name “Parlor Maid,” Leung was a frequent visitor to China and reportedly was seen on numerous occasions with high-ranking Chinese government officials. Prosecutors said she provided the Chinese with information from FBI files about Chinese fugitives, a telephone list of agents involved in an espionage case and lists of agents serving at overseas posts.

Mr. Fine said the FBI discovered in 1981 that Leung was “engaged in clandestine intelligence gathering on behalf of [China] and/or may be furnishing or about to furnish sensitive technological information” to the China, although no investigation was authorized and she was never interviewed.

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